Strategic Philanthropy: Business-Minded | Open-Minded

By: Priyanka Dahiya, Milu Hoppenbrouwer, & Chuki Obiyo

I.  Background[2]

In recent years, corporations have increasingly found themselves caught between critics demanding ever higher levels of corporate social responsibility, and investors who apply pressure to maximize profits.  As a response, a growing number of corporations have begun to shift from traditional forms of philanthropy involving charitable contributions, towards more strategic forms of philanthropy which leverage unique corporate capabilities to promote human rights.[3]

The challenge faced by many corporations in making this shift is how to best identify and use their core competencies to promote human rights in the locations in which they have a business presence, while at the same time aligning philanthropic initiatives with their long-term business prospects.  This challenge depicts an evolution from a “do no harm” model to a “do better” model.  Unlike a “do no harm” model which emphasizes the respect of human rights based on avoidance of human rights abuses (a negative responsibility), the “do better” model is consistent with the promotion of human rights (a positive responsibility).  To that end, the primary solution for dealing with the challenge of strategic philanthropy is found in answering the following question: How does a corporation promote human rights in a way that produces a benefit to its business?

This Good Practice Note provides an answer to this question by describing How Corporations Are Using a Shift to Strategic Philanthropy to Promote Human Rights While Improving Their Business Environment.  The Note was developed from interviews conducted by the authors from early to mid 2011.  The authors conducted the interviews with executives and professionals from a range of industry sectors.  The interviewees discussed good practices in strategic philanthropy that can be applied across a variety of sectors.  The Note also draws on academic research and reports from leading scholars and other stakeholder groups about strategic philanthropy and its connection to human rights.

The Note begins with a section (II) that defines the concept of strategic philanthropy and its four elements: 1) core competencies; 2) charitable efforts; 3) improving business environment; and 4) meeting social needs that promote human rights.  The Note continues with four sections (III – VI), corresponding to the four elements of strategic philanthropy, which provide the context and tips for how corporations are using the shift from traditional philanthropy to strategic philanthropy in the most valuable and measurable way.

II. Strategic Philanthropy Defined

Traditional corporate philanthropy or Version 1.0

Corporate philanthropy has gone through major phases of development. In its incipient stage, it was characterized by a corporation making specific cash donations to local programs, charities, and/or universities in order to generate goodwill among members of the community in which the corporation had a business presence.  Beyond generating goodwill, the corporation did not measure the impact of its donations on other elements of its business environment such as employees, customers, corporate culture, and business development.[4]

Social investment or Version 2.0

A significant shift took place when corporate philanthropy became less focused on purely monetary contributions.  This second stage was characterized by a corporation making particular social investments that were not necessarily tied to its core competencies but could generate goodwill among constituencies that were important to its business development e.g. potential customers or new suppliers.

Strategic philanthropy or Version 3.0

A new shift is now taking place as corporations are beginning to focus on the sustainability and scalability of their philanthropic efforts.  This new shift, strategic philanthropy, is defined as the combination of a corporation’s core competencies with its charitable efforts in order to improve the corporation’s business environment while meeting social needs that promote human rights.

Strategic philanthropy is about more than the corporation’s reputation, it makes philanthropic initiatives a part of the corporation’s competitive position.[5]  In this sense, strategic philanthropy is distinguishable from other strategy-based business activities such as branding and social innovation because it produces indirect but measurable business benefits by positively impacting a corporation’s business environment beyond its bottom-line.

Good practices in strategic philanthropy are important because corporations depend increasingly on establishing local partnerships through collaboration, outsourcing to local suppliers, and working more closely with customers.[6]  Strategic philanthropy therefore includes participation by the corporation’s employees and a deep understanding of its core skills and organizational expertise in terms of knowledge, human capital, and financial resources.

Criticisms of Strategic Philanthropy

It is necessary to acknowledge that strategic philanthropy has been the target of critiques. There is a debate about whether corporate social responsibility (CSR) initiatives, broadly speaking, constitute a legitimate activity for a corporation to be engaged in.  Some strategic philanthropic initiatives have been perceived as mere “public relations” as they are seen as allowing companies to make minimal adjustments while changing little, if anything, in terms of actual corporate behavior.[7] Another major criticism of strategic philanthropy relates to “institutional capture,” the notion that the increased influence of corporations in the provision of public goods undermines government capacity.[8]  It is viewed as especially troubling if the public interest is distorted to drive profits for the private sector. But, strategic philanthropy is not mainly about profits.

