The Impact of Cause Portfolio Focus and Contribution Amount on Stakeholder Evaluations

Abstract

When companies engage in corporate philanthropy, they can donate to a number of causes supporting a variety of issues, thus establishing cause portfolios. This research examines how the focus of a cause portfolio affects company evaluations. Results from an experiment show that when a company donates a small amount of money, consumers have lower evaluations of a company when the cause portfolio is focused (i.e., supports one issue) versus diverse (i.e., supports many issues). This is because the focused (vs. diverse) portfolio is perceived to have a weaker impact to society. We provide additional evidence of this effect using a data set of Fortune 500 companies’ foundations, showing that cause portfolios are more likely to result in lower stakeholder evaluations when focused (vs. diverse). Again, we find that donation amount alleviates the difference between focused and diverse portfolios. The findings hold important implications for the company’s management of cause portfolios.

Keywords

cause portfolios charitable giving corporate philanthropy social responsibility stakeholder evaluations

Every year, companies donate money and other resources as a means of corporate philanthropy. A study of 272 U.S. companies in 2016 reveals that these companies—who represent 17.3 million employees and US$7.5 trillion in revenue—gave a combined amount of US$24.5 billion to a variety of causes on a global level (CECP, 2016). There are many benefits for the company to engage in corporate philanthropy, such as establishing legitimacy or competitiveness (Bansal & Roth, 2000), generating goodwill and building moral capital (Godfrey, Merrill, & Hansen, 2009; Klein & Dawar, 2004; Vanhamme & Grobben, 2009), and forging stronger company–stakeholder relationships, which ultimately benefit the company’s bottom line (Luo & Bhattacharya, 2006; Sen, Bhattacharya, & Korschun, 2006; Turban & Greening, 1997).

For these benefits to emerge, however, stakeholders must hold a favorable view of the company’s activities (Bhattacharya, Korschun, & Sen, 2009; Ellen, Webb, & Mohr, 2006). One reason stakeholders tend to hold a more favorable view is when they perceive the company is making a real beneficial impact to society (Alhouti, Johnson, & Holloway, 2016; Brammer & Millington, 2005; Smith, 2003; Waddock, Bodwell, & Graves, 2002). And, with many companies measuring the impact of their philanthropic activities (e.g., 62% of companies listed in the Dow Jones Sustainability Index in 2007; Maas & Liket, 2011), companies are aware that they need to make a positive difference.

To make a difference, companies can engage in many activities that result in various donation amounts to often different issues. We refer to the number of different issues, or diversity of issues, that a company supports as cause portfolio focus. For example, a company supporting causes targeting the issues of health, education, and the environment will have a more diverse portfolio than a company supporting the same number of causes but targeting only health as an issue. This type of portfolio is more focused. For example, Lowe’s would be considered as having a more focused portfolio by supporting issues in two areas: education and community improvement; whereas Macy’s would be considered as having a more diverse portfolio, supporting a total of five issues: arts and culture, HIV/AIDS, education, environment, and women’s issues. Here, we examine whether the structure of the portfolio, being focused or diverse (Morgan & Rego, 2009), has a positive or negative influence on stakeholders. Second, we examine the amount of charitable donations and the interplay with cause portfolio focus. Therefore, we focus on two key strategies of corporate philanthropy: the focus of the cause portfolio and the contribution amount, and their influence on stakeholder evaluations.

As a preview, we find across three studies that companies differ in how well they meet expectations based on their cause portfolios, that is, how favorably their activities are evaluated by their stakeholders. Specifically, the results show that companies with focused cause portfolios have lower evaluations than companies with diverse cause portfolios. However, large charitable contributions serve as a boundary condition to this effect, such that focused cause portfolios perform as well as diverse cause portfolios. In two experimental studies, we find that perceptions of impact on society are a possible explanation for this effect.¹ We examine our effect on stakeholder evaluations with consumer perceptions of the company in a pilot and an experimental study and third-party perceptions of the company’s corporate social performance (CSP) in a second study. Both measures reflect, at different levels of analysis, whether the company does well in meeting the expectations of the stakeholders.

Understanding the impact of cause portfolio focus is important for several reasons. To date, research has largely focused on the link between the amount of charitable contributions and stakeholder evaluations (Lev, Petrovits, & Radhakrishnan, 2010; Wang, Choi, & Li, 2008) but not the link between the overall type (diverse or focused) of the cause portfolio and stakeholder evaluations. Yet, companies donate to many different organizations, and prior studies in the branding area have shown that diversity of the portfolio can influence stakeholder perceptions (Dacin & Smith, 1994). Studies that examine stakeholder responses to partnerships with different causes often include only a single or a few causes in their scenarios (Folse, Niedrich, & Grau, 2010; Koschate-Fischer, Huber, & Hoyer, 2015; Pracejus & Olsen, 2004). However, these studies fail to take into consideration that companies engage in activities that result in donations to multiple causes that are focusing on different issues. For example, the Wal-Mart Foundation donated US$1.5 million to 145 different causes over the course of its “12 Days of Giving” campaign. While donating to many causes and multiple issues is common practice, until now research has largely been silent on how this practice influences stakeholder perceptions of the company.

Increasing knowledge of the outcomes of socially responsible practices can provide guidance in designing and managing effective philanthropic activities (Crittenden, Crittenden, Ferrell, Ferrell, & Pinney, 2011; Flannery & May, 2000). It helps pinpoint advantages and potential limitations of different strategies managers can leverage or mitigate when designing or communicating their activities. Moreover, taking the perspective of the composition of the cause portfolio and contribution amount together allows for more fine-grained insights into charitable activities.

The article is structured as follows. First, hypotheses on (1) the relationship between cause portfolio focus and stakeholder evaluations, (2) underlying process of perceived impact to society, and (3) the moderating role of charitable contributions are advanced (see Figure 1). This present research uses a multimethod approach. We first test our hypotheses using two experiments where we focus on consumer evaluations of the cause portfolio. Next, we utilize secondary data comprised of a panel of Fortune 500 companies with foundations from 2003 to 2013. This study extends our finding to evaluations of external, secondary stakeholders, rating a company’s CSP. Finally, the results and theoretical and practical implications based on the findings are discussed.

