Philanthropy and Social Responsibility: Corporate Governance

Corporate Governance: Philanthropy and Social Responsibility

Corporate philanthropy is a form of CSR where a corporation extends monetary or non-monetary support to the community for the sake of improving its welfare and the quality of life. Despite its inherent benefits, corporate philanthropy still remains a subject of debate. This text examines the arguments presented by both sides, and examines how Wal-Mart's philanthropic program has been able to reconcile both views, and how the corporation has managed to maintain an effective giving program over the years.

Philanthropy and Social Responsibility

The role played by corporate giving and corporate philanthropy in society today is immense; but even so, the whole idea of corporate philanthropy still remains a subject of debate. Consensus is yet to be reached, particularly in regard to whether companies should engage more or less in charity programs. Proponents of organizational philanthropy hold that corporations should engage more in charity giving because it helps to improve the social welfare of the communities in which they operate. The opposing faction, on the other hand, while not disputing the fact that such giving improves social welfare, are of the opinion that organizations should only engage very minimally in corporate giving programs because such programs are unfairly geared towards furthering the interests of managers at the expense of shareholders. The two factions, however, find common ground when corporate philanthropy improves social welfare for the community and at the same time maximizes shareholder wealth. This report seeks to demonstrate how the giving program at Wal-Mart Inc. is structured to achieve this balance, and how engagement in the same has benefited the company.

What is Corporate Philanthropy?

Corporate giving/philanthropy is a form of CSR where a corporation extends monetary or non-monetary support to non-profit organizations for the sake of improving the welfare of the community within which it operates (Tonello, 2011). Monetary donations often come in the form of sponsorships, grants, or donations; whereas or non-monetary support will often take the form of services, products, property, use of the company's facilities, employee time, and so on (Tonello, 2011). The funds that go into corporate giving programs often come from individual donations and the company's contributions (Tonello, 2011). Towards this end, such programs are regarded and treated as expenses to the business (Tonello, 2011).

Why the Controversy?

Corporate Giving as an Opportunistic Undertaking by Managers

The agency theory postulates that executives (agents) are likely to act as to enhance or reinforce their own utility even when their behaviors are not in furtherance of shareholder interests, who in this case are the principals (Tonello, 2011). When managers seek to pursue interests other than maximize the wealth of the principal, an agency problem is said to have arisen. Agency problems are relatively more common in those areas of business characterized by little monitoring and huge expenditures (Tonello, 2011). Corporate philanthropy is one such area -- managers are the primary decision-makers on how the company's slack resources are to be allocated; and then there is some kind of tension (the halo effect), where even those executives who feel that corporate giving is a waste of company resources shun from questioning the spending decisions of management because after all, the company too reaps benefits from the same in the long-term (Tonello, 2011). With such little monitoring, a manager could make personal gain from corporate giving in a number of ways, which include; i) accolades, honors, and awards that elevate their social ranking, even if the giving program is funded fully using company money; ii) advancing their personal preferences by supporting charity programs of people close to them or those that seemingly share their ideological agenda; and iii) using corporate giving programs as a platform for gaining favor with members of the executive board (Tonello, 2011).

Corporate Giving as a Positive Business Strategy

In as much as they present unfair opportunities for managers to reap personal benefits out of company resources, researchers contend that corporate giving programs are still a common form of CSR (Caviola, et al., 2014; Amato & Amato, 2007). This is so because such programs are a valuable source of competitive advantage, especially if they are properly-designed and rightly-executed (Tonello, 2011). They can build the company's reputation and increase the recognition of its brand among consumers (Tonello, 2011). For instance, following the implementation of its community giving program, where it partnered with an online charity program to fund various educational programs in selected schools across the country, Crate and Barrel Inc. reported a 16% increase in sales (Tonello, 2011). In as much as we cannot attribute the entire increase to the corporate giving program, we can rightly argue that the company's improved reputation made some contribution to the same. Moreover, whenever a company engages in charity programs, it helps improve the well-being of the community; as a result, managers are able to build strong and healthy relationships with community leaders and government officials, and this essentially helps them reduce special interest group and regulatory obstacles (Council on Foundations, 2008). In addition, a company can use its corporate philanthropy program as a platform for improving "the economic conditions in developing regions with the long-term goal of enhancing the size and quality of their customer base" (Tonello, 2011, n.pag). Furthermore, a company that bears a positive reputation in regard to philanthropy would often find it relatively easy to attract and retain talented employees (Council on Foundations, 2008). Finally, corporate giving programs create avenues for creativity and innovation -- grants and donations to colleges and universities, for instance, provide opportunities for collaboration in research and development, as well as increased access to technical expertise and fresh ideas (Tonello, 2011).

