Quick quiz: State whether the following four statements are true or false: 1. Corporate philanthropy cannot be managed with the same degree of rigor applied to core business activities. 2. Good deeds should not be publicized. 3. Corporate philanthropy should serve as emergency aid and is best practiced briefly or spontaneously. 4. A company’s level of giving is all that matters, rather than its level of strategic engagement with philanthropic activities. According to Heike Bruch and Frank Walter, many executives would label all of these statements as true. In reality, they argue, each one of these is a common misconception. In this article, they define four distinct approaches to corporate philanthropy, and compare their relative effectiveness for both the company and the beneficiary.

Both academics and practitioners have come to agree on the strategic relevance of corporate philanthropy. They find common ground around the view that companies can and should make strategic use of their charitable activities to do good to the beneficiaries while also creating benefits for themselves. Some companies achieve more than others in these efforts, according to Bruch and Walter’s research. They have found it to be disappointingly infrequent for companies to achieve significant and enduring impact on society through their philanthropy in combination with strategic benefits for the organization. Executives who wave off this ineffectiveness as part of the philanthropic game are making a mistake, argue the authors. These joint payoffs are quite achievable for companies that conduct their charitable activities with a cohesive philanthropic strategy.

Companies’ philanthropic activities are based on two main perspectives, which the authors call market orientation and competence orientation. These refer to an emphasis on the expectations of stakeholders and an emphasis on the company’s core competencies respectively. Bruch and Walter use these two dimensions to generate four approaches to philanthropy, defined by the importance placed on the two factors of external demands and congruence with the core business. The most effective efforts align philanthropy with both the company’s core competencies and the expectations of stakeholders. The four types are as follows:

Peripheral philanthropy refers to situations where companies focus primarily on the needs of stakeholders and conduct philanthropic initiatives that are usually unrelated to their core business competencies. In the case of constricted philanthropy, companies adopt an internal focus, concerned more with using the corporation’s unique skills and competencies than on meeting important stakeholder needs. In other cases, often involving corporate donations, corporate charitable activities are conducted with little or no overall coordination, a method the authors call dispersed philanthropy. When a company incorporates both the needs of external stakeholders and the skills of the donor corporation, the authors refer to it as strategic philanthropy. As a example of how this can work, they cite IBM’s Reinventing Education initiative. This last approach involves rigorous goal setting, budgeting, and performance measurement.

The last main section of the article draws on the authors’ research to provide four tactics used by effective companies to avoid common mistakes in managing corporate philanthropy: track the impact; define exit options; professionalize social engagement; and throw light on good deeds.

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