Godfrey Corporate Social Responsibility and CFP Academy of Management Review 2005

The Relationship between Corporate Philanthropy and Shareholder Wealth: A Risk
Management Perspective
Author(s): Paul C. Godfrey
Source: The Academy of Management Review, Vol. 30, No. 4 (Oct., 2005), pp. 777-798
Published by: Academy of Management
Stable URL: http://www.jstor.org/stable/20159168 .
Accessed: 02/12/2013 12:53
Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at .
http://www.jstor.org/page/info/about/policies/terms.jsp
.
JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of
content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms
of scholarship. For more information about JSTOR, please contact support@jstor.org.
Academy of Management is collaborating with JSTOR to digitize, preserve and extend access to The Academy
of Management Review.
http://www.jstor.org
This content downloaded from 152.3.152.120 on Mon, 2 Dec 2013 12:53:08 PM

All use subject to JSTOR Terms and Conditions
?
Academy o?Management Review
2005,Vol. 30,No. 4, 777-798.
THERELATIONSHIP
BETWEENCORPORATE
PHILANTHROPY AND SHAREHOLDER WEALTH:
A RISKMANAGEMENT
PERSPECTIVE
PAUL C. GODFREY
Brigham Young University
I present a complex theoretical explanation that draws on multiple bodies of literature

to present an academically rigorous version of a simple argument: good deeds earn
chits. I advance/defend three core assertions: (1) corporate philanthropy can generate
positive moral capital among communities and stakeholders, (2) moral capital can
provide shareholders with insurance-like protection for a firm's relationship-based

intangible assets, and (3) this protection contributes to shareholder wealth. I highlight
several managerial implications of these core assertions.
Should rational, profit-maximizing managers1 ninety empirical studies conducted since 1970 of
engage in corporate philanthropy? Business the CSR-CFP relationship, and their analysis
and society scholars have theorized about and presents a decidedly mixed picture. Forty-eight
studied this question, as have accountants, studies show a positive link between CSR and
economists, lawyers, philosophers, political sci CFP; however, closer examination of these stud
entists, strategists, and theologians. The rela ies reveals a number of concerns around data
tionship between philanthropic activity and sources, the type and variety of measures used
shareholder wealth represents one facet of a as both independent and dependent variables,
larger debate over the link between corporate and control variables (or lack thereof). The lack
social responsibility (CSR) and corporate finan of theoretical grounding formany of the studies
cial performance (CFP); this debate has gener noted by Margolis and Walsh echoes oilman's
ated substantial theoretical argument for over claim that this area of inquiry represents "data
seven decades (e.g., Berle, 1931) and substantial in search of a theory" (1985: 540).
empirical research contributions over the last Other meta-analytic work corroborates the un
three. Margolis and Walsh (2001) reviewed settled state of empirical analysis. Griffin and Ma
hon (1997)and Roman, Hayibor, and Agle (1999)
analyzed the same
fifty-one studies and reached
I thank Brad Agle, Tim Gardner, Hal Gregersen, JeffHar
rison, David Hart, Melissa Humes, Grant McQueen, Craig
markedly different conclusions about the overall
Merrill, Ron Mitchell, Sandra Waddock, and the Strategy strength of a CSR-CFP relationship. The marked
Group at Brigham Young University for their helpful com
inability of scholars to reach an empirically
ments on earlier drafts of this manuscript. The and to
expertise grounded resolution this debate indicates that
wisdom of Dave Whetten added
significant value to the core
the relationship between CSR and CFP, if one
ideas expressed here. Tom Donaldson and the three anony
mous reviewers at AMR much and many exists, may be quite complex (Rowley & Berman,
provided guidance
suggestions that vastly improved the paper. After the help of 2000; Ullman, 1985). If such a relationship exists,
so many gracious colleagues, any remaining errors and the principle of requisite variety implies that such
omissions are my own. a complex relationship requires a suitably com
I use the terms rationality and profit maximiz
although
plex theoretical explanation.
ing, I recognize and accept the boundaries on rationality
In what follows, I present a complex theoreti
suggested by Williamson, who notes that managers are
rational but so" (1985: 45). Man
cal explanation that draws on the business eth
"intendedly only limitedly
agers may in fact intend to maximize shareholder wealth; ics, social psychology, law, microeconomics,
however, cognitive limits on their ability to consider all and strategic management literature to present
and outcomes constrain their ability to an academically
possible strategies
rigorous version of an intu
maximize. I use the base terms rationality and profit maxi
for literary ease of use, but also because these pure
itively simple argument: good deeds earn chits.
mizing
underlie that emphatically holds
I hope to establish three core assertions: (1) that
assumptions scholarship
that rational, profit-maximizing managers should not en corporate philanthropy can generate positive
gage in philanthropic activity (e.g., Friedman, 1970). moral capital among communities and stake
777

778 Academy of Management Review October
holders, (2) that moral capital can provide share Finally, philanthropy represents a discretionary
holders with "insurance-like" protection for manifestation of CSR that differs in kind (not
many of a firm's idiosyncratic intangible assets, merely in degree) from the obligatory conform
and (3) that this insurance-like protection con ance with economic, legal, or moral/ethical di
tributes to shareholder wealth. These three as mensions of CSR (Carroll, 1979). As a discretionary
sertions the constructs
and and relationships action by a firm'smanagement, philanthropy can,
they embody constitute one pathway that leads under certain conditions, generate approbation
from philanthropic activity (a manifestation of and imputations of exemplary values or character
CSR) to shareholder wealth (a measure of CFP). to the firm from its various publics. Adherence to
Philanthropic activity anchors one end of the known and explicit requirements (economic and
pathway, shareholder wealth the other. Share legal) and obligations (ethical) may generate sat
holder wealth is the expected discounted value isfaction and imputations of responsibility among
of a firm's anticipated cash flow stream from the a firm's stakeholders; however, the voluntary and
employment of its tangible and intangible as discretionary nature of philanthropic activity (do
sets, consistent with the prescriptions of the ing good above and beyond what is expected)
Capital Asset Pricing Model (Brealey, Myers, & may lead to imputations of exemplary, as opposed
Marcus, 1995). I use philanthropic activity as a tomerely good, behavior (Wood & Logsdon, 2002).
construct for several reasons.
Researchers (Car The logic I outline below that links philan
roll, 1979, 1999), research data bases (the Kinder, thropic activity with shareholder wealth may be
Lydenberg, Domini [KLD] social ratings include applied a fortiori to other manifestations of dis
philanthropic activity in their variable "commu cretionary social investments or activities by
nity relations"), teachers in the business and firms, where is defined as actions
CSR that are
society field (Waddock, 2001), and practitioners not required by law but that appear to further
(the Conference Board produces an annual some social good and that extend beyond the
industry-level survey of philanthropic dona explicit transactional interests of the firm (Mc
tions) all consider philanthropic activity an Williams & Siegel,
2000). Simply put, if philan
important dimension of CSR. Further, a robust thropy can create
wealth for shareholders,
operational definition of philanthropy can be other discretionary corporate social initiatives
drawn from the accounting literature: philan should create wealth by the same basic mech
thropy is "an unconditional transfer of cash or anism.
other assets to an entity or a settlement or can The model on two groups of

I present focuses
cellation of its liabilities in a voluntary nonre actors: (1) managers, who make allocation de
ciprocal transfer by another entity acting other cisions regarding philanthropic activity, and
than as an owner" (Financial Accounting Stan (2) stakeholders, who interact with the firm in
dards Board [FASB], 1993: 2). The nonreciprocity their area of interest and as members of com
condition becomes the acid test of philanthropic munities3 affected by philanthropic activity
activity; it is not an explicit exchange of value
between two such as cause-related mar
parties
of value, and the exclusivity in exchange.
keting but, rather, a transfer of wealth from one objects granted
The second case could be interpreted a number of ways;
party to another.2 however, the donation most likely qualifies as philanthropic
because (1) the level
of materiality may be significant to the
symphony but likely not to the utility company, and (2) the
2
Cloaked within the FASB
standard is a fairly large mea benefit exchanged for the donation (being a "gold" sup
sure of discretion and in classifying individual porter) represents a nonexclusive benefit available to all
judgment
cases as philanthropy or marketing Consider who donate at that level. Materiality (on both sides of the
expenses.
transfer) and of the exchange become useful
three examples: (1) a donation by a corporation to fund a new exclusivity
school of the local symphony guidelines to categorize ambiguous cases.
private building; (2) support
3
orchestra by the local utility company, where support is at a A community can be "1. A neighborhood, vicinity, or
predefined "gold" level by the symphony and the firm re location; 2. A society or group of people with similar rights or
ceives recognition for its activities in the symphony pro interests; or 3. A collection of common interests that arise
gram; and (3) a donation by a corporation to construct a from an association" (Black's Law Dictionary, 1999). Commu
sports arena that carries with it exclusive naming rights for nities have been modeled in the literature as "stakeholders"
the arena. The first case qualifies as philanthropic since no of the firm (Freeman, 1984; Wood & Iones, 1995), usually
exchange has occurred, while the third does not because of construed under the first definition concerning geographic
the materiality of the donation, the explicit exchange of proximity. Definitions 2 and 3 move beyond this notion, how

2005Godfrey 779
(Freeman, 1984). I assume that managers act and representative (primarily) organizational4
rationally and intend tomaximize shareholder scholarship in each area. The arrow at the top of
wealth through their decisions; agency prob the table indicates the level of social involve
lems either do not exist, or adequate control ment tolerated or called for by the three major
systems and governance mechanisms can be positions; the clear break in the arrow captures
installed to minimize the presence and sever the idea that, for business citizenship advo
ity of agency problems. Stakeholders construct cates, the rationale for corporate social involve
reputational assessments and evaluations of ment can never adequately devolve into a mere
the firm's various activities that generate
pos economically profitable relationship among the
itive or negative reputational capital (Fom firm, stakeholders, and communities. Rather,
brun, 1996). Both managers and stakeholders CSR must be viewed as a citizenship duty,
can be characterized as reasonable?that is, whether an ethical or political conception of cit
they will modify and change their decisions izenship is used (Logsdon& Wood, 2002;Wood &
and positions in the face of reasons and rea Logsdon, 2002).
sonable argument. Proponents pole of one
in the debate (strict
The stakeholder world is pluralistic, which capitalism) hold that there is no relationship
means that society consists of several "compet between CSR and CFP and, consequently, that
ing comprehensive doctrines" (philosophies, re there should be no involvement in social issues;
ligions, etc.) that provide individuals and proponents of the other pole (business citizen
groups with final and intermediate definitions ship) argue for deep social involvement based
of what constitutes, for them, a good society on citizenship obligations, irrespective of any
(Rawls, 2000); an alternative formulation is that economic gain. Scholars in various disciplines
pluralism means stakeholders (as individuals have created intermediate positions that adhere
and groups) hold differing moral preferences, tomajor tenets of the polar positions but attempt
and they belong to communities that are defined tomove toward some middle ground. For exam
by the shared moral preferences of their mem ple, marketing scholars advance the position of
bers (Donaldson & Dunfee, 1999). Put simply, a cause-related marketing as a method for com
firm's "public" consists ofmultiple communities, bining adherence to strict capitalism with some
each representing different ethical values and level of social involvement (Deshpande & Hi
value systems; few ethical values will be com thon, 2002; Drumright, 1996; Mohr, Webb, & Har
mon across all communities, some will be com ris, 2001; Varadarajan & Menon, 1988). On the
mon across many communities, many will not other side, stakeholder theorists such as Free
overlap, and some ethical values will conflict man (1984) or strategy scholars such as Hart
with values or complete value systems held by (1997) craft a position that shares a duty-based
other communities. foundation with business citizenship but falls
short of the latter's call forbroad involvement in
social, political, and
humanitarian issues.
LITERATURE REVIEW
Strategic philanthropy, a term coined by Post
Table 1 presents an overview of the main and Waddock (1995), appears to be an oxymoron;
themes in the CSR-CFP debate. Imake no claim however, the term adequately captures a com
that Table 1 presents an exhaustive review of promise view that links CSR and CFP. How can
the theoretical work in this area; the scholarship a firm further its strategic interests (i.e., engage
cited here provides the reader with the basic in activities that create wealth) while giving
contours and distinctive flavor of each position away resources with nothing apparent in re
described. The table outlines the asserted rela turn? Strategic philanthropy adherents hold that
tionship between CSR and CFP, the essential although the firm receives no tangible, explicit,
arguments advanced, strengths and weak or discrete exchange value, philanthropic and
nesses as evaluated by opponents in the debate, other CSR activities generate intangible strate
4
The table does not include scholarship from the disci
ever, and imply that communities may have their own stake plines of accounting, economics, finance, law, philosophy,
in the firm, but are also composed of individuals with other political science, and theology that takes up this important
stakeholder interests. conversation.

