philanthropy and corporate giving plan company x

Running head: PHILANTHROPY AND CORPORATE GIVING 1

Philanthropy and Corporate Giving Plan Company X

Alston Johnson

University of the Rockies

PHILANTHROPY AND CORPORATE GIVING 2

Abstract

A business is considered to be a living entity and as such is

subjected to the same morals and ethical standards by which

society holds the individual (Chesters & Lawrence, 2008). The

issues of social responsibility, corporate giving and

philanthropy though intangible add value to organizations in the

long-term and contribute to the well-being of society (Lim,

2010). The issue of philanthropy has become a controversial topic

in the areas of accountability for the donors and recipient of

funds (Brest, 2006). The legitimacy of philanthropy has also come

under fire as some economist has argued that it illegally diverts

shareholder wealth to the community, engaging in activities that

are the responsibility of the government and not the business

(Valor, 2007). This article is a review of corporate philanthropy

as a whole and then proposes a corporate giving plan for an

established company engaged in mandatory giving to the Virgin

Island community.


Corporate Giving Plan for Company X

The ideology that businesses have a responsibility to

stakeholders has been challenged by economists like Friedman

since the 1960s (Valor, 2007). The function of a business is to

generate a profit and diverging profits to solve societal

problems is illegal (Davis, 1973). This statement, though once

powerful among economists have been eroded by the concept that

businesses have a responsibility to any entity that is impacted

by their actions (Preuss, 2011). Philanthropy, a subsection of


corporate social responsibility (CSR), has become a controversial

topic because objectives and motives of corporate giving can

cross the ethical boundaries by the funder and the receiver

(Brest, 2006; Sievers, 2006). For the purpose of this assignment,

the various aspects of philanthropy with respect to the

literature and the proposed giving plan will be examined from

some of the ethical concepts including but not limited to

deontology, utilitarianism, virtue ethics, egoism, principalism

and collectivism.

For the purpose of this assignment philanthropy will be

defined as the unconditional transfer of cash and assets to an

entity or a settlement or cancelation of its liabilities in a

voluntary nonreciprocal transfer by entity acting other than an

owner (Godfrey, 2005). This definition was taken from the

Financial Accounting Standards Board (FASB) 1993:2 as cited by

Godfrey (2005). This definition is appropriate when looking at

ethics and corporate giving and helps to determine the difference

between corporate giving and corporate sponsorship. Corporate

giving becomes corporate sponsorship when the company benefits in


the form of advertising from signs and company logos (The Calgary

Foundation, 2012).

Philanthropy at Company X

One of the benefits of making charitable contributions is

that they are tax deductable (Rhode, 2006). Company X has its

headquarters in the Virgin Islands because the territory is a

legal tax shelter, thus the organization is getting a double

portion of tax breaks. The company is required by the Economic

Development Authority (EDA) to give a minimum of 60,000 to local

charitable organizations. The allocation of such funds should be

split equally among public education and other charitable

institutions. The organization does give more than the minimum

but the majority of the donations go the educational institutions

where the children of the senior vice-presidents (SVP) attend, or

to organizations of which the SVPs are members. Considering that

the company already spends in excess of $150,000 in tuition to

these private schools the lack of diversity and conflicts of

interest in the giving are evident.

Company X does not have a giving policy or guideline

established and thus operates under the checkbook charity where


donations are giving to fund the causes of that the CEO and SVPs

deems important. This ad hoc unsystematic methodology is quite

common among many small businesses (Campbell, Gulas, & Gruca,

1999). The company also gives back to the community by being

actively involved in Junior Achievement. Corporate giving for

Company X should not be based on the minimum mandated requirement

but should be based on a percentage of the annual budget and

designed with specific purposes. Legitimate purposes for

philanthropic goals are: the arts, religion, social services,

social change, medicine and health (Brest, 2006). The proposed

corporate giving plan (CGP) in the following sections will focus

on the new priorities for giving.

