Dictionary meaning of ‘Philanthropy’ is ‘the effort or inclination to increase the well-being of humankind, as by charitable aid or donations.’ There is a continuous debate among the organizations regarding this factor. It’s a debate between critics and investors. The former states that Corporate Philanthropy is about applying pressure to maximize the short term profits, which the later disagrees. Investor’s states that corporate can use their charitable efforts to improve the competitive context – the quality of the business environment in the locations where they operate. Its not just business environment, but social environment too gets an uplift. Philanthropic investment’s has the power to improve education and local quality of life; which will in many ways benefit the company. It has been observed that ‘charitable giving’ raises about one-third as fast as the stock market and according to Giving USA, American philanthropy reach a record high in 2007, with donations totaling $314-billion. Giving has since dropped by 2% to $308 billion in 2008. It is estimated total charitable contributions will total $21.2 to $55.4 trillion between 1998- 2052. By the year 2055, some $41 trillion will change hands as Americans pass on their accumulated assets to the next generation. As of fiscal year the top U.S Grant Making Foundations are: Bill and Melinda Gates Foundation, The Ford Foundation, J. Paul Getty Trust, The Robert Wood Johnson Foundation, W.K Kellogg Foundation and the list go on. It was Mahatma Gandhi, who once said that, “There are people in the world so hungry, that God cannot appear to them except in the form of bread”.
It is seen that majority of corporate contribution programs are diffuse and unfocused. Most consist of numerous small cash donations given to aid local civic causes or they provide general operating support to universities and national charities in the hope of generating goodwill among employees, customers and the local community. These types of programs clearly lack focus. These are works, what was done some hundred of years ago and still continuing. A number of companies have attempted to make their giving, more strategic. But what currently passes for strategic philanthropy has neither been really strategic, nor particularly effective. Rather than being tied to social or business objectives – the contributions often reflect the personal beliefs. These need to change and the use of strategic responsibility should be used. In turn, we can talk about the term of ‘Creative Capitalism’. In general the corporate can use their charitable efforts in improving their competitive context – the quality of their business environment and in the location or locations where they operate.
Using this strategy or method, it helps to increase or enhance the context which brings social and economic goals into alignment and improves the company’s long term business prospects. In addition; addressing context enables a company not only to give money but also to leverage its capabilities and relationships in support of charitable causes.
Today many companies are depending on local capacities. They mostly depend on brining talents from outside and collaborate with local Non-Governmental Organizations and Institutions, Universities to conduct research and development.
A company’s competitive context consists of four interrelated elements of the local business environment that shape potential productivity. They are:
a) Factor conditions
b) Available inputs of production
c) Demand productions
d) The context for strategy and rivalry and related and supporting industries
Clusters arise through the combined influence of all the four elements of context. They are often prominent features of a region’s economic landscape. Corporate responsibility clusters come in different shapes, sizes and types with different types of organization leading their development. Common, however, are their underlying effects on business performance by: expanding business ability to learn from diverse, rich sources; grow competencies to translate these learning into improved business performance; gain support from a growing network of service providers that enable companies to more effectively manage their relationships and reputation; and produce benefits from an approach to public policy that moulds markets in ways that reward responsible practices.
Now the clusters are of four types:
a) Challenge Clusters
b) Market-making Clusters
c) Partnership Clusters
d) Statutory Clusters
Challenge Clusters tend to be started or initiated by civil society players. Market making Clusters are often lead by one or more companies. They involve remolding competitive conditions from the inside and outside, which can be done by innovating more and more sustainable products. Partnership clusters means involving more formal, multisectoral partnerships, which can support competitive advantage. Statutory clusters involve public policies focused on CSR standards and practices that support competitive advantage.
These four types of clusters are neither static nor distinct phenomena. They really take one form for prolonged periods of time and often combine several or all these forms at different stages in their development. Corporate Responsibility Cluster potential is not evenly distributed in all sectors, geography or time. Labour intensive sectors like textiles and footwear may see sector wise clusters. However, their current potential is reliant on company’s sense of commercial importance of the ‘ethnic concerns’
Clusters are driven by two dominant factors.
• The ‘legitimacy’ effect: clustering is most likely to arise where the potential is greatest for making social and environmental aspects of the value-chain of tangible concern to stakeholders who count.
• The ‘productivity’ effect: clustering is most likely to arise where the potential is greatest for translating social and environmental enhancements in the value chain into labour and resource efficiency, and productivity gains.
The legitimacy effects, for example, depend to a large extent on the vibrancy of civil society organizations in raising public attention and responsiveness. At any point in time this may be directed at individual companies or sectors. But over time, such vibrancy extends beyond, and indeed is enhanced by the very success of these individual initiatives.
If one carefully analyzes the situation, then it is found that a company can identify the areas of overlap between social and economic value that will most enhance its own and the cluster of competitiveness.
Factor conditions and its utility:
The type of philanthropy depends on the local conditions or factors. High level of productivity depends on the presence of trained workers, high quality scientific and technological institutions, adequate physical infrastructure, transparent and efficient administrative processes (such as company requirements and available resources). All are areas that philanthropy can influence.
Demand conditions in a nation or region include the size of the local market, the appropriateness of product standards and the sophistication of the local customers. Now, let’s take an example; an area where the health sector is using sophisticated technologies, there medical device companies are sure to increase. Thus in a Cluster, the company which had good CSR and had been able to use their skills for improving the health sector is not only increasing profitability but also is able to influence the CSR cluster potential.
Context for Strategy and Rivalry:
The rules, incentives and norms governing competition in a nation or region have a fundamental influence on productivity. The policies that encourage investment protect intellectual property, open local markets to trade, break up or prevent the formation of cartels and monopolies. Philanthropy is the reason for strong influence on creating a more productive and transparent environment for competition.
Whenever, there are industries, which support the main industry, the productivity increases. These are due to the fact that proximity enhances responsiveness, exchange of information and innovation and thus reduces carrying costs and transportation costs.
Now, Philanthropy can foster the development of clusters and thus in turn strengthen the Industries.
Hence, while making policies for Corporate Social Responsibility, one need to understand the link between philanthropy and competitive context which will help the company to identify where they should focus their corporate giving. The ways to find out the best organizations as per the conditions is already discussed above. Here it is better to mention that corporate giving means giving money to other organizations that actually help to deliver the social and environmental benefits. Hence, it is very clear that the impact or the success of the project/program lies in the effectiveness of the recipient. Hence extensive research should be carried out before selecting those recipients that will achieve the Greatest Social Impact.
It’s only then we can together create a more Developed World for us as well for our future generations.
Mr. Mainak Majumdar
Disaster Management Specialist and Consultant