The Integration Of Strategic Corporate Strategies Commerce Essay

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The role of business in society has been the subject of ongoing debate, criticism, and discussion over the years. Business Ethics and the related concept of Corporate Social Responsibility (CSR) and Corporate Philanthropy are becoming critical issues all over the world and the subject of concern for all. There is a growing tendency for Corporate Philanthropy to be embedded in a natural extension of the company's values and operations so that stakeholders do not perceive these initiatives as just empty claims or public relation devices. At the same time, positioning Corporate Philanthropy either internally or externally is not straightforward while corporate donations disbursed without strategy lead to greatly limited benefits so that there is need for a balanced approach likely to maximize business and social benefits concurrently (www.instituteforphilanthropy.org 2010).

The growing trend is companies turning away from traditional giving toward more market driven, strategic, bottom line approaches to philanthropy, thus embracing a new style of philanthropy enabling them to get a tangible return on contributions (America 1995). Strategic Corporate Philanthropy, which is a sub component of CSR, explicitly links philanthropic strategy to a corporate objective (Ricks and Williams 2005).

Hence, the aim of this study is to focus on this professionalization of the corporate gifting function, that is, Strategic Corporate Philanthropy.

Corporate Philanthropy describes the action when a corporation voluntarily donates a portion of its resources to a societal cause (Ricks and Williams 2005) and some of its objectives include increased visibility, enhancing corporate image and thwarting negative publicity. Forms of Corporate Philanthropy include cash donations given directly to charities, in-kind gifts of a firm's products, services, use of facilities, or managerial expertise and cash donations given indirectly to charities through a corporate-sponsored foundation, which is a legal entity separate from the firm (Seifert et al. 2003).

Strategic Corporate Philanthropy is where organizations use philanthropic activity to meet marketing and other business related objectives(Ricks and Williams 2005).

Strategic activities of the organization are commonly associated with one or more of these: its long-term direction, its competitive advantages, its scope, its resources, the development of new managerial structures and processes, and the values and expectations of management (Brammer, Millington and Pavelin 2006).

In 2003, Saiia defines Strategic Philanthropy as the practice of giving corporate resources to address non-business community issues that also benefit the firm's strategic position, and ultimately, its bottom line (Saiia, Carroll and Buchholtz 2003)

From the academic literature, it seems that a multitude of CSR definitions or concepts have appeared over the last several decades and the debate about a proper definition of the term CSR is still ongoing. The European Commission defines CSR as "a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis" (see http://ec.europa.eu/enterprise/policies/sustainable-business/corporate-social-responsibility/index_en.htm (website last visited April 15, 2010)). Stakeholders include not just shareholders and investors but also customers, employees, suppliers, communities, regulators, special interest groups and society as a whole.

One of the most widely accepted models of CSR is the one proposed by Carroll (Carroll 1979) in which Carroll proposed a four-part conceptualization of CSR, arguing that a firm's social responsibilities fall in a hierarchy, from most to least important, that is, the organization has Economic, Legal obligations as well as Ethical and Discretionary (Later renamed Philanthropic) responsibilities (Seifert et al. 2003). The present study will focus on this Philanthropic dimension of CSR as proposed by Carroll who asserts that Corporate Philanthropy is a non-discretionary responsibility, last in the hierarchy in importance and that this discretionary designation means that corporate giving is considered voluntary rather than obligatory, although the relative importance of philanthropy has been shown to vary across countries (Seifert et al. 2003).

The Carroll construct is as depicted in the figure below.

The four categories in the model represent different relative weights reflecting their relative magnitude as aspects of corporate social responsibilities. Though this Carroll Conceptualization was not revolutionary, it was thought to be fairly comprehensive and addressed the relative importance of economic versus social concerns (Aupperle, Hatfield and Carroll 1983).

According to Campbell and Slack (Campbell and Slack 2007), Strategic Philanthropy not only has a dual objective of corporate value-added and charitable benevolence, but it imputes motives other than altruism to donors in their engagement with charitable involvement.

In 2002, Porter and Kramer in 2002 argued that the majority of Corporate Philanthropy was being practised in a diffuse and unfocused manner, consisting among others of small cash donations, instead of being tied to well-thought-out social or business objectives (Porter and Kramer 2002).

