November 14, 2006
Who Pays for "Corporate Citizenship"?
Adam Smith declared that business entities should exist for the sole purpose of making a profit. And when they do, everyone wins. This is Smith’s concept of “the Invisible Hand.” The father of modern capitalist theory famously stated that we enjoy our daily dinner because the butcher and the baker are motivated by rational self-interest.
There is a place for government oversight--and occasionally, intervention---in this economic model. Governments set the rules which determine what constitutes fair play. As long as private companies operate within the boundaries set by governments, they don’t have to “have a heart,” as the saying goes.
The Phenomenon of Corporate Citizenship
In recent years, the term “corporate citizenship” has become a buzzword for corporate participation in charitable, social, and environmental causes. In some cases, it makes perfect sense. For example, a corporation might voluntarily become more “green” in anticipation of new, more stringent environmental legislation.
Many people would refer to this as good corporate citizenship; but in fact it is just rational self-interest on the corporation’s part. A company that reduces plant emissions (to cite just one example) is motivated by the desire to avoid punitive governmental action in the future--and not by a lofty desire to change the world. There is, once again, nothing wrong with this; corporations are fundamentally about making money.
Complications arise, however, when corporations get into the business of championing particular social causes. Suppose that a company decides to give 10 million dollars per year to charity. This money will have to come from somewhere. In most cases, the money will come from the company’s customers, who will finance the corporate charity by paying higher prices.
Corporate Citizenship as a PR / Marketing Tool
On the surface, there might not seem to be a problem, at least from a “greater good” perspective. But remember that corporations always act according to self-interest (at least the ones that stay in business do). These days corporate citizenship is just another public relations and marketing tool. You have probably seen at least a few corporate television ads in which a company touts all the charities that it supports, and all the volunteer work that its employees perform. For big business, charity not only feels good, charity pays.
Which brings us to employees. Corporate employees often subsidize corporate citizenship with their own salaries--and often against their own free will. Anyone who has spent her career at a big corporation is likely familiar with the United Way. The United Way is a clearinghouse for various charities. One of its main methods of fundraising involves private companies that are eager to engage in some “corporate citizenship.” Each company solicits United Way donations among its employees---usually in the form of paycheck deductions. (The companies may match a portion of their employees’ donations.) The United Way, in turn, publicly recognizes the most “generous” corporations. In effect, it is free advertising in exchange for donations, many of which come out of employee paychecks.
Employees Pressured to Subsidize Corporate Citizenship
The problem is that some employers use pressure tactics to convince their employees to contribute. I have a friend who worked for one of the Big Three automobile manufacturers in Detroit. His manager reviewed his United Way contributions. If the donation didn’t meet “company contribution goals” my friend was bluntly told to raise his “level of giving”. And when the people who sign your paycheck tell you to give to charity, you pony up.
Just the other day, I was talking to a friend from high school whose husband works for a giant financial services company. His employer went so far as to mandate a contribution level in the thousands of dollars for employees above a certain compensation level. This is not charity; this is extortion--- plain and simple.
The United Way has no doubt done some good (although the organization has also been plagued with numerous scandals over the mismanagement of funds). However, the presence of the United Way in the workplace creates too many temptations for corporate managers to pressure employees for contributions. Employees should not be forced to pay for their employers’ public relations campaigns. Moreover, individuals--and not their employers---should make decisions about where their charity dollars go.