Corporate Motivations for Donating to the Police in Bulgaria

Introduction

Despite donations to the police being legal in many developed democracies, financial reports on contributors and their reasons for donating are often secretive affairs. From 2005 to 2011, the Bulgarian National Police Force collected donations of more than 140 million BGN (almost $90 million) from individuals, companies, foreign governments, persons undergoing criminal investigations, and convicts. After condemnation both domestically and by the European Commission (EC), the practice became illegal for individuals and private businesses on 1 September 2011, and was made completely illegal in July 2013 when the new Interior Minister Tsvetlin Yovchev banned all and any types of donations. Under domestic and international pressure, the Interior Ministry published its sponsorship statistics, which were previously a state secret. The former interior minister Tsvetan Tsvetanov faced three corruption charges.

On 12 August 2015, however, the new interior minister Rumyana Bachvarova, partially lifted the donation prohibition, allowing only foreign governments, international, and state organizations ¹ to donate to the ministry. ²

Gifts, facilitation payments, and bribes are often given under the banner of corporate philanthropy ³ as the collective response of firms—or at least some segment of them—to acquire cognitive and sociopolitical legitimacy. ⁴ By adopting designs that mask or distract attention from controversial activities ⁵ that may be unacceptable to some key constituencies, firms can maintain the impression that they are rational and legitimate even when their practices clash with social norms or organizational goals. ⁶ Corporate donations to the police have a long history in the United States and the United Kingdom. For instance, the American police issue a special decal to firms donating more than $100, allowing them to signal their support. From 2007 to 2012, the British Metropolitan Police earned almost £23 million in sponsorships from dozens of organizations, including oil companies. Scotland Yard officers have benefited from money and gifts, including football shirts, pop concert tickets, and luxury cars. ⁷ However, it is unclear how corporate philanthropy to the police may work in transition economies, where there has been a shift from a command economy (which suppressed individualism and entrepreneurial initiatives) to a market economy (based on inclusive economic and political interests and characterized by different social norms). ⁸ Despite the fact that Bulgaria is the poorest ⁹ and most corrupt country in the EU, ¹⁰ it spends the most on public order and safety as a percentage of GDP. ¹¹ Given Bulgaria’s excessive private and public spending on police, the absence of tax deduction for donations to the police, and their ambiguous nature, we seek to understand “the corporate motivations for donating to the police.”

Corporate philanthropic motivation is a function of individual (e.g., CEO profit and utility maximization), firm (e.g., resources, advertising expenditures, ownership structure, board membership, executive networks), industry (e.g., industry structure, consumer orientation, environmental or social externalities, taxes), and institutional-level (e.g., political regime, institutions) factors. ¹² The focus of our work is the firm-level motivations for corporate philanthropy and the unit of analysis—the exchange ties between police and donor firms. In particular, we are interested in the content, symbolic value, and dynamism of business–police philanthropic relationships.

Bekkers and Wiepking review the academic literature on philanthropy and identify eight driving mechanisms: awareness of need, solicitation, cost and benefits, altruism, reputation, psychological benefits, social values, and efficiency. ¹³ Gautier and Pache analyze the literature on corporate philanthropy and draw a similar typology of gift-giving. Corporations donate to maximize executive managers’ profit and utility, ¹⁴ to acquire power, status, security, prestige, ¹⁵ and legitimacy among the local political and economic elite, ¹⁶ to pursue narrow-interested egoistic motives (e.g., rent-seeking), ¹⁷ to use donations as a defense mechanism to manipulate or deceive key actors, ¹⁸ to gain government support and nurture profitable political connections, ¹⁹ to cover-up fraudulent activities, ²⁰ to comply with moral norms such as altruism, benevolence and integrity values, ²¹ and to comply with mimetic and competitive pressures in corporate-elite networks. ²² There are two main models of corporate social responsibility—the “moral” and the “utilitarian” model. Under the moral model, firms give because of emotional and moral obligations to do good. By contrast, in the utilitarian model, businesses donate, so as to maximize their profit and utility. ²³ Differentiating between the moral and the utilitarian model of philanthropy is important, since genuine donors tend to create higher value through their deeds than those whose motivation is instrumental. ²⁴