Figure 1.

Conceptual framework.

Theoretical Background

Extensive research shows that corporate philanthropy provides benefits to both companies and the supported causes (Fry, Keim, & Meiners, 1982; Seifert, Morris, & Bartkus, 2004). While corporate philanthropy is often used synonymously with the contribution amount, it also reflects where the company donates to, not just how much. Therefore, as described earlier, corporate philanthropy is characterized by both cause portfolio focus and the contribution amount. While philanthropy can target specific stakeholder groups, such as employees or consumers, it often focuses on the broader community level (Berman, Wicks, Kotha, & Jones, 1999; Brammer & Millington, 2005; Wood & Jones, 1995), which incorporates stakeholders with a diverse set of backgrounds. In general, but particularly at the community level, expectations about corporate philanthropy as part of corporate citizenship behavior vary greatly (Gardberg & Fombrun, 2006). Therefore, corporate philanthropy is generally more conducive to what Godfrey (2005) refers to as general moral capital, which “arises from philanthropic activities that rest on moral values generally accepted and widely held by multiple communities with different value systems” (p. 793).

Companies can implement corporate philanthropy for reasons of legitimacy (Bansal & Roth, 2000; Wang & Qian, 2011), but it is also used to build relationships with key company stakeholders (Aguilera, Rupp, Williams, & Ganapathi, 2007), including both primary and secondary stakeholders (Clarkson, 1995). Prior research shows that socially responsible behavior, in general, can improve relationships (including trust and stakeholder–company identification) for both business-to-consumer (B2C) and business-to-business (B2B) customers (Homburg, Stierl, & Bornemann, 2013; Lichtenstein, Drumwright, & Braig, 2004; Sen et al., 2006), employees (De Roeck & Delobbe, 2012; Turban & Greening, 1997), and financial institutions (El Ghoul, Guedhami, Kwok, & Mishra, 2011). Moreover, companies can use philanthropy to engage with the community to “work collaboratively with and through groups of people to address issues affecting the social well-being of those people” (Bowen, Newenham-Kahindi, & Herremans, 2010, p. 297). In addition, corporate philanthropy creates moral capital that can insulate the company during crises (Godfrey, 2005; Godfrey et al., 2009). In this study, we focus on two cause portfolio strategies that are germane to managing philanthropic activities—the focus/diversity of the issues supported and the overall donation amount (Gardberg, Zyglisopoulos, & Symeo, 2017; Kabongo, Chang, & Li, 2013; Kang, 2013).

Cause Portfolio Focus

Portfolios are composed of the causes to which the company donates as part of their short- and long-term philanthropic initiatives (Kotler & Lee, 2008). These causes are linked to the company through the transfer of resources (money, time, etc.). Each cause in the cause portfolio has a specific issue with which it is associated. For example, Habitat for Humanity is associated with the issue of “Housing,” whereas the American Cancer Society is associated with “Health.” The World Wildlife Fund is associated with “Environment.” By including a particular cause in the cause portfolio, companies become inherently linked to the issues that those causes support.

A diverse cause portfolio is the consequence of companies donating to multiple issues, whereas a focused cause portfolio is the result of supporting causes targeting a single issue. The Wal-Mart Foundation, for example, donates to disaster relief efforts, education programs, immigration integration programs, and children’s hospitals, among others (http://foundation.walmart.com). Therefore, this cause portfolio is relatively diverse. As previously discussed, corporate philanthropy often targets a broad, diverse community rather than individual stakeholders. These stakeholders have different backgrounds and values, and the company may have to support multiple issues to respond to this variation. Prior research shows that diversity within the organization is also reflected in the diversity of socially responsible activities in which the company engages. Kang (2013) finds that diversified organizations demonstrate a broader range of social responsibility activities than do others. Kabongo and colleagues (2013) investigate the influence of board and operational diversity in an organization and find that operational diversity, in addition to board diversity, explain not only the extent but also the diversity of corporate philanthropy.

A more diverse cause portfolio can ultimately satisfy more stakeholders and ensure that meaningful issues are targeted. Consider, for instance, a company that engages in cause-related marketing. The causes that receive donations through this activity are often relevant to the consumer but not the employees, shareholders, or even the community (Grau & Folse, 2007; Hoeffler & Keller, 2002). Thus, companies can use different causes to meet different stakeholders’ needs and expectations (Drumwright, 1996; Varadarajan & Menon, 1988). Likewise, as many consumers are unaware of a company’s corporate philanthropic activities (Bhattacharya & Sen, 2004; Pomering & Dolnicar, 2009), donating to more causes will increase the chances that the community involvement is noticed by stakeholders (Gardberg et al., 2017). In short, more diversification allows the company to meet multiple expectations that stakeholders have with regard to its social engagement, and create impact through targeting causes that are meaningful to these groups.

Hypothesis 1 (H1): Stakeholders will have less positive evaluations of companies with focused (vs. diverse) cause portfolios.

To reap the benefits of corporate philanthropy, it is important that stakeholders perceive the company to have an impact in society, meaning that philanthropy is “seen by stakeholders as making a real and meaningful difference” (Alhouti et al., 2016, p. 1243). Indeed, stakeholders are often skeptical of socially responsible activities (Leonidou & Skarmeas, 2017; Vanhamme & Grobben, 2009) given that companies can engage in these activities for a variety of reasons and one cannot always differentiate between genuine concern and impression management just by looking at the activity (Bolino, 1999). Ultimately, whether the philanthropic activities are deemed as “good” is at the core of corporate philanthropy (Godfrey, 2005).

Cause portfolio diversification can help draw attention to the charitable engagement of the company, making impact more visible. It is the positive perception of impact to society that influences their evaluations of the cause portfolio. On the flip side, companies who have focused cause portfolios are more likely to signal that the company is not responsive to issues that are pressing to them, and hence not as impactful.

Hypothesis 2a (H2a): Companies with focused cause portfolios are perceived as providing lower impact to society than companies with diverse cause portfolios.

Hypothesis 2b (H2b): The negative effect of a focused cause portfolio on stakeholder evaluations will be mediated by perceived impact to society.

