Strategic Philanthropy

Abstract

Because it promises to benefit business and society simultaneously, strategic philanthropy might be characterized as a “happy marriage” of corporate social responsibility behavior and corporate financial performance. However, as evidence so far has been mostly anecdotal, it is important to understand to what extent empirics support the actual practice as well as value of a strategic approach, which creates both business and social impacts through corporate philanthropic activities. Utilizing data from the years 2006 to 2009 for a sample of the Dow Jones Sustainability Index (DJSI World), which monitors the world’s most sustainable companies, the authors test a model of strategic philanthropy in which the dependent variable is evidence that a firm does or does not measure business and social impacts simultaneously. From the DJSI data, the authors find a proposed measure of overall corporate social performance (CSP) to be the most important explanatory factor for engagement in strategic philanthropy. Moreover, this measure of CSP has a mediating effect on the relations between certain independent variables and strategic philanthropy. Other important findings provide support for the influence of the institutional factors industry and region on the likelihood that companies are practicing strategic philanthropy, but little effect of the business characteristics company size and profitability on that likelihood.

Keywords

strategic philanthropy corporate social performance impact measurement institutional factors company size

Historically, corporate philanthropy has been the predominant means through which companies have fulfilled their social responsibilities to the local communities in which they operate (Berman, Wicks, Kotha, & Jones, 1999; Wood & Jones, 1995). Evidence shows that the level of philanthropic contributions made by companies has grown significantly over the last 20 years (Brammer, Millington, & Pavelin, 2006; D. Campbell, Moore, & Metzger, 2002; Dennis, Buchholtz, & Butts, 2009). Despite worsening economic conditions and a slowdown in earnings, the philanthropy of large U.S. corporations has increased since 2005 (Urriolagoitia & Vernis, 2012). In 2013, corporate philanthropy in the United States amounted to more than US$16.7 billion,¹ a significant increase compared with the US$13.8 billion reported in 2005, including both corporate foundation and direct corporate giving in that year (Foundation Center, 2007, citing Giving USA). Corporate philanthropic contributions are distributed to a diverse range of causes such as education, arts, culture, medicine, science, environmental protection, and human services (Seifert, Morris, & Bartkus, 2004). Corporate philanthropy was about 5% of charitable giving in 2013.²

With such large amounts of money involved, much debate surrounds the question of the impact of corporate philanthropy on both the giving business and the receiving society. Neoclassical economic views such as agency theory disregard the entire concept of corporate philanthropy and argue for the sole corporate purpose of shareholder wealth maximization (Seifert, Morris, & Bartkus, 2003; Weyzig, 2009). In contrast, stakeholder theory, corporate citizenship theory, and ethical theories argue for the societal benefits of corporate philanthropy (Clarkson, 1995; Jamali, 2008).

Strategic philanthropy is proposed as a reconciliation or marriage of these opposing views (McClinton, 2004). From this perspective, corporate philanthropy is linked to the company in a more strategic way in which the focus is on the positive effects that philanthropy has—directly and indirectly—on both the profitability of corporations and the betterment of society (Buchholtz, Amazon, & Rutherford, 1999). Similarly, Porter and Kramer (2002) referred to strategic philanthropy as the “convergence of interest” (p. 59) where social and economic benefits are combined.

Examples of the positive impact of philanthropy on businesses are the encouraging effects donations can have on the attractiveness of companies in the eyes of investors (Barnes, 1995) and the value that can be derived from corporate philanthropy by shareholders (Brown, Pratt, & Whetten, 2006; Galaskiewicz, 1997) and other stakeholders (Lewin & Sabater, 1996; Saiia, Carroll, & Buchholtz, 2003). Practical examples of the positive impact of corporate philanthropy on society are the logistical aid provided by TNT Post (parcel services) to the World Food Programme (WFP) in the distribution of emergency relief, and the highly nutritious products Royal Dutch DSM (the global science-based company active in health, nutrition, and materials) develops in partnership with the WFP.

Despite much scholarly theorizing and anecdotal suggestions about philanthropic practices of companies that genuinely create a positive impact for both organizations and society (Brammer & Millington, 2005; Godfrey, 2005; Saiia et al., 2003; Sanchez, 2000), it is presently unclear to what extent companies are indeed managing their corporate philanthropy strategically. Much of the existing research focuses on the dollar size of corporate philanthropic expenditures, the rationale behind corporate donations (Foster, Meinhard, Berger, & Krpan, 2009; Logsdon, Reiner, & Burke, 1990; Sanchez, 2000; Young & Burlingame, 1996), and the determinants of these expenditures (Brammer & Millington, 2005, 2006; Seifert et al., 2003; Zhang, Zhu, Yue, & Zhu, 2010). Researchers have not succeeded in substantiating empirically whether companies are engaged in strategic philanthropy or not.

The social impact of corporate donations and the kinds of information noted just above are not automatically evidence of strategic philanthropy practices by companies. Such evidence is also not revealed by data about intentions or self-proclaimed strategic approaches by companies. Rather, evidence should be based on the extent to which information on the business and social impacts is collected by companies and used in strategic decision-making processes. How corporate decisions are made is not yet observable to external researchers. The authors’ data do indicate whether companies measure their business and social impacts simultaneously, and the authors argue that such simultaneous measurement by companies is a reasonable proxy measure of companies’ engagement in strategic philanthropy.

The aim of this study, therefore, is to add to the body of theoretical and anecdotal suggestions by providing an empirical snapshot of the extent to which companies are strategic in their philanthropy through measuring the impact on both the business and society. In addition, the authors attempt to identify and explain their motives for doing so by examining three sets of elements: business characteristics (company size and profit), institutional factors (industry and region), and social orientation (philanthropic expenditures and corporate social performance [CSP]).

The rest of the article develops as follows. First, the theoretical background, introducing strategic philanthropy and impact measurement, is discussed. Second, the conceptual model is explained and the hypotheses that will be tested are defined. Third, the research design, sample, measures, and statistical procedures used are outlined and the results of the analysis are presented. The article concludes with a discussion of the results, the limitations of the study, and ideas for future investigation.

Theoretical Background

The theoretical background of this study introduces the two main concepts of this study: strategic philanthropy and impact measurement. This section describes the related existing literature and outlines the added value of this study.

Strategic Philanthropy

Varadarajan and Menon (1988) defined corporate philanthropy as the voluntary choice of a company to spend resources with the aim of positively contributing to social welfare (while recognizing that there can also be other, parallel aims). The current body of literature on corporate philanthropy mainly focuses on the act of philanthropy, the rationale behind philanthropy, and the characteristics that influence philanthropic expenditures (e.g., board composition, company size, geographical region, industry, slack resources, and advertising intensity; Brammer & Millington, 2005, 2006; Buchholtz et al., 1999; Dennis et al., 2009; Himmelstein, 1997; Saiia, 2001; Saiia et al., 2003; Seifert et al., 2004; Williams, 2002; Zhang et al., 2010). Those studies that do explore the results of corporate philanthropy have focused strongly on the business impact (Urriolagoitia & Vernis, 2012). Some have argued that corporate philanthropy has the potential to create business impact that is more than a by-product of corporate success. For example, Mecson and Tilson (1987) suggested that philanthropy is often a vital component of corporate strategic management. Philanthropy is used to stimulate corporate success (D. Campbell & Slack, 2008; Useem, 1988), to strengthen a firm’s overall strategy and strategic positioning (D. Campbell & Slack, 2007; Haley, 1991), and to substitute for advertising costs (Zhang et al., 2010).

