Political CSR: why companies and foreign governments give to foundations like Clinton’s

The ultimate power family. Reuters

Questions are being raised about the purpose and possible influence of corporate and foreign government donations to the Clinton Foundation. This is a high-profile issue now because former Secretary of State Hillary Clinton is a presumed 2016 presidential candidate.

What is the purpose of such donations? What do companies and governments expect in return when they give hundreds of millions of dollars to foundations like hers?

Philanthropy has a deep history in the relationship between business and society, and much of it is embraced by companies expecting to be thought of as good corporate citizens because of their corporate social responsibility (CSR) initiatives. One of the largest categories of CSR is philanthropic donations to foundations, charities and nonprofits.

Corporate giving has morphed, especially in Europe, into a more political activity as companies have increasingly taken on responsibilities traditionally left to governments. This is one aspect of the developing field known as political CSR. In part, it involves businesses engaging in political activity via philanthropy – often seen as lobbying – to help bring about a more beneficial business or social environment.

Enlightened corporate self-interest

Companies make donations to foundations and different groups for a variety of reasons. Over the past several decades it has become evident that these donations are not made primarily out of a general sense of altruism but rather because companies expect some identifiable payoff in return. In terms of motivations for giving, companies report that most of their giving is for community investments that also help the companies and a smaller amount is categorized as “commercial,” in which the companies are the primary beneficiary.

For businesses, historically, a major benefit of being socially responsible has been the enlightened self-interest argument: it is in a business’s long-term self-interest to dole out shareholder earnings to charities. Philanthropy and corporate contributions in particular are a major part of this.

A more practical reason is that being socially responsible will help to ward off or shape government regulations and indirectly boost profits. In the global context, this has become a frequent practice as multinational enterprises have sought to mold the infrastructure and governance of nations in which they invest and locate.

A recent survey of 261 of the world’s biggest companies showed that more than half of them increased their philanthropy in 2013 by at least 10%.

This pattern of businesses aligning their giving with expected financial benefits sought in return is now the current state of affairs among large companies.

Donations and the bottom line

What are the benefits to the bottom-line companies are seeking? Many answers have been given to this question, such as gaining competitive advantage, more deeply engaging customers and employees, or enhancing reputation and legitimacy with society. Some companies are simply mimicking what other large businesses are doing.

Ultimately, corporate executives and their boardroom overseers are most concerned that such donations have a positive impact on their company’s profitability – or at least a benign one. They are the guardians of its financial welfare and bear ultimate responsibility to shareholders when giving away corporate resources. Increasingly, they are required to justify that CSR activities and corporate giving are consistent with the firm’s strategies and financial sustainability.

Companies have traditionally tried to affect the work of government by lobbying the merits or demerits of a piece of legislation or helping get a friendly politician elected to high office. The ultimate aim is to bring about a more favorable environment in which to sell their goods and services and return more profits to their shareholders.

Making donations provides an alternate route to the same end. Though companies are reluctant to say it, it acts as an indirect method of influence. In tacit return for their beneficence, they likewise expect to create goodwill, establish or improve political connections or favors, and be able to support or defeat legislation through contributions to foundations that are important to the legislators they hope to influence.

To use a current example, this is where the Clinton Foundation – which gives money to a variety of charitable causes – enters the discussion. It’s hard to pinpoint why exactly a company or foreign government is making a particular donation to a charity, such as the Clinton Foundation. But one could easily argue that a return favor is expected after a deposit is made. Recent reports have identified specific instances in which such a favor was sought – and granted.

You scratch my back…

The Wall Street Journal cited several such examples in a recent investigative report on corporate giving to the Clinton Foundation. In one reported case in 2012, the WSJ stated that Hilary Clinton lobbied the Algerian government on behalf of General Electric to pick the US company to build power plants there. A month later, the foundation announced a partnership between itself and GE, along with a donation of $500,000 to $1 million. Months later GE won the contract with the Algerians.

In another 2012 case, the WSJ reported that Walmart pledged to donate $12 million to a public-private partnership Clinton created at the State Department and $500,000 to a charity she had helped create. One month later, during a trip to India, she lobbied against the country’s ban on retail stores such as Walmart. Later, former President Clinton asked Walmart’s CEO, Mike Duke, to change his schedule so he could be on a panel at the Clinton Global Initiative.

The WSJ reported that in some cases donations came after Mrs Clinton helped a company and in others the donations came before she took action. Sometimes the donations came both before and after.

Foreign governments give with similar motives

Doubtless this is why foreign governments would want to make such contributions as well – to influence outcomes of elections, sway government leaders to support legislation, or to gain contracts or programs in their favor.

Why else would a foreign government make a donation to a US foundation, especially one that carries a prominent name such as Clinton?

This is an especially attractive strategy as they seek to bring foreign funds back into their countries. Like lobbying, there is not always an immediate, direct quid pro quo, also like lobbying, it makes it hard for the recipients to be objective and to ignore the needs and wants of the donors. An example of this would be when a country donates to an American foundation in hopes that the company sponsoring the foundation would be more favorably disposed to building a manufacturing plant in that country.

The Clinton Foundation reportedly suspended donations from foreign governments to the foundation when she became secretary of state, but since she left her post that suspension has been lifted. Donations by foreign governments have been noticeably rising again thus putting this issue in the headlines once more.

The ethics of receiving such donations

Is it ethical to accept such donations from corporations or governments while one is running for national office or holding office? With billions of dollars at stake, the question of a real or perceived conflict of interest undoubtedly arises. And Democrats themselves have said it’s not, according to the WSJ article.

In this case, however, it’s the foreign donations that are of particular concern, since no American would accept one of their leaders being unduly influenced by another government. Foreign governments are not allowed to give money to US political campaigns, making their donations to the Clinton Foundation look like a side-door way to influence the likely Democratic nominee for president.

Corporate giving, on the other hand, is easier to justify.

The quickest way to make this a non-issue would be for the Clinton Foundation to reinstate the ban immediately as long as she is politically active. And in fact the foundation has announced recently that it is reconsidering whether it should do just that.

In the case of corporate giving, it is vital for the public and all stakeholders to have confidence that philanthropy is done for legitimate purposes and not for exercising political power to gain advantage. The ethical high road requires that companies be transparent and not attempt to abuse their strong economic resources perhaps in a quest to sidestep campaign finance regulations.

CSR is primarily about improving society not augmenting business’s influence. To do otherwise is to invite further government regulations, and who wants this? Certainly not the business community.