Is philanthropy being used by corporate wrongdoers to buy good will?

Abstract

While an increasing number of philosophers and community activists argue in favor of corporate philanthropy, the practice is not without its critics. A number of firms that have restated suspect earnings also appear on lists of top corporate givers or are ranked among most ethical firms, prompting the suspicion that companies are using philanthropy as a kind of moral window-dressing. This paper explores whether restating firms are (1) using philanthropy to divert public attention away from suspect financial results; or (2) making donations to buy good will or a better reputation after they have been required to restate suspect earnings. Our results paint a mixed picture of the morality of corporate philanthropy. Firms forced to restate suspect earnings do seem to be using philanthropy either to divert attention away from their lackluster earnings or to elicit good will from the large community after such restatements. However, the reverse is not true. Just because a firm is a top giver, it does not follow that it is more likely to be a restater of earnings. Nor did we find evidence that firms ranked as very ethical are more likely to be restaters than non-restaters. Firms engage in philanthropy for a variety of reasons. We should not uncritically praise them for their giving, but neither should we regard with a cynical eye all corporate reputations for goodness or all corporation donations.

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Notes

  1. 1.

    Milton Friedman and his supporters are seen as proponents of shareholder theory. Those ethicists who believe that the company has a moral duty to promote the welfare of those who either significantly affect or affected by the firm are proponents of the stakeholder theory of the corporation. The differences between these models are both significant and subtle. However, for purposes of this paper, we do not distinguish between the two views for we have no way of ascertaining whether those in charge of a given company’s corporate giving programs hold one view or the other. Controlling for this difference in views would be interesting but not, in our view, easily accomplished.

  2. 2.

    HealthSouth did eventually succeed in firing Scrushy as CEO and getting him off the board, but not without a protracted fight.

  3. 3.

    For purposes of this analysis, we have not separated the two categories or morality and corporate social responsibility (CSR). Both social responsibility and morality clearly play a role in Business Ethics rankings. A firm that produced bombs would not be ranked high, regardless of whether it made bombs in an environmentally sound way, because such a firm would be perceived as immoral. Conversely, a firm that scrupulously treated its employees well, but did little for other stakeholders would be ranked low because, while a moral firm, it would not qualify as socially responsible.

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Correspondence to Daryl Koehn.

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Koehn, D., Ueng, J. Is philanthropy being used by corporate wrongdoers to buy good will?. J Manag Gov 14, 1 (2010). https://doi.org/10.1007/s10997-009-9087-8

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Keywords

  • Corporate
  • Fraud
  • Governance philanthropy
  • Social responsibility