Corporate giving to the police is intriguing as it challenges the classic assumptions that philanthropy is a voluntary, altruistic response to social problems, ²⁵ intended to “increase company visibility and improve employee morale, so as to create social impact.” ²⁶ Contributions to the police differ from any other kind of philanthropy. Police officers hold a monopoly over violence and coercion and in many countries receive considerable government support. Police decisions on how to proceed at a crime scene should not depend on gifts, gratuities, tips, bonuses, donations, grease payments, or bribes. Frequent informal payments to public servants come at considerable financial cost to enterprises, increase the price of goods and services and inflation, and can turn propensity toward corruption into actual corruption. ²⁷

Our study is distinct in that it integrates theories of corporate philanthropy, social exchange, and entrepreneurial orientation to propose a more complex model of corporate motivation for giving in a transitional setting. In so doing, we add to the literature on the micro-level determinants of corporate philanthropy, ²⁸ gift-exchange in (non)Western societies, ²⁹ and gift transactions in the informal and shadow economy. ³⁰ By illuminating how smaller and elite enterprises cooperate with the state, we also contribute to the vast literature on lobbying ³¹ and political connections. ³² Although the theoretical argument of this work is developed on the basis of the Bulgarian case, the model can apply to other post-communist nation-states where informal exchange relationships between the police and business still prevail (e.g., former Soviet Union), and to the western democracies where police donations are legal (e.g., France, Germany, Spain, United States, United Kingdom). Our model is also relevant to other professions of high social responsibility (e.g., politicians, doctors, judges) where actors’ decisions should not depend on private donations.

Roadmap

This article is organized as follows. The next section defines corporate philanthropy. The fourth section explains the two main models of corporate social responsibility. The fifth section discusses firms’ attitudes towards corporate philanthropy in Bulgaria. The sixth section traces the development of exchange relationships between the police, the government, and the business. The seventh section integrates theories of corporate philanthropy, entrepreneurial orientation, and social exchange to explain the variation in corporate motivations for donating. The eighth section describes our data and methods. The ninth section presents the findings. The tenth section provides descriptive statistics of police donations. The final section concludes.

Corporate Philanthropy

Corporate philanthropy involves “gifts or monetary contributions given by corporations to social and charitable causes, such as those associated with education, culture, the arts, minorities, health care, or disaster relief,” ³³ which provide “direct material benefit of improved public health, education, and welfare.” ³⁴ Corporate philanthropy is a voluntary, rational, and cost-effective allocation of corporate income and a social setting in which the interests of persons and corporate actors come together in an intimate way. ³⁵

On the one hand, corporate giving may be in line with shareholder value maximization because it offers a channel for enterprises to promote their image to customers and to enhance their standing with regulatory agencies and legislators. ³⁶ In some nation-states, governments regard favorably corporate charitable work because it helps reduce governmental financial burdens. ³⁷ Corporate philanthropy enables firms to achieve sociopolitical legitimacy, which in turn enables them to elicit positive shareholder responses, gain political access, and increase their market share and financial performance. ³⁸

On the other hand, corporate philanthropy may reflect “conflicts of interests between shareholders and managers, where managers support their own charity preferences with corporate funds and enhance their personal reputations and social networks.” ³⁹ Since it is difficult to measure the concrete benefits that accrue to a corporation from philanthropy, it is easier for business executives to promote their personal interests, allowing these decisions to substantially depart from firm value and shareholder wealth maximization. ⁴⁰

Models of Corporate Social Responsibility

There are two distinct models of corporate social responsibility (CSR) which have dominated the debate over why corporations should develop responsible business practices—the “moral/normative” and the “utilitarian” model. Under the moral model, firms give because of an emotional and moral obligation to do good. This model is rooted in the belief that corporations exist to benefit society, and businesses are regarded as “good citizens.” There is an implicit agreement between the corporation and society—a “license to operate agreement.” The stakeholder approach becomes a crucial component of this model, that is, the inclusion of the interests of a variety of stakeholders in corporate decision making. ⁴¹ In the utilitarian model, corporate social responsibility is good for business because serving societal needs presents new profit-making opportunities. ⁴² The utilitarian model addresses the question “Doing well by doing good, does it pay to do good?” and transforms corporate social responsibility into an integral part of corporate economic behavior. ⁴³ Drucker maintained that “doing good” is a necessary component of “doing well” for corporations, and that businesses have to turn social problems into economic opportunity, economic benefit, productive capacity, human competence, well-paid jobs, and ultimately wealth. ⁴⁴