In order for a corporate philanthropy program to be successful, these two views need to be reconciled so that the company's economic orientation aligns with its social orientation (Tonello, 2011). Milton Friedman stated that the primary or overall responsibility of any commercial entity is to make profit and not to look out for the social welfare of the community (Bowie, 2012). He postulates that the free forces of demand and supply will often adjust accordingly to allocate resources in a manner that maximizes societal welfare (Bowie, 2012). Corporate executives, therefore, only have a direct responsibility to shareholders; and as such, they have a duty to conduct business and make decisions that are in the best interests of shareholders. In so doing, they have to conform "to the basic rules of the society, both those embodied in law and those embodied in ethical custom" (Bowie, 2012, p. 2).

This plan adopts Friedman's view -- that although corporate philanthropy is an integral component of organizational success, the profit motive is the basic building block that undergirds all other aspects of business (Bowie, 2012). Towards this end, companies ought to engage in philanthropic programs just as long as such engagement does not hurt or strain company profits (Bowie, 2012). In addition, all activities are required to be in line with the law and the ethical framework of society, as demonstrated in Carroll's pyramid of corporate social responsibility in fig 1 below.

Fig 1: The Pyramid of Corporate Social Responsibility

Philanthropic responsibilities

Ethical responsibilities

Legal responsibilities

Economic responsibilities

(Source: Wei, 2013, p. 112)

Wal-Mart's Philanthropy Plan

Wal-Mart's CSR mission 'save money, live better' is defined across ten core areas -- giving, sustainability index, women empowerment, U.S. manufacturing, hunger relief, veteran, jobs and opportunities, and renewable energy; and is executed through a variety of long-term partnerships and grants, diversity inclusion, and healthier food (Wal-Mart Global Sustainability Report, 2013). Through its 'Everyday Low Prices' strategy, Wal-Mart strives to help people stretch their paychecks and offer their families better-quality life (Wal-Mart Global Sustainability Report, 2013). The company's 'Live Better' Initiative, however, stretches beyond the walls of its stores, into communities and societies around the world -- driving meaningful change by providing access to affordable commodities, empowering women, fighting hunger, and preserving the environment (Wal-Mart Global Sustainability Report, 2013). The Wal-Mart Foundation seeks to further this mission -- helping communities live better through philanthropy (Wal-Mart Global Sustainability Report, 2013). The philanthropy program mainly targets persons from low-income backgrounds (especially marginalized groups) with the overriding goal of nurturing innovativeness and responsible leadership (Wal-Mart Global Sustainability Report, 2013).

Programs

Educational Programs

The company commits itself to supporting educational programs that encourage youth from marginalized groups and disadvantaged backgrounds to work and excel in both school and after-school programs (Wal-Mart Global Sustainability Report, 2013). In 2013 for instance, the company awarded 85,000 grants to reinforce the work of not-for-profit organizations spearheading educational projects in selected low-income regions across the country (Wal-Mart Global Sustainability Report, 2013).