TABLE 1
Major Themes in the CSR-CFP Literature
Dimension Shareholder Capitalism Strategic Philanthropy Business Citizenship
CSR-CFP relationship Negative Positive Positive or negative but not the

basis for action
Moral premise: Shareholders provide the Enhancing public goods Shareholder property rights
shareholder capital for the firm and and social welfare only meaningfully exist
property rights have a property claim increases the value of within an overarching
on the residual shareholders' residual framework of community
earnings of the firm; it claims institutions, basic human
is unjust to dispose of rights, and concern for
that property without human dignity
the consent of the
Moral premise: Corporations contribute Corporate contributions As citizen agents of a larger

social welfare most to social welfare can have a direct and community, firms have an
through the production measurable impact on obligation to contribute to

of economic goods both social welfare and social welfare in a broad
(e.g., products, a corporation's based way (e.g., policies,

services, jobs, tax "strategic balance strategies, technologies,
revenues) sheet" (e.g., increased philanthropy)
trust, loyalty, goodwill)
Representative Easterbrook & Fischel Fombrun (1996); Fombrun K?rten (1996);Logsdon & Wood
scholarship (1991);Friedman (1970); Gardberg, & Barnett, (2002);Waddock (2001);Wood
McWilliams & Seigel (2000);Jones (1995);Keim & Logsdon (2002)
(2000) (1978)
Strengths Creates a clear Presents a broad vision Models the firm as a citizen,
stopping rule for of a firm's roles and deeply embedded in a global
managerial discretion, opportunities within society of communities and

investments, and society while retaining institutions
moral obligations focus on shareholder Offers a broad agenda for
Holds managers wealth meaningful corporate
strictly accountable to Fosters broader (more contributions to social
shareholders for constituencies) and welfare
outcomes deeper (longer-term)
Mitigates agency commitments by firms
problems related to to stakeholders
corporate contributions
Weaknesses Firms are independent/ Many pressing social No stopping rule (in theory or
autonomous within the issues, and problems practice) to limit managerial
larger society, with no may not fit a firm's decision making,

obligations beyond "strategic objectives" investments, and moral
shareholder wealth obligations in social issues
Limited view of What is "strategic" is Business, run by private
business contribution difficult to measure, interest, assumes a larger
to social welfare; thus open to abuse of public policy role, with no
many opportunities for agency relationship and political accountability to
social contributions providing a fuzzy check managerial discretion
may be unrealized stopping rule for
investment

2005Godfrey 781
gic assets like reputational capital (Fombrun et Strategie Philanthropy

al., 2000), employee commitment (Turban &
What is the pathway that leads from philan
Greening, 1996), trust (Frank, 1996; Zucker, 1986), to shareholder wealth? Critics of
thropic activity
positive action (Neihesiel, 1994) or acquiescence note for all the the
strategic philanthropy that,
(Jenson, 2002; Jenson & Murphy, 1990) among key oretical and empirical effort in the area, no
regulatory institutions or legislative bodies, or
clearly specified mechanism has been de
the development of the firm's business and in scribed and defended. Margolis and Walsh note
stitutional environments(Porter & Kramer, 2002). "a need for a causal theory to link CS[R] to CSP"
has been the subject of
Strategic philanthropy (2003: 278). The work of Fombrun et al. (2000)
empirical research, as well as theoretical devel the problem. While their work es
exemplifies
opment. Fry, Keim, and Meiners (1982) used 1RS tablishes potential connections between social
statistics of income for thirty-six industry groups and financial performance, their reliance on an
from the years 1946-1973 to examine the poten ecdotes rather than research and on specific
tial strategic motivations and implications for stakeholder relationships rather than general
corporate giving. They found that contributions theoretical principles and constructs makes
were positively related to advertising expenses their argument associational rather than eausa
and that "firms with higher levels of public con tional. Rowley and Berman (2000) and Wood and
tact spend more on contributions than do firms Jones (1995) outline criteria that such a causal
with little public contact. This, too, is consistent mechanism must satisfy: such a mechanism
with the notion that contributions are a profit must account for industry and competitive con
text differences between firms (Rowley & Ber
motivated expenditure" (Fry et al., 1982: 103).
Saiia, Carroll, and Buchholtz (2003) recently sur man, 2000) and must account for the diverse va
among the riety of stakeholder interests and divergent

veyed corporate giving managers
stakeholder and assessments of the
largest public contributors to investigate the de perceptions
to which these individuals their firm (Wood & Jones, 1995).
gree perceived
as engaged in strategic philan In the first major section of what follows, I
organizations
results indicate that those in con seek to strengthenexisting work in strategic
thropy. Their
trol of corporate giving see the activity as be philanthropy by providing a detailed theoretical
explanation of one pathway linking social and
coming increasingly strategic and that
financial performance. There may be other
organizational leaders expect a link between
and corporate or paths; I do not imply that philanthropy creates
philanthropic activity goals
value only in the way I specify. I argue that
strategies.
The scholarship of strategic philanthropic activity can, under certain circum
philanthropy
seeks a compromise the two
stances, generate positive moral capital, which
position between the firm with insurance-like
for a significant level of so provides protection
extremes?arguing for its relationship-based intangible assets. The
cial involvement by firms, but limiting that in model attempts to account fordiverse and diver
volvement to the strategic interests of the firm,
gent stakeholder interestsand assessments of
thereby increasing shareholder wealth. For all
philanthropic activity, and the focus on the risk
the effort invested by scholars in articulating a
management value of positive moral capital
compromise position, two groups of essential a to accommodate
provides mechanism indus
questions reveal the difficulties in the current and firm-level differences that
try, competitive,
state of such a compromise. The first set of ques contour the economic landscape.
tions revolves around the notion of strategic How much should a firm invest in philan
philanthropy, considering how and under what strict
thropic activity? The strength of the capi
conditions philanthropy will contribute to share talism position lies in its clear delineation of a
holder wealth: why and when will philanthropy stopping rule for managerial investment and
be strategic? The second set of questions con that cre
activity: only invest in those activities
siders the implications formanagers attempting ate tangible and explicit value for shareholders
to develop a philanthropic strategy and takes up (Berle, 1931; Easterbrook & Fischel, 1991). Such a
where and how their firms should engage in stopping rule creates clear accountability to
philanthropic activity to create strategic value. shareholders for all investments and provides

clear direction formanagers facing competing How should a

firmmanage the processes of
demands for resources. These scholars impale philanthropic activity to maximize its gains?
the strategic philanthropy perspective for not Saiia et al. (2003) describe and Porter and
providing a clear stopping rule: "strategic" or Kramer (2002) prescribe a world of corporate giv
"stakeholder" interest proves difficult to define ing dominated by rational economic decision
and provides a nebulous and fuzzy stopping rule making designed to isolate and exploit the stra
at best. Because my argument draws on risk tegic value of philanthropic activities. Porter
management principles and insurance
theory, I and Kramer, for example, present a series of
am able to strengthen the strategic philanthropy screens for contribution managers to use in
perspective by specifying a conceptually clear evaluating the potential strategic leverage and
stopping rule for philanthropic activity and to opportunities available through philanthropic
define when continued investments in philan activity?the goal being to move managers be
thropic activity yield no additional protection to yond notions of communal obligations, past
the firm's expected cash flow stream. mere goodwill generation, and on to effective
"strategic giving" (2002: 67). The argument I
present below holds that adherence to commu
nal obligations and goodwill generation repre
Philanthropic Strategy sent important sources of the strategic value of
Where should a firm target its philanthropic ac philanthropy. Further, while the emphasis on
tivities? The strength of the business citizenship rational economic decision making provides
position lies in its vision of the corporation as managers with
solid foundations, philanthropic
tightly integrated into the larger social and insti activity perceived as purely economic in its mo
tutional system; this tight coupling between busi tivation is unlikely to generate the type or de
ness and society generates the citizenship man gree of moral capital that provides insurance
date of corporate involvement in building the like value.
"good society" (K?rten, 1996; O'Toole, 1993). Advo With these questions clearly articulated, I pro
cates wish to see business assets, skills, capabil ceed to lay out the theoretical argument. In the
ities, talents, and resources employed to combat first section that follows, I outline how philan
many of humanity's most pressing social and po thropy creates positive moral capital and how
litical problems, from poverty eradication con that capital provides insurance-like protection
cerns such as clean drinking water and adult lit for the firm, and I specify an optimal level of
eracy to the political guarantee of basic human philanthropic activity. In the second section I
rights forall citizens (Logsdon & Wood, 2002;Wood consider the managerial implications of the first
& Logsdon, 2002). Their dissatisfaction with the section regarding the targeting of philanthropic
strategic philanthropy perspective stems from its activity among the firm's many stakeholders,
inability to motivate social involvement beyond stakeholder groups, and communities, as well
voluntarism and the "strategic interest" criteria of as implications for organizational contexts and
the donor firms. Philanthropic voluntarism will processes formanaging philanthropic activities
never, in the view of business citizenship adher and allocating resources in this area.
ents, lead to the sustained commitments neces
sary to tackle such broad social and political is
STRATEGIC PHILANTHROPY: CREATING
sues, and strategic interest may never motivate
SHAREHOLDER WEALTH
involvement in areas such as literacy or strength
ening human rights. In the second major section of This section marks the pathway from corpo
the article, I hope to accommodate the vision of rate philanthropy tomoral capital, and then on
business citizenship by arguing that a risk man to the creation of shareholder value. In the first
agement view of philanthropy encourages a subsection I argue that philanthropic activity
broad rather than narrow conception of activity: will generate positive moral capital when both
philanthropic activity in the broad social and po the acts themselves and the imputations about
litical arenas advocated by business citizenship the organization and its actors receive positive
scholars may indeed generate value for share evaluations from affected communities and oth
holders, even though such activity does not ap ers. In the second subsection I argue that posi
pear to further the strategic interest of a firm. tive moral capital can protect many of the firm's