The concept of strategic philanthropy arose in the 1990s and over time has been ascribed a variety of meanings. For example, Young and Burlingame (1996) understood strategic philanthropy to be an alignment of the philanthropic mission with the core business of the company. In contrast, Porter and Kramer (1999) took a different perspective and considered philanthropy to be strategic when the company was able to achieve social value and business value at the same time and, preferably, could realize a greater social value per dollar, as compared with any other organization with the same objective. Post and Waddock (1995) were the first to draw a helpful distinction between “philanthropy strategy” and “strategic philanthropy.” Building on the separation of these two concepts, Saiia et al. (2003) defined philanthropy strategy as “the firm is orderly in the methods and procedures it uses to give money away” and strategic philanthropy as “the corporate resources that are given have meaning and impact on the firm as well as the community that receives those resources” (p. 185). In other words, philanthropy strategy focuses only on the systems that are in place to make the donations. In contrast, strategic philanthropy is about the achievements of those resources, on both the business and society. The definition used by Thorne, Ferrell, and Ferrell (2003) also focuses on the impact of strategic philanthropy on both the business and society: “synergistic use of a firm’s resources to achieve both organizational and social benefits” (p. 360).

The understanding of strategic philanthropy as used in this study aligns with those understandings proposed by authors such as Thorne et al. (2003) and Porter and Kramer (1999, 2002), who considered corporate philanthropy to be strategic when it achieves positive impact for both the business and society. This understanding means that companies are only considered to be engaged in strategic philanthropy when their philanthropic practices achieve this simultaneous impact on both their business and society. In other words, expressions of intent to better both the business and society through philanthropic activities without actually evaluating the results of either are insufficient to conclude that a company engages in strategic philanthropy. Similarly, evidence of both business and social impacts does not constitute evidence that companies are actually practicing strategic philanthropy.

Impact Measurement

In the literature on strategic philanthropy, limited attention has been paid to managerial questions of the measurement of results and the strategic decision making that is made with this information. According to Margolis and Walsh (2003), in the case of corporate social responsibility (CSR), this lack of attention for measurement and strategy is most prominent when it concerns the social effects. They argued that the cause for this negligence lies with organizational scholars who research CSR, as they “aimed to posit and demonstrate the economic benefits of corporate responses to social misery. This has left a considerable gap in the present authors’ descriptive and normative theories about the impact of companies on society” (Margolis & Walsh, 2003, p. 296). Similarly, Wood (2010) expressed worries regarding the failure of research to address the social impact of CSR:

. . . the whole idea of CSP is to discern and assess the impact of business-society relationships. Now it is time to shift the focus away from how CSP affects the firm, and toward how the firms’ CSP affects stakeholders and society. (p. 76)

As the purpose of strategic philanthropy, as defined here, is to achieve positive results for both the business and society through philanthropic activities, impact measurement is a crucial component. Strategic philanthropy is neither simply the implementation of methods and procedures that are designed to manage philanthropic activities in an orderly way, nor corporate intent to better the business and/or society. Only by measuring the impact of these activities on the business and society can it be determined whether the desired goals have been achieved. And it is only through such measurements that improvements to results can be made strategically (Carroll, 2000). Blowfield and Frynas (2005) also emphasized this point, stating that without measurement the effects of corporate philanthropy remain dubious. Salazar, Husted, and Biehl (2012) argued that neglect of impact measurement in the management of corporate philanthropy results in a severe lack of strategic management of these social projects, forgoing the potential to improve both business and social performance.

Although it is believed that companies that fail to measure both the business and social impacts of their philanthropic activities are unable to manage their philanthropy strategically, the opposite does not necessarily hold. Only companies that measure their business and social impacts are able to manage their philanthropy strategically, but measuring these impacts does not necessarily guarantee that these companies are using their findings to inform their strategic decisions. Put another way, the authors argue that when practicing philanthropy, you cannot be strategic without the measurement of both your business and social impacts, but it is possible to measure these impacts and still not be strategic.

Business impact

Some scholars have argued that the business case for corporate philanthropy overrides the societal case (Blowfield & Frynas, 2005; Frynas, 2005). In this strand of literature, where corporate philanthropy is perceived as a business strategy, studies have attempted to demonstrate the business gains of philanthropy by performing analyses on the relationship between philanthropic expenditures and corporate financial performance (Hess, Rogoysky, & Dunfee, 2002). One mechanism through which philanthropy can improve financial performance is increased sales, either from existing customers or from new customers (Halme & Laurila, 2009; Hillman & Keim, 2001; Zalka, Downes, & Paul, 1997). Zhang et al. (2010) found that companies used philanthropy as an alternative for advertising. The public image of a company might improve through the positive publicity that philanthropy can bring or by the compensating effect of philanthropy on negative publicity (Fombrun & Shanley, 1990; Williams & Barrett, 2000). A positive public image might also enhance a company’s attractiveness as an employer, affecting the selection process of employees looking for a job (Cable & Judge, 1994; Schneider, 1987). In general, employees have been found to be interested in companies with an attractive public image (Backhaus, Stone, & Heiner, 2002; Greening & Turban, 2000; Turban & Greening, 1997).

However, to unravel whether and how a specific corporate philanthropic program influences business performance, companies need to develop a measurement system to capture the business impact. As Carrigan (1997) argued, failure to do so is “not only a drain on funds, but it might even damage a firm’s reputation when mishandled good deeds backfire” (p. 39). Assessing the business impact could be done, for example, by monitoring the impact of the program on sales to new or existing customers. It is important to realize that some effects will only occur after a period of time, such as the change in the attitudes of stakeholder groups (Mohr, Webb, & Harris, 2001).

Social impact

In contrast to the voluminous studies on the business impact of corporate philanthropy, the value of corporate philanthropy to society remains largely unexplored (Halme & Laurila, 2009; Margolis & Walsh, 2003). However, authors have warned that refraining from measuring this social impact might result in philanthropic programs providing fewer benefits or even adding burdens to society (Carroll, 2000; Salazar et al., 2012). Wood (2010) has argued against the myth that the measurement of social impact is not possible, by stating that all of the outcomes of CSR activities (which concern society, stakeholders, and the company itself) can be measured and evaluated. In her model, Wood divides these impacts into “effects on people and organizations,” “effects on the natural and physical environments,” and “effects on social systems and institutions” (Wood, 2010, p. 54).