Boundary Condition: Contribution Amount

Another strategy that is likely to create impact is the contribution amount (Alhouti et al., 2016). While there are contingencies in this relationship, prior research shows that there is a positive relationship between charitable giving and positive outcomes for the company (Brammer & Millington, 2005; Fombrun & Shanley, 1990; Lev et al., 2010; Patten, 2008; Su & Sauerwald, 2015; Wang et al., 2008).

While most of the studies in the management literature examine specifically the corporate philanthropy and financial performance link, some studies, particularly in marketing, have also examined how charitable giving influences intermediate outcomes, such as stakeholder evaluations of the company. These studies focus on the absolute amount of giving of the company to a cause and find that charitable giving has a positive impact on perceptions, such that the company is perceived to be socially responsible (Folse et al., 2010; Peloza & Shang, 2011).

Companies who give more money are more likely to receive greater positive attention, and stakeholders are more likely to evaluate companies positively (Gardberg et al., 2017; Lev et al., 2010; Wang et al., 2008). Therefore, a portfolio that is large in terms of contribution amount can also improve perceptions of impact and subsequently stakeholder evaluations. Given that stakeholders should be favorably disposed to either a cause portfolio strategy that is diverse or substantial in the amount of contributions, we also posit that there is an interaction between those two. Specifically, we earlier posited that stakeholders respond less favorably to a focused versus diverse portfolio because of differential perceptions of impact. However, as the amount of contributions increases, stakeholders will substitute this information to make inferences about impact. That is, the amount of donations will reduce the differences between diverse and focused portfolios.

Hypothesis 3 (H3): The negative effect of a focused (vs. diverse) cause portfolio on evaluations will be greater for small versus large charitable contributions.

Hypothesis 4 (H4): The moderating effect of charitable contributions predicted in H3 will be mediated by enhanced perceptions of impact to society.

Outline of Studies

Generally, stakeholders should reward companies that are trying to make an impact in the community and society similarly. We posit earlier that the different cause portfolio strategies—focus and monetary contributions—signal societal impact to stakeholders (Alhouti et al., 2016).

First, utilizing open-ended data, we conduct a study to determine whether perceived impact differs between a focused versus diverse cause portfolio (Pilot Study). Second, we conduct a study to test all our hypotheses and demonstrate that a focused portfolio is evaluated less favorably than a diverse portfolio, the contribution amount moderates this effect, and the perceived impact to society mediates the effect (Study 1). Finally, we utilize a data set of Fortune 500 companies from 2003 to 2013 to test H1 and H3 and demonstrate with secondary data that a focused portfolio results in lower stakeholder evaluations than a diverse portfolio with a small (vs. large) contribution amount (Study 2).

Pilot Study

To investigate the validity of our reasoning behind our hypotheses, we conducted a thought-listing study in which we randomly assign respondents to a focused or diverse cause portfolio condition. Forty-nine adults (M age=37; 61% female) were compensated US$1.00 to participate in an online study via Mechanical Turk.

Participants were told to imagine they went to website to buy some personal care items, including shampoo. They were then told that this company was doing its part to help the community. The participants in the focused condition were told that “5% of the sales from the shampoo will be donated to the following related charities: American Lung Association, American Heart Association, Foundation for AIDS Research, Kidney Foundation, and Multiple Sclerosis Society.” In the diverse condition, participants were told that “5% of the sales from the shampoo will be donated to the following variety of charities: Sierra Club Foundation, American Heart Association, Child Help, American Red Cross, and Habitat for Humanity.” We held the amount of contributions constant in this study to only focus on the differential impact of cause portfolio focus.

To assess perceived impact of the donations, participants were asked, “In the space below, please indicate what impact Company X’s donation will have on the charities?” Two judges, blind to the purpose of the study, categorized statements for impact to the charities with either not impactful, impactful, or no mention of impact to charities (some examples of open-ended responses included “Some impact, not great”; “Small impact”; “Positive impact”; and “Beneficial to charities”). Interrater agreement was 84%. To resolve discrepancies, we had a third judge, blind to the purpose of the study, to categorize statements.

Pretest

We conducted a pretest to ensure that the focused condition was perceived as more focused than the diverse condition. Sixty-two participants recruited via Amazon’s Mechanical Turk were compensated and asked to read one of the two conditions stated above. They were asked the following three questions: “How would you describe the portfolio of causes supported by Company X?” (1 = causes were centered around the same issue, 7 = causes were centered around different issues), “How similar do you find the portfolio of causes above?” (1 = causes were all similar to each other, 7 = causes were very different from each other), and “How would you describe the structure of the cause portfolio supported by Company X?” (1 = focused portfolio of causes, 7 = diversified portfolio of causes). The three questions were combined into an overall measure of focus (Cronbach’s α = .91). Results show a significant effect of focus, t(61) = 25.86, p < .01; participants found the focused condition (M = 4.42, SD = 1.47) to be more focused than the diverse condition (M = 5.69, SD = 1.37).

Results

Table 1 shows the results from this study. We conducted a chi-square analysis to see whether there are significant associations between cause portfolio focus and the degree of impact mentioned. We first assessed whether there was a difference between the extent to which respondents talked about impact across the two conditions. There was no difference across conditions about whether respondents thought the donations had an impact or not, χ²(1) = 0.56, p = .46 (Table 1, Panel A).

Table 1.

Pilot Study Results.

Panel A				Panel B
Cause Portfolio Focus	No impact mentioned	Impact mentioned	Total	Cause Portfolio Focus	Small impact mentioned	Large impact mentioned	Total
Diverse	7	17	24	Diverse	3	14	17
Focused	5	20	25	Focused	10	10	20
	12	37			13	24
χ²(1) = 0.56, p > .10				χ²(1) = 4.22, p < .05

However, when we examine in more depth the degree of impact respondents thought the cause portfolio would make, we see a difference between conditions, χ²(1) = 4.22, p < .05 (Table 1, Panel B). First, we see that respondents in the diverse condition are more likely to perceive the impact of the donations to be large (14/17 = 82%) than small (3/17 = 18%, z = −3.77, p < .01). In the focused condition, respondents are equally split between perceiving the impact to be small (10/20 = 50%) and large (10/20 = 50%). Moreover, there is a significant difference between which type of portfolio respondents associated with small and large impact. A focused portfolio is more likely to be thought of as small (10/13 = 77%) than a diverse portfolio (3/13 = 23%, z = −2.75, p < .01). There is no difference of perceptions for large impact; here, cause portfolio focus is perceived to be similar (p_diverse = 14/24 = 58% vs. p_focused = 10/24 = 42%, z = 1.15, p > .10). It is important to note, again, that in this study, we kept the amount of donations constant at 5% of sales.