Health and Safety

Wal-Mart's philanthropy program demonstrates its commitment to improving the level of safety as well as quality of life for the communities within which the company operates (Wal-Mart Global Sustainability Report, 2013). Its core activities in this regard include controlling and ultimately eliminating hazards on the highways, at home and in the workplace; lobbying for sustainability in the production of healthy foods, and supporting health programs that help productive people disabled by either injury or disease spring back to their productive lives both off and on-the-job (Wal-Mart Global Sustainability Report, 2013). In October 2013, for instance, the company, through the Wal-Mart Foundation, extended a $2 million grant to aid in the establishment of the office of the Sustainability Consortium in China, through which the company seeks to mobilize organizations and local communities in China to advocate for the production and consumption of healthy foods (Wal-Mart Global Sustainability Report, 2013).

Community and Economic Development

Wal-Mart's giving program demonstrates support for art and cultural programs, as well as economic and community development initiatives (Wal-Mart Global Sustainability Report, 2013). Helping communities bounce back after disasters is one of the prominent activities undertaken in this regard - $3.8 million in cash and in-kind support from the Wal-Mart Foundation was used in such restoration programs across the U.S. In 2013 (Wal-Mart Global Sustainability Report, 2013).

Places

The Wal-Mart Foundation contributes the greater proportion of its funding to programs within the U.S. (Wal-Mart Global Sustainability Report, 2013). In 2013, approximately 87% ($273 million) of the company's total cash giving ($311 million) was contributed to U.S.-based programs (Wal-Mart Global Sustainability Report, 2013).

There are a number of additional activities that the company supports but does not provide philanthropic funding for (Wal-Mart Inc., 2014). These include programs by individuals; foundations that can rightly be regarded as grant-making entities; religious entities seeking out financing for sectarian activities; political, social, or fraternal organizations; forums and conferences; and any organization that has received funding within the past twelve months (Wal-Mart Inc., 2014).

Population

Youth

The Wal-Mart Foundation invests a significant proportion of its funding in youth development programs, with greater attention given to afterschool and mentoring programs for youth in disadvantaged backgrounds and marginalized groups (Wal-Mart Global Sustainability Report, 2013).

Persons with Disabilities

The Wal-Mart Foundation demonstrates support for programs and organizations that advocate for the inclusion and fair treatment of persons with disabilities (Wal-Mart Diversity and Inclusion Report, 2013). This support is guided by the company's diversity vision statement, which is to be a global leader in inclusion and diversity-appreciation (Wal-Mart Diversity and Inclusion Report, 2013). Its corporate mission, which is to 'save people money and help them live better' is pegged on the founder Sam Walton's idea that success is best achieved through leveraging an inclusive workplace and fostering diversity at the workplace (Wal-Mart Diversity and Inclusion Report, 2013). The company's diversity and inclusion mission is defined around three fundamental pillars -- diversity at the workplace, diversity in the workforce, and diversity in the marketplace (Wal-Mart Diversity and Inclusion Report, 2013). In November last year, Wal-Mart joined the U.S. Business Leadership Network (USBLN) and the American Association of People with Disabilities (AAPD) as a founding partner for the New Disability Equality Index program, a tool "that offers businesses the opportunity to objectively measure their full inclusion of people with disabilities as employees, suppliers, and customers" (AAPD, 2014, n.pag). With this, Wal-Mart laid out its support for disability-inclusive practices in the corporate arena.

Women

Wal-Mart has demonstrated its commitment to increasing the representation of people of color and women at all levels of management (Wal-Mart Diversity and Inclusion Report, 2013). Currently, "more than half of Wal-Mart's U.S. business unit presidents, divisional senior vice presidents, and regional vice presidents are women and/or people of color" (Wal-Mart Diversity and Inclusion Report, 2012, p. 8). Wal-Mart also shows its commitment to women empowerment through giving (Wal-Mart Diversity and Inclusion Report, 2013). The Wal-Mart Foundation provides opportunities and training for women to empower themselves (Wal-Mart Diversity and Inclusion Report, 2013). Priority is given to low -- income women in Central America, Bangladesh, the U.S. And India (Wal-Mart Diversity and Inclusion Report, 2013). In 2012, the company provided economic training for more than 73,000 women in disadvantaged groups; and more than 1 million women have so far benefited from the women empowerment program since its inception a decade ago (Wal-Mart Global Sustainability Report, 2013).