There are well-known examples of organizations that actively measure their social impact. National Grid measures both the effects of its philanthropic programs on employee motivation and the social impact of its community investments. The United States Agency for International Development (USAID) actively uses impact measurement in its public–private alliances, such as the End Exploitation and Trafficking (EXIT) alliance in Asia, where it has partnerships with MTV, Nickelodeon, and VH1 to increase awareness of human exploitation (Saul, Davenport, & Oulette, 2010). The social impact of philanthropic activities can only be improved through careful evaluation and measurement (Salazar et al., 2012). Similar to the business impact of philanthropy, some types of social impact might not manifest themselves until much later in time; gender equality that results from a microcredit scheme targeted at female entrepreneurs, for example. In these cases, the measurement system can initially capture intermediate effects, allowing managers to monitor whether the philanthropic activity is realizing the expected effects in the first steps of the hypothesized causal chain of social change. It is therefore often necessary that social impact be measured in the intermediate and the long term.

Conceptual Model

In this section, the authors develop a conceptual model from which a number of research hypotheses are derived that guide the subsequent analyses. This conceptual model is an extension of the studies performed by Carrigan (1997), Tokarski (1999), and Maas and Liket (2011), all of whom have researched the extent to which companies engaged in the impact measurement of their corporate philanthropic activities. Carrigan (1997) and Tokarski (1999) found an overall lack of formal evaluations of both the social and business impacts of corporate philanthropy programs in their samples (United Kingdom and United States, respectively). In contrast, a more recent study by the present authors (Maas & Liket, 2011) used a larger sample of 535 companies ranked in the Dow Jones Sustainability Index (DJSI) between 2005 and 2007. They found that the number of firms measuring at least one form of impact—business impact and/or social impact—was large, between 62% and 76% in 2007, and had steadily increased over the years, from 46% in 2005 up to 76% in 2007.

The aim of the 2011 study by the authors was to uncover whether firms were measuring their impact, what kind of impact (social or business) they were measuring, and what factors could explain whether companies measured their business or social impacts. On the basis of those findings, which showed a trend toward more impact measurement, this study aims to uncover whether there is also a trend toward the simultaneous measurement of business and social impacts, as the strategic philanthropy rhetoric would imply. In other words, the authors’ interest does not lie with whether companies measure the impact of philanthropic activities but whether companies engage in strategic philanthropy as demonstrated by the simultaneous measurement of business and social impacts. The methodological contribution of this article thus focuses on how to demonstrate such simultaneous measurement.

Business Characteristics: Size and Profit

The literature on corporate philanthropy has emphasized the positive effect of company size on the level of philanthropic expenditures (Adams & Hardwick, 1998; McElroy & Siegfried, 1985). Amato and Amato (2007) found a more complex cubic relationship between company size and expenditures, where small and large companies were likely to devote more resources to corporate philanthropy, while medium-sized companies devoted fewer resources. Companies with greater business exposure generally face more legitimacy pressures (Margolis & Walsh, 2003; Miles, 1987), and these pressures lead companies to manage their philanthropy more strategically to fulfill the demands made of them (Saiia et al., 2003).

Studies have found a positive effect of higher levels of profits on corporate philanthropy expenditures (McElroy & Siegfried, 1985; McGuire, Sundgren, & Schneeweis, 1988; Ullmann, 1985). However, Buchholtz et al. (1999) argued that profits and company size do not necessarily relate to one another, as larger companies are not always more profitable. Slack resource theory is often used to explain the link between profits and philanthropic expenditures, although this relationship has rarely been tested empirically (Brammer et al., 2006; Seifert et al., 2003). Seifert et al. (2003) did find a positive relationship between available resources and donations made.

Consequently, because larger companies face more business exposure and subsequent legitimacy pressures and because higher levels of profit have a positive effect on philanthropic expenditures, the authors expect larger companies as well as companies with higher levels of profits to be more likely to engage in strategic philanthropy.

Hypothesis 1: There is a positive relationship between company size and strategic philanthropy.

Hypothesis 2: There is a positive relationship between the level of a company’s profits and strategic philanthropy.

Institutional Factors: Industry and Region

Some authors pose that it is the institutional environment that determines whether companies engage in socially responsible behavior (e.g., J. L. Campbell, 2006). On the basis of this strand of literature, the authors identified two important institutional factors that they expect to affect the likelihood of engagement in strategic philanthropy: the industry in which companies operate (e.g., Amato & Amato, 2007) and the geographical region in which the company headquarters are located (Arulampalam & Stoneman, 1995; Muller & Whiteman, 2009).

Empirical evidence suggests that corporate philanthropy varies significantly across industries (Amato & Amato, 2007; Fry, Keim, & Meiners, 1982; Navarro, 1988). Johnson (1966) compared the philanthropic expenditures of companies in competitive versus monopolistic industries. He found that companies in competitive industries could not afford to engage in corporate philanthropy unless everyone did, whereas companies in monopolistic industries had no incentive to make corporate donations. Other studies have found effects on philanthropic expenditures in industries that relied more heavily on consumer sales (Burt, 1983), public perceptions (Clotfelter, 1985), and labor intensity (Navarro, 1988).

Studies have found that reporting on nonfinancial information, including corporate philanthropy, varies substantially by country (Kolk, 2005; Kolk, Walhain, & van de Wateringen, 2001; Maignan & Ralston, 2002). The explanations offered for these empirical variations in reporting of nonfinancial information are related to variations in governance systems (Griffiths & Zammuto, 2005), public pressures (Kolk, 2005), and stakeholder pressures (Margolis & Walsh, 2003). It has also been argued that these differences stem from the local social and cultural systems (Biggart & Guillen, 1999; Whitley, 1999), and institutional systems (Hall & Soskice, 2001). Aguilera and Cuervo-Cazurra (2004) found that U.K. companies reported more frequently in comparison with U.S. companies and attributed this difference to the greater attention paid by institutional investors and companies in the United Kingdom to long-term environmental and social risks. Even though it need not always be the case that the way in which a company communicates about its social responsible behavior correctly represents the actual strategic character of their behavior, reporting practices have been considered an important indicator of actual behavior.

The authors expect that the effect of the variation between institutional pressures in industries on philanthropic expenditures also holds for engagement in strategic philanthropy. Similarly, because reporting behaviors are found to be different in various regions, it is expected that the extent to which strategic philanthropy is practiced also varies across regions.

Hypothesis 3: Engagement in strategic philanthropy varies according to the industries in which companies operate.

Hypothesis 4: Engagement in strategic philanthropy varies according to the region in which a company’s headquarters is located.

Social Orientation: Philanthropic Expenditures and CSP

Knowledge about the relationship between the level of philanthropic expenditures and whether businesses manage their philanthropy strategically is limited. From a welfare economics perspective, strategic philanthropy facilitates the need for companies to deploy their scarce resources in the most effective way (Maas, 2009; Saiia, 2001). One could expect higher philanthropic expenditures to be accompanied by more ambitious objectives. Similar to the resources that are deployed for core business investments, one would expect that the returns from philanthropic activities are measured for strategic development and planning purposes. Some studies have found a positive relationship between the dollar size of donations and strategic philanthropic practices. These positive relationships have been indicated by the measurement of social and business impacts, attributed to companies’ relative marginal returns (Tokarski, 1999), and pressures for accountability through visibility (Saiia et al., 2003).