Corporate Philanthropy in Bulgaria

Under state socialism, enterprises were assigned the social mission to fulfill the state policy of full and permanent employment, and provide social services to their employees and local communities that would otherwise be provided by the government. Consequently, through specifically created social and cultural funds, state enterprises developed extensive social welfare functions. During the transition to democracy and market economy many enterprises had to eliminate their social programs to survive. Meanwhile, the global pressure towards greater corporate social engagement and responsibility placed increasing demands on post-communist European firms to become “good corporate citizens.” As a consequence, companies in post-communist Europe adopted divergent strategies to cope with the conflicting pressures arising from their new goals, functions, and roles in the market economy. ⁴⁵

The concept of CSR was introduced in Bulgaria in the early transition years by international organizations, such as the United Nations Development Programme, the International Business Leaders Forum, and subsidiaries of multinational corporations. ⁴⁶ Before accession to the European Union, CSR gained additional impetus with the support of political action. ⁴⁷ Despite the adverse consequences of the 2009 economic and financial crisis, Bulgaria became one of the first countries in the EU to develop a national CSR strategy. ⁴⁸

Iliycheva ⁴⁹ argues that Bulgarian corporate philanthropy is rooted in komshuluk ⁵⁰ and is conditional on prior multiplex ties such as personal acquaintances, friendship, or common business. A 2003–2004 survey about the attitudes towards charity among ordinary people and business professionals in Bulgaria indicates that although citizens are well acquainted with the CSR concept, they participate in such activities when somebody personally addresses them and when they have personal contact with the person in need. Employees in the private sector and in liberal professions are most eager to participate in philanthropic activities. Bulgarian citizens are reluctant to donate when external foundations organize charity events. ⁵¹ This confirms Putnam’s idea that simply being asked to give is a powerful stimulus for giving and philanthropy. ⁵²

A 2004 national representative survey of 292 firms indicates that the majority of Bulgarian companies perceive themselves as socially responsible organizations. Only about one-third of the business executives thought that the primary goals of any business are to maximize shareholder profits. Bulgarian businesses engage in giving mostly because of emotional and moral factors—they would like to be recognized as good corporate citizens. ⁵³ The tax deduction levels for donations are low, discouraging businesses to include their philanthropic contributions in their accounting books. ⁵⁴ As a consequence, large-scale, planned, and organized corporate philanthropy remains rare. ⁵⁵ In 2016, Bulgaria’s World Giving Index was only 21 percent.

The Willingly Captured State: Prior Exchange Relationships between the Business, Police, and Government

What social relations are conducive to police donations? Business–police philanthropic relationships are likely to depend on prior social and economic arrangements. ⁵⁶ This section addresses how the exchange relationships between the business, police, and government developed in post-communist Bulgaria. We argue that business–police exchange ties evolved from nonmonetary imbalanced bonds (e.g., exchange of information against preferential social services) to more balanced power relationships (e.g., exchange of money for services and favors for favors).

The State Security (SS) (secret police) had been a key power holder behind the shadows of the communist party in all communist states. ⁵⁷ SS helped preserve the authoritarian regime by the threat or use of repression. ⁵⁸ It obeyed the orders of the communist party and engaged in surveillance and information gathering that the party used for making governance decisions. ⁵⁹ SS deployed targeted repression using a vast network of informants. ⁶⁰ It extracted information by recruiting citizens to participate (voluntarily or involuntarily through blackmail) as informants and used the gathered information to monitor multiple segments of the population and to mete out repression. With such information, repression was more precise and more efficacious, yet also more selective. Although SS had a substantial corps of full-time officers, the primary function of its employees was the recruitment of informants and processing of the reports they provided, rather than the collection of raw information. ⁶¹