Meeting strategic objectives can be an important if not primary goal of philanthropy with quite a few organizations already tying their philanthropic activity to corporate strategy (Ricks and Williams 2005) and this role of philanthropic activity as part of corporate strategy is still evolving. It is this evolution and the growing importance of Strategic Corporate Philanthropy integrated within the Corporate Strategy of the organization which this study will attempt to examine in depth.

The Research question is whether a strategic approach to Corporate Philanthropy is possible for the organization and whether there is a relationship between SCP and CS. It is the nature of this link which will be investigated in the present study. The study will examine how and to what extent Strategic Corporate Philanthropy is being integrated into the organization Corporate Strategy.

According to Porter (Porter and Kramer 2002), even though, economic and social objectives have long been seen as distinct and competing, this false dichotomy represents an increasingly obsolete perspective in the present world of open, knowledge-based competition, where companies do not function in isolation from the society around them.

This study will seek to test the hypothesis that corporate giving as a proportion of Profit before Tax (PBT) is higher for companies with SCP embedded into their CS than for those with no SCP embedded into their CS. At the same time the study will investigate whether companies do integrate SCP in their CS by examining documents such as annual reports of companies or sections of their websites and following discussions with CEOs about this issue. An analysis of their trend in corporate giving can then be linked to whether they integrate SCP or not within their CS.

The Research Objective is to investigate the evolution in the ways organizations have been integrating Strategic Corporate Philanthropy into their Corporate Strategy over the years. The aim is ultimately to recommend a process whereby the organization will identify and implement a corporate giving strategy focused on its corporate strategy. The Research Question will focus on the current different approaches to Strategic Corporate Philanthropy being adopted by organizations in Mauritius in different sectors and what can be done to improve current state of affairs.

The study will also test the hypothesis that organizations do have Strategic Corporate Philanthropy objectives embedded into their corporate strategy against the alternative hypothesis that they do not. The dependent variable in this study is Corporate Giving while the independent variable is Corporate Strategy.

Literature Review

Introduction

SCP is a relatively recent phenomenon and over the years, much has been written on the topic. Yet the research literature on integration of SCP within CS of the organisation is still lagging. The purpose of this literature review is to examine the empirical literature that addresses such integration. Although there is a substantial literature on SCP, there is no review of the research that specifically addresses whether organizations do integrate SCP within their CS. Furthermore, the recent few research reveals the increasing role that SCP is playing within the firm's CS. The more we understand this integration, the better informed we will be in meeting today's challenges and to prepare for tomorrow's opportunities.

Methodology for Conducting the Review

In order to conduct a thorough review of the literature, extensive use was made of relevant search terms such as CSR, Ethics, Giving, Philanthropy, Corporate Philanthropy, Strategic Corporate Philanthropy, Corporate Strategy across disciplines, and included multiple databases including EBSCO, Business Source Premier, Web of Science and other Library resources with all references saved to EndNote Web. Additional references were selected by examining the references cited in the articles found. Only empirical research studies are included in this review while unpublished research was excluded. The final review included 74 empirical studies, 5 dissertations across 15 disciplines (i.e. CSR, business ethics, CS, Philanthropy and SCP) as well as studies in the Mauritius context.

A Summary of literature on Strategic Corporate Philanthropy can be as follows:

Type of Research Examples

Friedman (1970)

Porter & Kramer (2002)

Literature Map

Strategic Corporate Philanthropy in the Firm Corporate Strategy

The Firm Corporate Strategy

Strategic Corporate Philanthropy

Corporate Philanthropy

Strategic Corporate Philanthropy

Corporate Social Responsibility

Even though SCP is a relatively recent phenomenon, I have come across quite a lot of relevant literature written about the topic. The most relevant paper I have come across is the one written by Ricks and Williams in which they examined the evolution of Strategic Philanthropy in the US from the traditional view to its current position as a strategic option (Ricks and Williams 2005). According to the authors, SCP, where organizations use philanthropic activity to meet marketing and other business related objectives, has evolved over the past century, with Philanthropy having been an important part of American Society since the 17th century and the role of philanthropic activity as part of corporate strategy is still evolving. The paper also mentions that the Profit Maximization Model provides a strategic explanation for philanthropic activity with corporate philanthropy designed to directly or indirectly produce economic gain. An example is given of how developing a corporate giving program directly tied into the important strategic objective of reducing the cycle time for new frontline employees to become productive by reducing the amount of post-employment training through a strategic corporate philanthropic initiative initiated between the 3M Company and several universities in the US. Thus The Frontline Initiative demonstrates the indirect benefit profit maximization model of strategic corporate philanthropy leading to potential competitive advantages in human resources and reputation assets and also addresses the criticism of corporate giving not being explicitly tied to a strategic objective (Ricks and Williams 2005).