Support for the Shift to Strategic Philanthropy

Properly conceived and implemented, strategic philanthropy promotes human rights by providing access to human rights solutions that surpass those provided by governments.  All of the interviewees shared the view that inefficiencies often exist in the public sector.  As such, private sector support through strategic philanthropy enables both society and business to do better – advancing civil and political rights as well as economic and social rights.

III. Core Competencies

Identify Core Competencies

To do better, a corporation must identify its core competencies by taking a strategic view of its role in society.  Core competencies are defined as a corporation’s unique abilities and areas of expertise in relation to its core business purpose.

To illustrate how a corporation can identify its core competencies, consider how one large beverage company approached this challenge in making the shift to strategic philanthropy.  By taking a strategic view of its role in society, the company was able to identify its core competencies within the framework of a key stakeholder issue– access to clean water.  The company chose to promote the right to clean water,[9] an area where the company could have significant impact due to its relevant expertise in water quality, water conservation, and waste reduction.[10]

Use Core Competencies

Most interviewees noted that their strategic philanthropy initiatives allowed for a more synergistic use of core competencies.  “We believe in philanthropy 3.0, the idea of moving beyond purely monetary contributions and taking a holistic approach that includes the involvement of our partners, and the donation of our services and technology expertise to provide one comprehensive solution,” says the vice president of global social innovation for a large IT company in describing her company’s industry leading role in implementing Version 3.0.

This large IT company uses its core competency of innovation to find seamless technological solutions that promote human rights.  For example, the company partnered with the Clinton Health Access Initiative and the Kenya Ministry of Public Health to develop a new system that accelerates early infant diagnosis of HIV.  The system uses the company’s technology to capture, manage, and return early infant diagnosis test results.  For the company, the idea behind this initiative is to promote the right to health[11] by improving the health conditions of Kenyans while developing relationships with local stakeholders and government constituencies.  Furthermore, since the system targets a global disease such as HIV/AIDS, it can be used in other parts of the world, thus enabling the company to capitalize on its investment in the initiative.

IV. Charitable Efforts

Consider Human Right Issues at Each Stage of the Corporation’s Value Chain

Several interviewees pointed out that a corporation needs to think about the human rights issues that are present at each stage of its value chain in order to maximize its charitable efforts.  For example, one large apparel company noted that in the manufacturing phase of its product’s lifecycle, the most pressing human rights matters it comes across involve the right to gainful employment, and the right to safe and healthy working conditions.[12]  So the company molds its charitable efforts around the respect and promotion of good labor conditions for its employees and the employees of its suppliers.

Another interviewee noted that in the research and development phase for its software applications, human rights issues like the right to privacy, accessibility, and freedom of expression[13] demand careful consideration.  As a result, the company directs its efforts at initiatives that can provide it with the necessary support system to stay abreast of how technology impacts these rights.

Considering societal needs at each stage of a corporation’s value chain will evolve as technology changes, economies develop, and societal priorities and needs shift.[14]  As global business becomes more competitive and action is shifted to emerging and frontier markets, it is necessary for corporations to be even more sensitive to how and where they operate.

Determine the Gaps between Human Rights Needs and the Corporation’s Human Rights Efforts

Companies need to look at the context in which they operate and identify any gaps in the surrounding environment between human rights needs and the company’s ongoing charitable efforts.  Interviewees shared their belief that a dedicated focus to such gaps can help a corporation pinpoint the areas it is best equipped to influence and affect.

