Finance, Business & Investing Articles

A Model for Giving The Effect of Corporate Charity on Employees

Part 1

In addition to potential external customer attraction benefits, there are also possible powerful internal benefits for a corporation that gives to charity. In this essay we lay the groundwork for a rational and strategic set of principles that could guide a company to maximise the positive effect of its giving on its employees. Aligning a corporation behind a charitable goal can have, I will argue, a powerful positive effect on a company’s employees by increasing employee retention, boosting identification with the firm and raising helping behaviour.

  • Corporate charity
  • Strategic giving
  • Employee retention
  • Corporate charitable giving

Phin Upham is a visiting scholar at New York University and earned his PhD from the Wharton School, University of Pennsylvania. He also holds an MBA from the Wharton School and a BA with honours from Harvard University. His interests are in the study of schools of thought, paradigm development, the evolution of technical and organisational knowledge, and in the social construction of meaning.

The Wharton School, University of Pennsylvania, 2061 Steinberg Hall– Dietrich Hall, Philadelphia, PA 19104-6370, USA uphams@wharton.upenn.edu

Corporate charity in the United States is big business. After growing 4.2% a year over the last decade, in 2004 US corporate charity reached a value of over US$12 billion.1 This philanthropy is widespread among large and small corporations alike; in 1993, for example, over 1,700 corporate foundations and over 600 direct corporate giving programmes operated in the United States. IBM alone disbursed US$141.5 million for grants and gifts in 1992 with Exxon and GE close behind at US$73 million and US$66 million, respectively. Tobacco maker Phillip Morris chipped in US$46.3 million in grants (Kolodner 1994). Many sceptical observers of such corporate charity see it as laudable, but also self-serving. It is assumed that part of the reason firms give is because of the fringe benefits they derive from giving: from increased customer loyalty to tax breaks to increased market penetration. Companies sometimes publicly advertise their giving: for example, a recent health-related ad campaign featured the contributing firms’ logos.

In this essay I will argue that, in addition to potential external customer attraction benefits, there are also possible powerful internal benefits for a corporation that gives to charity. By building a model that helps this link become more clear, I will try to lay the groundwork for a rational and strategic set of principles that could guide a company to maximise the positive effect of its giving on its employees.

The normative question of whether or not a company ought to combine altruistic and pragmatic reasons for giving, or the question of whether corporate giving is a productive expenditure altogether, is not the interest of this paper. The German philosopher Immanuel Kant argued that actions with mixed motives had no moral weight. That argument aside, as long as a company is giving to charity there is no clear reason why, ceteris paribus, they ought not to do so in a way that also does some good for their shareholders and employees. The aforementioned customer attraction and reputational benefits of corporate charity are almost invariably the ones focused on when this topic is discussed in the press. Less developed are the possible internal benefits for a corporation that gives charitably. Aligning a corporation behind a charitable goal can have, I will argue, a powerful positive effect on a company’s employees by increasing employee retention, boosting identification with the firm and raising helping behaviour.

In recent years, many companies have incurred much ire in the press for ‘strategic philanthropy’ and ‘cause marketing’. In the case of strategic philanthropy companies further their own best interests, such as in the example of a chemical company that built low-cost housing so employees could live closer to its factories. In the case of cause marketing a company might put its logo on an advertising campaign for a social problem (or the cause’s logo on its product) in order to be associated with the cause. Either way, companies are starting to think more strategically about their donations.

An important metric, which, I will argue, is affected by corporate giving, is organizational citizenship behaviour (OCB). Recent literature—for example, Moorman 1993— has argued that organisational citizenship behaviour can be seen as one of the drivers for a productive workplace. Moorman qualifies his claim by discussing the difficulties in measuring OCB owing to different understandings in the literature, but his findings still stand as a rigorous examination of how OCB can contribute to firm productivity. Similarly, in D.W. Organ’s seminal book Organisational Citizenship Behaviour (1988: 6) he claims ‘OCB, in aggregate, make[s] for a more efficient organisation’. Organ describes it as encouraging conscientious, courteous workers who are active in reducing friction and in having ‘responsible participation in the political life of the organisation’.

H1: Links to charitable causes result in higher employee identification with a firm.

H2: The higher the employee identification with the firm, the higher the firm performance.

Dutton and Dukerich (1991) show us in their paper studying the Port Authority of New York and New Jersey how significant the effect of an organisation’s stance towards a relevant social issue can be to firm identity. In that case, taking a proactive and constructive stance towards the homeless problem, both outside and within the port authority, especially as it affected the organisation, helped to reinforce the view of the organisation as friendly and playing a positive role in society. Firm identity and socially minded non-core firm actions can be interconnected. If a firm is to differentiate its identity as a firm from other firms, and if this action is to be believable, it must somehow commit to its guiding principles and to its most closely held beliefs. As the Port Authority example illustrates, engagement in non-business-related giving and interacting in relevant social causes can be a powerful way of doing this. Charitable giving, as a firm action, affects firm identity (one can assume that it is a firm’s known actions that determine people’s perception of it and hence its identity). But there is more to it than this. In interpersonal relations, voluntary and charitable action (rather than self-interested or forced action) is generally interpreted as a revealing sign of a person’s true character or nature. Similarly, and Dutton lends some support to this extrapolation, despite the differences between firms and individuals, a firm’s charitable actions can be perceived as particularly important to shaping its perceived identity.

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