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Philanthropic strategy

                                                                                                                                                                                                                                   Translated by Hans Henrik Rancke-Madsen

One likely approach towards the 'road to success' for businesses of the future is called 'philanthropic strategy'. Businesses that implement philanthropic strategy turn out to have ever-increasing competitive advantages. Contrariwise, it looks like businesses that ignore these concerns expose themselves to grave risks.

By Søren Riis

Basically, philanthropic strategy is based on the notion that businesses benefit greatly when they improve conditions of life for the people they, directly or indirectly, interact with. Defined like that, philanthropic strategy seems an obvious concept. Of course, there are limits to how much any one business can accomplish, and it's precisely here that strategic considerations play their part, in concert with a sharpened creative sense.

Despite the alluring prospects for those businesses that are able to implement strategic philanthropy, few businesses yet work systematically with the concept and know how to optimise the many-facetted synergistic effects to be found in this field.

In this article we will explain the philosophical foundation for philanthropic strategy; i.e., describe its inner logic and depict the reality that may catalyse the effects of philanthropic strategy. Finally we will point out an important reservation concerning the application of philanthropic strategy.

Since it is the purpose of this article to compile a significant part of the philosophy behind philanthropic strategy, it can either be read as the systematic basis that implicitly ties CSR with a string of analogous concepts such as Corporate Citizenship, Community Involvement, Accountability, etc. Or it can be read as the theoretical depiction that must be combined with the handbook's many specific case studies to present a complete picture.

Three good reasons and one reservation

A) Everything else being equal

The logic behind philanthropic strategy is conceptually simple: Everything else being equal, a customer will prefer a product that is made with due consideration for the environment he or she lives in. Everything else being equal, any business ought to help its customers, its employees, and its partners as much as possible. Taken in combination, these two propositions clear the way for systematic philanthropic endeavours.

The unfortunate corollary is that if everything else isn't equal - if it always costs more the better you treat the customer and his environment - then the outlook for the future is bleak if businesses let themselves be guided solely by short-term economic arguments. This would mean that each individual business should do as little as possible for the customer. In the long run, the businesses that survived would do so at the expense of their own environment and would wreck that environment in the long run - or even the short.

With this in mind, it becomes obvious that businesses need to consider economy and value in a broader and more complex context - in a global context. Globalization means that what happens on the other side of the world may have as much impact on your reality as anything that happens right next door - the whole world is becoming increasingly interconnected. But if a business automatically assumes that such added consideration always will entail added expense, then it would be in society's interest to restrict the political capabilities of businesses as much as possible, lest they use it to society's detriment. Naturally, businesses have no interest in having their influence lessened.

It might be argued that logic is one thing, reality another. As it turns out, however, the two prove to be quite closely related. If reality can provide instances where it does not cost more to employ philanthropic strategy - where it is indeed possible to enrich oneself and one's surroundings at one and the same time - then it follows that it is high time that businesses attempt to think of financial affairs as an inseparable aspect of a social and ecological whole.

Implementing this logic is not, however, a routine procedure that can be performed by rote. In addition to insight into the art of optimization, it requires a high degree of creativity; something that most businesses have yet to develop, or even just use in other situations. The goal is to be able to judge what particular form of philanthropic strategy that provides the greatest synergistic effect for each individual business. Philanthropy should always emphasize a link with the company's profile and products, and it should always be consistent and be able to supply a string of sales arguments.

B) Financial affairs in a broader context

The challenge that faces any business is to achieve a multi-faceted understanding of the concept of value. The more enlightened the customers grow, the broader the range of issues that affect their decision to buy a given product becomes - i.e., the more factors influence their choice. All these facets must be taken into consideration to understand the true value of a product.

This obviously also applies when it comes to estimating the value of companies. Goodwill and reputation is of profound importance here (World Economic Forum has conducted studies which show that reputation makes up 40% of the market value of the average company). The extent to which goodwill and reputation is linked directly to philanthropic strategy is difficult to measure, but it nevertheless often constitutes the difference between success and failure.

The media, the internet, various NGOs, and modern educational systems have served to globalize customer awareness. It has hence become literally impossible to define a specific limit for measuring the value of a product. There is always another dimension that affects what products the customers prefer. It hence behoves businesses to cater to as many customer values as possible.

Even if you assume that the customer will act selfishly, the complexity of the considerations businesses face is not lessened, since modern man does not see himself as an isolated particle in the wide world, but as an inseparable part of the world around him. He realises that no matter if it is his neighbourhood, his municipality, his county, his country, or the whole world, questions of affluence or poverty, pollution or lack thereof, lawlessness or order have a more or less direct influence on his own life and general wellbeing. Only a very simple person can be an egotist in the classical sense today. To believe that it is at all possible to enjoy anything despite one's surroundings is pure delusion.

The philanthropic belief may also be explained in terms of the theory that some scientists try to illustrate with the help of Maslow's Hieararchy of Needs. Immaterial needs play a bigger and bigger role in countries whose material needs are secure. This means that a customer's purchases does not depend primarily on functionality - or perhaps technical quality is a better term - but more on the product's social aspects.

The same philanthropic and immaterial way of thinking likewise turns up at the employee level. An employee no longer looks for a job merely to get food on the table, but also to gain acknowledgement and fulfilment in life. It is thus necessary for him to be able to identify with the company's visions and values. Or to express it from the point of view of the employer: the better a business fulfils not only the employee's material needs but also his immaterial needs, the longer and more concentrated work the employee is willing to do.

