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A PARADIGM SHIFT IN THE US DEVELOPED, UK ARTICULATED & ASIA CONTEMPLATED CORPORATE PHILANTHROPY


Should corporate give money? Not everyone thinks so. The conservative economist Milton Friedman once declared that the only social responsibility of businesses is to maximize profit, which is however, no longer applicable in this turbulently structured market pandemonium. Likewise, many companies today argue that shareholders invest in them to expect something monetary in return.

The traditional argument in favour of corporate giving is that businesses rely on the communities in which they operate and therefore they should give something back to society. But the trouble with this rationale is that it relies on the will of companies to be good. A much more compelling argument is that charitable giving is good for businesses. Businesses no longer want to be seen simply handing over cheques. Instead, they want some sort of feeling of involvement. Even though long term relationships with businesses and community are not new to the corporate arena, in the 20th century, this scenario has changed with businesses simply handing over donations to charities as they reap the harvest. It was argued that charities had the expertise and knowledge and were more qualified to know how to spend money and deploy resources.


Deep involvement in philanthropy

So why are businesses now becoming more deeply involved in philanthropy. What has sparked the change?The current trend is being driven by two related facts.

  • First companies and charities now realize that the core competencies of businesses can be deployed to charities to achieve their goal. In other words, businesses have more to offer than just money.
  • Second, companies are also recognizing that there are tangible benefits to be gained from charitable involvementIt is argued that corporate philanthropy is beneficial for companies and therefore there is no legal or moral reason why they should not be more generous.

Directors are allowed to use their discretion to act for a company’s gain and as a result, companies could and should donate because it is in their long term interest.Once as a director of the institute of philanthropy said, essentially, it was a reputationally good thing for companies to be seen as supportive.

If proof was needed that philanthropic goodwill has become a highly- prized commodity, it is not difficult to find. At a time, when traditional means of advertising were less effective, a charitable donation had been a means of attracting favourable attention. Like wise, in case of corporate behaviour under increasing scrutiny from consumer’s bogglers and Sarbanes – Oxley – Empowered regulations, a public show of goodwill fetches much to engender faith in a brand. Most corporate giants today, spelling out this point, urge companies to invest more time and money in philanthropy. With the problems they have suffered with corporate governance. It has become more important that they be seen as humans and institutions that really care.However, in the corporate world itself, the patterns of giving are now shifting. With gifts in kind and employee volunteering. Charities are not only the beneficiaries. Companies have found that such giving enhances their own operations with for instance improved staff morale.

Charities acting as brokersCompanies use charities as a broker between recipients and donors. Companies can use it to counter bad PR or to show they are being proactive. When it comes to selling. Their social responsibility plays a vital role and corporate philanthropy is a huge ingredient to it.This does not mean that companies need to write blank cheques. Instead, they are trying to get most out of the cause they support by focussing on initiatives that relate to their businesses.While this mass outpouring of generosity in certain areas may not be repeated again due to such various reasons as less transparency and accountability, European philanthropy is moving into a new era in which creative models of giving are emerging. Accordingly, a new generation of high net worth individuals seeks to donate money in ways that maximize the intended impact.This more business minded approach to charity goes both ways. Companies are acknowledging that active involvement in the community and a benevolent public face can boost profits, and charities are swapping scandals for suits in the hope that empty tins will stop rattling. But the shift to partnership rather than tight paternalism has also brought charities under increasing levels of scrutiny.

Companies tend to choose charities that are safe and won’t risk reputationl damage. As ever it is the employees themselves who are most able to influence how much corporations give and to which causes. Thus in the aftermath of last years’ Asian Tsunami, corporate Britain was soon farced to stand with the public mood and publicize its concern. Their responses suggest that all business needs is a little more pressure to give to charity. Employees support it so do shareholders who want the company to perform well. Company directors it seems would do well to listen to the people who work for and invest in their business.Establishing relationshipsFor charities, there are significant benefits to be gained from such gifts. A charity or community organization that has not worked with the corporate sector initially tends to think of the income. But the advice is always to go for something in kind because you are much more likely to establish a relationship, which is much more than receiving money.

However there is a long way to go before corporate philanthropy in Asia will begin to compare with levels of charitable giving in the US and UK. Many fundraisers in the UK nevertheless lament the fact that, compared with the US system, claming tax breaks for giving( donations) is complex and a maze of fiscal regimes across Europe make tax efficient cross border donations difficult and therefore currently there is a tendency in the UK to follow the US modelling of corporate philanthropy. When it comes to larger donations, US giving often reflect a desire to enter certain elite, particularly, in the arts and culture. In the US, philanthropy is very broadly and unbiasedly used for social ascension. Any one who wants to climb the social ladder recognizes the pure fact that philanthropy has to figure very prominently in the equation. As a result, wealthy people are, in many cases, the most enthusiastic promoters of philanthropy.However this is not the case in Asia, where corporate philanthropy is still running at its infancy and hence requires a lot of time and thinking devoted to it.Behind this new move, a more professional approach to giving is the fact that the new philanthropists tend to be successful business people who want to see the skills and strategies of the financial world brought to bear on the voluntary sector. Many are now engaging in venture philanthropy. A concept that emerged in the US roughly a decade ago but that is now attracting attention in Europe among private equity and venture capital professionals.

Private Equity mentality

There is a connection with the private equity mentality whereby you invest in companies to increase their commercial value by purchasing equity in the company and working with the management team to build the value of that company. Venture philanthropists are granting money to a non profit organization. But they are engaged in the same way – they want to increase its social value by bringing in skills and networks and working with the management to create a new effective organization

Moreover, today it can be seen that more specialist interim brokers are emerging on the charity side to deal with specific products and they can act as clearing houses and places from which to redistribute the goods. Often the businesses that want to do this will support these brokers in getting off the ground.

Charities benefit by tapping into skills and knowledge that they would not otherwise have. Further, partnership with charities some times gives companies new perspectives on their own core businesses. Partnerships give us the ability to demonstrate how technology can really make a difference to the lives of the disadvantaged. And this happens in the way that this could not have been imagined otherwise.

Pluses vs. minuses

Although there are many success stories in this field, there are also barriers. Companies may lack experience of dealing with charities and be unable to understand the different culture of the not for profit world. In turn, charities may have difficulty in accepting that businesses are acting for philanthropic reasons. Ironically, the fact that businesses are also deriving benefits from partnerships tends to increase distrust, creating a mentality that they are only in it for themselves.

It could nevertheless be argued that such partnerships represent a new form of social contact for the 21st century. In which the businesses see maximizing their own profits and providing benefits to the community as two sides of the same coin. Social legitimacy is one of the biggest challenges for multinational corporates. Today, partnerships with charities are about much more than merely enhancing image or satisfying a desire for philanthropy. It may be that companies are using these partnerships as a way of rediscovering their lost or rather forgotten role in the society.
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