2005Godfrey 783
relationship-based intangible assets as itworks Jones (1995) offers an account of a firm's moral
to mitigate negative assessments and the re reputation?one attribute-based reputational
sulting sanctions meted out by stakeholders area?consistent with this notion. Stakeholders
consequent to actions by the firm that adversely assess interactions between the firm and stake
impact stakeholder interests. In the final sub holders and the overall context?its visions,
section I draw on standard notions in the eco strategies, policies, systems, etc.?that reflect
nomics of insurance literature to identify the some degree of "moral coloration" by individual
optimal level of philanthropic activity fora firm. actors, managers, and leaders within the firm;
from these morally colored activities and con
texts, stakeholders impute moral values, princi
From Philanthropic Activity toMoral Capital
ples, and character elements that compose a
Fombrun (1996) models reputational capital as moral reputation.6
the outcome of the process of assessments and Philanthropic moral reputational capital rep
evaluations of the firm's publics that constitute resents the outcome of the process of assess
a reputation (Rindova & Fombrun, 1998); a repu ment, evaluation, and imputation by stakehold
tation in and of itself has no cash value, but ers and communities of a firm's philanthropic
reputational capital?positive or negative?has activities; thus, it is, at the core, a perception
economic value because it disposes stakehold based construct.7 Philanthropic moral reputa
ers to hold beliefs and/or engage in actions that tional capital has value, as I outline below, be
potentially create (or destroy) wealth for share cause it disposes stakeholders to hold beliefs
holders.5 A firm's global reputation is "the over about the firm that can influence the types of
all estimation of a company held by its constit actions those stakeholders engage in. Activity
uents" (Fombrun, 1996: 37). A global reputation is based philanthropic moral
reputational capital
itself some function of reputational assessments becomes a part of the larger affriibufe-based
of various attributes of the firm (e.g., a firm's construct of moral reputational capital, which,
finances, product, innovation, or brand), includ in turn, contributes to a firm's global reputa
ing themoral dimension of a firm's performance. tional capital. For convenience, I refer to philan
The notion that stakeholders will impute val thropic moral reputational capital as simply
ues?some of them moral?to organizational ac moral capital.
tion can be traced back to some of the earliest That philanthropic activity generates a posi
scholarship in the field of management (e.g., tive reputation and subsequent positive moral
Barnard, 1938; Selznick, 1957). Goffman (1997; capital is, prima facie, true; good and beneficent
originally published in 1959) explains that, in an acts that go above and beyond the call of duty
attempt to ascertain the complete "social data" should result in approbation rather than con
involved in any interaction, individuals judge demnation, forone definiens of a good act is that
not only the tangible and perceivable facts at it engenders approbation among observers (Ar
hand but also impute intentions, motivations,
feelings, and so forth to the others involved in
6
An of the calculus stakeholders or other as
the interaction, based on the tangible and per explication
sessors use to derive reputation is beyond the scope of this
ceivable facts and the overall context of the in alternatives exist. For example,
paper; however, plausible
teraction. The action and context provide "cues, consider four alternatives: first, "netting," or taking some
tests, hints, expressive gestures, etc." that form average score across various areas of activity and context;
"the impressions that the others give"; these im second, a "minimalist" approach that equates the overall
score with the minimum assessment in any area; third, a
pressions have a moral component, since they
"maximum" approach, where reputation equals the overall
"tend to be treated as claims and promises they score the maximum in an area
with assessment of most
have implicitly made, and claims and promises concern to a constituent; fourth, a "juridical" approach,
tend to have a moral character" (Goffman, 1997: where assessments of various activities are balanced and
on a case-by-case basis.
21). weighted
7
The perceptual nature of the construct suggests that
research methodologies and measurement techniques used
5
The potential economic value becomes actual when two in psychology (attribution theory research) and marketing
conditions occur: (1) when stakeholders act on their disposi (product attribute research) may capture the
empirically
tions and (2) when the economic value created exceeds the type, level, and intensity of moral capital stakeholders hold
cost of creating those dispositions. toward a firm.

istotle, 1941). For philanthropic activity to qual vaJues, the greater the positive moral
ifyas a good act, itmust be consistent with some evaluation among that community.
underlying ethical value; hence, supporting
Proposition lb: The greater the level of
Second Harvest, a Pacific Northwest food pro
opposition between philanthropic ac
vider, is good, because alleviating hunger is an a community's
tivity and ethical val
ethical value held by many people. However,
ues, the greater the negative moral
counterexamples, such as AT&T's involvement
evaluation among that community.
with Planned Parenthood, show that philan
sometimes Proposition lc: Philanthropic activity
thropic activity generates negative
moral capital. AT&T had been a long-time donor that is neutral toward (neither consis
to Planned Parenthood, but in 1990 pro-life tent with nor opposed to) a communi
AT&T to abandon its philan ty's ethical values will generate a
groups pressured
neutral moral evaluation among that
thropic support of the organization. The compa
ny's support of Planned Parenthood generated community.
negative moral capital among prolife communi Consistency between philanthropic activity
ties, and in the ensuing cancellation of support, and a community's ethical values yields an act
the firm lost its positive moral capital among based moral evaluation, which be
positive
pro-choice groups. Instead of earning chits, comes the necessary condition for the genera
AT&T burned chits with everyone involved. tion of moral capital. The sufficient condition
Pluralism implies a number of "comprehen arises from the evaluations the community
sive doctrines" by which people and communi members impute to the firm's (and perhaps its
ties order their lives and their conception of the managers') motives. Because philanthropy is
good (Rawls, 2000). These comprehensive doc discretionary, motives cannot be economic, le
trines or value systems will contain values that gal, or even moral obligation; thus, the question
overlap other comprehensive doctrines, as well of motive and intent becomes salient for com
as values that conflict with other systems. Phil munities and evaluators. Imputations of motiva
anthropic activity, and the ethical value or val tion turn on one simple question: Does the phil
ues underpinning such activity, will receive var anthropic activity at hand represent a genuine
ied assessments and evaluations, because manifestation of the firm's underlying inten
stakeholders and communities adhere to differ tions, vision, and character, or is the activity
ent ethical values; determinations of the "good designed to ingratiate the firm among the im
ness" of philanthropic activity will be based on pacted community?
the consistency or agreement of the activity with I use ingratiation in its negative and restric
the ethical values of those stakeholders and the tive formulation: "a class of strategic behaviors
communities affected by philanthropic illicitly designed to influence a particular other
activity.
For philanthropic is in person [or group] concerning the attractiveness
activity, then, goodness
the eye of the beholder. of one's personal qualities" (Jones, 1964: 4). Gor
Philanthropic activity,
and its associated ethical value, can be consis don (1996), in a meta-analytic review of empiri
tent with to positive cal studies of ingratiation, notes that a consis
community values, leading
tent finding across studies is that attempts at
moral evaluations; the activity can be not con
gaining favor judged as ingratiating rather than
sistent (but not opposed to) community values,
genuine manifestations of identity actually di
resulting in apathy, indifference, and a neutral
minish rather than enhance the actor's attrac
evaluation; or the activity can be opposed to
tiveness in the eyes of those perceiving. Ingra
values held dear by the community, leading to a
tiation is illicit and morally negative because it
negative moral evaluation. The relationship be
involves deception; honorable acts belie dishon
tween philanthropic activity and subsequent
orable motives, and the goal of the ingratiator is
moral evaluations can be captured in the follow
to be seen as good without actually being good.
ing propositions.
Proposition 2a: The greater the extent
Proposition la: The greater the level of to which philanthropic activity is
consistency between philanthropic viewed by a community as a genuine
activity and a community's ethical manifestation of the firm's intentions,

2005Godfrey 785
motivations, and character, the the greater the actor-based positive

greater the positive moral evaluation moral evaluation by a target commu
will be among that community. nity, the greater the positive moral
the extent capital generated by the philan

Proposition 2b: The greater
thropic activity will be.
to which philanthropic activity is
viewed by a community as an ingra With these propositions in place, I revisit the
tiating attempt to win
favor, the AT&T example. Hess, Rogovsky, and Dunfee
greater the negative moral evaluation (2002) argue that AT&T's problems with Planned
will be among that community. Parenthood stemmed from the lack of consis
tency between the firm's philanthropic activity
Imputations ofmotive and character by a com and overall firm strategy; these authors imply
munity yield an actor-based moral evaluation.
that AT&T's failure arose from an internal lack
Figure 1 represents the four possible combina
of consistency. The analysis underlying Propo
tions of the necessary (act-based) and sufficient
sition 1 suggests an additional, externally based
(actor-based) conditions formoral capital gener
error by decision makers. AT&T executives
ation. The logic of moral capital generation fol
failed to see that actions designed to gain pos
lows the simple arithmetic rule that one nega
tive assessment ensures a negative result. The
itive moral capital among one group (generally
speaking, those characterized as pro-choice)
diagonal cells in Figure 1 capture this logic:
meant generating negative moral capital
negative moral capital arises either when the
among another group (generally speaking,
act or the actor receives a negative evaluation
those characterized as pro-life). They failed to
from the target community. The lower lefthand
see that picking up one end of a stick entailed
cell violates the arithmetic logic, however, since
two negatives do not yield a positive; actions by picking up the other end as well.
The logic of Proposition 2 helps explain why
a firmmay be opposed to a community's values
AT&T ended the episode having burned its chits
and still be perceived as ingratiating, thus
all around. The shift in contribution policy could
yielding an extremely negative evaluation. The
be viewed by pro-choice groups as evidence
pathway from philanthropic activity to moral
that AT&T's motives were never pure; the sup
capital can be summarized as follows.
port did not reflect acceptance of the pro-choice
Proposition 3: The greater the act cause among AT&T decision makers but, rather,
based positive moral evaluation and a donation seeking towin favor. Pro-life groups,
FIGURE 1
Acts, Actors, and Moral Capital
Evaluation of actor
Ingratiating Genuine
Actor-based negative
Positive Positive moral capital
moral capital
Evaluation of act
Act- and actor-based

