“Your company owes its success to the community it belongs to and needs to give back to it.”
“I, not you, will determine what causes my money will support.”
So go two sides of the debate on business’s charitable endeavors.
A company is owned by its shareholders. Shareholders make money by the company issuing dividends or by the rise in the price of the company’s stock. All other things being equal, the less money a company gives to charity, the more money it has to distribute to its owners or to reinvest.
In short, giving money to charity means that the company “loses” money.
The question, therefore, is who gets to decide what charities the money goes to, and how much. Let management decide and you end up with the time when Armand Hammer built a museum to house his art collections to allow the public to enjoy their beauty. That was nice of him, but shareholders of Occidental were less enamored over the idea when they found out that tens of millions of the company’s dollars were “donated” to the cause. Hammer was the chairman of the company.
Letting the shareholders decide what would be supported hasn’t had good results either. Berkshire Hathaway (think Warren Buffett) had a procedure where shareholders would decide what charities the company would support. So Berkshire Hathaway began a program that had their shareholders decide where the charitable donations went. Across two decades, this program provided close to $200 million to about 3,500 charities.
Then the boycott of Pampered Chef began.
Berkshire had acquired the company which, if you are not familiar with it, is run like Tupperware, but with nifty kitchen gadgets instead of plastic containers (I love my ice cream scoop).
So why the boycott? Pampered Chef became embroiled in the abortion debate. Some of Berkshire’s shareholders named Planned Parenthood as their charity of choice. Accordingly, Berkshire donated part of its charitable gifts to them. Seeing the newly acquired company as the softest target, the pro-life protesters attacked.
They made their message clear: if you bought Pampered Chef products or if you were one of their consultants, then you were supporting abortion. The company lost money and the consultants left in droves.
Berkshire pulled the shareholder directed philanthropic program soon after. Buffett didn’t want it to affect the livelihood of so many. The democratic philanthropic model ran smack into the realities of business.
As you can see, something as “nice” as supporting charities can be fraught with dangers for business. Letting management decide can lead to management funding pet projects with shareholders’ money. Letting shareholders decide can end up with protesters at your door.
Some companies let their employees decide, some the management, some the owners, and some the customers. Many mix several together. Some give nothing at all. Each of these choices are defendable, each have their own problems. Thus giving to charities and the method of doing so is like most business decisions: there are pros and there are cons.
Each company will have to come up with its own solution. My dear managers, that’s why you get paid the big bucks.
Gary Silverman, CFP® is the owner of Personal Money Planning, a financial planning and investment management firm located in Wichita Falls. He invites you to stop by his office where a large piggy bank sits for you to donate to the Humane Society. For anything else, you may e-mail him at Gary@PersonalMoneyPlanning.com
This article was published in the July 2008 edition of the Times Record News column, Biz2Biz