Business Case for Philanthropy

Any business case for philanthropy must thwart the economic

view of Friedman with respect to the diversion assets away from

shareholders to society and the ideology that it is the

government’s responsibility to distribute wealth (Valor, 2007).

Research has shown that CSR can have a greater impact on the

community especially when governments fail to maintain social

order (Siyaranamual, 2009). CSR gives organizations a strategic


advantage to tap the human capital external to the organization

in the areas of marketing, consumer research, and diversity

(Siyaranamual, 2009). Businesses engaged in philanthropy are

afforded many tax breaks for their charitable contributions

(Rhode, 2006). The benefits of corporate giving go far beyond tax

breaks as philanthropic activity increases public image which

positively affects employee attraction and retention, increases

the likelihood that consumers would patronize products and/or

services and attracts investors (Begin, 2007; Noble, Cantrell,

Kyriazis, & Algie, 2008).

Rationale for Corporate Giving Plan

At Company X there is no methodology or system in place to

determine how funds are allocated and to which organizations will

receive such funding. There is also no system in place to measure

the impact that the organization has on society and to a lesser

extent no quantifiable means to determine the long-term and

short-terms benefits of corporate giving. If Company X was

publically traded and/or had numerous shareholders, these are the

things they would need to justify to shareholders to show that

the giving plan have a strategic intent. The company operates


without any clear mission or vision beyond generating profits for

the shareholder and major stakeholders. Crafting a new mission

and vision statement will aid in aligning the activities of the

company and the employees with the new CGP. A new CGP along with

a never before organizational mission and vision will not only

align the activities of the company with the social ills of the

community but will help to build employee morale, improve

retention and build networks with the community (Voort, Glac, &

Meijs, 2009).

Diversity, ethical and Legal Issues

Research has shown that corporate benevolence is predicated

on the altruistic characteristics and sense of social

consciousness of the decision maker (Campbell et al., 1999). As

mentioned the majority of the corporate funding and sponsorship

by Company X benefits the upper class in society. In a

confidential interview with the employee responsible for giving

it was revealed that it is often difficult to convince her

supervisor to donate or commit to certain organizations. It was

revealed that some donations are politically motivated as favors

to specific senators or high ranking government officials. The


individual also noted that majority of the corporate giving was

fueled by the decision makers and not the financial need of the

non-profit organization.

The core reasons behind corporate giving at Company X is not

altruism, because it does not come from the heart, definitely not

utilitarianism because it is not for the benefit of the majority,

cannot be considered deontological because universal principles

are non-existent in the decision making process. Giving at

Company X is all about self interest and is rooted in egoism. The

practices are not only unethical but are also illegal as they can

be considered to be political bribes (Noble et al., 2008). It was

revealed that many of the political gifts are hidden in personal

expense accounts making them difficult to be noticed and audited

such as thousand dollar dinners and gift cards to restaurants.

The proposed corporate giving plan (CGP) will address the ethical

and legal issues by creating a transparent structure that limits

giving to specific institutions.

True philanthropy based on altruistic motives must meet the

following criteria: the behavior should be designed to alleviate

human suffering, and should be motivated by the desire to help


others, and most important, any reciprocal benefits that flow

back to the altruist should be incidental and not the sole reason

for the act (Chesters & Lawrence, 2008). Philanthropist should

always seek a social return on investment (Rhode, 2006) but if

the reason behind the giving is egoist it should be considered a

sponsorship. It is unethical and also illegal to package

sponsorship as tax deductible gifts.

Company X has a social responsibility to the Virgin Island

community beyond what is mandated by the EDA. Establishing a

strategic giving plan will enable the organization to be having a

greater impact on the community this enhancing its social

responsibility. The magnitude of the company’s potential effect

on the community will be discussed in depth in the details of the

CGP.

Corporate Giving Plan

Corporate giving plans involve the allocation of company

assets to non-profit organizations (NPOs). Company assets fall

into three broad categories: financial assets, real assets and

intangible assets (The Calgary Foundation, 2012; Valor, 2007).