C) Power, responsibility, and terrorism

52 out of the world's 100 biggest economic entities are businesses (brand eins #10 2004). Globally, corporations have power fully on a par with that of nations. Indeed, nations often appear completely powerless when dealing with international corporations when they fire thousands of employees or move work to countries where children engage in hard labour instead of going to school and where job security is unknown.

This has caused some commentators to define globalization as organised irresponsibility, thus engendering considerable opposition to the process. Globalization means that little can be accomplished through legislation - there will always be places on earth where you seem to be able to evade all responsibility. Quite apart from the fact that legislation in this field has proven relatively ineffective, it is also counterproductive to display distrust of the businesses by trying to enforce morality on them. The goal is instead to show the advantages of ethical awareness - to demonstrate to the individual business the advantages of acting in accordance with philanthropic strategy.

Corporate irresponsibility is more out of date that ever before. In well-informed and socially responsible societies, where companies unceasingly find themselves in the media spotlights, philanthropic strategy is not just a way to think of progressive changes and to gain goodwill, but also a method to anticipate and prevent problems - a way to insure your business against crises.

Because the big corporations have the greatest power and because they're more exposed in the media, they also have the greatest incentive to pursue a philanthropic strategy. But this is only the start of a chain reaction. A company cannot act responsibly if it is cooperating closely with companies that, for instance, have socially reprehensible employment policies or pollute inordinately. Consequently, responsibility will sooner or later propagate all the way down the economic food chain. For the same reason, the UN has created a prestige project about philanthropic strategy called Global Compact that commits some of the world's most influential corporations to live up to a number of CSR objectives and minimum standards.

More than ever before, businesses today have the power and the opportunity to make their surroundings a better place to live, for their own benefit and for the benefit of their employees and of their customers; three parts of one and the same reality. When companies support educational institutions, build infrastructure, and sponsor cultural endeavours, they are doing business, engaging in politics, and exercising philanthropic strategy, all at the same time - whether they realize it or not. The question is whether they're prepared to implement this philosophy more consistently.

The terminology that best depicts the new insight into the role of businesses in society comes from the field of botany. In this analogy, the market becomes a big park that constitutes an integrated and sensitive ecosystem. The relationship between the company and its customers and environment is something that must be cultivated. The loyalty of employees and customers and their general wellbeing are crucial; they are the roots of the plants. Other people are all potential partners, customers, or sources of influence; they are an important part of the surrounding ecosystem. In this imagery a production process consists of a set of related tasks from sowing, tending, and fertilizing to reaping the harvest. If this complicated process, this growth cycle, can be kept going, the seed of a long and productive relationship is laid. From this perspective, philanthropic strategy is farsighted and goes far beyond cheap branding - though this can, and should, be used as an important source of corporate identity.

If the companies through the use of philanthropic strategy play their cards right, they may succeed in making future equate progress. If, on the other hand, they ignore the great responsibility that is inextricably bound up in their enormous power, the consequences will sooner or later make themselves felt. If companies simply exploit their surroundings, those surroundings will eventually become so damaged that everything from frustration to terrorism will grow from it. It is hence important that companies put their strategy into a broad and farsighted perspective.

The fundamental demand that faces companies is in many ways the same thing modern companies themselves demand of their employees: Freedom with responsibility. If this is consistently made an objective at the highest level, the chances improve of the employees also practicing it. Through philanthropic strategy, companies can help make their employees more reflexive and responsible. Thus they can contribute to the shaping of employees, customers, and citizens with visions and commitment.

D) A reservation

Understanding and implementing philanthropic strategy in practice requires the ability to distinguish it from naïve and unsophisticated philanthropy. In principle, philanthropic and ethical demands are insatiable. No matter how influential a company is, it cannot solve all the world's woes. If a company attempted to do so, it would very speedily go under.

It is hence important that each company achieves an understanding of its own abilities. It won't do the surroundings much good if a company with lofty goals has to close up - if it is such a generous company that it cannot survive. In order to be able to help in the long run, a company should find a balance between abilities and philanthropic goals. This should not, however, be the lowest common denominator; the challenge is to optimize this balance. It is in this context that the concept 'strategic' must be understood.

In part to prevent that the demands placed on businesses by society and the consumers become unreasonably steep - thus preserving the companies so that they can continue to exist and to create wealth - and in part to commit companies to more than pretty words and reports, it is important to establish standards that will create transparency in the rather impenetrable field that 'strategic philanthropy' covers. It is in other words important to develop tools for measuring philanthropy that consumers and partners can use on a daily basis. The UN (with Global Compact) and the ISO (International Organization of Standardization) have worked on developing such tools, while the Danish Copenhagen Centre for some time now also has had a think tank that has provided important inspiration to this process.

Once a company has realized the advantages of strategic philanthropy, it should seek guidance from others in the same trade, NGOs, politicians, and organisations, not only to coordinate efforts, but also to figure out where the synergistic effects would be greatest for the company in question. The companies will soon earn greater respect from customers, employees, and citizens if they contribute to making society as pleasant as possible, and in the long run they will gain greater freedom and foster greater optimism.

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24. oktober 2005

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