Wood (2010) defined CSP as a set of descriptive categorizations of business activities that focus on the impact and outcomes for society, stakeholders, and the company itself. In the last 35 years, business and society research has focused largely on the relationship between CSP and corporate financial performance (Margolis, Elfenbein, & Walsh, 2007). However, the nature of the CSP construct suggests that consequences to stakeholders and to society in general are at least equally important, if not more so (Wood, 2010), and thus should receive equal attention at minimum. In general, it would be logical to assume that companies that are practicing CSP more intensely show greater concern over the strategic management of all their socially responsible activities. It is not unlikely that the strategic management that is required to run an effective CSP policy has had spillover effects on the management of the philanthropic activities. This likelihood would lead us to expect that companies that have high philanthropic expenditures are more likely to manage this philanthropy strategically. Furthermore, because companies that actively engage in CSP are more likely to engage in strategic management of their social issues, they are also more likely to approach their philanthropy more strategically.

Hypothesis 5: There is a positive relationship between the level of a company’s philanthropic expenditures and strategic philanthropy.

Hypothesis 6: There is a positive relationship between the level of a company’s CSP and strategic philanthropy.

CSP as Mediator

Because CSP and strategic philanthropy are closely related concepts, for meaningful empirical analyses it is important to ensure that they are not a measure of the same construct. Although most companies were engaged in philanthropic activities long before they embraced their contemporary approaches to CSP, it is unclear whether these two activities are born from the same set of corporate motivations. The concepts could also be related in other ways, for example, where the one is born out of the other or, as is often argued in the recent literature on CSP, CSP is a replacement for corporate philanthropy (Whitehouse, 2006).

Empirical analysis of the correlation between the concepts shows that in our data, there is no correlation between the two concepts (see Table 1). However, it could still be the case that they do relate to one another, just not in a straightforward way. It is therefore important to consider that CSP could function as a mediator for strategic philanthropy. Neglecting to test this possibility could result in falsely concluding a positive relation between the level of the independent variables and the level of strategic philanthropy. If CSP were indeed the mediator of these relationships, the levels of strategic philanthropy of the significant variables would only be higher because they cause higher levels of CSP, which consequently causes higher levels of strategic philanthropy.

Hypothesis 7: The effects that the independent variables company size, profit, industry, region, and philanthropic expenditures have on strategic philanthropy are mediated by CSP.

Table 1.

Pearson Correlations Matrix of CSP, Philanthropic Expenditures, and Strategic Philanthropy (N = 262).

Variables	CSP 2006	Exp 2006	CSP 2007	Exp 2007	CSP 2008	Exp 2008	CSP 2009	Exp 2009
CSP 2006	x
Exp 2006	−0.06	x
SP 2006	0.26	0.12
CSP 2007			x
Exp 2007			−0.02	x
SP 2007			0.14	0.04
CSP 2008					x
Exp 2008					0.02	x
SP 2008					0.32	0.13
CSP 2009							x
Exp 2009							−0.01	x
SP 2009							0.36	0.38

Note. CSP = corporate social performance; Exp = expenditures; SP = strategic philanthropy.

p < .1. **p < .05.

Research Design

To answer the question whether companies engage in strategic philanthropy, as indicated by their measurement of both business and social impacts of their philanthropy, a sample from the DJSI World was analyzed statistically.

Sample

The DJSI is compiled annually by Sustainable Asset Management Group (SAM Group). Every year, SAM Group conducts an independent sustainability assessment of approximately 2,250 of the largest corporations around the world. According to the SAM Group, their index is comprised of the “most sustainable” companies in the world. The SAM Group Corporate Sustainability Assessment is based on the annual SAM Group questionnaire. It consists of an in-depth analysis taken from the answers to around 100 questions on economic, environmental, and social issues, and has a particular focus on the potential companies have for long-term value creation (Eccles, Ioannou, & Serafeim, 2011). By limiting qualitative answers through predefined multiple-choice questions, the questionnaire is designed to maximize the reporting of actual corporate behavior. Moreover, companies are required to provide documentation to support their answers and this documentation is used by SAM Group to verify the data collected. Eccles et al. (2011) have used data from SAM Group in their recent analysis of the role of corporate culture in shaping sustainability practices and they emphasized that the assessment, based on the SAM Group questionnaire, is supplemented with a Media and Stakeholder Analysis (MSA). The MSA allows SAM Group to identify and assess issues that may represent financial, reputational, and compliance risks to the companies under evaluation. For the MSA analysis, SAM Group utilizes media coverage, stakeholder commentaries, and other publicly available sources provided by RepRisk, an environmental and social dynamic data supplier. Finally, SAM Group analysts personally contact companies to clarify any issues that may arise from the questionnaire, the company documents, and the MSA analysis. External assurance of the SAM Group procedures ensures that the sustainability assessments supplied by companies are completed in accordance with the defined rules. Last, independent auditors regularly verify the annual selection process and methodology (DJSI Index Guide Book, version 11.5, January 2011).

Where Maas and Liket (2011) used a sample of companies taken from the DJSI World for the years 2005 to 2007, the sample in this study adheres to a larger number of criteria: The firms are assessed by SAM Group and were included in the DJSI between 2006 and 2009; there are data on whether the firms measure their impact on both business and society in all years between 2006 and 2009; there are data on their industry, region, size, philanthropic expenditures, and CSP for all years; and data on the firms’ profits are available. These criteria resulted in a smaller but more complete sample of 262 companies as compared with the sample of 535 companies used by Maas and Liket. The measures of all the variables, except for profit (earnings before interest and taxes [EBIT]), are based on the procedures selected and data collected by the SAM Group. The EBIT data in U.S. dollars are collected from the CompuStat financial database.

Measures

Dependent variable

The dependent variable in the analysis measures whether companies simultaneously do or do not measure the business and social impacts of their philanthropic activities. This measurement of the social and business impacts is considered to be a very relevant proxy for the engagement of these companies in strategic philanthropy, which is defined as the management of corporate philanthropic activities that result in a positive impact for both the business and society (strategic philanthropy). Measurement of both the business and social impacts is the only way to gain insight into these business and social results.

In the DJSI questionnaire, companies are requested to indicate whether they systematically measure their impact on three dimensions: (a) direct business impact, (b) indirect business impact: reputation and stakeholder satisfaction, and (c) social impact.³ The dependent variable in this study consists of a combination of the three impact measurement dimensions of the DJSI questionnaire: The dependent variable is assigned a value of 1 when social impact and either one or both of the business dimensions are measured as well and a value of 0 otherwise. Thus, the zero value category includes absence of social impact or absence of any business dimension or complete absence of social as well as business impact measurement. There are important limitations to the dichotomous representation of impact measurement that the DJSI data present. Most important, the scope and quality of these impact measurements can differ substantially between companies that pass the benchmark used by SAM Group to qualify for a positive score on this variable.