Negative Act-based negative moral capital
negative moral capital

however, had little reason to believe that AT&T relationships a firm has with its stakeholders
decision makers were motivated by a sincere and the related assessments these stakeholders
commitment to their cause; the donations to make regarding some (or all) elements of the
Planned Parenthood only stopped after they ex firm's activities (Wood & Jones, 1995). These re
erted vocal and sustained pressure. lationship-based intangible assets are termed
In this subsection I specified the conditions relational wealth in the Clarkson
Principles of
under which philanthropic activity will gener Stakeholder Management (Business Ethics
ate positive moral capital. This model accounts Quarterly, 2002), and, for convenience, I adopt
for diverse and divergent stakeholder assess this term throughout. A representative but non
ments and perceptions of a firm's activities?a comprehensive list of relational wealth among
criterion outlined by Wood and Jones (1995) as different stakeholders drawn from the academic
essential in developing a robust theory linking literature includes the following:
CSR activities with CFP. I now continue the jour
Employees?Affective Commitment: "Affec
ney and complete the pathway as I argue that
tive commitment refers to the employee's
moral capital provides insurance-like value to
emotional attachment to, identification
shareholders. with, and involvement in the organization.
with a strong affective commit
Employees
ment continue employment with the organi
Positive Moral Capital As Insurance zation because theywant to do so" (Meyer &
Allen, 1997: 11).
Positive moral capital acts as insurance as it Communities and
Regulators?Legitimacy:
protects relational wealth against loss by miti "A generalized perception or assumption
gating negative stakeholder assessments and that the actions of an entity are desirable,
or appropriate some
related sanctions when bad acts occur. To es proper, within socially
constructed system of norms, values, be
tablish this thesis, I first identify the features
liefs, and definitions" (Suchman, 1995: 574).
and attributes of relationship-based intangible Suppliers and Partners?Trust: "The willing
assets that preclude their protection through tra ness of a party to be vulnerable to the ac
ditional insurance instruments. To further this tions of another party based on the expecta
I next make a brief but necessary tion that the other will perform a particular
argument,
action important to the trustor, irrespective
digression into the theory of law; law provides a
of the ability tomonitor or control that other
cognitive template or recipe forhow individuals party" (Mayer, Davis, & Schoorman, 1995:
and groups may make assessments of guilt and 712).
mete out punishment (Friedland & Alford, 1991; Customers?Brand: "A brand is nothing but
information
Nagel & Swenson, 1993; Scott, 1995). rich, product-specific acquired,
retained, and believed by the consumer in
This cognitive template is found in the doc
dependent of any particular act of consump
trine of mens rea?the bad mind condition. I tion" (Evans & Wurster, 2000: 162).
outline how positive moral capital creates eco
nomic by influencing stakeholder
value percep Relational wealth cannot be protected through
tions regarding the mens rea. I consider when traditional insurance markets and contracts, be
this value will most likely be effective and con cause the underlying assets do not meet the crite
clude by showing how this mens rea value con ria for the formation and maintenance of a func
tributes to shareholder wealth. tioning insurance market. Rejda (1992: 24) outlines
Relational and the lack of insurability.
wealth six criteria necessary for a functioning insurance
The resource-based view of the firm asserts that market to exist: (1) there must be a large number of
a firm's competitive advantage in its markets homogeneous exposure units (objects to be in
derives from its possession of valuable and rare sured), (2) the loss must be accidental and unin
assets that are difficult for competitors to imi tentional, (3) the loss must be determinable and
tate or customers to substitute for (Barney, 1991; measurable, (4) the loss should not be catastrophic
Ghemawat, 1991). Some of these resources will (to the insurer), (5) the chance of loss must be
be intangible and idiosyncratic to the firm, and calculable, and (6) the premium must be econom
may have been developed over a number of ically feasible.
years (Dierickx & Cool, 1989). Many of a firm's Relational wealth is idiosyncratic to a partic
resources are relationship based, because the ular relationship between a given firm and a
earning potential of these assets depends on the given set of stakeholders. Relational wealth,

2005Godfrey 787
like trust or brand, is not homogeneous among insurance contracts, I argue that philanthropic ac
firms but, rather, is heterogeneous between tivity, through the positive moral capital itgener
firms and idiosyncratic to specific firm-stake ates, provides insurance-like protection for a
holder relationships (Zucker, 1986).8 This hetero firm's relational wealth. Positive moral capital
geneity violates the first condition for a func helps perform the core function of an insurance
tioning insurance market. instrument?to protect the firm's assets from
While some events that cause loss to the losses arising from business operations (Triesch
value of relationship-based intangible assets mann & Gustavson, 1998). Positive moral capital
may be accidental or unintentional (e.g., an oil can perform this insurance-like function as itgen
spill by an energy company or product contam erates mens rea value, which I now outline.
ination in a food products company), many of the The mens rea doctrine. The theory of offense,9
events that negatively impact firm-stakeholder guilt, and punishment laid out in the common
relationships are conscious and deliberate de law tradition of criminal law provides a tem
cisions (e.g., closing a plant, discontinuing a plate for understanding the basis for stake
product or product line, stretching out suppliers' holder assessments of liability for offenses and
payment terms beyond reasonable limits, cut the resulting punishments. Under the common
ting philanthropic activity in a community). The law tradition, two elements must be present for
presence of deliberate behavior in causing an offense to occur: a bad act and a bad mind
some losses violates the second condition for a (LaFave, 2000).10 A bad act requires that some
functioning insurance market. action or conduct be performed that creates
The magnitude of loss to relational wealth is harm or adverse impact on another, be it an
difficult to ascertain. Unlike tangible assets, re individual, group, or community. Bad acts must
lational wealth cannot be valued ex ante with be accompanied by a bad mind in order to con
certainty?no original invoice exists fromwhich stitute an offense, for "actus not facit reum nisi
to benchmark the loss of brand equity, customer mens sit rea
(an act does not make one guilty
loyalty, employee motivation, or any other man unless his mind is guilty)" (LaFave, 2000: 225).
ifestation of relational wealth. Ex post valuation This is the doctrine of mens rea.
proves a severe problem as well. Managers and The principle of corporate mens rea has been
investors cannot know
exactly how much rela debated in the law since the modern corporate
tional wealth has declined, because, unlike form began to dominate the economic land
losses to tangible assets, losses to relational scape. On the one hand is the realization that a
wealth may occur over a broad space (e.g., dam corporation has no mind of its own; it exists as a
age to a global brand may be textured in each legal fiction (Khanna, 1999) and cannot, onto
local market) and may extend over a long hori logically speaking, have a bad mind. On the
zon (e.g., some stakeholders have other hand lies the social
extremely reality that corpora
long memories about past events and actions). tions as organized groups of individuals for
Interaction effects between relational wealth mally espouse certain moral and social values
and other assets may magnify losses from bad
acts (e.g., diminishing employee commitment 9
Offenses are synonymous with crimes. The common law
decreases willingness to innovate in new ar and statutory legal traditions speak of crime and punish
eas). Because losses are not determinable and ment; I use the term offense deliberately, because
however,
measurable, relational wealth fails the third test corporate actions may offend stakeholder interests and con
for a functioning insurance market. cerns without constituting a criminal breach of the corpora
tion's duties and obligations to society. For example,
Because managers cannot insure the firm's re layoffs
by a firmmay prove offensive and adverse to the interests of
lational asset base through traditional financial several stakeholder groups (e.g., political communities, em
ployee groups); however, layoffs do not constitute a criminal
activity as defined by common law or by statute.

8 10
Indeed, the relationship may be idiosyncratic to individ Statutory law creates offenses without the mens rea
uals within the firm and corresponding individual stake criteria.Liability for an offense is founded on commission of
holders. Thus, when a particular executive leaves a com the act, without to the state of mind. laws
regard Simple
pany, relational wealth may decline because the anchor of such as running red lights and sophisticated crimes such as
the relationship was an individual and not the firm in gen treason exist as rea may still come
statutory offenses. Mens
eral. I thank an reviewer for highlighting this into play in a
anonymous statutory offense when the issue of punish
insight. ment is before the court.

(Barnard, 1938; Selznick, 1957), exert pressure stitutes act element of an offense. On
the bad
and influence on individuals to define moral going operations may create adverse impacts
behavior in specific ways (Mitchell & Gabaldon, on the natural or social environment that are
2002), and create a context for individual moral considered offensive to certain stakeholder
choice and action (Jones & Ryan, 1997, 1998). groups. For example, extractive, mining, or man
Despite the apparent contradiction of granting a ufacturing operations may generate environ
fictional entity a mind, the principle of corporate mental pollution or blight that adversely im
mens rea is well established in United States pacts certain stakeholders (e.g., those concerned
case law (Khanna, 1999), and the logic of corpo with protection of the natural environment),
rate mens rea parallels organizational scholar business decisions such as facility closings or
ship in which corporations are viewed as sec downsizing create adverse impacts on employ
ondary moral agents (Werhane, 1985) or as ees and local
communities, and certain busi
moral agents but not moral actors
(Werhane, ness practices such as product churning or pref
1985;Wood & Logsdon, 2002). For example, while erential treatment for certain customer groups
the 1991 United States Sentencing Guidelines (such as the spinning of IPO shares to preferred
define offenses statutorily, the guidelines con clients) adversely affect other customers and
tain criteria to impute a level of corporate mens regulatory agencies.
rea that play a significant role in the sanction When bad acts occur, it is reasonable to as
ing phase of the judicial process. Khanna (1999) sume that stakeholders invoke the cognitive
argues that such a use of mens rea is consistent template suggested by the mens rea doctrine to
with legal doctrine, common sense, and deci help determine appropriate sanctions.11 As
sion-making efficiency in dealing with corpo stakeholders consider possible punishments
rate misdeeds. and sanctions, positive moral capital acts as
Mens rea proves challenging and problematic character evidence on behalf of the firm. Posi
to establish in a legal proceeding, because the tive moral capital provides counterfactual evi
actor's (individual or corporate)
state of mind be dence tomitigate assessments of a bad mind; it
fore and during the commission of a bad act can reduces the probability that the firm possessed
rarely be known with certainty; in most cases it the evil state of mind that justifies harsh sanc
can only be imputed after the act or conduct has tions (Strong, 1999). Positive moral capital en
occurred. Establishing the mens rea in individual courages stakeholders to give the firm the ben
circumstances requires one of four elements: (1) efit of the doubt regarding intentionality,
intentionality, (2) knowledge of harm, (3) negli knowledge, negligence, or recklessness. Posi
gence, or (4) recklessness (LaFave, 2000). The tive moral capital also addresses the relevant
United States Sentencing Guidelines create a sep issue of a firm's history of moral behavior.
arate measure for corporate mens rea?a corpo If stakeholders follow the mens rea template
rate "culpability score" (Nagel & Swenson, 1993). found in the United States Sentencing Guide
The answers to several investigative questions lines, then the nature and severity of punish
provide the culpability score and provide evi ments for bad acts will be significantly influ
dence of corporate mens rea (or lack thereof). Did enced by stakeholder assessments of a bad
the organization take all appropriate steps to rem mind. Negative sanctions may aim to remedy
edy the harms created by the offense? Did the the causes or consequences of adverse impacts,
company have an institutionally rigorous (as op they may seek compensation for adverse im
to superficial) compliance program that pacts, or they may aim to punish the firm and
posed
communicated antipathy toward wrongdoing? deter future adverse impacts. Remedial sanc
Did the organization voluntarily disclose the of tions may include new regulations or laws
fense and cooperate in resulting investigations? aimed at limiting behavior or establishing fu
What is the organization's prior history of offenses ture liability, or simply increased scrutiny and
and moral behavior? monitoring by affected stakeholder groups.
The mens rea value of moral capital. Some
organizational acts adversely affect stakeholder 11
Stakeholdersmay also look for and use evidence of
groups and the communities to which they be of a
character (good or bad) in their ongoing assessments
long; organizational action or conduct that has firm; these assessments may help shape any consequent
an adverse impact on a stakeholder group con feelings toward or dealings with that firm.