According to the book by Morrell Heald entitled "The Social Responsibilities of Business (1900-1960)"(Heald 1970), CSR was already in practice around the 1900s. It was in the 1930's that the term 'corporate social responsibility' was first coined by two Harvard professors(Klempner). According to Carroll (1979), "the modern era of social responsibility, however, may be marked by Howard R. Bowen's 1953 publication of 'Social Responsibilities of the Businessman', considered by many to be the first definitive book on the subject." According to Carroll (Carroll 1979), "the real debate got underway in 1962 when Milton Friedman(2009) argued forcefully that the doctrine of social responsibility is "fundamentally subversive."In an article in The New York Times Magazine in 1970, Milton Friedman insisted that the social responsibility of business is only to increase profits and nothing else. Since then the debate has been ongoing between criticism as well as proponents regarding the CSR doctrine. This classical view is contrasted to Carroll's approach described as the socioeconomic view with the four dimensions as mentioned above.

Philanthropy has now developed into a vital component of corporate strategic management, with greater emphasis on maximizing the return on contributions and with corporate executives having realized that philanthropy should be an integral part of a well-managed company rather than an ad hoc activity reacting to passing fads (Mescon and Tilson 1987).

The trend nowadays is moving away from traditional giving toward a more market-driven strategic management, bottom-line approach to philanthropy with the underlying strategy of this new-style philanthropy being for companies to obtain a tangible return for their contributions (Mescon and Tilson 1987).

The hierarchy of corporate responsibilities has also been differentiated into three levels of a pyramid, each portraying different moral qualities and different degrees of obligation with a "must" dimension, an "ought to" dimension and a "can" dimension (Leisinger 2007). According to Leisinger, this "can" dimension encompasses the whole portfolio of different voluntary pro bono contributions, i.e., corporate philanthropy and this "can" dimension will remain a totally voluntary part of corporate responsibility (Leisinger 2007). It is at the top of the corporate responsibility pyramid and is among the "discretionary" business responsibilities (Leisinger 2007).

There is also an argument drawing on agency theory that philanthropy may be motivated by the desire to increase the satisfaction of managers rather than serving a more strategic corporate purpose (Brammer et al. 2006) and to the extent that managerial discretion plays a significant role in shaping corporate philanthropy, the activity may be thought of as being less strategic. The study also concludes that while strategy plays little or no role in determining how much firms give, it plays a very significant role in determining how firms manage their philanthropy (Brammer et al. 2006).

The first global index tracking the stock-price performance of leading sustainability-driven companies worldwide, the Dow Jones Sustainable Index was launched in 1999 by Dow Jones & Company (www.instituteforphilanthropy.org 2010). Corporate Philanthropy, accounting for 3.5% weight in the company's overall score in the questionnaire survey required to be completed for inclusion within the index, is assessed, based, in part, on responses to these questions:

Does the company have a system in place to measure the business, social, and reputation/stakeholder impact of its contributions, in order to improve and re-align its philanthropic/social investment strategy?

What is the estimated monetary value of its philanthropic contributions/voluntary social investments in cash, employee volunteering, and product donations?

(www.instituteforphilanthropy.org 2010)

This report's summarized review and findings suggest that companies could be rated on at least the following criteria:

High-quality logic models or understanding of the process by which its various types of philanthropic initiatives achieve business benefits have been documented by the company.

The company has defined business-related outcome metrics, measures them, and has in place a rigorous process to improve or re-align its various philanthropic strategies.

Social outcomes are systematically tracked by the company which compares these to targets or benchmarks by which it can monitor whether its philanthropic investments are effective overall.

(www.instituteforphilanthropy.org 2010)

Methodology:

A Mixed Research Methodology will be used for this study. This will include a mixture of case study, phone and person to person interview and postal survey as well as Interviews with CEOs and senior executives in order to make recommendations for practice and future research.