Discussion

In summary, this study is an initial indicator that consumers do perceive the impact of portfolios differently such that focused portfolios are more likely to evoke thoughts of small impact than diverse portfolios. We conduct a subsequent experiment where we manipulate not only cause portfolio focus but also the amount of contributions to test all hypotheses. We measure consumer evaluations by assessing their overall impression of the company, and we measure perceptions of impact to examine the underlying perceptual process more thoroughly. Moreover, we examine other potential mediating processes, such as commitment (Lichtenstein et al., 2004), motives (Ellen et al., 2006), perceived importance of causes (Sen & Bhattacharya, 2001), identification with the company (Sen & Bhattacharya, 2001), and perceived company–cause fit (Barone, Norman, & Miyazaki, 2007).

Study 1

In total, 163 undergraduate students enrolled in a marketing course at a large university participated in the study. Each participant read about a company that makes shampoos, hand and face soaps, and lotions. The study had a 2 (cause portfolio focus: diverse vs. focused) × 2 (donation size: small vs. large) between-subjects design. Participants were randomly assigned to one of four conditions. In the focused cause portfolio condition, participants were told that the company donated to three causes: Kidney Foundation, American Heart Association, and March of Dimes that are all “Advancing Health in the Community.” In the diverse cause portfolio condition, participants were told that the company donated to three causes: the American Heart Association, which is “Advancing Health in the Community”; the Rainforest Alliance, which is “Protecting the Environment”; and National Education Association, which is “Increasing Literacy.” In the small donation condition, participants were told that Company X donated 1% of profits (US$150,000) in total to the three causes. In the large donation condition, participants were told that Company X donated 10% of profits (US$1.5 million) in total to the three causes.

We operationalize stakeholder evaluations by measuring impression of the company. We measure perceived impact to society with three items (Cronbach’s α = .73), which can be found in Appendix A. Also, to eliminate possible alternative explanations, we measure commitment to the cause, motives of supporting the cause, importance of the causes, identification to the company, and fit between the company and the cause. Appendix A shows all specific measures. Finally, participants also indicated their age, gender, and primary language.

Pretest

We conduct a pretest to ensure that the focused condition was perceived as more focused than the diverse condition, and the small donation size condition was perceived as smaller than the large donation size condition. One hundred twenty-two participants recruited via Amazon’s Mechanical Turk were compensated and asked to read one of the four conditions stated above. They were asked the following three questions: “How would you describe the total amount of money donated by Company X?” (1 = not a lot of money, 7 = a lot of money), “Do you think Company X considered their donation to be” (1 = small amount of money, 7 = a lot of money), and “Do you think the amount of money Company X donated was” (1 = less than other similar companies, 7 = more than other similar companies). The three questions were combined into an overall measure of amount of charitable contributions (Cronbach’s α = .80). As in the above pretest, participants were also asked the same three measures of focus.

First, we conduct an ANOVA with perceived size of the portfolio as the dependent variable, and cause portfolio focus and donation size and their interaction as the independent variables. The results show only a main effect for donation size, F(1, 118) = 33.81, p < .01; M_small = 3.88, SD_small = 1.31; M_big = 5.23, SD_big = 1.22, such that a small donation amount is perceived to be smaller than a large donation amount. All other effects are nonsignificant with both p’s > .40. We then conduct an ANOVA with focus of the portfolio as the dependent variable, and cause portfolio focus and donation size and their interaction as the independent variables. The results show only a main effect for cause portfolio focus, F(1, 118) = 56.15, p < .01; M_diverse = 5.90, SD_diverse = 1.36; M_focused = 3.97, SD_focused = 1.48, such that a focused cause portfolio is perceived to be more focused than a diverse cause portfolio. All other effects are nonsignificant with both p’s > .15.

Results

We conduct an ANOVA with impression of the company as the dependent variable, and cause portfolio focus and donation size and their interaction as the independent variables. The results show a significant interactive effect of portfolio and cause portfolio focus and donation size, F(1, 159) = 4.46, p < .05. Follow-up analyses show that with a small donation condition, consumer impression of the company is lower when the company has a focused versus diverse portfolio (M_{diverse/small} = 5.45, SD_{diverse/small} = 0.90; M_{focused/small} = 5.00, SD_{focused/small} = 1.01; p < .05), whereas in the large donation condition, consumer impression of the company does not differ across conditions (M_{diverse/large} = 5.37, SD_{diverse/large} = 0.86; M_{focused/large} = 5.50, SD_{focused/large} = 0.74; p = .49) (see Figure 2).

Figure 2.

Interactive effect of cause portfolio focus and contribution amount on company evaluations.

We then conduct an ANOVA with perceived impact to society as the dependent variable, and cause portfolio focus and donation size and their interaction as the independent variables. The results show a significant interactive effect of portfolio and cause portfolio focus and donation size, F(1, 159) = 5.84, p < .05. We see the same pattern as with impression of the company. Follow-up analyses show that with a small donation condition, perceived impact to society is lower when the company has a focused versus diverse portfolio (M_{diverse/small} = 4.52, SD_{diverse/small} = 0.77; M_{focused/small} = 4.07, SD_{focused/small} = 1.18; p < .05), whereas in the large donation condition, perceived impact to society does not differ across conditions (M_{diverse/large} = 4.56, SD_{diverse/large} = 0.79; M_{focused/large} = 4.79, SD_{focused/large} = 0.80; p = .24).