2005Godfrey 789
Compensatory sanctions may include fines, Proposifion 5: Positive moral capital

lawsuits, or other actions aimed at financially will mitigate stakeholder propensities
compensating impacted groups. Punitive sanc for negative sanctions against the firm
tions may include fines, incarceration for key when bad acts occur. Specifically,
individuals, negative publicity campaigns, or higher levels of positive moral capital
boycotts of the firm's products or services. will result in fewer or less severe re
Moral insurance-like protec medial, compensatory, or punitive
capital provides
tion for relational wealth because it fulfills the sanctions against a firm by stakehold
core function of an insurance contract: itprotects ers.
the underlying relational wealth and earnings

streams loss of economic value arising Positive moral capital should provide the
against
from the risks of business (Triesch most insurance-like protection when it provides
operations
mann & Gustavson, 1998).12 Moral in the clearest signal of a firm's underlying moral
capital
sures the firm's relational wealth because itmit character, which occurs when other benchmarks
for character evaluation are
igates assessments of bad mind and creates a unclear, underde
case for leniency inpunishment. The veloped, or contradictory. As stakeholders con

compelling
firm gains insurance-like benefits in two ways: sider organizational mens rea in light of any
intan bad act, they will most likely consider the firm's
(1) the degradation of relationship-based
assets will be moral stock of moral reputational capital in toto; that
gible tempered by positive
is, they will consider a firm's moral performance
capital (less trust is violated, reputation is not
as across several dimensions of organizational ac
tarnished much, loyalty suffers but remains,
etc.) and (2)punishments and sanctions tivity (Jones, 1995).
by stake
When the moral capital generated by philan
holders will be mitigated (stakeholders may
or they will impose thropic activity conflicts with other readily salient
forego sanctions altogether
examples of the firm'smoral behavior (e.g., viola
less severe sanctions than in the absence of
tions of law or regulations, disregard for ethical
positive moral capital). Positive moral capital norms and customs), philanthropic moral capital
provides a reservoir of positive attributions that
will be unlikely to change the composite view and
can be drawn on to "indemnify" relational
provide compelling evidence of good character;
wealth against loss of value when stakeholders
are adversely indeed, the situation may, in fact, worsen, since
affected. This logic gives rise to
stakeholders will view philanthropy as an ingra
the following.
tiating act of hypocrisy. Not even a sterling record
of philanthropic activity could dissuade stake
Proposition 4: Positive moral capital holders from harsh punishments of Enron and
will mitigate the degradation in value
Arthur Andersen, since both firms violated funda
of the firm's relational wealth when
mental ethical obligations and expectations.
bad acts occur.
When philanthropic moral capital parallels the
firm's other moral capital accounts (e.g., compli
ance with laws and regulations, adherence to eth
12
The risk and insurance literature the contri ical norms, respect for ethical customs), philan
quantifies
bution of insurance to shareholder value. Insurance protects thropic moral capital will reinforce the overall
shareholders against severe financial distress that impedes assessment of good character.
their ability to diversify away specific risks. Stultz (1996)
Philanthropic moral capital should have the
estimates the value of insuring against the financial dis
tress caused to the following greatest impact when other behaviors and ac
by bankruptcy according for
mula: tions send unclear signals about a firm's overall
- moral values, ethical principles, or character.
Value of Insurance = Be X
Equity aBU p,
Clear moral assessments cannot be made in
where Be = bankruptcy costs, aBU
= the of bank some areas of organizational because
probability
= the
activity
for the uninsured firm, and cost, or premium the underlying on which
bases judgment rests
ruptcy p
level, of purchasing insurance. In this case Be represents the
are ill defined, ambiguous, fuzzy, or unclear.
value of the relational wealth at risk of loss and aBU repre
sents the probability the firm will in bad
Lack of clarity arises from situations where
engage acts; p
represents the cost of philanthropic activity that generates there are underdeveloped legal standards (e.g.,
corresponding positive moral capital. e-Bay's restriction of firearms sales on its web

site or other areas of internet content where leg gion and that (2) such philanthropic efforts are
islative mandate and case law have yet to inconsistent with acts of repression and brutality.
evolve) or situations where ethical norms vary This evidence may prove particularly valuable
widely or are
contested, meaning that consen since other signals regarding Unocal's moral val
sus has yet to form at the level of broad commu ues communicate mixed messages to stakeholder
nities or nation states (e.g., the limits of a firm's groups. The company operates in nondemocratic
responsibilities vis-?-vis sub-subcontractors in nations, including Burma, yet the company is also
foreign operations, or particular practices re rated among the best companies to work for in
garding the use of animals in product testing or America forminorities and working mothers, and
meat products). When there is a dearth of other it has a nondiscrimination policy that includes
reliable judgments of morality on hand, philan sexual orientation (Stanford SICD, 2003). Unocal
thropic moral capital may provide stakeholders implies a mens rea argument in their literature: if
with the clearest and most unambiguous anchor philanthropic activity (evidence of a good mind) is
on which to base mens rea assessments. inconsistent with knowingly violating human
6a: moral rights (a bad mind leading to a bad act), then, in

Proposition Philanthropic the face of evidence of the former, the veracity of
capital will have the lowest mens rea
claims regarding the latter should be tempered
value when it contradicts moral capi
and discounted. The effectiveness of those mens
tal and assessments based on the
rea claims ultimately will be decided by stake
firm's behavior in other activities.
holders; however, a key component should be the
Proposition 6b: Philanthropic moral juxtaposition of philanthropic mens rea evidence
capital will have moderate mens rea with evidence surrounding other activities, both in
value when it reinforces moral capital Burma in the firm's general operations.
and
and assessments based on the firm's In this subsection I laid out and detailed the
behavior in other activities. core assertion of the article: philanthropic activ
6c: Philanthropic moral ity creates shareholder wealth by generating

Proposition insurance-like moral
have the highest mens rea positive capital. Having
capital will established this argument, I now turn to the
value when moral capital, assess
or evaluations of the firm's be question of how much philanthropic activity a
ments,
firm should engage in to garner the appropriate
havior in other areas are ambiguous level of "insurance coverage."
or unclear.
Unocal's philanthropic activities in Burma

The Optimal Level of Philanthropic Activity
(Myanmar) illustrate the attempt to use philan
thropic activity to generate positive mens rea The conceptual identification of the optimal
value. Critics and activists charge Unocal and level of philanthropic activity comes from the
its business partners with repression of indige economics of insurance.13 Consider a firmwith
nous peoples, support of a totalitarian regime, two value-creating assets, A and L. A is immune
and environmental degradation in connection
with a natural gas pipeline in the Yadana re
gion of Burma. Unocal directly counters the 13
Some
may argue that the mathematical models of man
claims, but the company also points to its char behavior seem detached from the real processes
agerial
itable activity in the Yadana region. The com managers use to make decisions. Friedman provides a re
and its have made substantial sponse to this concern:

pany partners
investments designed to improve education, The relevant question to ask about the 'assumptions'
health care, sustainable of a theory is not whether they are descriptively 'real
community develop
and infrastructure istic,' for they never are, but whether they are suffi
ment, improved (Unocal,
ciently good approximations for the purpose in hand.
2003)?all discretionary activities that go "above
And this question can be answered only by seeing
and wage rates or environmental reme means
beyond" whether the theory works, which it yields suf
diation the pipeline.
around ficiently accurate predictions (1953: 15).
The company produces an annual report to in the
Within the risk management literature, the equations
show that (1) the overall project produces clear text have been shown to provide accurate predictions about
social, in addition to economic, gains for the re the pricing and purchasing decisions of insurance products.

2005Godfrey 791
to loss (e.g., U.S. Treasury bonds); L, however, is courage higher levels of philanthropic activity to
at pure risk of loss, represented by a, owing to accrue more insurance-like protection. This value
several factors (e.g., natural disaster, theft, fire). can be measured in absolute terms, such as the
The presence of risk means that the firm's economic value of brand affinity, or in relative
wealth function must be expressed as a function terms, such as the economic value of brand affin
with two potential outcomes: Wj = A + L, with ity as a portion of shareholder wealth. As trust,
-
probability 1 a, orW2 = A, with probability a brand, or employee commitment provide larger
(Mossin, 1968), which can be written as an ex contributions to earnings, or as that contribution
= -
pected value?E(W) aSNx + (1 a)W2. constitutes a higher percentage of shareholder
Let p equal the investment (premium) required wealth, the optimality equation leads rational
for the firm to fully insure L against loss. With managers to increase the firm's level of philan
such insurance the firm's wealth function can be thropic activity.
-
described with certainty: W3 = A + L p. Ra
tional managers will purchase insurance at pre Proposition 7: The optimal level of
mium level p such that wealth under certainty philanthropic activity will be higher
wealth under for firms with higher levels of rela
equals expected uncertainty:
= - = tional wealth (in absolute or relative
E(W) aWj + (1 a)W2 W3. The optimal14
insurance coverage, p\ occurs
at the level terms) than for firms with lower levels
where the two wealth functions are equivalent: of relational wealth.
= - = = aK
E(W) aWi + (1 a)W2 W3 The between the level of philan
relationship
(a) is given as
+ (1 - a)(A + L) = A + L-p thropic activity and the risk factor
dplda > 0 (Mossin, 1968). In the current context,
In the current context, the optimality equation the risk of loss (a) to relational wealth has two
indicates that managers should engage in phil components: a firm-specific and an industry
that an specific component. Firms are not homogeneous
anthropic activity generates optimal
level of moral capital, p*. Beyond p*, additional in the risk profiles of their relationalwealth, and
costs what constitutes a bad act by firms may depend
philanthropic activity imposes additional
on the firm,without generating on certain characteristics of the firm. For exam
any correspond
ing value; below p*, the firm leaves relational ple, large firms, with very public brand profiles
wealth not fully covered. The equation or other iconic social positions, may be held to
provides
with a clear conceptual standards of behavior than smaller,
managers stopping rule higher
in decisions lower-profile firms. For example, Sears Auto
regarding philanthropic activity.
While this may prove an elegant and succinct Centers were targeted by California regulators
economic rule for philan in the early 1990s for consumer fraud in an in
conceptual stopping
thropic activity, the deep value of the equation dustry filled with over 11,000 small, local, pri
comes as it reveals the factors that determine vately held competitors, most of whom were not
the optimal level of philanthropic activity: the targeted. Risk also differs by industry. The na
level of wealth at risk (i.e., L, the level of a firm's ture of the production process and technologies
relational wealth) and the risk of loss (i.e., a, the means that industries carry different risks of
a firmwill commit bad acts). social damage, from environmental degradation
probability
The in mining to product safety and human
relationship between the level of philan liability
and the value of the relational in manufacturing, to fraud and deceit in service
thropic activity (p)
wealth stock (L) is dp/dL > 0 (Mossin, 1968).Put and finance industries.
simply, as the level of the firm's relational wealth

