One of the topics recently discussed in my Management and Organizational Behavior course argued whether or not corporate donations to charity were fair to the stakeholders of the company, namely shareholders. Throughout the room, opinions ran wildly different. Some were all about corporate “social responsibility” and others found the acts terribly wrong. As a director of my company’s charity board and student of management theory, I found myself conflicted with the behavior of my publicly traded company.
If you don’t understand the difference between a private and public company, let me provide a little background information. A public company sells shares of its company to investors, the shareholders. These shareholders in return receive part ownership of the company, voting rights, and sometimes they even receive a dividend (payout per share; but it’s important to note that dividends are rarelyever disbursed). Public companies must provide an annual report that breaks down how they are spending those investments, explaining their cash flows, income, assets, liabilities, and equity. Instead of taking a loan from a bank to raise money, the corporation seeks investors and issues shares. Millions of shares.
Conversely, private companies are just that. They have no obligation to anyone except themselves. They answer to no one except themselves, in the sense they don’t have to answer to investors. They borrow money privately and conduct their business in the same way. Their money is produced privately, and therefore it belongs to them. This is different from the public corporations because their money doesn’t really belong to them, it belongs to the shareholders.
So this is where the issue gets sticky. Should a publicly-held corporation be allowed to give away those investments to charity? Originally, the money procured from investors was to raise capital or finance R&D or do something else to build the strength of the company. What then, gives the corporation the right to give this money to a good cause?
Proponents of the issue will sight the inevitable goodwill and positive public name that comes with being socially responsible. They say that the company gains more in brand recognition from the simple acts of kindness than they would from marketing a product in an advertisement that costs millions of dollars.
Opponents will tell you that shareholders should have a say in this matter, and though they have the vote that comes with the share, it is almost impossible to voice any opinion to the board of directors. Also, what gives the unelected company the right to pursue social goals? Managers within these companies are not accountable to people outside of the company, so why are plans to help them pursued?
The stakeholder most important to the well-being of the company is the shareholder, but there is a fine line between whether or not it is right to support social responsibility with the funds provided by these investors. In my opinion, I think it is important to help where you can. Many companies are better positioned to pool resources, such as employees, services, products, etc, that an individual alone may not be able to do. If a company can continue to produce profits and year-over-year growth in revenue, are they not doing the will of the shareholder by maximizing their investments? It would seem to me that so long as business is profitable, there should be no problem with sending aid where help is needed. Over the long term, social responsibility has the ability to change the shape of communities and lives, which may increase the chances that more people will have the opportunity to turn around and invest in the same companies. A little goodwill can go a long way.