• Take a long-term view of connection with local communities

Corporations are greatly affected by various local issues: natural resources, environmental degradation, water use and quality, health, safety, and other such externalities which can hit the bottom line.  For instance, efforts to minimize pollution and environmental degradation from poor air quality were thought to increase business costs, but today there is a growing recognition, especially in the oil and gas sector, that environmental performance can be achieved with better technology at nominal incremental costs or even net cost savings due to enhanced resources utilization, process efficiency, and quality.[15]

• Seek areas for collective action to fill the gaps

All of the interviewees noted the power of collective action.  A corporation can maximize its charitable efforts by finding the right partners within the private sector, multi-stakeholder initiatives, NGOs, or government agencies.  A majority of the interviewees stated that they benefit from collective action through local partnerships in order to better navigate local rules, laws, and customs. Local governments can help identify local needs while NGOs are often best suited to help design and implement philanthropic programs.

Some philanthropic activities will involve giving money to other organizations that deliver social benefits, but it is increasingly seen that such donations may be executed in a strategic way that goes beyond searching for goodwill from the local community a la traditional philanthropy, Version 1.0.  The impact a donor achieves through strategic philanthropy is partly determined by the effectiveness of the donation to the recipient.[16]  For this reason, it is important to understand stakeholder expectations and their willingness to collaborate.  “Feedback from stakeholders, such as nongovernmental organizations and our Trusted Advisory Network, which we created in 2009 to deepen dialogue, help us to gather recommendations for our charitable efforts,” says the global citizenship program manager at a large IT company.

Link Select Human Rights Efforts Directly to Corporation’s Resources

Another essential component of charitable efforts in light of strategic philanthropy involves linking human rights efforts directly to the corporation’s resources in order to achieve the proposed scale of impact.  If a corporation wants to have real impact through its charitable efforts, good practices suggest that it choose partners and build relationships carefully.  The majority of interviewees agreed that the more human rights issues a corporation seeks to solve, the more it dilutes its efforts.  To maintain a strategic focus on the most effective partnerships, one large oil & gas company manages partnership requests through a dedicated Sustainability Committee.  The committee examines each partnership venture based on how well the venture aligns with the company’s goals to promote the right to education and improve the labor force in the communities in which it has a business presence.

•  Be open to both a tried and true approach and a novel approach

Some interviewees recognized that there are challenges in matching up a corporation’s efforts directly to resources that the corporation would have dedicated to other business operations.  One interviewee noted that a corporation is better off to stick with a tried and true approach to human rights solutions in which a government entity has previously committed or plans to commit public funds and resources.  Another interviewee stated that a novel approach to a human rights solution, without concern for the commitment of public funds, can give a corporation more flexibility to align societal and business interests.  Good practices in this area indicate that a corporation should be open to both tried and true approaches and novel approaches; in addition, further consultation in this area is advisable.

•  Decide how to manage the interaction between efforts and resources

Finally, a corporation must decide for itself how best to manage its charitable efforts: through an independent foundation; through a hybrid enterprise; or through in-house integration.  Some corporations opt for a foundation that is an independent charity but still uses the branding, resources, employees, and skills of the core corporation.  This arrangement may open doors to secure local financing for projects and help in partnership-building, as well as provide the necessary know-how for a range of initiatives.  Good practices in the area of foundations show that the most effective foundations leverage the core corporation’s employee’s skills and interests with projects that add value to the corporation by exploring markets with revenue potential.  Furthermore, these foundations run better with an enterprise-based approach that seeks a sustainable and scalable strategy.

Other corporations may opt for a hybrid enterprise.  For example, one large IT company set up a hybrid organization with the flexibility to make direct grants and invest in for-profit companies that might yield returns.  The enterprise can also lobby public officials in favor of policies supporting the core corporation’s goals.  This arrangement may offer the best path forward for a company that is interested in shifting from Version 1.0 straight into 3.0 because the enterprise can replace the core corporation’s often more ad-hoc money contributions with contributions that produce shared outcomes.  Moreover, the core corporation can make the shift without dedicating all of the resources it would take to integrate its entire philanthropic activities in-house.

Some corporations may be better off managing all of their charitable efforts in strategic philanthropy in-house. For example, one company noted that it has a strategic philanthropy commitment that centers on the belief that the same mission, energy, and culture of innovation that makes it a successful company can also be used to make a profound and positive social impact in the world.  Another company noted how it was successful at incorporating the building blocks of strategic philanthropy into its organizational structure and decision making.  To that end, the company’s strategic philanthropy initiatives became a fully integrated part of its day-to-day business operations.