Proposition 8: The optimal level of
increases, shareholders will both tolerate and en
philanthropic activity will be higher
for firms with higher firm-specific risk
14There exists an optimal level of insurance, p\ Ifman
profiles than for firms with lower firm
agers underinsure at a level p** < p*, then W3 < E(W), specific risk profiles.
because L is not fully covered. Ifmanagers purchase cover
of p*, then W3 < E(W), because Proposition 9: The optimal level of
age p*** in excess the amount
_ will be
p*** p* js simply excess cost, with no additional coverage philanthropic activity higher
created, since L is fully insured at p*. for firms with higher industry-specific

risk profiles than for firms with lower The Optimal Portfolio of Philanthropic Activity
industry-specific risk profiles.
The optimality equation holds that the level of
In this section I have offered an answer to the insurance will be determined by the firm's idio
strategic philanthropy questions raised at the syncratic risk factors (a) and by the nature and
outset?namely, what the pathway is that leads composition of its relational wealth component
from philanthropic activity to shareholder (L); an optimal portfolio of philanthropic activity
wealth and how much a firm should invest in for a firm depends on too many idiosyncratic
philanthropic activity. I have presented one de factors (such as those identified above) tomake
tailed conceptual path that connects philan any definitive theoretical statements about op
thropy and shareholder wealth: philanthropic timal targeting. The optimality equation and
activity generates moral capital, which, in turn, other arguments made earlier in the article can
provides insurance-like protection for a firm's at least help identify some relevant factors and
relational wealth. I have also provided a con help define the contours of an optimal portfolio
ceptual point for the strategic value of
optimal of philanthropic activity.
philanthropic activity and have identified the Two implications are fairly straightforward.
key drivers of the level of such activity: the value First, the relationships among relational wealth,
of a firm's relational asset base and the firm risk, and the need formoral capital that deter
and industry-specific risk profile facing the firm. mine the optimal level of philanthropic activity
also suggest that managers should carefully
consider which stakeholder relationships signif
PHILANTHROPIC STRATEGY: OPTIMAL
PHILANTHROPIC ACTIVITY icantly contribute to the firm's stock of relational
wealth and should target philanthropic activity
With the strategic value of philanthropic ac inways that enhance the level of positive moral
tivity now clearly articulated, I turn to the impli capital among those stakeholders. Mitchell,
cations of the above models for the practice of Agle, and Wood (1997) classify such stakehold
philanthropy by a firm's managers?what Post ers as dominant: those stakeholders possessing
and Waddock (1995) refer to as a firm's philan the power to negatively affect relational wealth,
thropic strategy. I consider here two elements of having the legitimacy to exercise that power,
that strategy implied by the necessary and suf and lacking only a sense of urgency to do so.
ficient conditions for generating moral capital Second, the equation suggests that managers
from philanthropic activity: (1) where a firm engage in a thorough and detailed analysis of
should target its activities to generate the max the risks to relational wealth arising from idio
imum amount of positive moral capital and (2) syncratic firm-level or industry and competitive
how a firm should manage the organizational contextual factors and that they target philan
context surrounding philanthropic activities to thropic activity toward both, reducing those
minimize the potential for such activities to be risks and generating positive moral capital
viewed as attempts at ingratiation by target among those most likely to be affected by likely
communities and other observers. The critical bad acts.
logic underpinning this discussion is the rela While the equation yields these straightfor
tionship between philanthropic activity and ward implications, a problem arises because
moral capital: negative evaluations of either the philanthropic activity does not target stakehold
act or the actor will result in negative moral ers per se but, rather, communities, be they com
capital. Thus, managers seeking to optimize the munities of interest, such as the arts community,
value of their philanthropic portfolio should at or geographic communities, such as cities, indi
tend to creating positive evaluations based on vidual schools, or school districts. Whether or
the activities themselves andto establishing not firms can target specific stakeholder
and managing organizational contexts and de
cision processes that avoid evaluations of ingra
tiation.15 be consistent with some social optimal distribution of phil
anthropic activity. Because of a focus on shareholder wealth,

my model, like all strategic philanthropy models, cannot
15
By "optimal" I mean the targeting of philanthropic ac cross the divide illustrated in Figure 1 to focus on social
tivity tomaximize shareholder wealth. This may or may not welfare optimization at the expense of shareholders.

2005Godfrey 793
groups for philanthropic activity depends on produce not only positive moral capital among
the alignment between stakeholders and iden those communities but also intense and deeply
tifiable communities.When tight alignment held moral capital, as the communities identify
exists?stakeholders map cleanly onto a com the firm with their own identifying values.
munity?managers can target activity to gen Through these types of investments, managers
erate specific moral capital in that group. For can build specific positive moral capital (and its
example, the customer base of Thule, a Swed associated mens rea value) among stakeholder
ish maker of bike ski racks for automo
and groups central to the protection of relational
biles, maps fairly cleanly onto the wilderness wealth.
protection community of interest. When loose Specific moral capital produces a strong up
or little alignment exists?stakeholders be side of positive and intense moral capital in the .
long tomultiple or diverse and divergent com focal community, but yields significant draw
munities?managers should concentrate on backs as well. First, these types of philanthropic
creating general moral capital among the rel activities can to a myopic
lead focus on certain
evant communities. AT&T's customer base, in stakeholder groups at the expense of others,
contrast to Thule's, lives in diverse geographic which may lead to activities generating nega
locations and
belongs to varied and diverse tive moral capital among other communities
communities of interest; targeting specific that may also include stakeholders or stake
communities for philanthropic activity will holder groups. These may not be the dominant
generate specific goodwill among some cus stakeholders described above, but they may,
tomers but likely will exclude a greater por when provoked by actions antithetical to their
tion. values, become dangerous stakeholders, with
Proctor and Gamble represents a hybrid, since power to negatively affect relational wealth and
it sells its products to both a broad base of a sense of urgency leading to action (Mitchell et
consumers but also enjoys strong customer al., 1997). The communities that forced AT&T to
niches among identifiable communities of inter reverse its Planned Parenthood support repre
est?for example, mothers who buy Pampers. sent one such group and one such situation.
For these hybrid companies, efforts to create Further, given that philanthropic activity is not
both specific moral capital within the relevant endless (there is a constraining optimal value),
niche and general moral capital in the larger nor are budgets unlimited, it seems unlikely that
customer base should result in a variegated a firm can calibrate its philanthropic activities
portfolio of philanthropic activity. with enough precision to generate specific
Specific moral capital. Philanthropic activity moral capital among all relevant stakeholder
generates positive moral capital in a community groups.
to the extent that the ethical values underlying General moral capital. When stakeholder
the activity are consistent with the ethical val groups belong to varied, diverse, and perhaps
ues of the focal community. As firms identify divergent communities, the optimal portfolio of
those stakeholder groups (and their associated philanthropic activity should focus on creating
communities) that contribute significantly to the general positive moral capital. General moral
firm's stock of relational wealth, managers capital arises from philanthropic activities that
should choose philanthropic activities consis rest on moral values generally accepted and
tentwith central and identity-rich values among widely held by multiple communities with dif
these stakeholder groups and communities
(Al ferent value systems. This suggests that manag
bert & Whetten, 1985; Rowley & Moldoveanu, ers also consider those broader areas of social
2003). Such central and identity-rich values are involvement that most stakeholders would
those differentiating the focal community from likely consider indicative of a "good mind" or
others in the pluralistic world and contributing those values most likely to overlap communi
to its sense of uniqueness; by definition, these ties.
values will not be

among those that overlap The types of social involvement and philan
with other communities and are not likely to be thropic activity advocated by business citizen
widely held or generally embraced moral val ship scholars represent a category of activities
ues in the larger polity (Whetten & Mackey, likely to generate imputations of a good mind
2002). This activity/value consistency should among varied and diverse sets of stakeholders

and communities. Involvement in activities such responds to an identifiable community, (2) a

as clean water provision, AIDS relief, provision company with a key stakeholder group diffused
of basic health care services, poverty eradica over many communities, and (3) a hybrid firm
tion through basic literacy for children and with a broad stakeholder (community) base but
adults, contributions to microenterprise funds, also pockets of stakeholders belonging to iden
and philanthropic activity that encourages the tifiable communities. The first company would
development and enforcement of basic human concentrate philanthropic activities in quadrant
rights suggests a good mind, because the moral III; the second would concentrate activities in
values grounding these activities (health is pre quadrant IV; the third would engage in activities
ferred to sickness, surplus to want, liberty to in both quadrants III and IV in an attempt to
oppression) are held by many to be good moral garner positive moral goodwill among both spe
values (Harrison, 2003). cific and general communities.
I present Figure 2 to visually capture the core In terms of the distribution of moral capital,
ideas presented here. In general, an optimal the focused company would see an optimal dis
portfolio focuses philanthropic activity toward tribution weighted toward quadrant III, but with
quadrants III and IV?activities supported by some negative moral capital appearing in quad
values consistent with specific communities rant I as a consequence of engendering opposi
and/or the larger community in general. An op tion among other communities. The broad-based
timal distribution of moral capital would be company should see its optimal distribution of
weighted to these quadrants but would most moral capital heavily weighted toward quad
likely include some community-specific nega rant IV,with some small group of ardent dissent
tive moral capital (quadrant I) as a natural con ers creating negative moral capital in quadrant
sequence of targeting quadrant III. Quadrant II, I (because dissent from generally accepted
although a logical possibility, should be an norms is a local, not a general, phenomenon
empty quadrant, since rational managers will [Donaldson & Dunfee, 1999]). The hybrid com
avoid activitiessupported by ethical values op pany would see its distribution of moral capital
posed by the majority of a larger community. split in some manner among quadrants III and
Figure 2 allows a conceptual mapping of dif IV, again with some negative moral capital be
ferent philanthropic portfolios. Consider the ing generated in quadrant I.
three types of companies described above: (1) a This analysis on optimal targeting helps illu
company with a key stakeholder group that cor minate the exodus of large corporate donors to
FIGURE 2
Toward a Portfolio of Moral Capital
Underlying ethical value

Community Generally
specific accepted
Positive III IV
Type of moral capital
generated
Negative