A straightforward approach to the research design is first to find a list of companies in Mauritius with Strategic Corporate Philanthropy (SCP) integrated into their Corporate Strategy (CS). Once this first list has been obtained a second list of companies without SCP integrated into their CS can be drawn. Then a comparison of the different characteristics of firms in the two groups can be made in terms of firm size, financial performance and other features. One hypothesis that can be tested is whether the rate of giving of list one firms is higher than the rate of giving of list two firms.

Hence find list of companies with SCP integrated into CS. Then compare this list with companies with no SCP within their CS. List 1 companies are bigger, much stronger financially....

It is proposed to directly survey the 2 samples of 50 publicly listed large Mauritian companies with established philanthropic activities in order to gain a direct insight into the evolving strategic nature of philanthropy for organizations in general.

The study will explore how philanthropic donations are managed within these leading Mauritian companies in order to draw inferences from this about the practice of strategic corporate philanthropy (Brammer et al. 2006) and how this is integrated into the corporate strategy. The study will attempt to gauge the growing importance of Strategic Corporate Philanthropy initiatives being integrated within the company's Corporate Strategy with the help of this postal survey.

My research design will thus compare firms having a Strategic motive behind giving to firms not having a Strategic motive behind giving. At the same time it is proposed to investigate the relationship between Strategic Corporate Philanthropy and the firm Corporate Strategy. My study begins by examining why a firm integrates Strategic Corporate Philanthropy with its Corporate Strategy.

To address the research question, it will be necessary to examine the giving behaviour of the companies in the 2 samples by using their giving statistics and calculating the giving rate from the actual giving figure and the PBT for each company and for each year (Campbell and Slack 2007).

Possible Outcome

A Possible Outcome of my research is to contribute to the existing knowledge in the field of Integration of Strategic Corporate Philanthropy within the Corporate Strategy of the company, identifying areas of improvement and promoting the concept worldwide.

Do Firms integrate SCP in their CS?

Findings on such integration are mixed...Much of the empirical research that examines the relationship ..reveals (e.g..)...Depending on the discipline and methodology used (i.e, lab versus field studies)....In the CSR literature, ...study demonstrated that ...Other empirical research from The Business Ethics literature also suggests ....in general, this literature reveals...

Finally the philanthropic studies literature

What Firms do?

In general, the literature demonstrates.....

What are the patterns?

Although there is some research on how ....., little research has been conducted on the role of ....

What motivates firms' giving?

Although a substantial literature exists as to why......from ...disciplines, there is a paucity of empirical research on specific motives for philanthropic giving.

Conclusion

Research in this field is still in its infancy with many more questions to be addressed than have been answered.....in fact most of the empirical research reviewed in this paper are studies that have been conducted within the last ten years....Firms do seem ......(..., 2007..). However, the nature...requires much further study.

Directions for Future Research

This review has endeavoured to summarize the literature according to specific research questions addressed in the literature on firms' giving behaviour. Below are some areas of research that are, to date, underdeveloped - but will be critically important in helping to inform the field:

Are firms...? .... is an issue. More research needs to be conducted

Which ...?How does....

What....?

Conclusion & Further Work

In 2008 in a Newsweek article, Warhurst, A. wrote that there have been reports that some philanthropists have appointed "interim managers" to wind down their activities and added that this unfortunate turn of events adds fuel to the argument made by some philanthropy doubters that donations are fine when times are good, but that the tendency to withdraw support when things get tough is unacceptably devastating for recipients. Hence the solution being, of course, that projects must be designed to be sustainable, via both long-term commitments tied to core business objectives and an emphasis on creating local solutions, not dependency. He wrote that he does not think we will be seeing a return to Milton-Friedman-style thinking, à la "the business of business is business.", but we will see a reduction of budgets for good works and a growing emphasis on R³ - risk, responsibility, and reputation - the bottom line "must-haves" for businesses in the reset economy (Warhurst 2008, December 8)

According to Porter and Kramer, figures reveal a decline in Corporate Philanthropy and with more and more companies trying hard to justify charitable expenditures in terms of bottom-line benefit (Porter and Kramer 2002).

From the above literature and discussion, businesses seem to be facing up to philanthropic issues with different approaches being adopted. Hence this is the right time for this study which aims to investigate the link between Strategic Corporate Philanthropy and the Corporate Strategy of the firm.

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