Using PROCESS MODEL 8 (Hayes, 2012; Preacher & Hayes 2004), we find that perceived impact to society mediates the effect of cause portfolio focus on impression of the company in the small donation condition but not in the large donation condition. Specifically, the regression model predicting impression of the company using cause portfolio focus, size of donation, their respective interaction, and perceived impact to society as independent variables shows a significant effect of perceived impact to society, (t)158 = 6.01, p < .01, while the interaction is not significant, (t)158 = −1.16, p = .25. The conditional direct effect of cause portfolio focus on impression of the company is not significant in either large or small donation conditions (both ps > .015). However, the conditional indirect effect of cause portfolio focus on impression of the company is mediated by perceived impact to society in the small donation condition (95% confidence interval [CI] = [0.0028, 0.2041]), but not in the large donation condition (95% CI = [–0.1297, 0.0258], bias corrected, based on 5,000 bootstrap samples).

Finally, we ran six separate ANOVAs, each with one alternative explanation (i.e., commitment to the cause, motives of supporting the cause, importance of the causes, self-identification to the company, other identification to the company, and fit between the company and the cause) as the dependent variable, and cause portfolio focus and donation size and their interaction as the independent variables. Results show a nonsignificant interaction for all alternative explanations (all p’s < .40).

Discussion

Overall, we find support for our hypotheses; specifically, we find that consumers have a lower evaluation (i.e., overall lower impression of the company) when the company has a focused versus diverse cause portfolio. However, this effect holds only when the company makes a small (vs. large) monetary donation. Also, we find further evidence to support our pilot study that perceived impact for society matters to consumers. These results suggest that evaluations vary for different types of cause portfolios because stakeholders perceive the impact of a focused portfolio to be less than that of a diverse portfolio.

Here, we focus on consumer evaluations of a company. Using secondary data allows us to increase generalizability to our findings from a primary stakeholder group (consumers) to a secondary stakeholder group (third-party rating agencies). There could be differences between stakeholder groups and their evaluations of corporate philanthropy, and we can test whether and where these differences exist, or whether cause portfolio type and contribution amount affect stakeholder evaluations similarly across different stakeholder types. Therefore, in the next study, we examine third-party evaluations with respect to specifically the company’s social performance.

Study 2

The objective of Study 2 is to test H1 and H3 using a secondary data set consisting of 2013 Fortune 500 companies. We gather information about cause portfolio and company characteristics over an 11-year span from 2003 to 2013. Overall, 5,500 company-years for company characteristics were collected. Because not every company has a corporate foundation during this time period, the sample for the focal analysis of cause portfolio focus and contribution amount contains a total of 2,938 observations from 278 companies for which we observe at least one time period with a foundation.

Variable operationalization

As discussed above, we focus on stakeholder evaluations, specific to the company’s CSP. We use CSP because it reflects stakeholder evaluations of socially responsible activities at the organizational level. Therefore, these measures capture the extent to which the company does well in meeting expectations and whether it is a good corporate citizen in the eye of this particular stakeholder group. Moreover, these measures are able to capture different aspects of the company’s socially responsible activities, such as the quantity (i.e., number of activities, amount of contributions) and the quality (i.e., type of activities). Prior research shows such CSP ratings influence the behaviors of stakeholders toward the company (i.e., purchase and investment decisions), such as shareholders and analysts (Ioannou & Serafeim, 2015; Jayachandran, Kalaignanam, & Eilert, 2013; Luo, Wang, Raithel, & Zheng, 2015; Turban & Greening, 1997; Waddock & Graves, 1997).

In our context, we focused on CSP as evaluated by external third parties that specialize on evaluating company philanthropic efforts. This allowed us to make the assumption that this stakeholder group is aware of the majority of philanthropic efforts and also that this group has expectations of broader citizenship. Therefore, the measures used in this study pertain to general moral capital. Furthermore, the measures used in this research are important to companies as they can be used to externally validate their philanthropic efforts (Parguel, Beniot-Moreau, & Larceneux, 2011).

Specifically, we operationalize CSP using two different metrics. Using multiple metrics allows us to generalize our findings across different operationalizations. The first measure of CSP (CSP1) was operationalized as the company’s inclusion in the Best Corporate Citizen Ranking published yearly by the Corporate Responsibility Magazine (published until 2007 in Business Ethics Magazine). While different operationalizations for CSP exist, the concept requires that it is an external evaluation of the company’s philanthropic activities (Brower & Mahajan, 2013). Prior research examines the inclusion of companies’ rankings or socially responsible indices (e.g., Dow Jones Sustainability Index) as a measure of CSP, as these companies exhibit stronger performance in the area of corporate philanthropy than their peers (Cho, Guidry, Hageman, & Patten, 2012; Verschoor & Murphy, 2002). Ultimately, such information sends positive signals about the company’s CSP to stakeholders; it is thus value-relevant (Brammer, Brooks, & Pavelin, 2009; M. Robinson, Kleffner, & Bertels, 2011).

The second measure of CSP (CSP2) was taken from the Kinder, Lydenberg, and Domini (KLD) Stats database. KLD measures the CSP of organizations on a variety of dimensions, such as the environment, governance, product-related issues, and the community.² Several researchers use this database to measure CSP. The measure itself has been validated (Graves & Waddock, 1994; Hart & Sharfman, 2015; Hillman & Keim, 2001; Short, McKenny, Ketchen, Snow, & Hult, 2016; Waddock & Graves, 1997). The KLD measure has significant practical relevance: Money managers and institutional investors use the information included in this database in their decision-making process (Brower & Mahajan, 2013). An advantage of using KLD to measure CSP is that we can specifically examine how companies are rated on the dimension that should reflect their charitable engagement in the community. This dimension includes information on the company’s efforts in charitable giving, innovative giving, support for different areas, and volunteer programs. Given that corporate philanthropy mainly focuses on the community, this metric is a logical synthesis and evaluation of the company’s cause portfolio effectiveness. While KLD measures both community strengths and weaknesses, we focus on the community strengths measure as our dependent variable, because community strengths and weaknesses reflect distinct behaviors and are likely to differ in their value relevance. We control for community weaknesses by including this information as an independent variable in the model as a robustness check.

