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THE BUSINESS IMPERATIVE

Philanthropy or CSR:
a strategic choice
Managers and academics need to understand the different
motivations behind the two approaches
By Maurizio Zollo

Making sense of the differences between Corporate voluntary basis”. There are three models representing
Philanthropy (CP) and Corporate Social Responsibility positions in the debate on the relationship between
(CSR) has become something of a challenge for both business and society, and the responsibilities the for-
managers and academics. As Michael Porter and Mark mer has towards the latter (Table 1). The first, which I
Kramer suggest in the opening debate, CP and CSR co- label the “trade-off” model, was forcefully articulated
exist and should complement each other. While CP is by Nobel Laureate Milton Friedman in 1970. The sec-
concerned with the improvement of the competitive ond captures the essence of the CP approach proposed
context, benefiting both the company and society, by Porter and Kramer (2002), and the third conveys
other CSR activities are either superfluous, as in the the characteristics of the CSR model as discussed by
case of generic social initiatives, or are marginally nec- Preston and Donaldson, 1995).
essary, as in the case of supply chain initiatives. The distinction between the ‘trade-off’ model and
the other two - and implicitly the similarity between the
CP and CSR models - is related to assumptions about
‘Recent surveys confirm that the the existence of activities that can produce both eco-
nomic and social value for the company’s stakeholders.
correlation between social and Whereas Friedman’s model assumes that no such
financial performance is either activities exist, and that therefore any social initiative
will affect profits negatively, both CP and CSR relax this
positive or neutral’ assumption and accept that companies can identify
such activities. In fact, recent surveys of academic
studies on the “business case” (Margolis and Walsh,
Despite the intuitive appeal of both arguments, I 2003) confirm that the correlation between social and
believe the first shows significant logical flaws as soon financial performance is either positive or neutral; the
as one examines the underlying assumptions behind trade-off model does not seem to gain support from
the two concepts, and that the second only makes real data analysis.
sense under the strict assumptions of the CP model. However, the comparison between CP and CSR
As soon as one adopts a broader perspective that reveals a series of important differences that might be
accommodates both CP and CSR as special cases with generally under-represented in the debate. First, the
common dimensions, does the division between ‘gen- causal logic underlying the motivation for the initia-
eral social’, ‘value chain’ and ‘strategic philanthropy’ tives is different. In the CP model, the logic goes from
EBF on... CSR

activities lose its meaning. the social performance to the economic one.
CSR is defined following the green paper issued by Companies engage in philanthropic activities because
the EU Commission in July 2002, as the integration of they are convinced that by doing so they will be able to
“social and environmental concerns in (the) daily oper- gain a significant advantage in terms of reputation,
ations and in the interactions with stakeholders on a social capital and business development. On the other

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THE BUSINESS IMPERATIVE

Table 1: Comparing Three 'Business & Society' Models

Trade-off Corporate Social


Model Philanthropy Responsibility
Ultimate purpose of Social and economic
firm existence Wealth creation Wealth creation
development
Financial v Social Trade-off Jointly achievable Jointly achievable
performance Correlation < 0 Social => Financial Social => Financial

Governance mode Shareholders' rule Shareholders' rule Shareholders' mode

Resource allocation Shareholders' SVM long-term + LT social impact


criterion value max. (SVM) ST social impact ST financial impact
Type of social None, unless necessary Add-on to normal Embedded in all
impact activities (special projects) normal activities
Economic logic of Risk protection Revenue growth Fully integrated
social actions opportunities

hand, given the definition of CSR, achieving full inte- two models: it is about sustainable competetive
gration of social and environmental concerns means advantage in the CP model, and it is about social and
that the causal reasoning goes in the opposite direc- environmental sustainability in the CSR model.
tion: the ultimate purpose of a company is the Novo Nordisk’s activities in the fight against dia-
enhancement of social welfare, and economic per- betes in developing countries is a good example of
formance is a necessary condition to achieve that. CSR, not CP. This is not an ad-hoc initiative aimed at a
Economic profit is a means to an end, rather than an long-term financial benefit via significant short-term
end in itself. investments (and immediate returns of image). Rather,
So can you have it both ways? Can managers think it is part of Novo Nordisk’ way to understand its role
and act according to both causal logics? Obviously not. vis-à-vis the rest of the world and the work is fully
Even though they might be working on similar initia- embedded in its way of doing business. The economic
tives, such as tackling the health crisis in Africa, they profitability of the initiative is a short-term considera-
would be doing so for different reasons and treating tion in order to ensure the long-term goal of eradicat-
their investments in very different ways. In the case of ing diabetes from, and therefore eventually putting
CP, the initiative would be an ad-hoc project aimed at themselves out of, business. Hardly a recipe for
short-term social impact and long-term financial gain. sustainable competitive advantage, but an exemplary
In the case of a fully embedded CSR model, the initia- case of sustainable development.
tive would be part of a company’s routine operations,
with its economic profit serving the long-term goal of
contributing to social welfare. Maurizio Zollo is Associate Professor of Strategy and
This leads to the second point, that the division of Management at Insead
activities among generic social issues, value chain
impact and the competitive context makes perfect REFERENCES
sense only within the instrumental logic that charac- Donaldson, T. and Preston, L.E. (1995). The stake-
terises the trade-off and the CP model. In a company holder theory of the corporation: Concepts, evidence
EBF on... CSR

that has integrated CSR, the driver for managerial and implications. Academy of Management Review,
decisions and actions is both different and simpler: 20(1): 65-91.
decisions are made and actions are taken only after a Margolis, J.D. and Walsh, J.P. (2004). Misery loves com-
full analysis of the economic and social implications. panies: Rethinking social initiatives by business.
Moreover, sustainability means different things in the Administrative Science Quarterly.

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