Sunday, 18 October 2009

Philanthropic misappropriation

A recent article from The Motley Fool, Keep Charity out of the Boardroom, reminded me of Michael Porter's seminal article on corporate philanthropy (see here).

Put in simple terms, corporate philanthropy that is not aligned with the corporation's strategy, and therefore helping to achieve its goal of long-term profit, is probably a misappropriation of shareholders' funds. Firstly, let me add that I am not one to promote a selfish and singular corporate drive towards profit. I believe that management's role is to negotiate a sustainable win-win deal between shareholders, customer, staff and all of the corporation's various other stakeholders. And secondly, let me add that I am a great believer in charity, charitable giving and charitable actions.

But, at the end of the day, shareholders entrust executives with their equity investments and an expectation that their money will be wisely invested in order to maximise their return. They certainly do not expect them to simply give their money away. Nor do they expect them or their employees to engage in other activities, not matter how laudable they may be, whilst the clock is ticking.

Michael Porter lists lots of examples of where corporate philanthropy is aligned with the corporation's strategy, particularly where it builds the corporations' surrounding communities of present and/or future customers or employees. However, much modern corporate philanthropy has no such connection and all too often appears to have no end other than the personal aggrandisement of executive(s) involved. This is no more defensible than my other bug-bear: corporate sponsorship of executives' personal favourite niche sports, especially where these have little appeal amongst the corporations' target markets.

Executives and employees who give of their own time and money to good causes (or raise money from their often extensive networks of wealthy connections) are, of course, to be highly commended. But they should not extend their personal generosity to give away their shareholders' money. Rather, they should return any excess share capital to shareholders so that they could decide for themselves what they want to do with it.