With respect to Company X financial assets will include matching


employee gifts, cause-related marketing and monetary donations.

Real assets include the shared use of company property by NPOs.

Intangible assets include leveraging the company human capital to

give back to the community through volunteering their time for

skilled and unskilled projects (The Calgary Foundation, 2012;

Valor, 2007). When establishing a giving program, a company has

three structures to choose from: direct giving program, company

sponsored foundation, and fund at a community foundation (The

Calgary Foundation, 2012).

A direct giving program involves the organization making

charitable contributions to registered charitable organizations.

The company registers this contribution when paying its corporate

taxes as it is tax deductable (Rhode, 2006). Charitable donations

cross ethical and legal boundaries when sponsorship gets

intentionally classed as donations. Donations are recognized as

expenses in the periods they occur where as donations are tax

deductable (Rhode, 2006). A company sponsored foundation is

separate legal entity of the company, funded by the company that

handles all corporate giving. Companies have the third option of

setting up a fund with an established community foundation


(Dennis, Buchholtz, & Butts, 2009). For Company X, it will be

recommended that the giving program focus on options one and

three.

Plan Objectives

The company receives hundreds of request for donations and

sponsorships and must decide which ones are worth funding. The

first objective of the CGP is to determine which causes to

support and commit to those causes. It is recommended that

companies establish a budget for CSR based on a percentage of the

pre-tax operating budget or the historical needs of the non-

profit organizations (The Calgary Foundation, 2012). For company

X it will be recommended that 2 percent of the pre-tax budget be

allocated for CSR programs since this is the minimum for most

corporations (Valor, 2007). The direct spending of such funds

will be controlled by the corporate giving officer, and a

committee comprising of a representatives from all business

units. Research has shown that the power to give mostly lies in

the hands of the CEO and their personal morals and affinity to

specific groups will determine the size and type of donations

(Chiu & Sharfman, 2011). When one individual controls giving


without any oversight there is a greater probability that there

will be no diversity in the process and only specific charities

will benefit (Chiu & Sharfman, 2011). To ensure that there is

diversity in the decisions for the allocation of funds and also

to take that responsibility from the CEO a diverse committee for

corporate funding will be created.

A diverse board of directors has been proposed as deterrent

to self-interested egoistic behavior by CEOs (Prado-Lorenzo &

Garcia-Sanchez, 2010). The numerous corporate scandals such as

Enron, the New York Stock Exchange are thought could have been

prevented if the board of directors were diverse and had more

control over the activities of the CEOs (Rhode, 2006). The

selection of a diverse corporate giving committee is expected to

achieve the diversity in the decision making process, checks and

balances to ensure that altruism is the motivation behind giving

and to protect the company from bad publicity by operating with

the virtues a good individual. Mandating that committee be

transparent in all operations helps to avoid the slippery slope.

It is impossible for an organization to give to every

charity; as such Company X should reduce the focus of giving to a


maximum of three causes. It is recommended that CGP focus on the

arts, social change, and social services. Having a small focus

allows the organization to be proactive and not reactive,

allowing them to forecast future needs of the selected causes

(The Calgary Foundation, 2012). The relatively small size of

St.Thomas makes it probable that Company X will have a greater

impact on the community by focusing on the arts, social change

and social services. The specifics of how the organization will

contribute to such causes are outlined in the next two sections.

Direct Giving Program

Company X already has a direct giving plan where charities

are funded based on the requirements of the EDA. Under the

direction of the corporate giving committee, increased funding

and a greater focus on philanthropy the company will leave a

larger footprint on the Virgin Island community. The committee

will not focus on philanthropy, but will focus on the sponsorship

of community events and activities that involve visibility of the

company to the wider community. There are many employees in

Company X that volunteer their time to non-profit organizations.