Important Tip After Addressing Questions About Your Corporation’s Charitable Efforts:

Once you have identified where your charitable efforts may be needed, link these needs to your core competencies.

V. Improving Business Environment

Define the Corporation’s Business Environment

Corporations need successful communities, not only to create demand for their products, but to provide public assets and support– communities give corporations the license to operate.[17]  Good practices no longer encompass old views of a firm as a largely self-contained entity with society falling outside its scope.  These views are no longer viable and should not guide corporations in defining their business environment.

One large IT company defines its business environment as a global community made up of over 500 million users.  So when the need for rapid information became necessary in the aftermath of the Great East Japan Earthquake of 2011, the company was able to use its social networking technologies to help coordinate fundraising efforts for different charity groups to provide assistance to victims of the earthquake and tsunami. “The transfer of information can impact lives, especially in a crisis; and expanding access to information technologies brings their power to more people which is a win for society and a win for the business,” says a development manager in the company’s social responsibility group.

Furthermore, a corporation’s productivity in a given environment hinges on supply factors such as access to trained and trainable workers, and demand conditions such as the size of the local market and the sophistication of local customers.  To enhance its productivity along these dimensions, a corporation can support initiatives that promote the rights to education and gainful employment.  For example, one financial services company improved both the supply and demand for its service by establishing a program to train women as part of a financial literacy initiative inLatin America

 Measure Improvement of the Business Environment

•  Apply a Shared Language

To effectively measure the improvement of its business environment, a corporation should apply a common language to evaluating productivity and promoting human rights.  Business concepts like sustainability, reliability, and scalability have proven to be effective in gauging the promotion of human rights and the improvement of the business environment for corporations across different industry sectors.

Good practices dictate that a corporation should avoid applying different meanings to an agreed upon element of measurement– concepts must not shift in meaning based on the context or audience.  Several interviewees noted that the progress of a strategic philanthropy initiative is best measured if concepts like sustainability maintain the same meaning for all of the stakeholders involved in the initiative.

The “measurement language” should not be biased towards business in a way that undermines the developmental goals of the initiative.  One interviewee from a large retailer noted that a corporation must be careful not to set up metrics for an initiative that leads its non-business partners to conclude that they are being set up to fail.  Other interviewees noted that there is a tension between quantitative metrics and qualitative outcomes, and a corporation must be mindful of “reverse mission creep” – where a project is reduced from its original goals simply as a reaction to the challenge of quantifying outcomes.  More so, if the metrics are too definite, this may provide a disincentive for forging ahead to meet stretch goals.

•  Establish grievance mechanisms

Measuring the improvement in the business environment requires accountability.  The majority of the interviewees shared the view that establishing a complaints report system within a corporation is a good practice.  A corporation should have a grievance channel tuned in to reports about the human rights concerns of its business activities.  The channel should be accessible to members of the public and members at the top level of the corporation i.e. board of directors or other appropriate management personnel.  For example, one company has a comprehensive website, managed separately from its corporate website, where members of the public can post human rights complaints about the company in a manner similar to customer service complaints.  In turn, the company reviews and replies to each complaint.  Good practices in this area indicate that a corporation’s grievance mechanism must be legitimate and transparent.

In addition, provisions should be made within a corporation’s complaints report system which ensures that employees and other stakeholders will not be penalized for reporting suspected human rights violations.  Several interviewees mentioned that such provisions are available in their corporation’s code of conduct and similar governing policies.  Empowering employees and other stakeholders in this way actually promotes the corporation’s productivity and the likelihood that the business environment can be measurably improved.

Tip on Improving Your Corporation’s Business Environment:  

Incorporate the promotion of human rights into your corporation’s productivity measurement system.

VI. Meeting Social Needs

Manage the Risks of the Corporation’s Investment

Meeting social needs that promote human rights entails the ability of a corporation to apply the same risk management principles to its philanthropic initiatives that it applies to its core business.

•   Stay informed about what works

Some interviewees noted that a corporation’s use of metrics to evaluate a specific initiative not only ensures the effectiveness of the initiative, but such metrics can actually become a part of the corporation’s strategic philanthropy portfolio as a whole.  More so, metrics with a track record of success in a given initiative can be applied to other parts of the corporation’s business operations.  Good practices demonstrate that a corporation should keep apprised of what works through its past experiences.