2005Godfrey 795
the Boy Scouts of America (BSA) following the be genuine and likely to be perceived as such.
Supreme Court's decision Boy Scouts of America Such actions are also most likely to be consis
v. Dale (2000), which upheld the right of the BSA tent with other policies, processes, and activi
to screen scoutmasters and scouts based on sex ties the firm engages in, ensuring consistency
ual orientation. During an earlier period, sup between a firm's philanthropic portfolio and its
porting the BSA would have been viewed by the other activities. Finally, identity-consistent ac
general populace of the United States as a mor tions are efficient, since sustaining actions at
ally good activity, because the Boy Scouts em variance with a firm's core identity and values
bodied and transmitted core American values. requires significant additional energy, re
With Boy Scoufs of America v. Dale, however, sources, and concentration over the broad range
support of the BSA became an activity now en of organizational actions and over time.
dorsed by only specific community values, such Identity consistency represents a critical foun
as religious conservatism. The above analysis dation for a firm's philanthropic activities and
suggests that corporate sponsors, such as Chase the organizational context and processes that
Manhattan Bank, Levi Strauss, Textron, Wells allocate those resources. However, in a world of
Fargo, Novell, and CVS Pharmacy, ceased con pluralistic stakeholders, some of whom may be
tributing to the BSA because such an investment negatively disposed toward the firm and cynical
would no longer produce general positive moral about its activities, identity consistency should
goodwill but only specific positive moral capital be supplemented by management processes
among so-called conservatives, and would that work to "avoid the appearance of ingratia
surely produce specific negative moral capital tion." I note three principles that should underlie
among communities favoring the moral value of a firm's processes: transparency, stability, and
tolerance. responsiveness.
Transparency. The principle of transparency

argues that firms should publicly disclose de
Optimal Organizational Contexts for
tails of their philanthropic portfolio. Sharehold
Philanthropic Activity ers and community members should be in
The sufficient condition for generating moral formed of the targets of philanthropic activities,
capital through philanthropic activity high the levels of funding or other support, and the
lights the issue of community perceptions about goals and rationale that underpin these deci
the intents, motivations, goals, and vision of the sions. The principle of transparency invites
actors that are imputed into the activities and scrutiny by interested outsiders about the na
the processes generating those activities. Actors ture and extent of a firm's philanthropic activi
perceived as using philanthropy to ingratiate ties. The reality of scrutiny and the attendant
themselves with communities will receive neg accountability for choices and actions provide
ative evaluations, whereas actors who are per decision makers with a strong incentive to en
ceived as genuinely manifesting their corporate gage in activities and to allocate resources to
visions and missions through their philan causes consistent with the firm's identity and
thropic portfolios will receive positive evalua corporate values. Transparency also means that
tions. Negative actor evaluations generate neg the firm discloses its activities as they occur,
ative moral capital. thus allowing stakeholders to create a stock of
The straightforward implication of the suffi positive moral capital before bad acts occur.
cient condition is don't be ingratiating. Put in a Transparency facilitates moral capital forma
positive formulation, managers should work to tion in advance of need, forwhen the firm needs
ensure that their philanthropic activities are positive moral capital, itwill be too late to build
consistent with the firm's identity?those values it.
that are most core, enduring, and central to the Stability. A pattern of consistent philanthropic
firm's self-definition (Albert & Whetten, 1985). activity avoids the appearance of ingratiation,
While this implication is not sufficient to guide since it provides counterfactual evidence that
a firm's philanthropic activities and the pro decision makers engage in philanthropy on an
cesses for allocating resources among options, opportunistic or capricious basis; it shows that
neither is it trivial. Actions driven by core, en the commitment by a firm to doing good contin
during, and central organizational values will ues through time. Decision makers can exhibit

stability in at least three ways: (1) through sta CONCLUSION

ble funding levels, (2) through stability in the
I argue
that strategic philanthropy does not
recipients of philanthropic activity, and/or (3)
represent an oxymoron but, rather, that this po
through stability in the process through which sition can fruitfully meet the objections of critics
decisions regarding philanthropic activity are at both extremes in the CSR-CFP debate. The
made. Target Stores stabilizes funding at 5 per existence of a conceptual optimal level of phil
cent of profits, which provides evidence that its
anthropic activity, with the attendant implica
commitment to philanthropy is genuine and not tions for determining the actual level and tar
opportunistic. Disney has a history of supporting geting of philanthropic activity, is aimed at the
educational institutions and causes, building a strict capitalism position, which views strategic
stable and enduring presence in this social sec as lacking a clear and definitive
philanthropy
tor. Process mechanisms such as corporate foun stopping rule for managerial engagement in
dations provide executives with an opportunity philanthropic activity. The importance of phil
to stabilize funding and to professionalize their anthropic activities that create general positive
philanthropic activities; removing decision moral capital among a broad base of stakehold
from business decision makers both in ers suggests that the type and scope of activities
making
stitutionalizes and communicates a commit advocated by business citizenship scholars can
ment to stabilize activities and generate shareholder wealth. Thus, while the
philanthropic
decision in ways that discourage risk management model presented here works
processes op
because activity ismorally discre
portunistic or capricious giving. philanthropic
means that tionary rather than morally obligatory, the
Responsiveness. Responsiveness
model helps solidify a manager's economic in
decisions about philanthropic activities and al
centive to allocate some of the firm's resources
locations should change as economic or social
toward philanthropic activity. In sum, rational
conditions change. Philanthropic advisory
managers should engage in corporate philan
boards with community and stakeholder repre
a professionalized thropy because such activity benefits share
sentation, corporate giving holders.
function, or other environmental scanning
mechanisms can all work to ensure that philan
thropic activities are genuinely being respon

sive to current social issues
and pressing needs.
REFERENCES
For example, in 2003 ChevronTexaco abandoned Albert, S., & Whetten, D. A. 1985. Organizational identity.
a sixty-plus-year Research in Organizational Behavior, 7: 263-295.
philanthropic commitment to
the Metropolitan Opera. Such a move would ex Aristotle. 1941. .Rhetoric. New York: Random House.
hibit responsiveness if ChevronTexaco reallo Barnard, O I. 1938. The functions of the executive. Cam
cated those resources to causes such as AIDS bridge, MA: Harvard University Press.
awareness/prevention in Eastern Europe, Barney, J.B. 1991. Firm resources and sustained competitive
Journal of Management, 17: 99-120.
drought relief in Sub-Saharan Africa, or flood advantage.
relief in South Asia. Such a reallocation of cor Berle, A. A. 1931. Corporate powers as powers in trust. Har
vard Law Review, 31: 1049-1074.
porate resources need not signal the abandon
Black's Law Dictionary. 1999. St. Paul: West Educational Pub
ment of support for good causes but, rather, the
lishing.
realization that what constitutes a good cause
R. A., Myers, S. C, & Marcus, A. J. 1995. Fundamen
will change as social conditions change.
Brealey,
tals of corporate finance. New York: McGraw-Hill.
This section has provided some implications
Boy Scouts of America v. Dale. 2000. 530US640. U.S. Supreme
for managers considering how to design and
Court.
implement a firm's philanthropic strategy. As
Business Ethics Quarterly. 2002. Appendix: Principles of
corporate executives or contributions managers stakeholder management. Business Ethics Quarterly,
consider where to engage in philanthropic ac 12(2): 257-264.
tivity and how to manage these processes, the Carroll, A. B. 1979. A three dimensional model of corporate
necessary and sufficient conditions that link performance. Academy of Management Review, 4: 497
philanthropic activity to moral capital help

505.
sketch out important principles and guidelines. Carroll, A. B. 1999. Corporate social responsibility: Evolution

2005Godfrey 797
of a definitional construct. Business & Society, 38: 268 manee and corporate financial performance debate:
295. Twenty-five years of incomparable research. Business &
Society, 36: 5-31.

Deshpande, S., & Hithon, J.C 2002. Cause-related marketing
ads in the light of negative news. Journalism & Mass Harrison, L. E. 2003. Introduction: Why culture matters. In L. E.
Communication Quarterly, 79: 905-926. Harrison & S. P. Huntington (Eds.), Culture matters: xvii
il. New York: Basic Books.
Dierickx, I., & Cool, K. 1989. Asset stock accumulation and
sustainability of competitive advantage. Management Hart, S. L. 1997. Beyond greening: Strategies for a sustain
Science, 35: 1504-1511. able world. Harvard Business Review, 75(1): 66-77.
Donaldson, T., & Dunfee, T. W. 1999. Ties that bind. Boston: Hess, D., Rogovsky, N., & Dunfee, T. W. 2002. The next wave
Harvard Business School Press. of corporate community involvement. California Man
agement Review, 44(2): 110-125.
Drumright, M. E. 1996. Company advertising with a social
dimension: The role of noneconomic criteria. Journal of Jenson, M. C. 2002. Value maximization, stakeholder theory
Marketing, 60: 71-87. and the corporate objective function. Business Ethics
Quarterly, 12(2): 235-256.

Easterbrook, H. F., & Fischel, D. R. 1991. The economic struc
ture of corporate law. Cambridge, MA: Harvard Univer Jenson, M. C, & Murphy, K. J. 1990. Performance pay and
sity Press. top-management incentives. Journal of Public Economy,

98: 225-264.
Evans, P., & Wurster, T. S. 2000. BJown to bits: How the new
economics of information transforms strategy. Boston: Jones, E. E. 1964. Ingratiation: A social psychological analy
Harvard Business School Press. sis. New York: Appleton-Century-Crofts.
Financial Accounting Standards Board. 1993. Accounting for Jones, T. M. 1995. Instrumental stakeholder theory: A synthe
contributions received and contributions made. Nor sis of ethics and economics. Academy of Management
walk, CT: Financial Accounting Standards Board. Review, 20: 404-437.
Fombrun, C. 1996. Reputation. Boston: Harvard Business Jones, T. M., & Ryan, L. V. 1997. The link between ethical
School Press. judgment and action in organizations: A moral appro
bation approach. Organization Science, 8: 663-680.
Fombrun, C, Gardberg, N. A., & Barnett, M. L. 2000. Oppor
tunity platforms and safety nets: Corporate citizenship Jones, T. M., & Ryan, L. V. 1998. The effect of organizational
and reputational risk. Business and Society Review, 105: forces on individual mortality: Judgment, moral appro
85-106. bation, and behavior. Business Ethics Quarterly, 8(3):
431-445.
Frank, R. H. 1996. Can socially responsible firms survive in a
competitive environment? In D. M. Messick, & A. E. Ten Keim, G. D. 1978. Corporate social responsibility: An assess
brunsel (Eds.), Codes of conduct: Behavioral essays in ment of the enlightened self-interest model. Academy of
business ethics: 86-103. New York: Russell Sage Foun Management Review, 3: 32-39.
dation.
Khanna, V. S. 1999. Is the notion of corporate fault a faulty
Freeman, R. E. 1984. Strategic management: A stakeholder notion? The case of corporate mens rea. Boston Univer
approach. Marshfield, MA: Pitman. sity Law Review, 79: 355-415.
Friedland, R., & Alford, R. R. 1991. Bringing society back in: K?rten, D. C. 1996. When corporations rule the world. West
Symbols, practices, and institutional contradictions. In Hartford, CT: Kumarian Press.
W. W. Powell & P. J.DiMaggio (Eds.), The new institu
W. R. 2000. Criminal law
LaFave, (3rd ed.). St. Paul: West
tionalism in organizational analysis: 232-266. Chicago:
Group.
University of Chicago Press.
Logsdon, J.M., & Wood, D. J. 2002. Business citizenship: From
Friedman, M. 1953. Essays in positive economics. Chicago: domestic to global level of analysis. Business Ethics
University of Chicago Press.
Quarterly, 12(2): 155-187.
Friedman, M. 1970. The social responsibility of business is to
Margolis, J.D., & Walsh, J. P. 2001. People and profits: The
increase profit. New York Times Magazine, September search for a link between a company's social and finan
13: 33.
cial performance. Mahwah, NJ: Lawrence Erlbaum As
Fry, L. W., Keim, G. D., & Meiners, R. E. 1982. Corporate sociates.
contributions: Altruistic or for-profit? Academy of Man
Margolis, J.D., & Walsh, J.P. 2003. Misery loves companies:
agement Journal, 25: 94-106.
Whither social initiatives by business. Administrative
Ghemawat, P. 1991. Commitment. New York: Free Press. Science Quarterly, 48: 268-305.
Goffman, E. 1997. (First published in 1959.) Self-presentation. Mayer, R. C, Davis, J.H., & Schoorman, F. D. 1995. An inte
In C. Lemert & A. Branaman (Eds.), The Goffman reader: grative model of organizational trust. Academy of Man
21-26. Oxford: Blackwell. agement Review, 20: 709-734.
Gordon, R. A.1996. Impact of ingratiation on judgments and McWilliams, A., & Siegel, D. 2000. Corporate social respon
evaluations: A meta-analytic investigation. Journal of sibility: A
theory of the firm perspective. of
Academy
Personality and Social Psychology, 71: 54-70. Management Review, 26: 117-127.
Griffin, & Mahon,

