Chapter 2 Literature Review History of Corporate Philanthropy
According to Marx (1998)
A report published in 2008 by the Pakistan center of
There are two opinions in favor and against the argument about philanthropical practices of the corporate sector. In 1984 Peter Drucker argued that the corporate sector should not invest in the charity of those institutions which are weak and sick. He is of the view that a healthy society has each institution healthy, its hospital, its schools, even its business, in a weaker society nobody invests. Arguments are contradictory to corporate social responsibility arguments. In the same era, the idea of the social contract was initiated, the social contract between the business and community and propagated the hypothesis of the contribution of philanthropy to corporate returns. Friedman also argued in favor of the circular effect he propagated the hypothesis of the positive contribution of an employer to improve the community from which the employer draws employees, and, thereby, obtain
As far as the constructs in literature are involved the effect of corporate philanthropy has manyfold effects. According to Brown et al, (2006),, philanthropic practices increase the shareholder’s value, further, it enhances the firm’s reputation, the goodwill and even has a positive effect on employees of the organization. They further argue that the other regulatory bodies also get a positive image of the firm. In short, investing in society creates a firm image and positive impact on societal elements and impresses the stakeholders. Brown et al (2006) also showed the positive impact of corporate philanthropy on firm image and even the large firm invests more in societal institutions, it’s on the one hand not only as a means of advertising the brand and as well as financial outcomes.
Bae & Cameron (2006) have focused on some other issues, he is of the view that if the firm has a prior good Firm Reputation and fame in society then the philanthropic activity will give positive returns otherwise if the firm is not having good Firm’s Reputation of goodwill among the people then investing into social activities do not produce results which are accepted. Therefore a firm should audit its Firm’s Reputation and goodwill before investing in social services.
In this connection, the public relations manager has a bigger responsibility to check out the necessary arrangement to conduct activities in creating a better and positive image in the eyes of people. Effective communication tactics and strategies may give good results. Elfenbein et al. (2011) concluded after their survey and found a significant association between social investment and a Firm’s Reputation of the firm. In their study consumers found more attractive purchasing of brands of those firms which not only tied to charity but with a positive and good image. Vaidyanathan (2008) paid attention to investigating employee involvement in philanthropic activities. He concluded that the employees or managers are most interested in doing philanthropic activities but it is also found that such firms have fewer and limited charitable activities whose management is more interested in doing so. He also found that the Firm’s Reputation and financial returns have positive associations with philanthropic investment. He has focused on methodological variation in philanthropic activities in producing different results.
Kulcsar et al. (2011) worked to investigate the association between philanthropic activity and product failure which was found to be negative. Cahi (2010) concluded the significant association between company ownership structure and philanthropic investment. He investigated that foreign owners of firms are more interested in doing philanthropic activities. Adding to the argument a foreign firm or multinational firm already has good fame and goodwill or we can say positive Firm’s Reputation along with huge funds to invest. These two strengths impetus to invest in society, Contradictory foreign firms are found to have less in return against investment, therefore, their social impact is sounder rather than having a financial impact.
Many organizations invest in charity just for the sake of getting future prospective returns. The same results were concluded by Levy et al. (2008) who said that firms use philanthropy as an instrument to get prospects and prospective growth targets. The analysis proved in the USA in the same study where those firms which invest in charity have found more progressive in the future and are target-oriented.
Philanthropy is found predictive in getting employee productivity as well Philanthropy has a positive relationship with government relations and competitive advantages. Baskin (2008) found that investing in charity is more result-oriented in developing countries rather than in developed countries. The foremost reason is the need for charity or investment in society. Developed countries are not found with an intense need to have charity business as compared to developing nations and thus the results of social investment are more visible in developing nations.
