Smarter Corporate Philanthropy

By James Piereson & Naomi Schaefer Riley

Tuesday, July 25, 2017

The purpose of corporate philanthropy has been a subject of debate for several decades. Milton Friedman and others have said that corporate philanthropy should serve shareholders and employees, in which case it should be aligned with basic corporate purposes. After all, they argue, those funds belong to the shareholders, not to the public or to the executives deciding how to allocate charitable dollars. But in the real world, corporate philanthropy is often used for other purposes — to express the charitable interests of executives, for example, or to win goodwill in the local community, or to shield the corporation from criticism by organized advocacy groups. These are issues that have been raised anew by General Motors’ recent announcement that it plans to change the way it allocates $30 million in charitable donations every year.

In what some described as a blow to local nonprofits in Detroit, Jackie Parker, director of GM global philanthropy and corporate giving, explained:

What we’re more interested in funding is programs so that we can measure societal impact and have a deliverable back to our shareholders and the folks that are interested, investors, potential consumers, potential employees, and show them what difference General Motors is making in the community.

Though Parker and her colleagues have yet to announce which groups will lose funding, it appears from the announcement that they will be small nonprofit operations, especially those associated with the arts. Juanita Moore, president of the Charles H. Wright Museum of African American History, noted at a recent panel that she was worried about what would happen to her institution if GM changed its philanthropic strategy.

How is GM’s money likely to be spent? According to the Detroit News:

GM’s giving arm wants to use its dollars to more closely align with its corporate mission: to improve vehicle safety and reduce accidents and injuries; to advance education in the areas of science, technology, engineering, and math; and to increase high-school graduation rates in cities.

There are those who will accuse GM of being less “charitable” because it’s directing its efforts in ways more aligned with its corporate interests — training a future work force, improving safety, and supporting advances in technology. According to such critics, corporate philanthropy is not really charity unless it operates independently or even in conflict with corporate interests. This is why we sometimes witness the spectacle of corporations incongruously sending funds to staunch critics and adversaries.

But this new direction of philanthropy for GM may prove to be a better use of its resources (even from the viewpoint of the local community) than funding local arts programs or other nonprofits unrelated to its corporate mission. One could make the case that it will be much more in the public interest for companies such as GM to become more involved in college and high-school education. And it would also benefit the companies themselves to get more involved in college and high schools because those institutions are now doing a poor job of training future workers and corporate leaders.

In Detroit, for example, the high-school graduation rate has been rising, but student achievement remains abysmally poor. According to Marc Perry of the American Enterprise Institute, Detroit’s is “the nation’s worst-performing urban school district, where only 6 percent of its high school students are proficient in math, only 4 percent are proficient in science, and only one-third are proficient in reading.” These are not youngsters being prepared for the knowledge economy, let alone for skilled positions at an automobile company.

If GM could so something to improve local schools — perhaps subsidize a STEM-focused charter school or even start its own associates degree program for high-school students to learn the skills they need to be hired by a company like GM — these would go a long way toward helping the community and, not incidentally, the company itself.

Currently, however, the philanthropic arms of many companies are giving in ways that directly contradict their mission. Oil and fossil-fuel companies such as BP have a long history of giving to environmental groups in order, some might speculate, to deflect criticism from the green lobby. According to Time magazine, for instance, “between 2007 and 2010 the Sierra Club accepted over $25 million in donations from the gas industry, mostly from Aubrey McClendon, CEO of Chesapeake Energy,” one of the biggest gas drilling companies in the United States.

But even when corporations do not fund their adversaries, their funds are often spent on institutions irrelevant to their corporate goals. Art museums, symphony orchestras, soup kitchens, shelters for the homeless, well-connected civic groups — all of these have become dependent on corporate giving in order to survive. While they may be worthwhile institutions, they do not have a claim on corporate funds. Moreover, they might be better served by abandoning corporate support and identifying local donors that have greater personal commitment to their causes.

Lenore Ealy, president of the Philanthropic Enterprise, says that corporate philanthropy has actually aggravated some structural problems in the charitable sector. As she points out, many nonprofit organizations, LIKE corporations in the Rust Belt in decades gone by, “operate on long-running expectations rather than consistent repeated value creation.” Since there is no market test for their operations, nonprofits tend to go along with what has worked in the past without feeling any need to adjust to changing circumstances. Because corporate philanthropy is more concerned with appearances — with pleasing the right politicians and local leaders and getting positive press coverage — than with whether these institutions are doing a good job, they continue giving without evidence that these nonprofits are accomplishing anything of real value. The two sides of the transaction thus reinforce their own worst tendencies.

Moreover, many of the executives in charge of giving away money have no capacity to evaluate the nonprofit organizations or to assess the value and impact of their corporate donations. There is also the possibility that they will simply aim to enhance their own reputations by supporting causes they do not understand or even care about. Just recently, for example, Delta Airlines and Bank of America were forced to beat a hasty retreat from their support for New York’s Public Theater after they learned the company was mounting a production of Julius Caesar starring a Donald Trump lookalike.

If companies want to use philanthropy to improve their reputations or serve some public relations objective, then (wisdom aside) they have every right to do that. But GM’s executives have a good point: It may be better to stick with what they know.