The independent variables in this model were operationalized as follows. Information for cause portfolio focus from the Foundation Center was collected.³ The Foundation Center codes grants awarded by nonprofit organizations (i.e., corporate foundations) and assigns them to a particular issue based on grant topic. A list of issues can be found in Appendix B. Examples of such issues are arts, health, education, disaster response, environment, and housing. Information about how much money each corporate foundation awarded in grants to each of these separate issues for each year in the sampling period was retrieved as well. Table 2 provides an example of two companies in the data set with vastly different grant allocation strategies. The first cause portfolio (A) is more focused. The foundation focuses its donations mainly on housing and shelter while donating only relatively small amounts to other issues. The second cause portfolio (B), however, is much more diverse. While there is an emphasis on voluntarism, there are many other issues that are well supported, such as human services, education, and youth development.

Table 2.

Cause Portfolio Examples.

Cause Portfolio A		Cause Portfolio B
Issues	Grant amount	Issues	Grant amount
Housing/shelter	US$10,115,000	Philanthropy/voluntarism	US$9,144,321
Philanthropy/voluntarism	US$1,682,360	Human services	US$5,129,389
Community development	US$1,000,000	Education	US$4,569,032
Education	US$312,752	Youth development	US$3,257,650
Youth development	US$200,000	Environment	US$2,453,710
		International/foreign affairs	US$2,393,500
		Safety/disasters	US$2,364,500
		Civil/human rights	US$1,973,250
		Community development	US$1,959,240
		Arts and culture	US$996,575
		Health organizations	US$912,165
		Recreation	US$776,990
		Health	US$679,815
		Public affairs	US$566,300
		Animals/wildlife	US$402,100
		Housing/shelter	US$351,800
		Agriculture/food	US$333,995
		Crime/law enforcement	US$270,800
		Employment	US$248,400
		Religion	US$204,100
		Medical research	US$177,200
		Mental health/crisis services	US$128,400
		Science	US$115,350
		Social sciences	US$75,000

We used this information about the donations to different issues to calculate cause portfolio focus using the Herfindahl–Hirschman Index, a measure that has been frequently used to calculate company and industry concentration (i.e., focus) or diversification. An advantage of using this index as a measure of diversification/focus over counting the number of issues supported is that it incorporates a weight of issue importance to the company. A company may donate to five different issues but over 90% of their contributions go to only one of these issues. This cause portfolio is still highly focused on that one particular issue, but counting the number of issues supported without using a weight would suggest that this portfolio is much more diverse. Therefore, we get a more accurate description of cause portfolio focus even when the company supports “fringe” issues. This index is calculated as the sum of the squares of cause shares in the company’s cause portfolio (for a full list and operationalization of all variables, please refer to Table 3). A higher value for this index represents a more focused cause portfolio, and a lower value represents a more diverse portfolio.

Table 3.

Variable Descriptions and Operationalizations.

Variable	Operationalization	Data source
CSP1_t	1 = Company was ranked in Best Corporate Citizens ranking in year t	Corporate Responsibility Magazine
CSP2_t	Number of community strengths	KLD
Cause Portfolio Focus_t	Sum of squared contribution shares in year t	Foundation Center
Contributions_t	Amount of contribution expenditures in US$ million in year t	Form 990
Company Size_t	Log of total assets in year t	Compustat
ROA_t	Net income/total assets in year t	Compustat

Note. CSP = corporate social performance; KLD = Kinder, Lydenberg, and Domini; ROA = return on assets.

To measure the contribution amount, the corporate foundations’ Form 990 each year for information about contributions, gifts, and grants paid were manually searched. The variable represents the amount of charitable expenditures in each year in US$ million. We further control for two alternative explanations for a company’s CSP, such as increased visibility of companies based solely on company size, as well as slack resources. We operationalize company size, in line with prior research, as the log of assets (Firth, Fung, & Rui, 2007; Lin, Lee, & Hung, 2006), and slack resources as ROA (return on assets), which is calculated as net income over total assets (Amato & Amato, 2011; Waddock & Graves, 1997).

Model specification

A random-effects panel Probit model to estimate the association between cause portfolio focus and CSP1 was estimated (random-effects panel Poisson for CSP2). In this model, concerns of autocorrelation and simultaneity are addressed. The possibility that CSP is persistent is captured by using the lagged value of the dependent variable as a predictor (Dekimpe & Hanssens, 1999). To reduce concerns of simultaneity, all independent variables were lagged and mean-centered before being entered in the model. Further examination of the model is conducted for potential problems with multicollinearity. An inspection of all variance inflation factors for the key variables in the estimated model shows that they are below commonly used cutoff values (Kennedy, 2003). Hence, it is not expected that any bias in the estimates is due to multicollinearity. The model was estimated using cluster-robust standard errors.

Results

The descriptive statistics and correlation matrix are displayed in Table 4. The results for the CSP1 model can be found in Table 5. It was hypothesized that a focused cause portfolio is associated with lower probability of being included in the Best Corporate Citizen ranking than a diverse portfolio (H1). The results support this relationship. The results show that the conditional main effect of a focused cause portfolio is negative and significant (β = −.840, p < .01). This result suggests that a more focused cause portfolio is associated with a lower probability of being rated as a highly socially responsible company. Further support is found that charitable contributions moderate this relationship. Specifically, the negative association between a focused cause portfolio and CSP1 diminishes as charitable contribution increases (β = .048, p < .05). This finding supports H3. Hence, with greater charitable giving, the difference between a diverse and a focused portfolio goes away, indicating that the contribution amount can compensate for a focused cause portfolio. These findings are replicated for our second CSP measure (CSP2; Table 6). In support of H1, we find that cause portfolio focus is associated with lower community strengths (β = −.488, p < .01), but that this relationship is weaker as the company contributes more financial resources (β = .016, p < .01). Therefore, H3 is also supported.

Table 4.

Descriptive Statistics and Correlation Matrix.

Variable		M	SD	1	2	3	4	5	6
1	CSP1_t	0.20	0.40	1.00
2	CSP2_t	0.71	0.92	.41	1.00
3	Cause Portfolio Focus_t−1	0.30	0.21	−.07	−.16	1.00
4	Contributions_t−1	9.56	19.33	.19	−.39	−.25	1.00
5	Company Size_t−1	9.48	1.46	.23	.44	−.29	.52	1.00
6	ROA_t−1	0.05	0.08	.13	.07	.04	.03	−.11	1.00

Note. All correlations >|.05| are significant at p < .05. CSP = corporate social performance; ROA = return on assets.