In conclusion, the reward of social investment is also more visible in developing nations as compared to developed nations. Françoise (1995) conducted a survey and unfold some perceptions of consumers by asking four questions regarding philanthropic investments, 71% showed agreement toward it as a good way to solve social problems. 64% of people stress to follow standard procedures for better results. 75% of people showed agreement that philanthropic activities increase the good image of the organization. 83% agreed to like the firm involved in philanthropic practices. The same study emphasized the precautions of philanthropic investments. He argues that if the philanthropy is challenging local traditions or culture or engages the people in a way that they are exposed to any risk or life-threatening activities then the outcomes may not be in favor of the organization some time outcome emerges early and sometimes it takes time.
Roger (1998) conducted extensive work on the effect of corporate philanthropy on multiple factors in the three countries of Europe, France, Germany, and the UK taking data from 40 different firms results showed little contradiction but unanimous in most areas. Summarily corporate philanthropy was found unanimously significant in putting impact on improving the employee loyalty, increasing media attention as a result of more publicity, it also put a positive impact on a firm’s image and general perception even of its product.
Corporate philanthropy found significance in turning a bad image of a firm or product into a positive one in Europe. It created a good image among shareholders. It found a significant predictor of Increasing Customer Loyalty and competitive edge, in France and Germany but not in the UK. Unanimously in three states, corporate philanthropy was found insignificant in putting an effect on Building goodwill, Facilitating public relations, involving the company in the community, improving social and economic life and infrastructure, and encouraging loyalty in existing customers. Roger (1998) further argues that the firm investing in charity is found commercial oriented in three states rather than having the objective to serve the society.
On the other hand, Debbie (2002) has some different views, he thinks that a firm is having more responsibility than just earning profits, and it has some moral, legal and social obligations as well. Intrinsically if firms invest in society it fulfills the obligation. Bowie (1998) said that ethics lessen the cost and enhances the firm capacity to deliver to society more than the objectives and it creates the social capital as a necessary addition to the infrastructure of the society (cited in Debbie, 2002). He discussed strategic philanthropy where organizations plan strategic goals of the firm and tie the competencies with social needs and causes. Malani (20080 endorsed this ideology as well, he thinks that the organization thinks beyond the earning and financial returns in case of philanthropic activities, and firm investing in society come in competition with government, NGOs, and other social organizations with a larger goal and manifold objectives, Milani termed it as a market of altruism.
The market of altruism is mostly practiced in emerging economies rather than developed ones. It is common to observable that when a firm operates in the market of altruism it competes with NGOs and government facilitates in operation but better advised for firms to do so if it has a competitive advantage over other competitors. Christina (2005) worked on Philanthropy from a globalization perspective; she emphasized the way of communication that supports social investment in getting desired outcomes.
Paul (1993) Corporate philanthropy is now strategically operated in the world with the objectives to increase financial returns, enhance corporate image and brand Firm’s Reputation, gain a competitive advantage over other competitors, strengthen consumer evaluation, and enhance the employee loyalty Simon (1995) thinks that corporate philanthropy is smartly used in the USA to have long term competitive advantage and as a strategic move to have new market extent. Vidal (2003) equated corporate citizenship with corporate philanthropy; he defined corporate citizens as fulfilling the minimum bottom line of local or cultural values and following global standards. According to him, an organization is fulfilling the global standards of corporate citizenship and is self-accountable for assessment. A better combination of financial resources or assets of the company with social cause and objectives can produce social benefits and the results can be far more extensive than individual and occasional activities.
Another approach is organizational behavior, if organizational behavior is positive to the society and embedded with strong contact with the local community and local culture, and ethics, a small investment in philanthropic activities can produce larger results in the form of financial returns. Government industry collaboration can also build a strong bridge between social needs and investment perspectives. The collaboration can be placed in two ways, one with the provision of laws and regulations which not only facilitates the organization in such projects but it can produce peace by bringing quick results. Secondly, active partnership in such projects which are social and can satisfy the objectives of partner organizations and all stakeholders.
In India corporations like Reliance, Tata, Halland Mahindra, and Mahindra has admitted philanthropic contributions and are an integral part of society and it’s ultimately developed the business to a greater extent. Therefore in India, these four firms are at the front in philanthropic initiatives to develop the society.
