The Philanthropic Family

There’s a viewpoint expressed in this week’s online version of BusinessWeek saying that, in order to be fairly labeled as a “good corporate citizen” companies need to pledge 1% of their pre-tax earnings to charity.  I could not disagree more. 

The authors acknowledge that:

“measuring overall corporate responsibility requires more than just analyzing a company’s philanthropic donations. Fair treatment of employees, making or selling safe products, paying taxes, and complying with environmental standards are all ingredients that should be in the social responsibility stew. However important these things are, though, they are not more important than a corporate-wide commitment to use an appropriate percentage of a company’s pretax resources to address critical issues that affect employees, communities, the nation, and the planet. ” (emphasis added)

I think this article is wrong-headed because, in reality, nothing is more important than a corporate-wide commitment to treating workers fairly (i.e., a living wage, health insurance, maternity leave, etc.), paying taxes (as opposed to avoiding them? okay, sure), producing products that meet real needs in an environmentally responsible way, and otherwise living up to the spirit of social responsibility.

Some companies are actually earning profits on the backs of the global community: failing to pay a living wage, not providing health or other benefits, polluting the water and air and ground with their manufacturing, charging inflated prices or using marketing tactics to create a demand for products that low-income people don’t really need.  These practices create the conditions that charities seek to remedy. 

Surely it is not acceptable for companies to earn 100% of their profits contributing to these problems and then get a gold star for donating 1% of profits to help address them. 

Product(RED) Redux

The viewpoint expressed in this BusinessWeek article is the embodiment of the downside I described in my post last week on Product(RED).  Companies should be applauded for their donations to worthy causes, but they should not be allowed to hide behind charitable donations as an excuse for other bad behavior.   

Does this mean that every company donating a portion of profits to charity is hiding something, or is a bad company?  Of course not.  But the central premise of the BusinessWeek piece, that the primary measurement (instead of just one component) of corporate social responsibility (CSR) is the percentage of profits donated to charity, is an overly simplistic concept that will benefit companies but will not benefit consumers or society at large. 

(Indulgences, in case you’re wondering, were a common practice among priests in the Middle Ages.  Wealthy people could “donate” to the church and in return receive forgiveness for their sins. The bigger the sin, the bigger the donation. If I recall, the practice of selling indulgences to raise money for the church was one of Martin Luther’s 95 complaints nailed to the church door that launched the Protestant Reformation.)

A Proposed Solution: An independent certification of CSR

We need some objective third-party institution to evaluate companies as good corporate citizens.  They would define the requirements (in areas of labor relations, environmental standards, marketing practices, etc.) and do an organizational audit of any company wanting to publicly claim to be a good corporate citizen.  Or rather than a single institution to carry out this work, maybe the expertise to label people CSR compliant becomes a specialization of some auditing firms, kind of like SAS 70 certification for financial controls.

Who should pay for the work?  I think the certifying institution should be independent of businesses but the businesses who want to be certified should pay a fee to go through the process.  Much like SAS 70 process, the auditing firms could first come in and give any company recommendations about what they would need to do to become CSR compliant.  The company decides what they are willing and able to do, and after their changes are in place the CSR firm comes back to certify them, or not.

Truth in Advertising

Do all businesses have to be good corporate citizens? Absolutely not.  Some businesses are not interested in promoting an image as good corporate citizens.  They have other objectives and use other strategies to carry them out, and that’s fine.  Others may continue to give to charity but are not trying to claim status as good corporate citizens.  That’s fine, too.

But those companies that are publicly using the image of themselves as good corporate citizens in order to convince consumers to patronize them (and workers to work for them) over their competitors are in fact advertising through those claims. In my experience, almost all companies include their corporate philanthropy budget in their marketing budget.

Just like consumers have a right to know what’s in those hot dogs, or whether there is any proof that that miracle cream really does all the things the manufacturer claims, I think we also have a right to know how truthful claims of good corporate citizenship really are.