Table 5.

Results From Random-Effects Panel Probit Model: Cause Portfolio Focus and CSP1.

Dependent variable	CSP1_t
Method	Probit
Independent variables	Coefficient	SE
CSP1_t−1	1.559	0.148***
Cause Portfolio Focus_t−1	−0.840	0.285***
Contributions_t−1	−0.005	0.004
Cause Portfolio Focus_t−1 × Contributions_t−1	0.048	0.020**
Company Size_t−1	0.020	0.039
ROA_t−1	1.848	0.676***
Number of observations	1,140
Number of groups	215
Largest variance inflation factor	3.60
Wald χ²	157.93	***
Log likelihood	−487.89

Note. Cluster robust standard errors. CSP = corporate social performance; ROA = return on assets.

p > .10. **p > .05. ***p > .01.

Table 6.

Results From Random-Effects Panel Poisson Model: Cause Portfolio Focus and CSP2.

	Panel A		Panel B
Dependent variable	CSP2_t		CSP2_t
Method	Poisson		Poisson
Independent variables	Coefficient	SE	Coefficient	SE
CSP2_t−1	0.609	0.031***	0.613	0.032***
Cause Portfolio Focus_t−1	−0.488	0.179***	−0.482	0.178***
Contributions_t−1	−0.002	0.001*	−0.002	0.001
Cause Portfolio Focus_t−1 × Contributions_t−1	0.016	0.005***	0.016	0.005***
Company Size_t−1	0.037	0.026	0.041	0.026
ROA_t−1	0.837	0.460*	0.875	0.484*
Community Weaknesses_t−1			−0.046	0.052
Number of observations	1,041		1,041
Number of groups	204		204
Largest variance inflation factor	3.70		3.75
Wald χ²	701.31	***	693.25	***
Log likelihood	−1,027.98		−1,027.64

Note. Cluster robust standard errors. CSP = corporate social performance; ROA = return on assets.

p > .10. **p > .05. ***p > .01.

Discussion

The findings from the secondary data set suggest that different cause portfolio strategies are associated with different stakeholder evaluations (i.e., different levels of CSP). Specifically, we find support that focused cause portfolios are evaluated lower than diverse portfolios, but that difference goes away as companies increase the contribution amount. These findings hint that there is a shift in focus of how portfolios are evaluated. It appears that for portfolios characterized by fewer overall donations, stakeholders pay more attention to the diversity of issues supported. As overall donations increase, stakeholders shift their evaluations away from diversity to the overall amount donated. For those portfolios, there is no difference in CSP based on support of few or many issues.

General Discussion

The objective of our research is to see whether there is an association between cause portfolio focus, contribution amount, and stakeholder evaluations. While previous research shows that the overall contribution amount can improve stakeholder evaluations of the company (Lev et al., 2010; Wang et al., 2008), this present research shows that these evaluations are influenced by the diversity of issues supported. Specifically, cause portfolio focus sends a signal to stakeholders about the impact to society. Stakeholders perceive the impact of the cause portfolio to be lower the more focused the portfolio (i.e., the fewer issues are supported). Moreover, contribution amount moderates this relationship such that the difference between focused and diverse disappears as charitable contributions increase. We find evidence for this pattern reflecting perceptions of both primary (consumer) and secondary (third-party evaluator) stakeholder groups. Our findings have several implications for theory and practice which we discuss next.

Theoretical and Managerial Implications

While a large body of literature focuses on the consequences and performance outcomes of a company’s philanthropic activities (Aguinis & Glavas, 2012; Jones & Murrell, 2001; Margolis, Elfenbein, & Walsh, 2009; Peloza, 2009; S. R. Robinson, Irmak, & Jayachandran, 2012), little is still known about the actual antecedents of these activities. This research focuses on how the company’s activities influence stakeholder evaluations. Most importantly, our current research implies that stakeholders perceive philanthropic activities based on the level of impact the activities make. Studies focusing on the direct relationship between corporate philanthropy and company performance may not find evidence of a connection if they do not consider how these philanthropic activities influence stakeholder perceptions in the first place.

Second, our research implies that companies ought to think about how to best manage their portfolio of philanthropic activities. Research on charitable giving literature (Lev et al., 2010; Wang et al., 2008; Wang & Qian, 2011) primarily focuses on the amount of giving. Cause portfolio focus has received little attention with a few exceptions (Gardberg et al., 2017); therefore, we supplement this literature by advancing the concept of a company’s cause portfolio (Varadarajan & Menon, 1988).

The current research has important implications for decision makers concerned with structuring their charitable giving activities. With brand and reputation among the highest ranked concerns when it comes to considering corporate philanthropy (CECP, 2008), companies are starting to assess the efficiency and effectiveness of their charitable giving strategies more thoroughly (CECP, 2008). Wal-Mart is an example of a company that reevaluated its charitable giving strategy to make sure it is more aligned with the brand’s objective (Birchall, 2008). This present research highlights that the pursuit of cause portfolio focus has to be managed carefully. While research from branding, and even from the CSR literature, emphasizes the importance of a clear focus and positioning (Drumwright, 1996), this current research shows that this does not always translate into better outcomes. Stakeholders evaluate the company’s activities to be lower when its cause portfolio is focused than when it is diverse which ultimately has implications for the type of relationships that the company is able to build or maintain with the stakeholders (Brown & Dacin, 1997; Sen & Bhattacharya, 2001).

However, we find that managers can compensate for having a focused cause portfolio by increasing the amount of charitable contributions. Our findings indicate that cause portfolio focus is more important in shaping perceptions of societal impact when overall contributions are small. However, when contributions increase, stakeholders seem to associate societal impact more with the amount of contribution rather than cause portfolio focus. In the case that companies face constraints in their ability to donate financial resources to different issues, they could try to find different ways to communicate societal impact to their stakeholders.