Information in exchange for regular payments was rarely used during recruitment. However, the absence of monetary incentives did not mean that those who informed had no incentives to do so. The informants who volunteered entered a privileged circle of citizens with access to better jobs, better housing, and better services than those available to ordinary Bulgarians. Nevertheless, there were no incentives for those recruited through blackmail, and thus the latter supplied information reluctantly. ⁶²

After the fall of communism, the state redistributed its assets among strategically located actors of the communist nomenklatura ⁶³ and especially the former secret police. ⁶⁴ The communists retained power and reinvented themselves as capitalists—while successfully keeping local and foreign companies at bay. ⁶⁵ The Bulgarian banks willingly pumped resources from state institutions and loaned them to politically connected enterprises. ⁶⁶ The Communist-era Bulgarian secret police was said to have played a major role in siphoning millions of dollars from state funds and spiriting them abroad through dummy companies. ⁶⁷ This was a form of gift exchange between the party and the secret police. On the one hand, the communist party rewarded the SS for stealing foreign trade secrets, bringing hard currency through the smuggling of illegal goods, and training individuals with capitalist entrepreneurial skills. On the other, the SS and its successors aided this process by supplying new businesses with agents from its political police division. ⁶⁸

Consequently, from 1992 to 1996 a system of crony capitalism emerged that was based on mutually beneficial relationships between former communist nomenklatura circles, state institutions, and the criminal world. ⁶⁹ The private sector existed mainly in the form of newly established domestic firms that can be classified in two broad business models—rent-seeking “crony firms” established with state financing and unclear ownership structure and market-oriented “non-crony firms.” ⁷⁰ The crony firms sought to ransack the national wealth through privileged privatization, asset shipping, and other illegal financial activities. A considerable part of these crony firms were set up through a joint partnership between a secret police officer, an official of a Bulgarian state enterprise, and a westerner. ⁷¹ The three would establish a company in Bulgaria or in another country with weak financial controls. The police-connected phantom company would then apply for loans and establish another enterprise far away. ⁷² The Bulgarian banks, which supported crony firms, accumulated many bad loans, which led to the 1996–1997 bank crisis. ⁷³ Dimitrov classifies these police-connected firms into three business models. The first model comprises businessmen who accumulated business experience prior to 1989, oftentimes through SS employment. The second model consists of ex-convicts and ex-sportsmen who established organized criminal groups. Finally, the third model involves highly educated entrepreneurs who are fluent in foreign languages, with “clean” backgrounds, ties to SS and politicians, unwilling to resolve conflicts through violence, and engaging only in highly sophisticated fraud. ⁷⁴

Since the SS informant network spread through almost all layers of society, the current Bulgarian ministries, Parliament, and criminal-justice system are largely infiltrated by SS agents, enabling police-connected firms to prosper. ⁷⁵ The state created these “entrepreneurs” allowing them to amass vast fortunes, part of which they later returned to it in the form of donations, bribes, facilitation payments, or favors. A state that produces business elite and transfers its assets to it is not preyed upon. Rather than “state capture,” ⁷⁶ this situation can be described as a mutually beneficial social and economic exchange between the state and state-created firms with SS connections. This created partial reform equilibrium. Neither economic transition, nor party rotation, nor even Bulgaria’s integration into Euro-Atlantic structures could disrupt the vicious nexus between law enforcement and business elites forged during the communist period. ⁷⁷ Like in other post-communist nation-states, Bulgaria’s economic reform and democratization produced highly concentrated gains to particular groups—(former) secret police officers, political and economic elites, and mafiosi—while dispersing the transitional costs of reform throughout the economy. ⁷⁸

Corrupt decision makers rerouted resource flows towards their family-owned businesses. A combination of family and political connections became an important factor for business success. If before 2007 political elites considered themselves to be in a situation where restraint was deemed necessary, after Bulgaria joined the EU, politicians did what they wanted. The most important consequences of this behavior were a highly uneven economic development and the deterioration of democracy. ⁷⁹

Theoretical Background

To explain the variation in the exchange ties between business and police, we integrate theories of corporate philanthropy, social exchange, and entrepreneurial orientation. We do so for the following two reasons. First, philanthropy may be characterized as exchange when corporations enjoy direct or indirect benefits from the donation recipients. ⁸⁰ Some gifts may be altruistic charitable contributions. Others may be informal payments, secret commissions, grease money, kickbacks, or bribes. Social exchange theory enables us to reveal the content and symbolic value of police–business relationships. Second, we use entrepreneurial orientation theory since corporations, as utility maximizers, may exhibit different motivations for giving from nonprofits.

