Philosopher Jamie Whyte wrote a opinion article in the July 21 Wall Street Journal entitled, “When Corporate Theft is Good.” He outlines the implications corporate philanthropy has on shareholders, who are not guaranteed to have a say in how much of and where their company’s philanthropic funds (possibly taken from their dividends) are directed. Whyte thereby equates corporate philanthropy to theft. To further illustrate this notion, he asks readers to place themselves in the shoes of a shareholder who has just hired a new manager. This manager transfers $100,000 to the bank account of an outside party that has not provided any goods or services, but is rather the manager’s favorite charity. This, Whyte states, is theft because that $100,000 belongs to the shareholder, not the manager.

Whyte is not the first person to liken corporate philanthropy to thievery. Daniel Indiviglu, a writer for The Atlantic, wrote an article in January 2010 in response to Glaxo-SmithKline’s decision to release a large amount of intellectual property concerning anti-malarial research to the public domain. The intellectual property presented the public with details on about 13,500 chemical compounds that were identified to have the potential to act against the parasite that causes malaria in sub-Saharan Africa. Indiviglu questioned the integrity of this decision, stating the intellectual property had been financed as an investment by the company’s shareholders. He made the argument that the “Glaxo management [had] decided to take investor dollars and donate the profit that may come from it”—the profit that shareholders had perhaps invested in. Ultimately, he states that without “explicit shareholder approval, [it is] unclear how this is different from taking investors’ money and misappropriating it”.

Many, however, claim that corporate philanthropy works to the shareholders’ benefit. A study conducted by Paul Godfrey at the Brigham Young University in 2005 concluded that corporate philanthropy actually adds to shareholder wealth, acting as an insurance policy for the company and protecting the shareholders’ investment in the event of a misfortune. While companies may be giving funds away to charitable organizations, they are also benefiting the shareholder’s interests by enhancing their company’s image.

In some cases, this image enhancement plays a role in the company’s revenue increase, ultimately benefiting the shareholder. A 2008 study entitled “Is Doing Good Good for You?” concluded that corporations who were sensitive to consumer perception (usually when an individual is the predominant consumer), were very likely to see their charitable contributions significantly associated with future revenue. A 2010 social responsibility perceptions survey from Burson Marsteller and Penn Schoen Berland found that 55 percent of consumers say they are more likely to purchase products that support a certain cause. In certain cases, corporate philanthropy can attribute to increased revenue, thus serving the shareholder’s interests.

This notion is an extension of a theory presented and evaluated in a 2006 study by Claremont McKenna College researchers titled “Corporate Philanthropic Practices.” The idea that corporate philanthropy actually helps the shareholder by adding value to their investment is called the “Value Enhancement Theory.” The other theory, called the “Agency-Cost Theory,” complements Whyte and Indiviglu’s arguments that corporate philanthropy indulges the management directing the funds while incurring an opportunity cost on shareholders. The study’s evidence supported the latter theory chiefly because it found the total amount donated by a corporation was positively correlated with the absolute size of the corporation’s board.

Amidst the contention remains a finite fact: corporations are a significant contributor to the total giving in the United States. The most recent GivingUSA report shows corporate philanthropy and foundation giving represented 17% of the total $303.75 billion contributed in 2009.


We want to hear from you: Is Corporate Philanthropy the same as stealing from shareholders, or is it a triple-win for bottom line, dividends, and communities? Do you know of corporations who engage shareholders in making grant determinations?