Last, our findings indicate the importance of the level at which philanthropic activities are evaluated. In this present research, we focus on corporate philanthropy, an activity that focused on multiple stakeholder groups and is implemented at a different level in the organization (i.e., through a foundation) than other CSR activities (i.e., volunteering, sponsorships) focusing on a single stakeholder group such as consumers. Prior research shows that for these narrow activities, processes such as perceived fit and motives play an important role. However, for activities more geared toward building general moral capital (Godfrey, 2005), we were able to rule out these processes as alternative explanations, and we found that perceived society impact is a key driver of positive stakeholder evaluations of corporate philanthropy. Future research can explore qualitative differences between the different types of socially responsible activities in more depth. Our study implies that the perceived impact to society is an important mediating process that researchers should consider when looking at corporate philanthropy, and possibly other activities that target a broader audience and multiple stakeholder groups.

Limitations and Future Research

In the current research, we utilized both primary and secondary data to address the issue of cause portfolio focus and stakeholder evaluations. In the experimental studies, we focused on a consumer perspective and were also able to examine potential underlying processes behind the differences in evaluations. We extend the findings from the controlled environment in the lab to a field setting and a different stakeholder group (third-party raters) using secondary data from foundations associated with Fortune 500 companies.

Using the secondary data, we find that our results generalize to other stakeholder groups as well, such that both consumers and third-party raters have similar evaluations of cause portfolio focus. There are some limitations associated with using secondary data from corporate foundations such that larger foundations have reporting requirements that smaller foundations do not have.⁴ Therefore, we examine whether there is a selection bias based on the size of the foundation and data availability on cause portfolio focus. We first estimate a Probit model explaining data availability on cause portfolio as a function of the foundation’s assets. The Inverse Mills Ratio estimated from this model was then entered as a predictor in the CSP model to correct for sample selection bias (Heckman, 1979) as a robustness check. The Inverse Mills Ratio did not significantly explain CSP (both ps > .80) in either model. The inclusion of the Inverse Mills Ratio did not affect the support of our hypotheses. As a robustness check, company size was controlled for in the CSP model and does not alter support for the hypotheses or significantly influences CSP directly. Therefore, the results are robust to differences in company size.

This current research offers several avenues for future research to understand cause portfolio strategies and their outcomes in more depth. Future research can investigate the responses of different stakeholder groups such as employees or community members to various cause portfolio strategies. Given that not all stakeholder groups have similar expectations, it is possible that their expectations regarding cause portfolio strategies conflict with the expectations of the stakeholders examined in this study. Also, in this research, we investigate perceived impact to society; an interesting area of future research would be to see whether actual impact to society occurs when companies donate a small amount of money to a diverse number of issues.

Future research can further focus on how companies can communicate different cause portfolios to improve stakeholder evaluations. If a company creates a highly focused portfolio, it might benefit from reevaluating how it communicates this information to stakeholders to signal that it is making an impact in the community even though it focuses on only one issue. Companies may be able to change perceptions of impact and commitment by, for example, giving specific information about the causes they support, or potentially creating subcategories within that one support area. While awareness is a prerequisite for a cause portfolio to create value (Du, Bhattacharya, & Sen, 2010; Lev et al., 2010; Wang & Qian, 2011), not all strategies may perform well for different types of cause portfolios. Therefore, managers have to take into consideration the communication strategy with which they attempt to draw awareness to their charitable efforts. In summary, this present article provides some initial insights into the structural management of charitable giving; both the number of issues supported and amount donated influence stakeholder evaluations.

Footnotes

Appendix A

Table A1.

Overview of Study 1 Measures.

Impression	What is your overall impression of Company X?	1 = very negative and 7 = very positive
Perceived impact to society	Company X is more beneficial to society’s welfare than other companies of its kind.	1 = strongly disagree and 7 = strongly agree
	I think Company X helps solve social problems.	1 = strongly disagree and 7 = strongly agree
	Company X contributes something to society.	1 = strongly disagree and 7 = strongly agree
Personal commitment to causes	To what extent do you think the company is committed to the causes presented in the campaign?	1 = not at all committed and 7 = very committed
Motives (reverse coded)	To what extent do you think Company X’s support for the causes is driven by ulterior motives?	1 = not at all and 7 = completely
Importance of causes	Overall, how important do you find the following causes that Company X supports?	1 = not at all important and 7 = very important (note the importance of each of the three causes in the respective condition were measured and an overall importance composite was created)
Identification to company	I can easily identify with at least one of the causes presented in this campaign.	1 = do not agree at all and 7 = agree completely
Identification to company	In my opinion, other stakeholders of the company, such as customers and employees, can easily identify with at least one of the causes presented in this campaign.	1 = do not agree at all and 7 = agree completely
Fit between company and causes	We would like to determine how well the causes fit with Company X. The fit between a company and a cause means how well the two organizations connect or appear to make sense together. How well do you think the causes fit with Company X?	1 = extremely good fit and 7 = extremely poor fit

Appendix B

Table B1.

List of Supported Giving Issues Coded by the Foundation Center.

Agriculture/food

Animals/wildlife

Arts and culture

Civil/human rights

Community development

Crime/law enforcement

Education

Employment

Environment

Health

Health organizations

Housing/shelter

Human services

International/foreign affairs

Medical research

Mental health/crisis services

Philanthropy/voluntarism

Public affairs

Recreation

Religion

Safety/disasters

Science

Social sciences

Youth development

Acknowledgements

The authors thank Satish Jayachandran, Michael Stanko, and participants at Association for Consumer Research and American Marketing Association conferences for their comments on previous versions of this research.

Authors’ Note

Both authors contributed equally to this article.

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

Meike Eilert (PhD, University of South Carolina) is an assistant professor of marketing, University of Kentucky. Her research focuses on product recalls and socially responsible behavior of consumers and organizations. Her research has been published in such journals as Journal of Business Ethics, Journal of Marketing, and Strategic Management Journal.

Stefanie Robinson (PhD, University of South Carolina) is an assistant professor of marketing, North Carolina State University. Her research interests focus on corporate social responsibility and inference making. Her research has appeared in such journals as Journal of Business Research, Journal of Consumer Research, and Journal of Marketing.

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