Social Exchange Theory

Blau defines social exchange as a two-sided, mutually contingent, and mutually rewarding process involving voluntary “transactions” in which “actions are contingent on rewarding reactions from others.” ⁹⁴ Actors make conscious choices based upon self-interested deliberation prior to taking action. Blau’s definition of social exchange is close to the dominant mode of economic analysis in which “actors seek to maximize their gains by obtaining the highest possible return for any given resources.” ⁹⁵ However, Blau contrasts social and economic exchange emphasizing the fact that it is more likely in social exchange for the nature of the obligations involved in the exchange to remain initially unspecified. While there is a general expectation of some future return in social exchange, its exact nature is not stipulated in advance. ⁹⁶ Cook and Whitmeyer point to another two major differences between social and economic exchange. First, social exchange theorists are more interested in the reciprocity obligations created by exchange than the material outcomes of the exchange itself. Second, social exchange theorists depict a more nuanced picture of the social complexity of exchange. ⁹⁷

Blau’s social exchange theory (SET) has been largely criticized. Although in some discussions SET has been treated as a general theory parallel to structural functionalism, ⁹⁸ Emerson regards SET as a frame of reference within which many theories from economics, political science, sociology, and psychology relate to one another rather than as a theory in itself. Bierstedt doubts that all human social action is based upon strategic considerations. ⁹⁹ Similarly, Emerson argues that social exchange cannot be limited to such a narrow class of actions because a wide range of social behavior (e.g., gift-giving) is not always motivated by expected returns. Homans adds that rationality is not a prerequisite for social exchange. He rejects the prior calculation of returns as a defining feature of exchange in favor of a much broader-based, social operant behavior in which the level or frequency of performance over time is sustained by reinforcing or rewarding activity from other actors. ¹⁰⁰ For instance, a gift given without expectations of return can fail to recur over time when it is not reciprocated. This exchange failure does not require rationality. It is not the prior calculation but the unfolding of the future relation that matters for exchange relationships. ¹⁰¹ Emerson argues that social exchange does not have to be restricted to the exchange of concrete and quantifiable resources. Social exchange may also comprise intangible objects such as eye contact with a smile. Firth ¹⁰² and Sahlins ¹⁰³ argue that it is the content of the social relation that dictates the form of the transaction and not the continuity of the exchange per se.

We propose five competing explanations for corporate giving to the police—social responsibility, networking, signaling, peacemaking, and self-benefit. Figure 1 illustrates our theoretical model of corporate motivations for giving. We place each motivation in the theory we believe it belongs to.

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Figure 1

Theoretical model of corporate motivations for giving

Data and Methods

The logical sources of information about informal and corrupt practices are the people who know about them: police officers, citizens, victims of corruption, convicts, experts, businesses, and investigative agencies. Which of these actors are more likely to tell the truth? Police officers, who know the most about corrupt practices, are least likely to talk about their own criminality. ¹²³ Bound by the nature of their post, and paramilitary structure of the police organization, officers learn during the socialization process that they have to turn a blind eye to misconduct by fellow police officers, which in turn enables them to rely on their protection and assistance, and to earn their trust and support. ¹²⁴ Regardless of how severe and extensive the actual consequences of the non-observance of the blue veil of silence are, and what is actually covered by the blue code of silence in a police organization, the code is generally shared by police officers. Its persistence has a strong effect on the police officers’ willingness to report misconduct or corruption by fellow officers. ¹²⁵ Similarly, businesspeople and citizens participating in illegal transactions face high reputational costs and are unlikely to report. They may consider that it is better—in terms of finances, reputation, and emotional costs—to remain silent. Therefore, those who have information about informal or corrupt practices have very little incentives to make it publicly available. ¹²⁶

