Corporations and Charitable Giving

                    “To those whom much is given, much is expected.”  

                                       President John F. Kennedy

There is a recent article in Slate.com  which raises the question of how philanthropic corporations really are.  It is entitled:  “Why Don’t Corporations Give To Charity?”  Its subtitle:  “Their profits soar, yet they only get stingier.”

The article is interesting and to some extent daring.  We are all familiar with the corporate names that adorn the entrances to museums, sports stadiums, and other facilities used by the public.   Virtually every week we see corporate names displayed on t-shirts given away at a run or walk that raised money for a worthwhile charitable cause.  We know that many corporations are good corporate citizens.  Nonetheless, the Slate.com article legitimately calls into question how generous many corporate entities really are when when it comes to private philanthropy.  The figures unfortunately suggest that there are many corporations which fail to show an altruistic spirit.

Although the Slate.com article points out that corporate donations have increased significantly over the past 30 years, it also points out that many who tout the generosity of corporations ignore the fact that charitable donations as a percentage of profits has, in recent times, “fallen far down.”   As the article notes, that fall has been significant:  “Over the past 30 years, corporate contributions to charities in the U.S., as measured by percentage of pretax profits, have fallen precipitously, from a high of 2.1 percent at its peak in 1986 to just around 0.8 percent in 2012.”  The author – and many others – view charitable giving as a percentage of profits as the best gauge of corporate generosity. That decline exists even though the tax code offers incentives to a corporation to give to charity.

The Slate.com articles also notes that, at roughly the same time that there has been a decline in corporate donations based on the percentage of profits, there has been an “extraordinary” rise in corporate pay.  That increased corporate compensation often includes stock options and other forms of remuneration based on the corporate entity achieving various incentives.  The Huffington Post reported in an April 30, 2013 post that Bloomberg, a highly respected business information network, has found that “the ratio of CEO-to-worker pay has increased 1000 percent since 1950.”  The historical context is important to understanding the level of executive compensation.  As The Huffington Post article states: “Today Fortune 500 CEOs make 204 times regular workers on average, Bloomberg found. The ratio is up from 120-to-1 in 2000, 42-to-1 in 1980 and 20-to-1 in 1950.”

Based on the evidence cited in the Slate.com article and other facts, Triumph Funding generally agrees with the article’s conclusion that many corporations are “stingy” when it comes to charitable giving.  Nonetheless, it does think the issue is more complex.  As the Slate.com article and many others note, charitable giving by a corporation can be controversial.   Although many believe corporate philanthropy is a moral obligation that increases shareholder value, others disagree.  They believe it is a way for upper corporate management to further their own selfish goals and that it is not fair to shareholders for a corporation’s management to donate a corporation’s profits to a charity.  That is, they believe corporate giving is at odds with the goal and fiduciary duty of maximizing the value of the corporation to its shareholders.   (We will set aside for another time a discussion of whether a corporation actually diminishes the value of its stock when it gives to charity in a socially responsible way.)

If one accepts the proposition that corporate philanthropy does not maximize shareholder value and hence a corporation does not have an obligation to donate to charity – and Triumph Funding does not accept this proposition – the evolving issue then is whether those who personally benefit from such increased corporate profits – through executive compensation or dividends – have increased their personal charitable giving.   For example, have corporate executives who see a larger paycheck due to increased corporate pay (that is a result, at least in part, of the fact that the corporation has not given to charity in a meaningful way), in turn, made correspondingly increased personal donations to charities?  Although we may not be able to track the personal charitable giving by corporate executives who adhere to the view that it is contrary to the fiduciary duties of a corporation to engage in philanthropy, we do know that there has not been in the last 30 years an increase in personal philanthropy.  As the Slate.com article notes, “the comparable measure of the generosity of individuals, as told by the percentage of disposable personal income, has remained solid” over the past three decades.  Specifically, it has “changed from 2 percent in 1982 to 1.9 percent today,” a relatively insignificant but downward change.  These figures do show that the charitable giving of individuals has not increased in recent years.  Thus, one must wonder if, in fact, corporate executives who benefit from the failure of a corporation to meaningfully donate to charitable causes are personally donating to charity some percentage of the increased compensation they are seeing.

Although we may not be able to monitor such personal giving, each person knows whether he or she has engaged in charitable giving of any note.  Thus, a corporate executive who has personally benefited in the form of increased compensation because of the lack of charitable giving of a corporation he or she manages knows if he or she has increased his or her personal philanthropic giving.  Triumph Funding believes that each such person has a moral obligation to give to charity and that those who have received more have an obligation to give more.

In The Giving Pledge, championed by Bill Gates and Warren Buffett, we have seen many of the world’s wealthiest individuals and their families commit to giving more than half their wealth to charitable causes during their lifetime or in their will.  As the website for The Giving Pledge states, the underlying concept “takes its inspiration from efforts in the past and at present that encourage and recognize givers of all financial means and backgrounds.  We are inspired by the example set by millions of people who give generously (and often at great personal sacrifice) to make the world a better place.”

The billionaires who are a party to The Giving Pledge are but a tiny fraction of those who have benefited from the significant rise in corporate compensation we have witnessed in recent years.  Just as The Giving Pledge was inspired by those of lesser means who give selflessly at great personal sacrifice, we can hope that the altruism shown by those who have signed The Giving Pledge will influence others, including those in corporate management, to be generous in their philanthropic giving.

The recent success of The Triumph Fund in raising money to assist the Clinical Trials Office at the Medical College of Wisconsin Cancer Center illustrates the goodness of so many people – including many who are responsible for running corporate entities.   The article in Slate.com should be viewed not as an indictment of corporations and their philanthropy, but rather as a contribution to the conversation about the need for charitable giving – from corporations and from individuals – in today’s world.

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