Alam (2010) highlighted the religious touch on the issue, he is of the view that philanthropy is not only having social outcomes but is inherited with religious ethics in form of humanitarian welfare and joint responsibility for welfare maximization. A contradictory argument may be placed regarding Islamic banking one approach is pleading that Islamic banking, on one hand, provides pure commercial services but is also embedded with social priorities but the other view is not in favor of this opinion.
Regarding philanthropy in the context of religious entrenching now in business, it is found that most the organizations use the philanthropic concept to make their Firm’s Reputation, maximize their shares and make good Customer Loyalties. Muller et al. (2010) emphasized the issue of occasional investment in philanthropy. He is of the view that some firms conduct such investment and charity in the time of any disaster or catastrophe to overcome existing problems of rehabilitation purely on humanitarian grounds but Muller lightened the negative impact of such action in form of losing a portion of profits and even negative impact on the stock market.
Same arguments are put by Kulcsar et al. (2009) he said occasional philanthropic actions do not come to positive results even Customer Loyalties go down and firms even lose Firm Reputation because such activities are not prolonged and pledged to long term engagements Gabrey (2005) suggested that firm should engage in long term relationship so as it can act as insurance for the firm. Milgrom & Roberts (1986) and Elfenbein et al (2011) are agreed in having a positive impact of philanthropy on the Firm’s Reputation and consumer demand.
Philanthropy is explained in some way or around similar to corporate social responsibility (CSR) but one thing to be in mind is that the CSR gives a glimpse of the obligation to the firm to respond ethically to the society in an organized way but philanthropy embedded bit liberty of choice and methodology and objectives in its nature.
Miller (2011) pointed toward the importance of employee involvement in philanthropic activities where the benefits of philanthropic investment are not only for locality but the organization’s employees should also be the beneficiary of such acts, in this case, the institutional legitimacy of the organization but the loyalty of employees also enhanced.
Riishi et al (2003) gives a better understanding of corporate philanthropy than how it can be many fold provider of not only products or services but the social need of the community, he also focused on the firm’s characteristics that play a vital role in getting the full breadth outcome of philanthropy. Kromann (2001) also emphasized the firm size as a predictor of philanthropic outcome, he thinks that the larger firm is in a better position to undertake the full course of philanthropic activities as a permanent part of organization processes. The objectives of large firms are routine to get financial earnings and better market position and financial returns but a huge amount is intrinsically allocated to society.
Pakistan has become magnifying in the last decade and rising interest has been seen in the corporate culture of Pakistan society. Negating the concept that only in developed countries the government is heading philanthropy as a discretionary act, Pakistan has witnessed a rising trend and appreciation of philanthropy in corporate, social, and public circles. Corporate philanthropy is now becoming an important part of the strategy of business firms in Pakistan. It is because the business community is well aware of the social problems of Pakistan and the need and gap between the necessities of such action where the society is not only addressed with commercial interest but with social interest as well.
The dynamic relationship between community and corporation via print and electronic media is also a factor in the emerging importance of philanthropic activities.
Social political gaps are also making the gap where business executives feel to get involved in a social investment where the society does receive the benefits of philanthropy not only with the provision of commercial goods or services but the addition of social infrastructure.
Here in this study perceived philanthropic attitude is taken as a predictor or explanatory variable and customer loyalty, the Firm’s Reputation of the firm, and product of brand or product image as regressed factors. As all the variables are behavioral and based on a long-range of customer behavior therefore a 5-point Likert scale is set to measure the variable. Hens the causation is very clear as explained above. The following three hypotheses are set to be tested as the outcome of the study.
H1: Perceived Philanthropic Attitude has a significant effect on Customer Loyalty
H2: Perceived Philanthropic Attitude has a significant effect on a firm’s Reputation
H3: Perceived Philanthropic Attitude has a significant effect on brand or product image.
Here perceived philanthropic attitude is defined as the perception of customers towards firms investing in philanthropic activities. Customer loyalty according to Kotler, Bowen, and Makens, is defined as “