Maurice Punch classifies corrupt police officers in three main categories—grass-eaters, ¹²⁷ meat-eaters, ¹²⁸ and birds. ¹²⁹ In our case, grass-eaters were more likely to talk about corruption. Nevertheless, their information may not be as accurate because they do not participate in the core corrupt activities. Police directors resemble the birds because they do not engage in corruption but may ask their subordinates to do so. Given the secretive nature of the donations to the police, we used snowball sampling. Snowball sampling is a technique applicable when it is difficult to identify and contact the members of a target population, or when the subject matter—like covert police financing—is politically sensitive. ¹³⁰ The size, the boundaries, and other characteristics of hidden populations are unknown since standard probability sampling techniques generate low response rates among these groups. ¹³¹ Snowball sampling uses interpersonal networks to gain interviewees’ trust and to find new respondents. ¹³² We asked individuals whom we had interviewed to recommend others who they knew could share information about police donations. However, snowball sampling suffers from certain weaknesses. This technique may lead to selection bias, reducing the validity of the sample. ¹³³ New participants in the study are not selected at random but are dependent on the subjective choice of the prior respondent. This constrains theory building and generalizability. Furthermore, interviewers may lose themselves in small cohesive subgroups, overemphasizing the features of that particular group, and exclude important actors who are not members of this subgroup. ¹³⁴ To alleviate these inefficiencies, we applied the triangulation method selecting respondents from different social and organizational backgrounds who had themselves participated in police donation practices or had a very close and direct observation into the phenomenon. Another approach that we used was to ask indirect questions. The interviewees were more talkative when we promised not to record the conversations. This relaxed social control yielded more sincere answers. Lower-ranking, fired, and retired police officers, having the lowest opportunity costs of exiting the police agency, gave the most detailed information. By contrast, higher-ranking officials and business executives, facing high reputation costs, were less talkative.

We conducted twenty-five semi-structured, face-to-face interviews—speaking in Bulgarian—in several major administrative regions from December 2011 to April 2013. Additionally, in 2011, we conducted a sociological survey with five hundred police officers in eighteen Bulgarian provinces regarding police officers’ informal and corrupt activity. The interviews and surveys were conducted as part of the international project “Comparative Survey-Based Study of Economic Corruption of the Law Enforcement Officers in Several Transformation Countries (Russia, Bulgaria, Kazakhstan, and Latvia)” headed by Leonid Kosals. We conducted the survey and about 50 percent of the interviews before the official prohibition of the donation practice. The second half of the interviews was conducted after 1 September 2011 when the Interior Ministry prohibited private donations. The criminalization of police donations affected interview data—business executives became more reluctant to talk about their financial contributions as this information undermined their legitimacy.

Initially, we used the official police donation registry to contact donor firms and police units. Table 1 illustrates our respondents’ backgrounds. We conducted interviews with current, turned, ¹³⁵ dismissed, and retired police officers (44 percent) from different police departments, and of various ranks, age, and geographical location. Additionally, we interviewed business executives (32 percent), citizens (12 percent), experts (8 percent), and people in illegal and criminal activities (4 percent). We talked to owner-managers (25 percent) and top business executives who actively participate in corporate decision making but do not own the enterprise (75 percent). Often the CEOs’ donation strategy aligned with that of the entire company. Initially, we contacted fifty firms from the police registry. However, only four companies agreed to participate. To increase the sample size, we used our personal contacts and the local NGOs. Most of the top managers of the bigger corporations were unwilling to discuss their donation practices or gave scarce information. Therefore, we interviewed mostly SME business executives (75 percent) in smaller cities who were more accessible and willing to share information. By SMEs, we understand the following commercial forms defined by the Bulgarian commercial law: individual entrepreneurs (ednolichen tyrgovets), cooperatives (kooperatsiia), collective enterprises (sybiratelno druzhestvo), limited liability companies (druzhestvo s ogranichena otgovornost), and solely owned limited liability companies (ednolichno druzhestvo s ogranichena otgovornost). The fact that our interview data represent mostly the opinion of SMEs’ managers is not an obstacle since more than half of the donated money to the police came from SMEs. We explored topics including the CEO’s motivation for donating, the police motivation for requesting donations, the social organization of the practice, the circumstances of the gift exchange, and the exchanged resources. Our respondents are adults (mean age = 44) with an extensive work experience (mean = 19.1 years); most are top (56 percent) or middle (24 percent) managers and have university degrees (80 percent). The interviewees appear in the text numbered [1] to [25]. The interviewees’ names and other identifying information have been withheld to protect them from possible reprisal. Monetary figures throughout the research are calculated from Bulgarian lev (BGN) to euros using the Bulgarian fixed exchange rate.

