Strategic Philanthropy: The new mantra

Arun Sharma

Investment Banking and Wealth Management

GMBA - April 09

On one side where strategy is usually understood as a plan of action to achieve specific goals, philanthropy essentially is a symbol of giving, possibly to charity. But these days, there is a buzz in the corporate world, besides Copenhagen. And the new buzzword is Strategic Philanthropy. While Milton Friedman insisted decades ago that the only purpose of existence of the companies is to generate profits for its shareholders, the socially conscious global citizens of 21st century are ready to turn that statement up on its head. In the present times, the shareholders are considered nothing but gamblers in the market whose expectations, if turned into corporate strategy, will translate into Only Profit, Full Stop. But it is good to see that the social awareness is increasingly becoming popular in the corporate sector.

Whereas the Networking Academy initiative by Cisco provides an example of how a corporation can contribute to the social upliftment along with increasing its top line, the shift made by BP from oil based revenues to renewable sources marks the beginning of Sustainable Corporate Practices. These practices challenge the assumptions made by the corporate to earn maximum profits to be able to earn more profits and so on. It gives a fresh perspective and meaning to the business and the way its owners conduct business.

But there is a very disturbing trend that I’ve observed happening in the corporate world. There is an interesting corollary developing between the phase of the company’s operations and the quantum of philanthropy that it gets into. Companies like BP, Philips, Cisco, Microsoft and likes that existed for decades, realized the importance of philanthropy very recently after they reached the maturity stage of their lifecycle. Philanthropy shouldn’t be focused on creating business for the company, it should be the by-product of a bigger goal. Very few companies like Hershey’s in US and Tata Group in India were established to serve the larger purpose of existence of the business. While capitalism aims to create a social equality by providing everyone an equal opportunity to earn, the difference between the highest and the lowest compensation in some US firms is as high as 400 times! In such a scenario, expecting these executives to spend on selfless philanthropy is a deadly assumption.

At the same time, I do not want to appear like a cynic of the intentions of the corporate houses. I fully support the new corporate funda of giving back to the society but only after ensuring that is has enough to give back to the society. As Michael E. Porter summed it all up in one of his articles in HBR, the companies can position themselves to gain edge over other competitors by strategically implementing their competitive advantage in their CSR measures.

Hence, there is no denying the fact that Strategic Philanthropy will definitely be the future of CSR, provided the corporates do not put the cart before the horse.