Executive Discretion

Q. Our non-profit organization recently obtained a donation from a publicly owned corporation. The approval was given directly by the CEO, without going through any kind of committee. Can we keep the money?

A. The issue of corporate donations is a vexing dilemma in business ethics. Some groups, including some "corporate social responsibility" (CSR) investors, view the extent of charitable donations as an indicator of how ethical and socially responsible a company is. Other analysts consider such donations a breach of ethics, since management is giving away shareholder money without a clear mandate to do so. Rabbi Aaron Levine is his book Case Studies in Jewish Business Ethics, expresses a skeptical attitude towards such "manager's pet" donations for this very reason. Milton Friedman in a famous article asks why management should give away money to charity instead of distributing it to shareholders who are perfectly capable of giving it away themselves.

The confusion surrounding this issue is well illustrated by a recent meeting I had with the leader of an internationally known think tank. One of the first things this director told me was that his organization was highly skeptical about the entire field of "corporate social responsibility". Like Friedman, he felt that the main responsibility of corporations was to do a good job in the economic enterprises they undertake, and for which they were founded. A few minutes later this same individual complained that in the past his organization had regularly obtained important donations from major corporations on the say-so of leading executives sympathetic to the values of his think-tank, but that lately corporate donations had been delegated to lower functionaries who always want to know "What's in it for our firm?" Of course this attitude is the only one justified if we eschew the idea of corporate social responsibility!

In previous columns I have elaborated my own position: that such donations are justified when the company is in a unique position to provide aid. Perhaps the company gives money whose effectiveness is augmented by special expertise the company possesses, or by a special degree of oversight it can apply. Or perhaps the company is uniquely obligated to give aid because of some past transgression or because of neighborly obligations. This situation answers in large measure Milton Friedman's objection (as his article implicitly acknowledges).

The ideal situation for a public company is to have a transparent policy with explicit criteria for donations. This approach minimizes the worst risk: that management decisions are based neither on benefit to the firm nor on benefit to the society but rather on benefit to the managers themselves. (Such donations were one small part of the overall pattern of corruption that characterized the Enron Corporation.) It also enables shareholders decide if they truly desire to donate some of their profits in this way (as CSR shareholders certainly do).

In your case, the company has no such policy, and the money has already been given. I would recommend the following course of action: Ask yourself if you honestly feel that a donation to your organization fits in with the general management ideals of the donating corporation, as these would be expressed if they were to formulate an explicit donation policy. Your judgment should be based both on the relationship between your non-profit and the line of business of the giving firm, as well as on the amount. Many corporations would find it advantageous to give a modest sum to promote educational initiatives in the local community, but would not logically give any money to a religious organization or give any large sums to charity.

Of course the answer to this question will be partially dependent on your own actions. If you have the ability to publicize the donation in a way that will provide significant good will to the donor, then the chances are greater that the answer will be positive. Your answer should take into account any publicity you would be willing to provide.

If the answer is yes, it would be best to ask the manager who approved the donation to get acknowledgement from some more neutral figure. This would ideally be by the board, but realistically the board cannot get involved if the figure is relatively small. Probably there is some kind of community liaison or spokesperson who as part of his or her job is authorized to approve small contributions to local charities; it would be good for all involved if this person writes a letter expressing their awareness of the donation and affirming that it meets the company's general criteria. Make clear any potential you have for creating goodwill for the donor.

If the answer is no, or if the subsequent acknowledgement is not forthcoming or seems forced, you should give back the money. Clearly enunciate your desire not to accept donations that are not in accordance with the company's usual criteria.

Just as the donating company should not be dealing with these situations on an ad hoc basis but rather have a thought-out policy, the same applies to non-profits. Your organization should formulate a general policy for accepting donations from corporations which incorporates some of the ideas we have just discussed. This will avoid awkwardness in future situations. After all, you don't want to offend the generous manager who approved the donation; it is much easier to say "Our organization has a policy of not accepting such donations" than it is to say, "I don't think your donation is kosher". Charitable organizations are no less bound to have ethics policies than business firms are!

There is a remarkable parallel to this analysis in the Shulchan Arukh, the authoritative Code of Jewish Law. In chapter 248 of the second volume (Yoreh Deah), the Shulchan Arukh states that in general a guardian for minor orphans shouldn't give charity from their assets. The reason is that being minors, their judgment is not sufficiently developed for them to decide on charitable gifts. When they are grown up, the money will still be there, and they will be able to decide what to do with it. This is similar to the status of shareholders. The difficulty of reaching a consensus of shareholders is a disability not unlike that of minors, and like minors, there is no compelling reason for the "guardian" or manager to give charity since ultimately the money will reach the shareholder, in the form of dividends or proceeds, and then he will be free to use the money for charity according to his judgment.

However, there are two exceptions to this rule. One is that it is permissible for the guardian to give charity if this is for the benefit of the youngsters, by giving them a good name. This corresponds to giving charity on behalf of a firm when it will promote good will and advance their business objectives. The other rule is that it is permissible to give for urgent needs which these youngsters are particularly obligated in. The example of the Shulchan Arukh is if they have poor relatives in urgent straits. Of course the needs of poor individuals are the responsibility of the entire community, but close relatives have a higher degree of obligation. This corresponds to giving charity to the local community and for needs which the company is uniquely situated to help wit.