Table 2 provides descriptive statistics on the dependent variable. It shows whether companies in the sample (2006-2009, N = 262) measure both the social and business impacts of their donations (value of 1 when they do, 0 when they do not), specified toward different company sizes, level of profit, industries, regions, height of philanthropic expenditures, and level of CSP.

Table 2.

Engagement in Strategic Philanthropy (Yes = 1, No = 0) Specified to Business Characteristics, Institutional Factors, and Social Orientation (N = 262).

	2006		2007		2008		2009
	(0)	(1)	(0)	(1)	(0)	(1)	(0)	(1)
Total	61	39	56	44	48	52	40	60
By company size
Large	58	42	54	46	46	54	39	61
Middle	68	32	71	39	57	43	43	57
Small	100	0	75	25	75	25	50	50
By profit
<5,000	84	16	70	30	70	30	58	42
5,000-15,000	58	42	58	42	44	56	36	64
15,000-50,000	48	52	46	54	45	55	33	67
>50,000	57	43	52	48	44	56	33	67
By sector
Oil and gas	60	40	53	47	47	53	57	53
Technology	65	35	75	25	55	45	40	60
Financials	72	28	56	44	56	44	50	50
Basic materials	60	40	57	43	53	47	43	57
Utilities	30	70	23	77	23	77	19	81
Consumer services	67	33	52	48	44	56	44	56
Consumer goods	58	42	60	40	52	48	40	60
Telecom	46	54	46	54	54	46	38	62
Health	59	41	65	35	47	53	18	82
Industrials	72	28	60	40	50	50	47	53
By region
Latin America	50	50	0	100	0	100	0	100
Asia	50	50	67	33	50	50	50	50
Pacific	83	17	50	50	42	58	42	58
North America	60	40	52	48	47	53	37	63
Japan	71	29	67	33	61	39	57	43
Europe	56	44	54	46	45	55	35	65
By philanthropic expenditure
>3%	56	43	61	39	38	62	41	59
1%-3%	51	49	48	52	41	59	32	68
0.6%-1%	55	45	52	48	49	51	34	66
0.2%-0.6%	62	38	52	48	41	59	34	66
<0.2%	67	33	64	36	65	35	69	31
By CSP
<50	93	7	80	20	100	0	100	0
<65	75	25	73	27	80	20	78	22
<85	53	47	53	47	45	55	39	61
>85	61	39	43	57	30	70	25	75

Note. All numbers are percentages. CSP = corporate social performance.

Independent variables

Three sets of predictor variables are considered in the analyses: business characteristics, institutional variables, and social orientation variables. Company size and profit are the business characteristics. SAM Group classifies companies by three dummy categories of company size, which is based on market capitalization (company size). This market capitalization represents the company’s value on the stock market and is compiled from the number of outstanding shares multiplied by the share price. SAM Group distinguishes between three categories: (a) Large-Cap companies have market values of greater than US$8 billion, (b) Mid-Cap companies have market values in the US$1 billion to US$8 billion range, and (c) companies with a market value below US$1 billion are considered Small Cap. Profit is measured using data on EBIT (profit). In the study of McGuire et al. (1988), the results showed that accounting-based measures of financial performance proved to be a better predictor of CSR than the market-based measures. The EBIT data are compiled from the CompuStat financial database.

The institutional variable industry uses the SAM Group classifications, which distinguishes between 10 dummy categories (industry): (a) Oil and gas, (b) Technology, (c) Financials, (d) Basic materials, (e) Utilities, (f) Consumer services, (g) Consumer goods, (h) Telecommunications, (i) Health care, and (j) Industrials. The same holds for the institutional variable region, where the locations of the companies’ headquarters are divided over six regions for which dummy variables are created (region): (a) North America, (b) Europe, (c) Pacific Rim (Australia and New Zealand), (d) Asia, (e) Latin America, and (f) Japan.

Social Orientation is measured with two variables. The first is the philanthropic expenditures of the companies, which is based on categories defined by SAM Group in the DJSI, where relative philanthropic expenditures are measured as a percentage of EBIT (philanthropic expenditures). The second social orientation variable is CSP, which is measured by the total score on the DJSI questionnaire as calculated by the SAM Group. This score ranges from 0 to 100 for each specific year (CSP).

SAM Group enquires into the CSP of companies on the basis of three dimensions: economic, environmental, and social. The economic dimension consists of the criteria corporate governance, risk and crisis management, codes of conduct/compliance/corruption/bribery, and a set of industry-specific criteria such as brand management and gas portfolio. The environment dimension includes the criteria environmental reporting and a number of industry-specific criteria such as eco-efficiency and product stewardship. Human capital development, talent attraction and retention, labor practice indicators, corporate citizenship and philanthropy, social reporting, and industry-specific criteria such as bioethics and healthy living make up the social dimension. As described before, the SAM Group is responsible for compiling the DJSI questionnaire and uses the required company documentation to check the self-assessed questionnaires and contacts companies when needed for clarification of the answers (DJSI Index Guide Book, version 11.5, January 2011).

Although corporate philanthropy counts for less than 5% of the overall CSP score on the DJSI questionnaire, to control for endogeneity the total score used to determine a company’s CSP has been corrected for the points it had earned for philanthropic expenditures and impact measurement, which, respectively, function as an independent and dependent variable in this study. As mentioned before, it is therefore important to ensure that the variables are not measuring the same underlying construct, as this condition would result in false conclusions being drawn on the basis of the findings. Although all the three variables—CSP, philanthropic expenditures, and strategic philanthropy—are actions that better society, the lack of correlations between them shows that they are not different measures of the same construct (see Table 1).

It has been argued that DJSI data are not suited to reflect a company’s CSP as it puts too much emphasis on financial measures and relies too heavily on companies’ self-reporting (Crane & Matten, 2007; Fowler & Hope, 2007). Cho, Guidry, Hageman, and Patten (2012) concluded that the relationship between the corporate social reporting of environmental companies and the subsequent listing of companies in these rankings are actually negatively related to CSP. They argued, “companies use voluntary environmental disclosure to offset the potential reputational effects of poor environmental performance” (Cho et al., 2012, p. 15). It is important to recognize the limitations and context-specificity in generalizing the findings of this study to use DJSI data as a measure of CSP. However, this study includes a sample of companies from a wide range of the industries and countries listed in the DJSI. Second, although it is important to recognize the possible risk of companies only performing in the areas of CSP that relate to the questions on the DJSI—implying that DJSI rankings might stimulate a “checklist” approach to CSP and thereby potentially decreasing incentives to go beyond the required aspects of CSP—this possibility does not decry the value of DJSI data as a measure of CSP. Although the authors recognize that the DJSI data might not be a perfect representation of CSP, in light of the study, the present authors believe that the DJSI data can meaningfully be used as a measure of CSP.

