(Illustration by Ben Wiseman)
In 2004, PNC Financial Services Group launched Grow Up Great, a corporate initiative that focuses on early childhood education. Since then, the company has committed $350 million to that initiative, and Grow Up Great has served more than 2.3 million children. But to PNC stakeholders, the most important feature of the initiative may be the authenticity that underlies it—the sense that PNC sponsors Grow Up Great for its own sake. “Believe it or not, [PNC] actively eschews connecting the giving to its brand,” says Chris Marquis, professor of management at the Johnson Graduate School of Management at Cornell University. “But because it has been committed to the project in a sincere fashion for so long, deep connections to the company have built up.” In case studies of PNC, Marquis has shown that its involvement in Grow Up Great has made the company a preferred employer among Millennial workers and has improved its reputation among multiple demographic groups.
Marquis is not alone in studying this issue. Three scholars—Ilya Cuypers, assistant professor of strategic management at Singapore Management University; Heli Wang, professor of strategic management at that institution; and Ping-Sheng Koh, associate professor of business education at the Hong Kong University of Science and Technology—undertook a broad investigation of how companies benefit from corporate giving. Drawing on work by other scholars, Cuypers, Wang, and Koh treat a company’s stock market valuation as an indicator of how highly its stakeholders rate the sincerity of its philanthropic efforts. Using that benchmark, they analyzed how specific kinds of corporate giving and specific firm attributes shape the way that giving affects firm value.
In their study, the scholars used a database compiled by Kinder, Lydenberg, Domini, and Co. (KLD), a social investment research firm, to track the philanthropic activities of 3,409 stock-listed US corporations from 1991 to 2009. They searched each firm’s history for evidence of “generous giving,” a quantitative metric that KLD associates with a pattern of giving more than 1.5 percent of “trailing threeyear net earnings before taxes” to philanthropic causes. In addition, they looked for signs of “innovative giving,” a qualitative metric that KLD associates with efforts to “[support] nonprofit organizations, particularly those promoting self-sufficiency among the economically disadvantaged.” (To track stock market valuation and other firm variables, the researchers used the Compustat database.)
One of the researchers’ principal findings was that how companies give has a bigger effect on their financial performance than how much they give: The impact of innovative giving on firm value was 2.8 times as large as the impact of generous giving. “Firms can achieve considerable financial reward from genuinely engaging in charitable acts, especially if [those acts] require substantial effort, are well thought through, and are innovative,” says Cuypers.
The researchers also found that certain firm characteristics affect the impact that corporate giving has on firm value. As part of their study, for example, Cuypers, Wang, and Koh tracked whether each firm in their sample provides a “sinful” product or service, such as alcohol, tobacco, or gaming. As it turns out, stakeholders reward giving by companies in those “sin” industries at a higher rate than they do giving by other kinds of companies. Some firms, in other words, reap higher financial benefits from corporate giving than others—even when both sets of firms engage in the same kind of philanthropic activity.
in those “sin” industries at a higher rate than they do giving by other kinds of companies. Some firms, in other words, reap higher financial benefits from corporate giving than others—even when both sets of firms engage in the same kind of philanthropic activity.
Carrie Schwab-Pomerantz, president and chair of the board of the Charles Schwab Foundation, says that her organization has long aimed to conduct its work with sincerity. The foundation develops programs that build financial literacy, and it supports giving and volunteer work by employees of its parent company, the brokerage firm Charles Schwab. Schwab- Pomerantz attributes much of that firm’s success in attracting top talent—especially among Millennials—to its corporate philanthropy. “Our motivation is altruistic, but it ultimately makes us a stronger company,” she says.
Ilya R. P. Cuypers, Ping-Sheng Koh, and Heli Wang, “Sincerity in Corporate Philanthropy, Stakeholder Perceptions and Firm Value,” Organization Science, 26, 2015.
Read more stories by Corey Binns.