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Corporate philanthropy: emergence, viability and legitimacy gain

11 August 2020

The article at a glance

Centre for Strategic Philanthropy study examines the emergence, viability and legitimacy gain of corporate philanthropy. A new study written by Cambridge Judge …

Centre for Strategic Philanthropy study examines the emergence, viability and legitimacy gain of corporate philanthropy.

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Elena Christodoulou.
Elena Christodoulou

A new study written by Cambridge Judge Business School MPhil student Elena Christodoulou (also a member of the Centre for Strategic Philanthropy’s team) on the Emergence, Viability and Legitimacy Gain of Corporate Philanthropy provides insights into the “legitimacy gain” of corporate philanthropy. It assesses the history behind why corporations give, how they give and the evolution of corporate philanthropy as a distinct category.

In her thesis, Elena notes that there has been significant evolution of the sector from traditional giving through foundations and wealthy individuals to more sophisticated forms of social investment such as venture philanthropy. Within this context, corporate philanthropy has emerged as a distinct category since it was first identified in the 1950s. Since that time, however, it has not always been seen in a positive light having frequently been accused of whitewashing and regarded with suspicion.

Corporate philanthropy suffers from the heterogeneity of its stakeholder base and its associated diverse expectations and interests. While some stakeholders consider corporate philanthropy as an unnecessary cost that defies the economic interests of the firm, others urge businesses to give more and to give better. Increasingly corporate stakeholders expect businesses to behave in more responsible ways and that some of the wealth generated by corporations should be redistributed back to society. Meanwhile, shareholders and investors may see corporate philanthropy as a cost that damages the economic interests of the firm.

Some argue that philanthropy should be disconnected from the corporate’s underlying business model while others suggest it should be aligned to it, in order to maximise the value of its donations (moving beyond money to provide also expertise). The UK Tax Reform Act in 1986 encouraged corporations to give and to link their donations to their economic activity and thus encourage wider adoption. And yet still there is much debate in the sector about how corporate philanthropy should be practiced and where it should be deployed.

This lack of clarity around the purpose of corporate giving and the absence of clear standards and best practice, means corporate philanthropy often struggles to secure legitimacy. The continuously unfolding nature of its external operating environment and variations in the interpretation and importance of corporate philanthropy have challenged its viability and legitimacy.

Corporations have attempted to build more strategic models to respond better to their divergent stakeholder interests, improve their legitimacy and secure broader gains (e.g. reputational value and ‘licence to operate’). However, the absence of best practice often leads to corporations simply donating comparable amounts to their peers which obviates an opportunity to align with their core business activity. Popular causes include arts and culture, health, and education irrespective of the underlying business of the corporate. This approach Elena argues, risks undermining the legitimacy of corporate giving if it is perceived to be derived purely by managerial discretion rather than a strategic and authentic commitment.

For corporate philanthropy to continue to evolve and remain viable, Elena argues, it must be integrated into the broader sector of philanthropy and engage with other philanthropic actors. Legitimacy, Elena argues, is not a one-time event but a continuously unfolding process as the purpose of corporate philanthropy is reviewed, reassessed and re-invented. Only through coherent and relevant traction with their varied audiences and alignment with like-minded actors, can corporate philanthropy gain authentic legitimacy within the communities where it is applied.