J. J.# J.F. 1997. The corporate social perfor Meyer, J.P., & Allen, N. J. 1997. Commitment in the workplace:

Theory, research, and application. Thousand Oaks, CA: Scott, W. R. 1995. Institutions and organizations. Thousand
Sage. Oaks, CA: Sage.
Mitchell, L. E., & Gabaldon, T. A. 2002. If I only had a heart: Selznick, P. 1957. Leadership in administration. New York:
Or, how can we identify a corporate morality. Tulane & Row.
Harper
Law Review, 76: 1645-1672.
Stanford SICD. 2003. Unocal company profile, vol. 2003. Stan
Mitchell, R. K., Agle, B. R., & Wood, D. J. 1997. Toward a theory ford, CA: SICD.
of stakeholder identification and salience: Defining the
Strong, J.W. 1999. McCormicl: on evidence (5th ed.). St. Paul:
principle of who and what really counts. Academy of
West Group.
Management Review, 22: 853-886.
Stultz, R. 1996. Rethinking risk management. Journal of Ap
Mohr, L. A., Webb, D. J.,& Harris, K. E. 2001. Do consumers
plied Corporate Finance, 9(3): 8-24.
expect companies to be socially responsible? The im
pact of corporate social responsibility on buying behav Suchman, M. C. 1995. Managing legitimacy: Strategic and
ior. Journal of Consumer Affairs, 35: 45-72. institutional approaches. Academy of Management Re
view, 20: 571-610.
Mossin, J. 1968. Aspects of rational insurance purchasing.
Journal of Political Economy, 78: 553-568. Trieschmann, J. S., & Gustavson, S. G. 1998. Risk manage
ment and insurance (10th ed.). Cincinnati: Southwestern
Nagel, I. H., & Swenson, W. M. 1993. The
sentencing federal
for corporations: Their development, theoret College.
guidelines
ical underpinnings, and some thoughts about their fu Turban, D. B., & Greening, D. W. 1996. Corporate social per
ture. Washington University Law Quarterly, 71: 205-259. formance and organizational attractiveness to prospec
tive employees. Academy of Management Journal, 40:
Neihesiel, S. R. 1994. Corporate strategy and the politics of
658-672.
goodwill. New York & Washington DC, Baltimore: Amer
ican University Studies. Ullman, A. A. in search
1985. Data of a theory: A critical
examination of the relationships among social perfor
O'Toole, J. 1993. The executive's compass. New York: Oxford
mance, social disclosure, and economic performance of
University Press.
U.S. firms. Academy of Management Review, 10: 540
Porter, M. E., & Kramer, M. R. 2002. The competitive advan 557.
tage of corporate philanthropy. Harvard Business Re
Unocal. 2003. Progress and prosperity along the pipeline
view, 80(12): 56-69.
route. El Segundo, CA: Unocal.
Post, J.E., & Waddock, S. A. 1995. Strategic philanthropy and
for economic In R. F. America Varadarajan, P. R., & Menon, A. 1988. Cause related market
partnerships progress.
(Ed.), Philanthropy and economic development: 65-84. ing: A coalignment of marketing strategy and corporate
CT: Greenwood Press. philanthropy. Journal of Marketing, 52: 58-74.
Westport,
Waddock, S. 2001. Leading citizens: Vision, values,
Rawls, J. 2000. Justice as fairness: A restatement. Cambridge, corporate
MA: Press of Harvard Press. value added. Boston: McGraw-Hill.
Belknap University
E. 1992. Principles of risk management and insur Werhane, P. H. 1985. Persons, rights, and
Rejda, G. corporations. Engle
ance wood Cliffs, NJ: Prentice-Hall.
(4th ed.). New York: Harper Collins.
Whetten, D. A., & Mackey, A. 2002. A social actor conception

Rindova, V., & Fombrun, 1998. The identity of organiza
C.
tions. In D. A. Whetten
& P. C. Godfrey (Eds.), Identity in of organizational identity and its implications for the
organizations: Building theory through conversations: study of organizational reputation. Business & Society,
33-83. Thousand Oaks, CA: Sage. 41: 393-414.
Roman, R. M? Hayibor, S., & Agle, B. R. 1999. The Williamson, O. E. 1985. The economic institutions of capital
relationship
between social and financial a ism. New York: Free Press.
performance: Repainting
portrait. Business & Society, 38: 109-125. D.
Wood, J.,& Jones, R. E. 1995. Stakeholder mismatching: A
T., & Berman, S. 2000. A brand new brand of corpo theoretical problem in empirical research on corporate
Rowley,
rate social performance. Business & Society, 39: 397-418. social performance. International Journal of Organiza
tional Analysis, 3: 229-267.
Rowley, T. J.,& Moldoveanu, M. 2003. When will stakeholder
groups act? An interest- and identity-based model of Wood, D. J.,& Logsdon, J.M. 2002. Business citizenship: From
stakeholder group mobilization. Academy of Manage individuals to organizations. Business Ethics Quarterly,
ment Review, 28: 204-219. 12: 59-94.
Saiia, D. H., Carroll, A. B., & Buchholtz, A. K. 2003. Philan Zucker, L. G. 1986. Production of trust: Institutional sources of
thropy as strategy: When corporate giving "begins at economic structure. Research in Organizational Behav
home." Business & Society, 42: 169-201. ior, 8: 53-111.
Paul C. Godfrey is an associate professor of strategy in the Marriott School of Man
agement at Brigham Young University. He received his Ph.D. in strategic management

at the University ofWashington. His research focuses on economic and moral drivers,
and outcomes, of corporate social initiatives.


Godfrey Corporate Social Responsibility and CFP Academy of Management Review 2005

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Godfrey Corporate Social Responsibility and CFP Academy of Management Review 2005

Uploaded by

Copyright:

Available Formats

The Relationship between Corporate Philanthropy and Shareholder Wealth: A Risk

This content downloaded from 152.3.152.120 on Mon, 2 Dec 2013 12:53:08 PM

I present a complex theoretical explanation that draws on multiple bodies of literature

provide shareholders with insurance-like protection for a firm's relationship-based

This content downloaded from 152.3.152.120 on Mon, 2 Dec 2013 12:53:08 PM

other assets to an entity or a settlement or can The model on two groups of

This content downloaded from 152.3.152.120 on Mon, 2 Dec 2013 12:53:08 PM

This content downloaded from 152.3.152.120 on Mon, 2 Dec 2013 12:53:08 PM

Dimension Shareholder Capitalism Strategic Philanthropy Business Citizenship

CSR-CFP relationship Negative Positive Positive or negative but not the

Moral premise: Corporations contribute Corporate contributions As citizen agents of a larger

through the production measurable impact on obligation to contribute to

(e.g., products, a corporation's based way (e.g., policies,

stopping rule for of a firm's roles and deeply embedded in a global

managerial discretion, opportunities within society of communities and

larger society, with no may not fit a firm's decision making,

This content downloaded from 152.3.152.120 on Mon, 2 Dec 2013 12:53:08 PM

gic assets like reputational capital (Fombrun et Strategie Philanthropy

among the riety of stakeholder interests and divergent

This content downloaded from 152.3.152.120 on Mon, 2 Dec 2013 12:53:08 PM

clear direction formanagers facing competing How should a

This content downloaded from 152.3.152.120 on Mon, 2 Dec 2013 12:53:08 PM

This content downloaded from 152.3.152.120 on Mon, 2 Dec 2013 12:53:08 PM

This content downloaded from 152.3.152.120 on Mon, 2 Dec 2013 12:53:08 PM

motivations, and character, the the greater the actor-based positive

the extent capital generated by the philan

Act- and actor-based

This content downloaded from 152.3.152.120 on Mon, 2 Dec 2013 12:53:08 PM

This content downloaded from 152.3.152.120 on Mon, 2 Dec 2013 12:53:08 PM

ployee groups); however, layoffs do not constitute a criminal

activity as defined by common law or by statute.

This content downloaded from 152.3.152.120 on Mon, 2 Dec 2013 12:53:08 PM

This content downloaded from 152.3.152.120 on Mon, 2 Dec 2013 12:53:08 PM

Compensatory sanctions may include fines, Proposifion 5: Positive moral capital

the underlying relational wealth and earnings

case for leniency inpunishment. The veloped, or contradictory. As stakeholders con

This content downloaded from 152.3.152.120 on Mon, 2 Dec 2013 12:53:08 PM

6a: moral rights (a bad mind leading to a bad act), then, in

6c: Philanthropic moral ity creates shareholder wealth by generating

Unocal's philanthropic activities in Burma

and its have made substantial sponse to this concern:

This content downloaded from 152.3.152.120 on Mon, 2 Dec 2013 12:53:08 PM

simply, as the level of the firm's relational wealth

This content downloaded from 152.3.152.120 on Mon, 2 Dec 2013 12:53:08 PM

anthropic activity. Because of a focus on shareholder wealth,

This content downloaded from 152.3.152.120 on Mon, 2 Dec 2013 12:53:08 PM

values will not be

This content downloaded from 152.3.152.120 on Mon, 2 Dec 2013 12:53:08 PM

and communities. Involvement in activities such responds to an identifiable community, (2) a

Underlying ethical value

Type of moral capital

This content downloaded from 152.3.152.120 on Mon, 2 Dec 2013 12:53:08 PM

Transparency. The principle of transparency

This content downloaded from 152.3.152.120 on Mon, 2 Dec 2013 12:53:08 PM

stability in at least three ways: (1) through sta CONCLUSION

thropic activities are genuinely being respon

philanthropic activity to moral capital help

This content downloaded from 152.3.152.120 on Mon, 2 Dec 2013 12:53:08 PM

Society, 36: 5-31.

Quarterly, 12(2): 235-256.

sity Press. top-management incentives. Journal of Public Economy,

approach. Marshfield, MA: Pitman. sity Law Review, 79: 355-415.

Griffin, & Mahon,