Today, we are going to examine an Academy of Management Journal article entitled “Corporate Contributions: Altruistic or For-Profit?”. Of course, from today’s cynical-pragmatic point of view, the answer to this question seems quite obvious. However, it doesn’t hurt to double-check once in a while – at the very least, to reaffirm just how clever and correct we are in our assumptions.
In 1954, the New Jersey Supreme Court upheld a lower court ruling, which granted corporations the right to make contributions to charities, without worrying about shareholder interests. The authors (Louis W. Fry, Gerald D. Keim, and Roger E. Meiners) decided to explore the possible motivations that corporate entities could have for spending a portion of their retained earnings on philanthropy, instead of capital reinvestment. Among other things, the researchers found that small businesses and monopolies tended to give far less than large corporations with plenty of rivals (basically, an oligopoly structure). Moreover, by analyzing a sample of 36 industries, using simple regression analysis and analysis of covariance through multiple regression (ANCOVA), they were able to establish a correlation between the marginal changes in advertising and marginal contribution expenditures.
Most likely, the evidence and conclusions presented in this article won’t shock many readers in our modern times. The fact that a correlation was established between the two factors mentioned above basically means that the corporations in question were trying to “kill two birds with one stone”- by giving to charity the money they would have otherwise spent on commercials while achieving the same result and gaining extra prestige in the process. However, in my opinion, the authors should have been clearer in describing the exact data they were using in their ANCOVA analysis, especially since they had previously established, that different market structures contribute differently to society. Moreover, we need to take into account the fact that the article in question was written in 1982- the techniques companies use to advertise today (with the internet and social media) differ greatly from 40 years ago. Basically, I believe that more research has to be done before any conclusions can be drawn.
Fry, L. W.; Keim, G. D.; Meiners, R. E. (1982). “Corporate Contributions: Altruistic or for Profit?”. The Academy of Management Journal. 25 (1): 94–106.