As a means to build employee morale and to be a good steward to


the community, the organization will embark on an employee match

program. This program will match dollar-for-dollar to charitable

donations to organizations made by employees that falls under

three focus categories mentioned.

Company X is a highly technological advanced institution

that has the hardware and human capital to make a huge impact on

the development of young people. One of the duties of the

committee is to sought out charitable organizations that could

benefit from the company’s human capital. The company will

establish employee loan programs where employees will be allowed

to work with such organizations on specific projects, and/or

short-term or long-term basis. Such intangible gifts to the

community are all about altruism and giving from the heart.

Funding Through an Established Community Foundation

Company X is one of the few organizations that have not

partnered with the United Way to give back to the community. The

United Way of St.Thomas and St.John was established in 1978 and

has been instrumental in raising over $11.5 million all of which

went to fund human service programs in the two islands (United

Way of St. Thomas-St. John, 2012). This organization has a far


greater reach in impacting the Virgin Island Community than any

other as they oversee the allocation of funds to over 16

registered charitable organizations. Partnering with the United

Way is guaranteed methodology that will ensure that the donated

funds reach the individuals in society who are in dire need of

support and services.

Contributing to the United Way usually occurs via salary

deductions. To encourage employees to sign up for the deductions

the company will invite members of the United Way to make a

presentation to the employees to show them how their

contributions will be used in the Virgin Island community. The

company will also match dollar for dollar the contribution of the

employees.

Company X is actively involved in Junior Achievement and

will further extend its human capital to the community thorough

other volunteer programs. Employees participating in these events

will get a stewardship award sponsored by the company as well as

vouchers to the exclusive restaurants on the organization. The

CEO already gives such vouchers out to the employees, in this way

it will be an added incentive to give back to the community.


Communication Plan

A central component of the CGP will be the creation of a

quarterly news letter. The news letter will serve three purposes:

(1) establish transparency in the program (2) keep employees up-

to-date of the activities of the company in the community and (3)

keep everyone informed on the guidelines of the organization. The

corporate guidelines for giving will also be published on the

company’s website so that employees and the community are aware

of what is required to seek sponsorship or donations. The

committee will change the way it gives back by ensuring that

donations are going to reputable institutions. The committee will

create an application form that all organizations seeking funding

or donations must complete. The application form will require

organizations to state their Tax ID numbers, how the funds will

be used and accounted for and other pertinent information to

determine their legitimacy.

Evaluation and Effectiveness of the CGP

One of the duties of the giving committee will be

publication of their activities. The publication will include

time lines for contributions, and feedback from organizations.


The data will be combined in an annual review that will be

presented to the budgetary committee before the close of each

physical year. The annual report would include the projections

for the next physical year, challenges faced by the committee,

and the resolutions to said issues. This information will be

available on the company’s website. The company’s website will

also include links to the sites of the organizations where they

have made significant contributions. The goal is to create a

transparent network of the philanthropic activities of the

company.

Future Recommendations

Company X is a young company established in 2005, but is

experiencing tremendous growth. Like most young companies the

organizational processes and the growth spurt are not parallel.

As the company is slowly implementing standard best practices it

will eventually need to establish a Corporate Foundation to

handle all company giving. The foundation is advantageous it

separates the duties of the CEO with respect to corporate giving

thus reducing possible conflicts of interest (Begin, 2007).

Conclusion


True philanthropy comes from the heart and is rooted in

altruism, collectivism, and utilitarianism (Rhode, 2006). With

such a strong foundational ethical background, it is ironic that

philanthropic activities can be controversial by both the donor

and the receiver. The proposed corporate giving plan for Company

X is designed to level the playing field by distributing assets

to impact the wider community. The plan creates a greater

accountability for both donor and receiver to be ethical in their

behaviors as everything will be transparent. The CGP is the first

step for Company X to have an organizational culture with a

unified mission and vision thus aligning the employees with the

overall strategic intent thus giving the organization a never

before competitive advantage. A strategic philanthropic plan is

therefore beneficial to the community and the company.

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