So why does Wal-Mart focus so much on diversity and inclusion in developing its philanthropy programs; and how does it do it so well? Well, diversity and inclusive are fundamental components of the 21st century workplace (Wal-Mart Global Sustainability Report, 2013). A company that shows sensitivity towards diversity issues has an edge over its competitors not only because it has better abilities to diffuse into new markets, but also because it is better-placed to drive productivity and employee retention (Council on Foundations, 2008). Philanthropy is one of the best ways through which a company can demonstrate to the public its commitment to diversity (Council on Foundations, 2008). When philanthropy is approached through the lens of diversity, it becomes a valuable platform for achieving greater social and business outcomes (Council on Foundations, 2008).

So, what strategies does Wal-Mart use to ensure that diversity is incorporated into its philanthropy programs? The Council on Foundations (2008) expresses that the key to aligning diversity programs and philanthropy programs lies in instilling "the viewpoint that incorporating diversity and inclusiveness into the corporate culture is not just the right thing to do, but a business imperative in order to" evolve and remain competitive in the marketplace (p. 3). Wal-Mart's diversity vision -- to be a global leader in inclusion and diversity-appreciation- provides a sound basis for its inclusive practices in the different facets of philanthropy.

Best-in-Class Diversity Strategies used by Wal-Mart

Wal-Mart makes use of a number of key best-in-class strategies to actualize the diversity vision statement stated earlier on. The Council on Foundations (2008) identifies four basic tenets that must be present in order for a diversity inclusion strategy to achieve positive outcomes -- talent management, diversified business strategies, a culture of inclusiveness, and metrics. This section examines the specific strategies undertaken by Wal-Mart (in regard to each of the four tenets above) to avoid legal and ethical issues of bias and to ensure positive outcomes in philanthropy programs.

Talent Management

An organization must be able to not only attract, but also retain diverse talent (Council on Foundations, 2008). This they can do by ensuring that ample support systems for employee advancement and development are in place (Council on Foundations, 2008). Specific strategies undertaken by Wal-Mart in this case include the use of affinity groups to nurture talent and also increase visibility among the public -- the company actually runs an affinity group program, complete with a budget allocation, and whose primary objective is to aid in associate recruitment (Wal-Mart Inc., 2014).

In addition, the company publicizes its philanthropy and uses it as a tool for attracting diverse talent -- in its annual global sustainability report, the company highlights any initiatives and grants undertaken by the Wal-Mart Foundation in support of diverse populations (Wal-Mart Global Sustainability Report, 2013). With this, the company is able to outwardly show that it cares for the community; and in this way, employees and the public are able to develop "a greater sense that the company is indeed committed to diversity" (Council on Foundations, 2008, p. 4) .

The Council on Foundations (2008) advises companies to create philanthropic initiatives that focus on fostering their goals of diversity. Wal-Mart's workplace diversity pillar is structured around talent, and focuses primarily on "nurturing an inclusive and collaborative culture to retain…talent and maximize their potential" (Wal-Mart Diversity and Inclusion Report, 2012, p. 2).

Diversified Business Strategies

The Council on Business Foundations (2008) expresses that in order to actualize this tenet, a company needs to develop effective strategies for marketing to a diverse consumer base, as well as promoting both supplier diversity, and diversity in executive management. Wal-Mart achieves this through its three-piece diversity initiative that focuses on i) building a diverse and inclusive workforce; ii) making the workplace inclusive through a collaborative culture; and iii) empowering associates to contribute positively to the communities within which the company operates. The company runs a supplier diversity program (Wal-Mart Global Sustainability Report, 2013) that, with the support of such groups as the U.S. Business Leadership Network (USBLN), the American Association of People with Disabilities (AAPD), and the National Gay and Lesbian Chamber of Commerce (NGLCC), negotiates with and empowers vendors from minority populations (AAPD, 2014).