A recent Harvard Business School working paper examines the impact of senior management and board directors on the distribution of corporate philanthropy. The results show that the rich interplay between individuals and organizational structure influences the amount and type of corporate giving the company undertakes.
As more companies take corporate philanthropy in a strategic direction, the paper answers some critical questions regarding how the interpersonal dynamic between management and boards, as well as gender, effects corporate giving.
Authors Christopher Marquis and Matthew Lee write:
“While some corporate leaders may treat philanthropy as discretionary, or simply part of the ‘overhead’ of doing business in certain locales, our results suggest that by making conscious organizational choices, corporations may be able to more effectively harness the elusive strategic benefits of their social responsibility programs.”
Here are three ways, according to the study, that giving is influenced by players at the top.
1. The Foundation
The authors’ analyzed Fortune 500 firms between 1999 and 2006. According to the research, 70% of the companies organized philanthropy through corporate foundations.
The authors expected that senior management and board directors would have significant influence over foundation decisions regarding who gets the money and how much. But they were surprised to find that, while senior management did exercise influence over the foundation, the presence of a corporate foundation actually tamped down board director influence on corporate giving.
“One possible explanation for this pattern of findings is based on differences between the formal leadership roles of senior managers and directors. Because senior managers have formal, day-to-day purview over the organization, they are more likely to be able to co-opt the internal structures to their ends. Without this formal power over the organization, directors are subject to greater constraint by the organizational structure.”
Because directors are not involved at a practical level in internal corporate management, they are less likely to be able to manipulate foundation objectives.
According to the study, companies with female CEOs and a larger number of female directors are more likely to give and tend to give more. The researchers believe this comes down to two factors – first of all, they say, studies have shown that individual women give more in general.
Second, they say, women tend to be more in tune with the societal context in which the company operates, and are thus more likely to be philanthropic.
“…women senior managers and directors of corporations may be better able to appreciate the importance to the firm of relationships with potential beneficiaries of corporate philanthropy. As a result, the perceptual boundaries of large firms may be expanding into areas clearly outside the corporation to incorporate more diverse stakeholders (Konrad et. Al, 2008).”
3. CEO Tenure
The authors noted that corporate philanthropy tends to decrease as the CEO’s tenure increases. They suggest this may be because CEOs enter an organization looking to make a big impact up front, and once they have achieved this objective, they ease back on corporate giving.
Additionally, they note, this data point may show that companies are still not fully embracing the idea of strategic giving, because it is so dependent on the individual CEO. “Notably, the latter finding could be interpreted as support for the critique that philanthropic behavior is to some extent driven by the circumstances of the CEO, rather than by firm-level strategies.”
Finally, they say, similar research can be used to shed light on the business case for corporate social responsibility. They write:
“If the ‘holy grail’ (Kelly, 2004) of management research connecting social performance with financial performance is to ever be found, scholars need to increasingly examine organizational structure and design processes within organizations to understand this multi-level and multi-dimensional organizational phenomenon. Such inquiry would shed significant light on the critically important nexus of business and society (Hinings and Greenwood, 2002).”
Rather than focusing purely on balance sheets, examining corporate structure and other variables can help explain some motivation behind corporate philanthropy.