McKinsey on Corporate Philanthropy: Mind Your Own Business

If only the Big 4 and the top consultancy firms could run on sustainability thought leadership white papers instead of free cash flow, 2008 would surely be a banner year. The latest epistle is from McKinsey who this week publish an insightful survey on corporate philanthropy.

The study unearths some revealing contradictions between strategic intention and practical action. For example, contrast the stated business goals of philanthropy with the factors taken into consideration in deciding how to focus such programmes.

The highest ranking business goals include brand and reputation enhancement at 70% and employee development at 42% and yet business goals such as managing risk, building product & market knowledge come lower down the list at 19% & 16% respectively.

And when it comes to how such social investment decisions are really weighted it turns out the highest ranking goes to CEO interests at 45% with employee and local community interests joint second at 37%. Stunning to note that brand development only weighs in at 22%, a clear contradiction between the surveyed business goals and how investment decisions are really made. Similarly, alignment with business goals only 23%, stakeholder interest 20% and, sadly, social impact a mere 19%.

So it turns out business and stakeholder interests are taking a back seat to C level pet projects, employee interests and the local community.

Not to be a total grinch here, employee engagement and local community benefits are very worthy goals whilst C level appeasement is a career necessity. But these efforts should be leveraged properly and the survey data contradictions suggest otherwise. In the age of increased corporate accountability perhaps the philanthropy efforts should be better focused on issues associated with other direct corporate stakeholders, areas of operational impact and within the legitimate sphere of influence.

Companies and consumers have long seen corporate philanthropy as a way for companies to benefit the communities where they are located—donating funds to local schools, hospitals, and orchestras, for example. In recent years, however, as society’s expectations of companies have risen2 and as many companies have begun operating in more far-flung locations, they are expected to address a growing list of needs. Companies that 20 years ago were held accountable only for direct, contractually specified, or regulated consequences of their actions today find themselves held to account for the consequences of their actions in areas as disparate as off shoring, obesity, excessive consumer debt, environmental sustainability, and the governance of resource-rich, low-income nations.

Indeed the McKinsey survey suggests that the love affair with the local community just outside the factory gates is somewhat misplaced. Referring to the segment of 20% of respondents who believe they are extremely effective at meeting social goals and stakeholder expectations McKinsey had this to say:

they, too, are much likelier to address the local community with their philanthropic efforts than the community’s importance as a stakeholder would seem to warrant.

The explanation for this is the high influence of employees over a more populist led programme. Of a ranking of the major social and political issues facing corporations respondents choose environment 46%, employee benefits 27%, privacy/data security 24%, political influence 19%, consumer demand for healthier products 19%. Yet the issues corporate philanthropy investment focuses on according to survey include education for a whopping 75%, community for 58% and economic development for 52%.

To achieve a wholly sustainable enterprise the goal must be to focus efforts above the line rather than below. Any efforts more closely linked to the core business operations not only have greater opportunity for sustainable impact long term but also enjoy greater social legitimacy given that corporations do not have unlimited democratic license to make decisions to prioritise social interventions. Below the line donations are too often tokenistic after thoughts.

NetSuite's announcement this week of the NetSuite Giving programme is a good example of strategically focused giving. NetSuite is targeting in kind technology support towards three beneficiary categories: Registered Charities, Fair Trade/Social Enterprises and Green Start Ups /Environmental. NetSuite have not given an indication of scale but its clear how this links to the future revenue model for NetSuite. However, there is no indication of how NetSuite sees this programme playing a role towards off setting more direct social and political risk it faces.

And this is where it starts to get tricky indeed for software vendors. Is enablement the biggest responsibility the industry should satisfy not just for customers but also for broader social actors? What are the other issues the software industry needs to address? This is a question Business for Social Responsibility is helping a cross industry convening address over the coming months. Watch this space.