Companies have long been willing to contribute financial resources to charitable giving.
Companies have long been willing to contribute financial resources to charitable giving.Thomas W. Dunfee, who teaches business ethics at the Wharton School, and David Hess, a Ph.D. student, argue in a new paper that exemplary companies can and should go further by utilizing their core competencies to make humanitarian investments directly in needy regions. In their paper, "The Legitimacy of Direct Corporate Investment," they argue that "the phenomenon of corporate humanitarian intervention may help to make significant inroads against the persistently high levels of global human misery. Corporate strategies of this sort empower investors and consumers to act upon the basis of their moral desires."
The role of the business corporation in society has always been controversial. Some would argue that corporations exist solely to enhance the wealth of the shareholders; companies should not engage in any activity that does not directly add to the firm’s bottom line. Others argue that corporations have a far larger role and can put resources to work to solve persistent problems far more effectively than government or nonprofit organizations. In 1997 the Caux Round Table, a group of business executives representing large businesses throughout the world, adopted certain principles for their businesses including one that spoke to the role of the corporation in global society: "As responsible citizens of the local, national, regional and global communities in which they operate, businesses share a part in shaping the future of those communities."
For many businesses, making direct financial contributions each year to various charities and other social causes is the preferred route to exercising responsible citizenship. But Dunfee and Hess argue that Direct Corporate Humanitarian Investment (DCHI) is different: "It involves a firm using its resources and know-how to alleviate a particular instance of human misery. It is a purely voluntary act reflecting and demonstrating the core values of a firm."
The widely publicized Merck-Mectizan case is a prime example of a firm acting within its own specialized areas of expertise to respond directly to a factor causing significant human misery. Several years ago, Merck scientists noted that a veterinarian drug, ivermectin, might be responsive to the symptoms of river blindness, a disease that exists primarily in poorer countries in Africa. Just one oral dosage of the drug a year provided significant benefits to those afflicted.
This was not an inexpensive venture, however. Merck incurred considerable costs in developing the drug and knew that these costs could not be recouped directly from those who had the disease because they were too poor to pay a profit-generating price. Ultimately, Merck, which had spent 10 years developing the drug, decided not only to give it away, but also to help distribute it to remote areas.
This sounds admirable, but many would say that when a company decides to give away a product or service, it is effectively giving away property that belongs to the shareholders. Dunfee and Hess argue that this perspective is short-sighted. Furthermore, Merck has received praise, not condemnation, for its "diversion" of shareholder resources toward a DCHI strategy.
Other pharmaceutical firms have since followed suit with similar DCHI strategies. Pfizer has announced a $60 million commitment to eliminate Trachoma (an inflammation of the eyelid which is the leading cause of preventable blindness), while SmithKline Beecham has committed a significant sum to donate one its drugs, albendazole, to assist in the elimination of lymphatic filariasis, known as elephantiasis.
United Parcel Service, the world’s largest express carrier, was a key actor in the delivery of humanitarian aid to Kosovo refugee camps in Albania and Macedonia. The company is consistently called upon to assist in a variety of situations, whether it involves delivering thousands of pounds of food and water to the hurricane-stricken Dominican Republic for the Sosa Foundation or bringing supplies to victims of tornadoes in Kentucky.
Intel is another example of a company donating knowledge as well as financial resources. The company provides education in math and science in countries where it has plants. Intel provides not only money and resources, but also encourages its employees to volunteer and work as mentors for the students. In the Philippines, for example, where almost one-third of the country earns less than $1 a day, schoolchildren most of whom have no previous exposure to technology – now learn on Intel’s used computers.
Citigroup has taken its own approach to DCHI by providing significant funding to Microcredit Summit, a group of over 1,000 private organizations that provide small loans, generally less than $100, without collateral, to individuals in developing countries who want to start a business. Microcredit loans are not a panacea for poverty, but they are a valuable aid and allow developing countries’ economies to be strengthened from the bottom up. While several sources report a repayment rate of over 95% on these loans, the subsidization by corporations such as Citigroup is necessary to provide below-market rates of interest and to allow the microcredit industry to attain its goal of providing loans to 100 million families throughout the world
Dunfee and Hess view DCHI as a preferable approach to traditional corporate philanthropy in that it involves a corporation using its particular competencies and advantages to deal with a problem of special interest to the firm. They argue that it is consistent with the role of a corporation in a capitalistic, democratic society. "Managers must respond to and anticipate existing and changing marketplace morality relevant to the firm that may have a negative impact on shareholder wealth." This means that not all decisions will be made based on bottom-line factors.
The authors note that some people are concerned about whether DCHI is compatible with the laws of corporate governance in the United States and other developed countries. They conclude that it is, provided that there is full disclosure of a company’s activities. Company management can avoid problems by getting direct shareholder approval of a DCHI policy articulated by company management. Unlike the typical shareholder proposal that deals with social concerns, this would originate with and be supported by management. As Dunfee and Hess stress, "The precise meaning of what constitutes a ‘humanitarian’ intervention would be left up to the firms that decide to implement DCHI strategies."
Proponents of the Dunfee and Hess approach would argue that government and nonprofit agencies alone cannot solve society’s most intractable problems. For them, DCHI is an effective way for businesses that are doing well to do good.