Statistical Procedures

Table 1 shows that there is a very low and negative correlation between the independent variables philanthropic expenditures and CSP, which indicates that companies with a higher percentage of philanthropic expenditures on average score relatively lower on their overall CSP. Where the correlations between the independent variable philanthropic expenditures and the dependent variable strategic philanthropy are very low (around .1), the correlations between CSP and strategic philanthropy are a bit higher (around .3). However, one must also be aware that the low correlation between the independent variable CSP and dependent variable strategic philanthropy causes slight multicollinearity in the analyses, causing wide confidence intervals and thereby reducing the power of the test coefficients (Baron & Kenny, 1986).

Due to the dichotomous nature of the dependent variable, probit analyses are used to test the hypotheses. Probit analysis is a type of regression used to analyze binomial response variables and provides estimate coefficients corresponding to each category of the independent variables. The coefficients have to be interpreted relative to the reference categories, which are the categories that most frequently occur in the sample. The reference categories for the categorical variables of company size, industry, and region are, respectively, Large Cap, Industrials, and Europe. The joint significance of the categories of all variables is investigated by means of a likelihood ratio test. If the resulting p value is large (p > .05), it can be assumed that this specific variable has no significant influence.

To prevent falsely concluding that the hypothesized independent variables have a direct positive relation to strategic philanthropy, the possibility of CSP functioning as a mediator in these relationships is tested. The procedures for mediator testing as outlined by Baron and Kenny (1986) are followed in this article; (a) there must be a relationship between the independent variable and the mediator (CSP), (b) the mediator (CSP) must relate to the dependent variable (strategic philanthropy), (c) when controlling for the mediator variable (CSP), the previous existent relationship between independent and dependent variables should significantly reduce (see Figure 1).

Figure 1.

Mediator effect.

To be able to conclude that there is a complete mediating effect, which would imply that the proposed mediator is the sole mechanism through which the relationship between the independent and the dependent variable exists, the previously existent relationship (Model 1) should reduce to zero when including the mediator variable in the model (Model 2). The results show that the power of Model 2 increases compared with Model 1—pseudo R² from .09 (Model 1) to .22 (Model 2) in 2009—but there might be slight multicollinearity in Model 2. Therefore, not only the significance but also the absolute size of the coefficients should be considered (Baron & Kenny, 1986).

Results

The first condition of the hypothesized mediator effect of CSP depends on a significant relationship between the independent variables and CSP. The results of the first condition are presented in Table 3.

Table 3.

Regression Analyses of the Independent Variables and CSP (N = 262).

	CSP
	2009	2008	2007	2006
	β (SE)	β (SE)	β (SE)	β (SE)
Constant	72.51** (2.55)	74.54** (2.63)	74.45** (2.97)	77.74** (3.04)
Philanthropic expenditure	0.85 (0.77)	−0.63 (0.88)	1.28 (0.93)	−0.208** (0.10)
Profit	0.00 (0.00)	0.00 (0.00)	0.00 (0.00)	0.00* (0.00)
Strategic philanthropy	3.73** (0.56)	3.41** (0.58)	2.18** (0.61)	2.64** (0.65)
Industry (reference category: Industrials)
Oil and gas	2.43 (2.31)	−0.19 (2.42)	1.99 (2.78)	−0.91 (2.92)
Technology	0.48 (1.93)	0.88 (2.04)	−0.02 (2.34)	2.64 (2.51)
Financials	−8.54** (2.01)	−5.86** (2.42)	−3.23 (2.76)	−3.91 (2.90)
Basic materials	−6.04** (1.62)	−6.27** (1.75)	−5.43** (2.05)	−5.97** (2.12)
Utilities	1.15 (1.74)	0.84 (1.81)	1.89 (2.10)	2.16 (2.24)
Consumer services	6.87** (1.64)	4.66** (1.73)	5.12** (1.98)	3.95* (2.07)
Consumer goods	1.60 (1.32)	2.97** (1.40)	1.60 (1.61)	2.27 (1.77)
Telecom	−5.28** (2.29)	−6.24** (2.41)	−6.95** (2.76)	−7.68** (3.01)
Health	5.31** (2.14)	8.35** (2.29)	5.98** (2.62)	7.63** (2.75)
Company size (reference category: Large Cap)
Mid-Cap	−4.69** (1.93)	−4.83** (2.01)	−5.95** (2.37)	−8.94** (2.46)
Small Cap	7.03** (3.45)	9.79** (3.63)	10.31** (4.15)	15.47** (4.34)
Region (reference category: Europe)
Latin America	4.84 (5.42)	7.07 (5.70)	7.49 (6.55)	8.91 (6.83)
Asia	0.05 (3.23)	−1.53 (3.40)	2.76 (3.92)	0.65 (4.07)
Pacific	2.76 (2.54)	1.69 (2.68)	0.71 (3.10)	1.75 (3.22)
North America	−1.30 (1.64)	−0.67 (1.74)	−2.31 (1.98)	−1.50 (2.07)
Japan	−7.28** (1.76)	−6.49** (2.84)	−7.42** (2.10)	−7.02** (2.21)
R ²	.39	.34	.25	.26
Adjusted R²	.34	.29	.19	.20
F value	8.06	6.55	4.13	4.26
df	19	19	19	19

Note. In this table, the beta (β) and standard errors (SE) are reported. CSP = corporate social performance.

p < .1. **p < .05.

Only the significant independent variables could possibly be subject to the mediator effects of CSP. The results from the regression of CSP and strategic philanthropy are presented in Table 4, illustrating that CSP is indeed a significant explanatory factor of strategic philanthropy. Consequently, the presence of a mediator effect on the relationship between the independent variables and strategic philanthropy is dependent on the change in the power of the direct relationship between these variables (Model 1) and their power when including the mediator CSP (Model 2). Probit analyses, corrected for the likelihood that tests whether the relations are significant, are used to analyze whether the independent variables are indeed significantly predictive of the dependent variable. The results of the probit analyses of both Model 1, without mediating effect, and Model 2, with mediating effect, are presented in Table 5.

Table 4.

Regression Analyses of CSP and Strategic Philanthropy.

	Strategic philanthropy
	2009	2008	2007	2006
	β (SE)	β (SE)	β (SE)	β (SE)
Constant	−1.35**	−1.32**	−0.20	−1.08*
Constant	(0.55)	(0.57)	(0.58)	(0.58)
CSP	0.04**	0.04**	0.02**	0.03**
CSP	(0.01)	(0.01)	(0.01)	(0.01)
R ²	.25	.25	.19	.24
Adjusted R²	.20	.18	.12	.18
F value	4.37	4.09	2.94	3.83
df	19	19	19	19

Note. In this table, the beta (β) and standard errors (SE) are reported. CSP = corporate social performance.

p < .1. **p < .05.

Table 5.

Probit Analyses of Strategic Philanthropy Based on Conceptual Model 1 With No Mediation Effect, and Conceptual Model 2 With a Hypothesized Mediation Effect of CSP.

