Economic downturns are typically accompanied by a reduction in charitable giving, and corporate giving is sometimes slower to re-materialise than individual giving. But our research of the top 100 ASX Australian Companies shows that thinking and giving strategically can mutually benefit companies and the community.
Corporate philanthropy can better place a firm competitively, in terms of attracting customers, employees and strategic partners. All of this serves to benefit shareholders despite the cost. But it isn’t as easy as simply giving money away.
Our results show that for every cent the firm spends philanthropically, share prices can actually decrease. However, if a firm simultaneously manages its reputation, then market value will increase. So simply giving to charities will not necessarily result in happy shareholders, rather a firm must ensure shareholders and other stakeholders value the importance of supporting the community and the environment.
Managing your reputation
Let’s say a company decides to donate money or resources to a worthy cause. You might think the expense is hard to justify in the minds of shareholders, but there are real benefits to the bottom line. Our research found that philanthropy raised a company’s reputation, which in turn drove employee recruitment and retention, customer engagement, and a reduction in public and regulatory scrutiny.
But reputation must be actively fostered and maintained, both internally and externally, in order for the benefit to be realised. This is beyond just getting the message out, through advertising, certification, or having the charitable organisation disclose the details.
The need to manage reputations is due to an increased public awareness about corporate activities – increased demand for transparency, social media scrutiny, and the growth of interest groups. Corporate philanthropy can be an integral part of this management.
We’ve long known a few essentials in reputation management - businesses need to know how they are viewed by stakeholders. They need internal procedures and controls so that they can react quickly to any issues that arise. They must create a management system that has the ability to adjust from “business as usual”, to crisis mode and back. But well-known philanthropy can be crucial in whatever action is taken.
The fallout from a Greenpeace report a few years ago is illustrative of the value of this approach. in 2009 Greenpeace alleged that an Indonesian company, Sinar Mas, had destroyed orangutan habitat while supplying palm oil to be used in food and cosmetics. In the wake of the Greenpeace report, companies like Nestle had to act in order to save their reputations. The goodwill of customers and staff was on the line.
Nestle moved quickly – recognising the potential damage to its reputation, investigating the matter, changing palm oil suppliers and committing to “certified sustainable palm oil” by 2015. Its efforts were bolstered by a long standing environmental program that boosted its legitimacy and claims of action.
Thinking long term
Despite the Nestle example, and the tax advantages in many jurisdictions, corporate giving is still sometimes thought of as just a cost. But as the Nestle example shows, in order to see the benefit the cost must be considered a longer-term investment.
Consumers often make buying decisions based on how they perceive a company rather than on the products themselves. Firms with a solid reputation can see a boost in employee engagement and morale, leading to increased productivity and less absenteeism.
These visible cues are the drivers of the short-term view of corporate philanthropy – charity can lead to a boost in sales. But the value created by doing good also accumulates over time, as the perception of a company shifts in the minds of customers, employees and even shareholders. And as the Nestle example shows, goodwill can be a strategic resource to draw from in times of need.
Corporate philanthropy can be a win-win for both company and community, provided it’s done well. The community benefits from the resources and engagement, the company benefits from greater stakeholder appreciation, and shareholders see an increased market value over time.
Authors: Kate Hogarth, Academic with research in Reputation Risk Management, Corporate Governance and Accounting Education, Queensland University of Technology