The Competitive Advantage of Corporate Philanthropy

Caught between critics demanding “corporate social responsibility” and investors demanding short-term profits, many companies seek to make their giving more strategic.

But “strategic philanthropy” is often nothing more than PR campaigns promoting corporate brands. Result? Public cynicism, not goodwill.

Yet companies can give strategically: by using philanthropy to improve their competitive context —the business environments where they operate. Through context-focused philanthropy, corporations provide money, capabilities, and partnerships to charitable causes in ways that sharpen their own competitive edge. They generate social—and economic—benefits far exceeding those provided by individuals, foundations, or governments.

The Idea in Practice

Where to Give

To generate the most social and economic value, focus your philanthropy on environmental conditions that will most enhance your productivity:

• Factor conditions. Increase the presence of trained workers, high-quality scientific and technological institutions, adequate physical infrastructure, and available natural resources. Exxon Mobil makes substantial donations to improve roads in developing countries where it operates. DreamWorks, a film production company, trains high school and community college students in skills required in the entertainment industry.

• Demand conditions. Expand local markets and increase local customers’ sophistication. Apple Computer donates computers to schools, introducing its products to young people. Schools benefit; students and teachers become sophisticated consumers; Apple’s market expands.

• Context for strategy and rivalry. Ensure that rules, incentives, and norms governing local competition encourage investment, protect intellectual property, open local markets to trade, and reduce corruption.

Transparency International—supported by 26 U.S. corporations and 38 companies from other nations—discloses and deters corruption globally. Local citizens benefit. Sponsoring companies gain access to markets.

• Related and supporting industries. Encourage development of clusters: local concentrations of interconnected companies, suppliers, industries, and institutions in a particular field. Having high-quality supporting industries and services nearby enhances your firm’s efficiency and innovation.

American Express depends on travel-related spending for much of its credit card revenues, so it cultivates clusters to improve tourism. Its Travel and Tourism Academies, located in thousands of secondary schools in ten countries, trains students for careers in travel agencies, airlines, hotels, and restaurants. Local citizens gain jobs; AmEx strengthens its industry.

How to Give

To enhance your philanthropy’s impact:

• Select the best grantees. Most philanthropy involves giving money to other organizations that deliver the social benefits. To select grantees that will produce the greatest social impact for your philanthropic dollar, leverage your local employees’ financial, managerial, and technical expertise to assess nonprofits’ operations. Grand Circle Travel uses its overseas offices to identify fundable historical preservation projects—which attract older Americans, its primary clientele.

• Signal other funders. Promote effective nonprofit organizations to attract additional donors and improve the outlook for all players. AmEx’s Travel and Tourism Academies has attracted 200+ cluster partners.

• Advance best practice. Develop new means to address social problems. Put them into widespread use.

Pfizer developed a drug treatment for preventing blindness caused by trachoma. It donated the drugs to developing countries, working with world health organizations to create infrastructure to prescribe and distribute them. The program will reach 30 million people worldwide, expanding Pfizer’s markets.

Corporate philanthropy is in decline. Charitable contributions by U.S. companies fell 14.5 % in real dollars last year, and over the last 15 years, corporate giving as a percentage of profits has dropped by 50 % . The reasons are not hard to understand. Executives increasingly see themselves in a no-win situation, caught between critics demanding ever higher levels of “corporate social responsibility” and investors applying relentless pressure to maximize short-term profits. Giving more does not satisfy the critics—the more companies donate, the more is expected of them. And executives find it hard, if not impossible, to justify charitable expenditures in terms of bottom-line benefit .