	2009		2008		2007		2006
	Model 1	Model 2	Model 1	Model 2	Model 1	Model 2	Model 1	Model 2
	β (SE)	β (SE)	β (SE)	β (SE)	β (SE)	β (SE)	β (SE)	β (SE)
Constant	0.61** (0.03)	−4.12** (0.86)	0.40 (0.33)	−4.36** (0.93)	0.52 (0.33)	−3.28** (0.88)	−2.64** (0.27)	−6.05** (0.89)
Philanthropic expenditure	0.27** (0.13)	0.21 (0.14)	0.32** (0.14)	0.32** (0.15)	0.12 (0.13)	−0.12 (0.15)	0.16 (0.13)	0.12 (0.14)
Profit	0.00 (0.00)	0.00 (0.00)	0.00 (0.00)	0.00 (0.00)	0.00 (0.00)	0.00 (0.00)	0.00 (0.00)	0.00 (0.00)
Corporate social performance		0.07** (0.01)		0.07** (0.01)		0.06** (0.01)		0.05** (0.01)
Industry (reference category: Industrials)
Oil and gas	−0.42 (0.35)	−0.16 (0.40)	0.00 (0.34)	0.08 (0.39)	0.01 (0.34	−0.12 (0.38)	0.04 (0.36)	−0.31 (0.42)
Technology	0.16 (0.29)	0.25 (0.29)	−0.05 (0.28)	0.23 (0.29)	−0.50* (0.30)	−0.41 (0.31)	−0.02 (0.30)	−0.11 (0.31)
Financials	−0.65** (0.32)	−0.44 (0.33)	−0.40 (0.35)	−0.37 (0.36)	−0.12 (0.34)	−0.10 (0.35)	−0.74* (0.38)	−0.60 (0.40)
Basic materials	−0.04 (0.24)	−0.09 (0.26)	−0.07 (0.24)	0.08 (0.27)	0.09* (0.25)	0.43 (0.27)	0.21 (0.25)	0.37 (0.28)
Utilities	0.63** (0.28	1.16** (0.33)	0.75** (0.28)	1.13** (0.31)	0.86** (0.27)	0.95** (0.29)	0.93** (0.27)	1.05** (0.28)
Consumer services	−0.24 (0.25)	−0.71** (0.28)	0.02 (0.24)	−0.40 (0.28)	0.01 (0.24)	−0.40 (0.28)	−0.19 (0.25)	−0.62** (0.30)
Consumer goods	0.09 (0.20)	−0.07 (0.21)	−0.02 (0.20)	−0.10 (0.21)	−0.11 (0.20	−0.22 (0.21)	0.10 (0.21)	0.22 (0.22)
Telecom	−0.23 (0.35)	−0.11 (0.39)	−0.28 (0.34)	−0.33 (0.39)	0.14 (0.34)	0.31 (0.37)	0.15 (0.35)	0.47 (0.38)
Health	0.69* (0.39)	0.33 (0.40)	−0.15 (0.33)	−0.28 (0.39)	−0.41 (0.34)	−0.27 (0.38)	−0.31 (0.37)	−0.27 (0.37)
Company size (reference category: Large Cap)
Mid-Cap	0.01 (0.29)	−0.12 (0.30)	−0.07 (0.29)	−0.33 (0.29)	−0.10 (0.29)	−0.24 (0.30)	−2.64** (0.27)	1.67** (0.16)
Small Cap	−0.37 (0.52)	−0.06 (0.52)	−0.30 (0.52)	0.06 (0.50)	−0.16 (0.51)	−0.06 (0.51)	−3.93 (0.50)	−4.01 (0.51)
Region (reference category: Europe)
Latin America	5.36 (0.00)	7.07 (5.70)	7.49 (6.55)	8.91 (6.83)	5.32 (0.00)	5.42 (0.00)	0.28 (0.89)	0.49 (0.90)
Asia	−1.25** (0.43)	−1.53 (3.40)	2.76 (3.92)	0.65 (4.07)	−1.33** (0.44)	−1.71** (0.55)	0.29 (0.47)	−0.54 (0.59)
Pacific	−0.80** (0.33)	1.69 (2.68)	0.71 (3.10)	1.75 (3.22)	−0.92** (0.34)	−0.87** (0.37)	−0.61 (0.44)	−0.49 (0.48)
North America	−1.11** (0.21)	−0.67 (1.74)	−2.31 (1.98)	−1.50 (2.07)	−0.93** (0.20)	−0.88** (0.23)	−0.10 (0.26)	0.20 (0.28)
Japan	−1.44** (0.20)	−6.49** (2.84)	−7.42** (2.10)	−7.02** (2.21)	−1.23** (0.21)	−1.06** (0.24)	−0.14 (0.28)	0.02 (0.31)
χ²	31.87**	80.38**	24.45	75.47**	23.92	62.21**	36.45**	63.42**
2 log likelihood	−160.67	−140.12	−167.37	−141.46	−167.49	−143.40	152.93	−130.27
Pseudo R² (Nagelkerke)	.09	.22	.07	.21	.07	.18	.11	.20

Note. Model 1 does not include CSP, Model 2 does include CSP. In this table, the beta (β) and standard errors (SE) are reported. CSP = corporate social performance.

p < .1. **p < .05.

Business Characteristics

The results do not support Hypothesis 1, which predicts larger companies to engage in strategic philanthropy more frequently. For Model 1, in which the direct effects of the business characteristics on strategic philanthropy were tested, only in 2006 Mid-Cap companies engage less frequently in strategic philanthropy relative to Large-Cap companies. Contrary to the expectations of the present authors, the business characteristic profit also has no effect on whether companies engage in strategic philanthropy (Model 1; Table 5). As profit does not significantly relate to CSP, there was no mediator effect. As a result, Hypothesis 2, which expected companies with higher profits to more frequently engage in strategic philanthropy, is not supported.

Institutional Factors

Hypothesis 3—which expected differences to exist between industries in the extent to which strategic philanthropy is practiced—could be said to hold on the basis of the findings, while in half of the instances it is mediated by CSP and is thus not a direct effect of the industry in which a company operates. Companies in the industry classification Industries are significantly more likely than those in the Technologies (2007) and Financials (2006 and 2009) industries, but significantly less likely than the Health (2009), and the Utilities (all years) industries, to engage in strategic philanthropy (Model 1; Table 5). In 2009, both the Financials and the Health industries significantly predict higher levels of strategic philanthropy (Table 3) and are partially mediated by CSP as they lose significance but do not reduce to zero when CSP is included in the model (Model 2; Table 5).

Hypothesis 4 is supported by the results as the regions in which companies are headquartered indeed influence the extent to which they engage in strategic philanthropy. This effect, however, is mediated by CSP in the case of Japanese companies relative to European companies.

Social Orientation

Hypothesis 5 is partially supported for the years 2008 and 2009. In 2008 and 2009, companies with higher philanthropic expenditures were more likely to engage in strategic philanthropy (Model 1; Table 5). This effect cannot be mediated by CSP, as philanthropic expenditures do not significantly relate to CSP (Table 3). CSP is the most important predictor of companies practicing strategic philanthropy as it is highly significant in all years (Model 2; Table 5), thus strongly supporting Hypothesis 6. Overall, the social orientation measures are the most important indicators of whether a company engages in strategic philanthropy. This finding implies that strategic philanthropy is most likely to be practiced when a company’s overall social orientation is better.

