Corporate Philanthropy Is an Unfortunate Fiction

Corporate philanthropy seems like a good idea on paper. With their massive wealth, mega-companies can support good causes without limit. It’s why most major organisations, from cultural centres to charities, are affiliated with them. Yet the apparent generosity of companies conceals their real aim.

Maximisation of Shareholder Value

At first glance, corporate philanthropy and company law are strange bedfellows. Under UK law, a company’s primary objective is the maximisation of shareholder value. (This assumes, of course, that the company is large enough to have shareholders). Put simply, companies must make sure that its shareholders pocket returns, which means that they must focus on generating profit. In the words of section 172 of the Companies Act 2006, ‘A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole’. The section also suggests that directors should ‘have regard to’ other matters and stakeholders. These would include the environment and the company’s employees, amongst others. 

Note that ‘must’ rings stronger than ‘have regard to’. The emphasis on responsibilities towards shareholders in UK company law originates from its adherence to the principles of Anglo–American-style ‘stock market capitalism’. Its counterpart is the ‘social market capitalism’ of the Continental/Japanese traditions. To generalise, while the former prioritises the interests of the shareholder, the latter balances the interests of many other stakeholders too, such as trade union representatives and citizens. Thus, there is a distinct lack of social responsibility in the ‘stock market’ model versus the ‘social market’ model. This difference is consistent with the fact that companies operating under the ‘stock market’ model have as their main legal obligation the maximisation of their shareholders’ returns. They have no reason to spend time worrying about the social costs of their actions if it didn’t help maximise shareholder value. So how does corporate philanthropy fit this picture?

Why Corporate Philanthropy?

UNIQLO doesn’t make any money from the family workshops it sponsors in London’s Tate Modern. Nor does HP by helping the National Gallery store its digitalised collections. On the surface it seems as though these companies have a social conscience. They want to foster culture simply because it’s something good in itself. Even if their schemes don’t turn a profit, they’d like to give back to the consumers that made their companies. In reality, however, such philanthropic endeavours are simply another means by which corporations seek to maximise their shareholders’ profits. I would hesitate to even call their approach cynical. They are, after all, simply adhering to UK company law.

Let’s take the Tate x UNIQLO example. Indeed, UNIQLO doesn’t directly take a cut from the free workshops. But this is because it’s following the principles of advertising. Companies pay platforms and TV channels to host adverts promoting them; they don’t directly make money from the adverts themselves. Yet they’re playing the long game by shaping an image of themselves people would be willing to buy into. If the Tate Modern’s visitors start to associate the museum with UNIQLO’s logo, then they might start to develop certain perceptions. For example, that those with artistic taste must shop at UNIQLO. Or that their kid’s range might be nice.

It’s a psychologically informed method of advertising and image promotion that has been around since the 1960s, when psychoanalysis was coopted for the promotion of the ideology of consumerism in the face of the so-called communist threat. The companies allegedly helping to save our museums, the climate and whatever else are doing so only because they have convinced their shareholders that it’ll eventually maximise their returns. It’s unlikely that UNIQLO’s board okayed the family workshops out of the goodness of its own heart. More likely, it did so because it was an advertising strategy it was convinced would pay off. Remember: under UK company law, the shareholders receive the privilege of ‘must’. Other issues and stakeholders receive a mere ‘regard to’.

What Corporate Philanthropy Says About Politics

That corporate philanthropy isn’t a benevolent endeavour should come as no surprise. Countries employing the ‘stock market’ style of capitalism, where corporate philanthropy is most prominent, have some of the most acute social problems. For example, in their 2007 paper, Collison et al. found that the worst-performing countries for child mortality amongst the richest 24 OECD countries were the US, UK, Australia, Canada, New Zealand and Ireland. Also, when you consider that the most eye-catching philanthropic donations tend to go to sectors such as the arts, it becomes clear that companies’ interests in the betterment of society are shallow, at best.

Why, then, has philanthropy stuck around in the public consciousness? Mainly because of the perceived impotence of politics. Politicians are constantly lobbied by, ironically, these very same companies and their like in order to weaken business regulations. Indeed, the Company Law Review of 2006 that left shareholder primacy intact was carried out under a Labour government. Even politicians from other ‘stock market’ states – most prominently the US – will lobby ‘social market’ states to loosen their regulations. For example, the EU, which has been based more on the ‘Continental/Japanese’ model, has come under pressure to adopt such positions through trade proposals such as TTIP and CETA. When politicians water down policies designed to strengthen social security, it’s easy for their electors to become disillusioned with politics as a means to improve their lives.

How perfect, then, when a mega-rich company can seemingly do the right thing without restriction. This picture is dubious, of course, but it does make something clear: the failure of politicians to foster healthy societies themselves. This goal relies partly on supporting those things that can unite people: the arts, for instance. Another relies on forcing, through law, large companies to consider the interests of stakeholders their hunger for profit affect – starting with their own workers.

As the comparison of the two systems of capitalism has shown us, the more leeway politicians give to corporations, the more frayed the bonds of civil society become. And the more frayed the bonds of civil society become, the more dissatisfaction will spread. Unfortunately, all too often such dissatisfaction is whipped up by regressive forces that target society’s most vulnerable. To prevent this descent into darkness, we must remove the mega-rich companies’ philanthropic masks and reveal their true profit-driven motives. Then the real work begins.