Corporate Giving: A Tyranny Of Generosity?

When corporations give, they risk abusing their power. Yet many corporations also have the ability to make a beneficial impact. Can a democratic ethos help?

Corporations typically donate 1% of pre-tax income to charitable causes. Many people think this is too meager, and it’s not hard to see why. The world’s problems become more numerous and more serious by the day. Meanwhile, corporate profits continue to break historic records. Corporations would seem to possess great capacity to make a difference by spreading this wealth around. And, to the extent that corporations are themselves partly to blame for certain social problems, perhaps devoting their wealth to social causes is a matter of duty.

In my new book, The Tyranny of Generosity, I argue that the ethics of corporate philanthropy are far more complicated than public debate typically acknowledges. To make this case, I draw creatively on the views of economist Milton Friedman. Friedman remains notorious for claiming that corporate philanthropy is morally impermissible because it amounts to unjust taxation of shareholders. To Friedman, corporate profits are shareholders’ property; diverting them to social causes represents a kind of theft. Most people today find this view implausible and its implications disturbing. So do I. But a closer reading of Friedman’s position suggests an overlooked challenge to corporate philanthropy that is worth taking more seriously: that it risks serving as an undemocratic exercise of power.

Democratic Deficits

A less noted component of Friedman’s argument is that corporate philanthropy represents a way of circumventing the democratic process. Citizens disagree about what social conditions are problems and how they should be solved. Which inequalities are objectionable? What’s the solution to underperforming schools? What kinds of art should be available in this region? Democratic elections are the primary way of resolving these disagreements. Democratic governments are more legitimate public administrators because they can be publicly authorized through fair processes and accountable to the people affected by their policies. Philanthropy is neither democratically authorized nor democratically accountable.

Friedman doesn’t argue that all forms of philanthropy are undemocratic. (He accepts that executives and shareholders are free to make individual donations with money earned from the firm’s activity.) But his comments suggest a concern about the outsized power of corporate donors compared to ordinary individuals.

Friedman adds another democratic objection to corporate philanthropy: that corporate executives generally lack the relevant expertise to address social problems. Part of what makes democratic governance valuable, for Friedman, is that it involves appointing experts to execute voters’ policy preferences. By contrast, a widget manufacturer is an expert in all things widgets, not poverty eradication or environmental conservation. Widget fabrication may endow executives with many transferrable insights. But their views of social problems and how to address them are invariably limited by their standpoint.

Conflicting Incentives

One might think that nothing prevents a corporation from hiring experts in the areas it wishes to fund if it is serious about making a difference. But Friedman supplies us with another objection: corporate philanthropy involves as a tremendous conflict between a firm’s marketing interests and any authentic social concerns it may have. Firms have stronger incentives to appear to do good than they have to actually do good. (Consider how DoorDash spent $5.5 million for a Superbowl commercial to advertise its $1 million donation to Sesame Workshop.) Maximizing the appearance of virtue wins customers, investors, and employees. For many, actually doing good is a dispensable bonus.

Friedman’s particular worry here is that this virtue signaling will lead to the collapse of the market economy, as it will gradually teach the public to be suspicious of profit-driven enterprise entirely. I draw a different lesson, a lesson about the risks this conflict poses for the integrity of philanthropic efforts. If reputation is a dominant concern, corporations are unlikely to hire the real experts or tackle the real problems. Instead, they are likely to hire experts in marketing and seek philanthropic causes with the highest reputational payoffs.

Many note that this dynamic leads firms to use philanthropy as cover for questionable business practices. Firms may find it more cost-effective to compensate for misdeeds with donations than forego misdeeds in the first place. A less common observation is the risks this conflict of interest creates for recipients of corporate donations. If the target consumer is most likely to be moved by images of Black children or people with disabilities, it will be rational for corporate donors to create photo ops where these people serve as props and the corporation is cast in the role as savior. The benefits of such programs, if any, are undercut by their discriminatory messages.

So, is corporate philanthropy, as Friedman implies, unjustifiable? Not entirely, I think. But reconciling corporate philanthropy with sensitivity to democratic concerns is a more significant challenge than many firms realize. What are some strategies that do this well?

Pillars for Giving Democratically

In my book, I highlight three pillars that might form part of a democratically-sensitive corporate giving strategy: unique shareable assets, stakeholder deliberation, and cause neutrality.  

Does your company have something truly unique? Often, the best contributions firms can make arise when they have unique products or infrastructure to share with others who need them. Imagine a logistics company sharing its network with relief groups to connect victims of a disaster to medical supplies. That’s the premise behind the American Logistics Aid Network, a consortium of logistics companies that provides technical assistance to emergency responders dealing with disasters. Acute situations like these leave little space for donors to exert enduring political influence. They sidestep concerns about ignorance because the firms are acting squarely within the bounds of their core expertise. And even if firms are motivated to act in part by reputational concerns, this motivation is less threatening in such cases because it makes little difference to the outcome.

Stakeholder deliberation refers to situations where those with a stake in the outcome enjoy fair opportunities to participate in the process. When International Paper decided to donate an old factory in Beacon, New York, it could have used its bargaining power to dictate precisely how the building would be repurposed and by whom. But it opted for a more democratic approach: inviting these questions to be resolved through a community-owned process that allowed for the representation of affected interests.

Finally, cause neutrality here refers to making resources available on a basis that respects public disagreement about moral and political questions. Software firms like Adobe, Microsoft, and Salesforce practice this by making enterprise products available to nonprofits on a free or discounted basis. Rather than choosing which causes to support, they make the benefit available universally to all legally registered nonprofits.

These pillars are mere starting points. They won’t apply to every business’s situation, and even where they do apply, they leave much room for additional principles to help navigate other tensions and tradeoffs. But thinking about these pillars, and the problems to which they respond, can help companies better align good intentions with democratic duties.