Shareholders or Stakeholders? An Answer from Corporate Charity
The Business Roundtable’s recent proclamation about stakeholders and shareholders might not be as revolutionary as first reported.
Led by executives of the nation’s largest corporations, the Business Roundtable announced that the key purpose of private sector companies transcends profits for shareholders to also include the interests of all stakeholders including employees, customers, and the community at-large.
Reaction to the announcement was mixed. Some commentators lauded the business leaders for expressing a higher purpose than the bottom line. Others cited Milton Friedman’s admonition that the private sector’s only purpose is to create wealth for shareholders.
Charitable giving data reveal that both goals likely are being met.
New data from Giving USA reveal that corporate charitable giving in 2018 totaled $20.05 billion – an increase of 2.9 percent after inflation in a year when charity donations overall decreased by 1.7 percent in constant dollars. According to the Indiana University Lilly Family School of Philanthropy, federal tax code changes that produced fewer itemizers could be one reason among many for less charitable giving – at least after adjusting for inflation.
This makes the growth in business donations even more remarkable. In 2018, the top corporate tax rate went down by 40 percent, and business donations went up faster than inflation.
A survey conducted by the Chief Executives for Corporate Purpose revealed that two-thirds of corporations increased their charitable giving in the last two years. As Giving USA’s comprehensive report stated, “This growth shows that the business case for societal engagement is strong, with companies increasingly seeing community investment as essential to their operations.”
Where are corporate contributions going? Giving USA data reveal that 27 percent go to education (14 percent to K-12 and 13 percent to higher ed); 25 percent of donations go to health and social services; while 17 percent of corporate charitable gifts are made toward community and economic development.
These data demonstrate that business sector philanthropy likely is serving both shareholders and stakeholders. The case for stakeholders is clear as families and communities benefit from gifts to schools, health care, and community development. Shareholders, meanwhile, can consider how these three priorities of corporate charity help employers with one of their most important resources: employees.
During an economic season when more than 1 million jobs are unfilled due to a lack of qualified candidates, private sector charitable giving supports employee recruitment, retention, and morale. Think of the out-of-town prospective employee who wants to know that the new hometown will have strong schools and expert health care alongside community amenities ranging from trails and parks to museums and the arts. Meanwhile, higher levels of education prepare more people to work in the 21st Century economy, and employees with access to quality health care are less likely to take as many sick days.
Philanthropy in the context of employee relations also occurs when employers match the charity donations of their employees. The practice has become so widespread that the Gates Foundation estimated that $6 billion recently went un-donated because fundraisers did not ask donors, “Does your employer match your charitable giving?” (An important point to keep in mind if you are serving on a nonprofit board and talking with staff about fundraising strategy!)
Charitable giving from the business sector reveals that corporations likely are serving the interests of both shareholders and stakeholders. Therefore, the Business Roundtable’s pronouncement might not be so radical, and – just maybe – Friedman’s disciples need not be as concerned.
Bill Stanczykiewicz is assistant dean for external relations at the Indiana University Lilly Family School of Philanthropy where he also directs The Fund Raising School.