The Paradox of Corporate Philanthropy

I sympathize with companies that do their best to demonstrate to society that they are good corporate citizens. In the past, the norm was for companies to contribute to any possible charity to demonstrate that they have a conscience, despite heavy criticism for the negative impacts their business has on society. But these companies have received a lot of slack for contributing to causes that have little or nothing to do with their business, claiming that they are doing so as a cover up for what constitutes their daily core operations as a business. In response, companies have worked to connect their philanthropic endeavors with their core products and services. Wal-Mart gives millions in grants to nonprofit organizations to provide training and education for their retail workers to help address the chronic problem of low pay in the retail sector. Coca-Cola has as its priority areas water conservation in response to the drain their core operations have on water resources. They have recycling programs to counter the negative environmental impact of waste their products produce. They also promote active healthy living to counter the association of their products to obesity. In both cases, their philanthropic endeavors are aiming to address major social or environmental issues for which their company and industry are largely responsible.

Ironically, doing so oftentimes illuminates the corrosive nature of their business. This is because companies typically justify why they are contributing to a particular cause by explaining how pervasive and serious the issue is. But they rarely connect the severity of the issue they are trying to address with their own operations, leaving them quite vulnerable to criticism as eager corporate critics pounce on the hypocrisy. The anti-corporate message is appealing because it criticizes companies for contributing residual profits to a cause that their own operations is helping to create rather than looking in the mirror at their own operations to curb the impact they have on these issues. These companies continue to use the old wealth distribution model where they set out to maximize profit levels and then from those profits donate a small percentage to address the negative externalities they helped to create. Dow Chemicals is one such example where they contributed to a charity organized by Al Gore to improve clean drinking water. But a major cause of polluted drinking water is the many chemicals developed and produced by Dow Chemical that ends up in water systems.

The Dow Chemical example is a bit more discreet unlike other examples where companies are a bit blind by the hypocrisy of their efforts. Consider Tim Horton’s SmileCookie program that aims to raise money by contributing 100% of the proceeds from cookies sold to children food nutrition programs. In this example, Tim Horton’s is aware of the obesity issue but rather than focus on exercise and healthy living as the charity of choice, they target the lack of nutritional knowledge associated with the very crap that can be found in their food. But the ironic thing is that they do this by selling the very product that spawns the need for the charity. This is a comedy skit waiting to happen.

While the above is quite comical, there is a darker side to recent philanthropic trends that I think was brought out in a report criticizing the Ronald McDonald’s Children’s Charity. Companies are constantly criticized for marketing products that create high levels of environmental and social harm in some cases to the point where they are prohibited from doing so. Marketing fast food to children, for instance, has become a marketing faux pas. The report I mention above found that the Ronald McDonald’s Children’s Charity is a sneaky yet affective way to overcome McDonald’s inability to market to children directly. Like the Tim Horton’s example above, McDonald’s can promote its products under the guise of a charity because it’s suggesting that by purchasing their products, people are contributing to a worthy cause.

So how do companies avoid the onslaught of criticism that ultimately comes back to haunt their brand down the road? Or, perhaps more importantly, how do employees of these companies that aren’t particularly comfortable by this hypocrisy go about changing this? Companies need to realize that philanthropy – whether it’s related or unrelated to its core business – will always be ripe for criticism. And while it might provide companies with a temporary marketing edge, not only can it be easily replicated by competitors, the downside risk of the above hypocrisy is massive. Companies need to stop trying to have their cake and eat it too by making billions off of the backs of society yet looking good through charitable donations. Consumers, employees, and shareholders are increasingly seeing through it.

The opportunity for strategic competitive advantage comes to those companies that climb the proverbial waterfall and make a genuine effort to address the underlying cause of the issue they are proclaiming to address. This means challenging norms in their industry, revolutionizing the existing product or service portfolio, creating industry level social and environmental standards, building networks of actors who possess the necessary complementary capabilities to shift the system of activity that is highly entrenched in their industry. Those companies that take on these tasks have figured out how to embed sustainability and corporate responsibility into whatever they do. Philanthropy doesn’t make much sense to them because they would rather use those resources to further entrench a competitive position that leaves their competitors relying on a philanthropy strategy that is highly replicable.