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Philanthropic misappropriation

I recently read an article from The Motley Fool, Keep Charity out of the Boardroom. It 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 is a misappropriation of shareholders' funds.

Let me add that:

  1. I am not one to promote a selfish and singular corporate drive towards profit. Management's role is to negotiate a sustainable win-win deal between shareholders, customer, staff and all of the corporation's various other stakeholders.
  2. 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. They have an expectation that their money will be wisely invested to maximise their return. They do not expect them to simply give their money away. Nor do they expect them or their employees to engage in other activities, no 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. These are where it builds the corporations' surrounding communities of present and/or future customers or employees. And there is mounting evidence that some forms of community outreach improves employees' wellbeing, and therefore productivity.

However, much modern corporate philanthropy has no such connection. All too often, it appears to have no end other than the personal aggrandisement of the executive(s) involved. This is no more defensible than my other bug-bear. That is the 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. The shareholder can then decide for themselves what they want to do with it.

See also:

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