•  Learn from others’ mistakes

For example, 80% of the initiatives from 2000 to 2002 supported by one oil & gas company’s foundation failed to achieve scale following a self-assessment of its broad array of partnerships. After reviewing its measurement system for these initiatives, the foundation concluded that a potential cause of the failure was poor execution in dealing with the increasing demand for its services.  As a result of this review, it rechanneled its focus on co-developing and implementing new business models with a select group of strategic partners.   By the end of 2010, 80% of its initiatives achieved scale under its new measurement system.  “We have learned a great deal from both our success and our failure and hope that by sharing our experience, we can help others avoid making the same mistakes,” says the foundation’s director.           

Maximize the Social Return on Investment

All of the interviewees agreed that, once risks are mitigated, a corporation can resolve a human rights issue in a way that provides a direct benefit to society and a measurable benefit to the corporation.  This dual benefit can be realized even when a given initiative does not produce a complete solution to the targeted human rights issue.

• Educate other stakeholders about the scope of a human rights issue

Corporations are using their strategic philanthropy initiatives to give insight into the scope of different human rights issues.  For example, one interviewee noted that when a corporation addresses a social problem in a way that produces a greater understanding of the scope of the problem, without producing an actual solution to the problem, the information gained from the process encourages other stakeholders to join the fight for a solution.  However, it is imperative that corporations install the necessary checks and balances that are essential to avoid watering down the true meaning of accountability which must depend on results of some type, and continuous improvement and learning.

As an illustration of how a corporation can play a role in outlining the scope of a human rights issue, consider that there are two related categories of human rights: 1) civil & political rights; and 2) social & economic rights.  In contrast to civil & political rights (ICCPR)[18] such as an individual’s right to free speech which take immediate effect against the state – creating a duty not to violate such right, social & economic rights (ICESCR)[19] such as the access to health care are subject to “progressive realization” by the state because of the recognition that a government’s resources are limited.  Corporations can play an important role in the efficient use of resources and the dissemination of information regarding societal needs; in effect, corporations have the ability to accelerate the realization of social & economic rights.  “The role corporations play in strategic philanthropy not only expands their understanding of their customers’ needs, it can also expand society’s understanding of its own needs as it relates to human rights,” says a director of an NGO group that provides reporting standards to measure the social and environmental impact of corporate activities.

•  Employ strategic philanthropy as a part of your corporate culture

All of the interviewees welcomed the idea of dealing with strategic philanthropy initiatives as a part of normal business practices.  Some interviewees shared that strategic philanthropy provides the platform for a systemic interplay between corporate principles, guiding ideas, values, and practices. Other interviewees pointed to factors such as employee commitment, customer loyalty, investor attitude, and reputation as being important considerations for the success of a corporation’s strategic philanthropy initiatives.

Conclusion

Strategic philanthropy not only presumes compliance with the law and ethical standards, but has the potential for real change. The value of strategic philanthropy lies not only in its potential to buttress corporate reputations or mitigate any harm caused by corporations, but in its ability to address societal needs that promote human rights while creating immense competitive advantages.  For this reason, it is essential for corporations to realize that they can utilize their core competencies, skills, resources, and management capacity to foster social progress, gaining not only the respect of society, but achieving appreciable business benefits.  This is especially important in the context of ever-growing social awareness and increased domestic and international competition.

In the current economic environment, escalating investor demands among other factors have led organizations to reassess their business practices and outcomes.  Business partners, customers, and other stakeholders are increasingly considering an organization’s ethical and social performance as a key criterion.

Lastly, it is important to remember the contagious effect of philanthropy.  As an illustration, one company’s strategic philanthropy initiative affirms the social force of promoting acts of kindness on a network platform that connects millions of users.  As part of the initiative, the company has been able to empower people to engage in random acts of kindness in their local communities and then share that with a large audience using its signature social network products.

Corporations do not operate in a social vacuum.  The transnational nature of a global corporation’s business operations can generate multiple touch-points of social impact.  In light of these touch-points, corporations are rightly taking advantage of the shift to strategic philanthropy to promote human rights.