Corporate Philanthropy: Wal-Mart's Strategy for Shareholder and Community Value

What is Corporate Philanthropy?

Corporate giving and philanthropy constitute a form of corporate social responsibility (CSR) in which 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 non-monetary support typically takes the form of services, products, property, use of the company's facilities, and employee time (Tonello, 2011). The funds that go into corporate giving programs often come from individual donations and the company's contributions (Tonello, 2011). Toward this end, such programs are regarded and treated as expenses to the business (Tonello, 2011).

The Debate: Opportunity and Strategy

Corporate Giving as an Opportunistic Undertaking by Managers

Agency theory postulates that executives (agents) are likely to act in ways that enhance or reinforce their own utility even when their behaviors do not further shareholder interests, who in this case are the principals (Tonello, 2011). When managers pursue interests other than maximizing the wealth of the principal, an agency problem is said to have arisen. Agency problems are relatively more common in business areas 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. A form of tension, known as the halo effect, exists where even executives who feel that corporate giving is a waste of company resources refrain from questioning the spending decisions of management because the company too reaps benefits from the same in the long term (Tonello, 2011).

With such little monitoring, a manager could gain personal benefit from corporate giving in a number of ways: (1) accolades, honors, and awards that elevate their social ranking, even if the giving program is funded entirely with company money; (2) advancing their personal preferences by supporting charity programs of people close to them or those that seemingly share their ideological agenda; and (3) 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

Researchers contend that although corporate giving programs present unfair opportunities for managers to reap personal benefits from company resources, such programs remain a common form of CSR (Caviola et al., 2014; Amato & Amato, 2007). This is because such programs are a valuable source of competitive advantage, especially if they are properly designed and 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 percent increase in sales (Tonello, 2011). While 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 it.

Moreover, when 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. 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).

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 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 must conduct business and make decisions that are in their best interests. In so doing, they must conform "to the basic rules of the society, both those embodied in law and those embodied in ethical custom" (Bowie, 2012, p. 2).

This analysis 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). Companies ought to engage in philanthropic programs as long as such engagement does not hurt or strain company profits (Bowie, 2012). All activities must be in line with the law and the ethical framework of society, as demonstrated in Carroll's pyramid of corporate social responsibility shown below.

Figure 1: The Pyramid of Corporate Social Responsibility

Philanthropic Responsibilities
Ethical Responsibilities
Legal Responsibilities
Economic Responsibilities
(Source: Wei, 2013, p. 112)

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 has yet to be reached, particularly regarding 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 improve the social welfare of the communities in which they operate. The opposing faction, while not disputing the fact that such giving improves social welfare, believes that organizations should engage only minimally in corporate giving programs because such programs are unfairly geared toward furthering the interests of managers at the expense of shareholders. The two factions find common ground, however, when corporate philanthropy improves social welfare for the community while simultaneously maximizing shareholder wealth. This report demonstrates how the giving program at Wal-Mart Inc. is structured to achieve this balance and how engagement in the same has benefited the company.