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Why Are For-Profit Companies Philanthropic?

One very mainstream school of thought says a corporation’s principal duty is to maximize return to shareholders. Taken literally, this means that companies would never give money to charitable organizations because it subtracts from the bottom line.

In real life, corporations do provide philanthropic support to nonprofits, often generously. The Chemical Heritage Foundation, an example that readily springs to mind, has received charitable gifts over the years from 240 different companies. These range from A to (almost) Z—Aceto to Wyeth—and from large to smallish—BASF and Dow to Arch and International Specialty Products.

Why do they do it? Why do smart business people give away money that could instead accrue to the bottom line of increased shareholder value?

A group of California-based business-school professors offer a glimpse of why this might be so (Science 16 [July 16, 2010], 325–327). The experimental design is fairly complex, but the take-home message of the research is that companies that engage their customers in sharing the pleasures of philanthropy do substantially better than those that simply charge a fixed price for their product.

This is good news indeed for scientific/cultural organizations like CHF because it means that philanthropy isn’t a zero-sum game economically. All parties stand to gain when charitable giving is part of the transaction. Hooray for human nature!

Posted In: Education

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