Overall, Hypothesis 7, which expected the effects of the independent variables on the dependent variable to be mediated by CSP, is accepted only for the institutional factors. The independent variable industries is partly mediated by CSP in 2009 for both the Financials and the Health industries (they lose significance but do not reduce to zero when CSP is included in the model). Region is also mediated by CSP in the case of Japanese companies relative to European companies.

Discussion and Conclusion

CSP is frequently conceptualized as a replacement of corporate philanthropy (Bowen, 1953). In contrast, this article finds that a company’s social orientation, and especially its level of CSP, is the most important driver of its engagement in strategic philanthropy. Correlations show that this effect of CSP on strategic philanthropy is not due to an interrelation of these concepts. Therefore, the results indicate that active management of social performance by firms has positive spillover effects on their philanthropic practices, in that it makes firms more likely to manage their philanthropic activities strategically.

Maas and Liket (2011), focusing on companies who measured either the business or social effects of their philanthropy, found in their study that mostly firms in the financials industry were likely to measure impact. Moreover, not only European but also North American companies were found to be more likely to measure impact, just as larger firms and firms with relatively higher philanthropic expenditures were found to be more likely to measure impact. This study defines strategic philanthropy as indicated empirically by a company’s systematic measurement of both business and social impacts and finds that companies engaging in such strategic philanthropy are empirically distinct from companies that practice corporate philanthropy but measure neither business impact nor social impact, or one of these but not both. A comparison of the study by Maas and Liket and this study indicates that explanations of companies’ engagement in impact measurement, as a product of professionalization of corporate responsible behavior and regional differences in accounting practices, are not sufficient to explain the practice of simultaneous measurement of business and social impacts.

These results seem to indicate that stimulating companies to engage in strategic philanthropy is probably not a product of enhancing the accounting and measurement practices of the philanthropic activities of companies, or a general enhancement of professionalization of its social activities. Rather, if engagement in strategic philanthropy is indeed stimulated by the overall social performance of companies as the results imply, focus on the enhancement of companies’ CSP seems to be more effective.

Other factors that are found to influence whether firms practice strategic philanthropy are institutional environments and the region in which the headquarters are located. In contrast to the authors’ expectations, the performance of businesses does not influence their engagement in strategic philanthropy.

The relative higher likelihood to engage in strategic philanthropy for companies that are in the industries Utilities and the Industries, especially as compared with the Technologies and Financial industries, could be due to a general perception that these companies operate in “dirty” industries, which increases the need for them to employ legitimacy strategies. This finding lends support to the findings by Chen, Patten, and Roberts (2007) that engagement in strategic philanthropy is often a legitimization strategy. The strong regional effect shows that European companies engage more frequently in strategic philanthropy (except in 2006). This regional effect is in line with the findings from Aguilera and Cuervo-Cazurra (2004), who found that European institutional investors and companies pay greater attention to long-term environmental and social risks.

Contrary to the authors’ expectations, the evidence does not support a positive relationship between the business characteristics company size and profit, and engagement in strategic philanthropy. However, this lack of support could be due to the categories the SAM Group, which collects the data, has used to classify companies. Although slack resource theory is often used to explain the height of philanthropic expenditures, the lack of an effect of profit on engagement in strategic philanthropy implies that in this instance slack resource theory is not an appropriate theory to explain whether companies are strategic in the management of philanthropy.

This study suffers from several limitations. First, the results have to be interpreted with appropriate reservations as the analyses have been performed with secondary data from the SAM Group, which compiles the yearly DJSI from which this sample is drawn. Although the SAM Group makes extensive efforts to check the accuracy of the answers provided, their list is subject to verifiability and reporting-related issues that might not accurately represent the overall entrenchment of CSP in the organization.

Second, one could raise criticism about the variables used to measure both strategic philanthropy and CSP in this study. Therefore, the effect of the measurement validity of the variables on the interpretation of the results needs to carefully be considered. It should be kept in mind that it is not known whether the 60% of the companies in 2009 that do measure the business and social impacts of their philanthropic activities actually use these measurement results to inform strategic decision making and improve performance. The authors’ proxy for strategic philanthropy is evidence of the simultaneous measurement of both social and business impacts by a firm. If this proxy is unable to capture the presence of strategic philanthropy in the companies in the sample, the interpretation of the results should be limited to the simultaneous measurement of business and social impacts itself, which is an advance in information. The authors are unable to demonstrate directly that the proxy is able to capture the presence of strategy philanthropy but argue the theoretical merits of such an interpretation. The reader should judge whether the authors’ argument seems reasonable in the present state of empirical knowledge concerning the practice of strategic philanthropy.

Third, given Cho et al.’s (2012) finding that worse performers on CSP disclose more extensively and that it is this disclosure that drives DJSI listing and scores, an alternative explanation for our findings is that companies with worse CSP may be using strategic philanthropy more as a strategic tool for offsetting negative images from their poorer CSP performance (see, for instance, Chen et al., 2007). Future research will have to confirm whether this possibility is indeed the case, replicating the study with different data to measure both CSP and strategic philanthropy.

Moreover, future research could also attempt to create a larger cross-national sample of companies to increase the external validity of the findings. Wood (2010) pleaded for a reinvigoration of the CSP concept by focusing on the principles, processes, and outcomes of business behavior that are particularly relevant for stakeholders and society. Future research could focus on decision-making processes in the measurement of impact and strategic management of philanthropic activities. Rigorous qualitative analyses, for example, through multiple case studies, could offer more insight into these processes and motivations.

It would also be interesting to analyze the differences between companies focusing on business impact, social impact, or on both impact types. Next to a focus on who measures what, more efforts are needed to reveal the methods and indicators used by companies in measuring this impact. In the end, measurement is only useful if the indicators that are measured help managers to optimize their activities and are useful in strengthening their effectiveness.

Footnotes

The article was accepted during the editorship of Duane Windsor.

Declaration of Conflicting Interests

The authors declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Funding

The authors received no financial support for the research, authorship, and/or publication of this article.

Notes

Author Biographies

Kellie Liket (PhD, Erasmus University Rotterdam) is a researcher at the Erasmus School of Accounting & Assurance. Her research interests are impact measurement, nonprofit organizations, and corporate social responsibility. Her work has appeared in journals such as the American Journal of Evaluation, Journal of Business Ethics, and Nonprofit and Voluntary Sector Quarterly.

Karen Maas (PhD, Erasmus University Rotterdam) is an assistant professor at the Erasmus School of Economics. Her research focuses on corporate social responsibility, performance, and impact measurement. Her work has appeared in journals such as American Journal of Evaluation, Journal of Business Ethics, Business Strategy and the Environment, and Nonprofit and Voluntary Sector Quarterly.

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