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Table 1

Respondents’ Backgrounds

	n	%
Occupation
Business	8	32
Citizen	3	12
Convict	1	4
Expert	2	8
Police	11	44
Firm ownership
Yes	2	8
No	6	92
Management level
Top	14	56
Middle	6	24
Low	5	20
Gender
Male	15	60
Female	10	40
Education
University	20	80
Secondary	5	20
Employment status
Current	20	80
Former	4	16
Retired	1	4
Department
Investigative	2	8
Other	16	64
Security	5	20
Trade Union	1	4
Traffic	1	4
Firm type
Large company	2	25
SMEs	6	75
Region
Burgas	1	4
Dobrudzha	1	4
Plovdiv	3	12
Ruse	1	4
Sofia	9	36
Stara Zagora	2	8
Varna	4	16
Veliko Tarnovo	4	16
Mean age	44.04
Mean working experience	19.12

The donation data come from the original “Public Registry of the Signed Contracts and Received Donations by the Interior Ministry.” The data are a panel of the twenty-eight Bulgarian provinces with observations running on a daily basis from 1 January 2005 to 31 December 2011. The registries are available for downloading free of charge at the ministry’s website. ¹³⁶ We conducted the analysis in three steps. First, we converted the file into an electronic format. The original data set contains information on donor names, legal commercial forms, the exact date, contract number or police order under which each donation was collected, the monetary amount of the financial contribution in local currency units (BGN), the items that were purchased with the donated money, the police unit recipient of the donation, and the city and region in which it is located. The registry contained inaccuracies in company names, commercial forms, police unit names, recipients, donation amount, and date. We corrected these inefficiencies by searching information on firms’ websites and in the State Commercial Registry. We limited the universe to the National Police Force. The first donations date from 1998. However, we did not consider financial contributions prior to 1 January 2005, since the data are incomplete. Second, we classified the donated items, firm industry, commercial forms, and police departments into broad, but distinct, categories. Lastly, we calculated the donations in 2005 constant prices using the monthly Consumer Price Index by the Bulgarian National Bank. We considered only donations to the police by state, private, or foreign enterprises, excluding contributions from physical persons (unless they are individual entrepreneurs), foreign governments, the state administration, and the company belonging to the Interior Ministry (“BMV OOD”).

Findings and Analysis

The Secret Organization of Donation Collection

Prior to 2011, there were no legal regulations about who can donate, how, when, and what can be donated to the police. Often, the police and business have used these ambiguous regulations to their advantage. A security policeman explained:

This is the hitch—there is no law for the donations to the Interior Ministry. There are no legal regulations how this can be done, who can donate, what can be donated. If anyone does, it is considered a bribe. . . . Our bosses still find solutions for the shortages through friends and acquaintances, but not officially. If it is not official, what is the point? There is nothing on paper. What use is this to them? Having police bosses for friends? They are friends anyway. [8]

We uncovered a sophisticated secret scheme of donation collection (see Figure 2). Corporations donated to the police either by their own initiative or by the regional police director’s request. Only the highest-ranking official in the police unit—typically the regional police director—had the authority to accept donations. The police boss acts as a “banker,” collecting resources, storing them and protecting them, redistributing them, and using them for the benefit of the police community. Before collecting donations, the police screen the enterprises and their owners to ensure that they do not have a criminal record. The police do not want to associate themselves with businesspeople operating entirely in the gray or black economy. Usually the donations were made under the form of an “informal contract” between the police director and executive manager (or a representative) of the private company. This contract was unilateral, containing obligations only for the businesspeople. The contracts were signed in the presence of the police chief’s closest collaborators: the chief accountant and lawyer, who played the role of advisors—assisting the police boss in signing the best possible deal. The first-line officers explained that the police are not a democratic system with equal opportunities: most of the donated money goes to the higher-ranking officials. A policeman explained:

There is an established police practice for collecting donations from firms to support their activity. However, we conduct a thorough background checks on the donor firms. The receipt of donations is always accompanied by a contract signed by the head of the respective police directorate. In my opinion, however, each sponsorship contract has always a certain element of mutual commitment between the donor and the respective police unit. [5]

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Figure 2

The social organization of police donations collection

The donors and the beneficiaries concealed any formal evidence of the donation practice as there is a certain disapproval by the local communities and other public organizations who are also of financial need. A policeman explained:

Lately, however, the tendency has been to avoid signing donation contracts because in any case it is a kind of unwanted involvement since the donors normally expect a more lenient treatment on part of the Ministry of the Interior when the police people prevent or investigate crimes. [3]

If the donations to the police were given with truly altruistic intentions then why did the police accountants register so meticulously each money transfer and its source? What was the real purpose of the police donation registry? Did this internal document really contain the names of people who should not be penalized as the whistleblower Konstantin Ivanov suggested? The policing history shows that many police protection rackets had a similar accounting system. For instance, the First Joke, a corrupt police network which operated in the Australian Queensland Police Force in the 1950s, had an Organizer (Jack Herbert) who held a secret list containing the names and phone numbers of businesspeople paying bribes for police protection. ¹³⁷

Corporate Motivations for Donating to the Police

Social responsibility

Both businesspeople and police officers explained that one of the reasons for police donations is insufficient state funding. Since the police do not receive sufficient state finances, they have to buy equipment using money from their own salaries, so as to perform efficiently their basic duties. A policeman explained:

There is still a shortage of many things. For example, the boss arrives to work with his personal laptop, we buy print paper and other stationery with our own money, the Sigma colleagues ride their motors with their personal helmets and gloves on, but it used to be worse, so, if some efforts are made, things will work out for us. It is a matter of conscience. . . . And we have very old equipment. [8]

The regional police directors find solution for the financial shortages informally through their friends and acquaintances. Usually, the police executives turn to bigger, capital-intense corporations, for whom the donation represents a strategic investment rather than a sunk cost. At the negotiation stage, there is no coercive pressure by the police on the business. Corporate managers feel an informal obligation to donate since they have been financially successful because of the local police and community: “the truth is that there is certain social pressure over businesses to repay to society when they are financially successful” [10], said a businesswoman. However, donor companies make it clear to the police that they should be independent of private interests when performing their duties: “whichever firm we ask, they will respond, but the police should be independent, they say” [8], mentioned a policeman. A regional police director explained,

When the Interior Ministry does not give us the necessary funds and equipment to do our job properly, in order to ensure the normal functioning of our activities, we turn to our friends—directors of private or state companies. . . . The firms either donate money (with a predetermined aim) to us which is to be spent on the purchase of equipment, refurbishment of the building and similar activities, or directly give us these things. For example, some time ago, the director of the “XXX” company visited me, we had coffee, and I asked him for €3,000. He agreed to give the money, joking that this was the most expensive coffee he had ever drunk. Several years ago, on a friendly basis, with the financial support of some of these firms, we repaired the roof of the building, asphalted and drained the parking lot which is 3,000 square meters. All this was formed as a donation contract which on our side was signed by the regional police director. [4]

Other times, business executives themselves propose to donate, so as to improve the police operation effectiveness, the regional security, and the general business environment. A businesswoman remarked,

The regional police directorate in our region often does not receive sufficient state funding to purchase basic equipment and fuel to conduct efficiently their regular work. . . . Some years ago, my husband and I donated to the local police unit a new vehicle with the intention to improve their investigation capacity. [9]

Networking

Certain businesspeople (and especially new market entrants) use their donations as a strategy to establish a warm relationship with the local police. The role of the first gift is not to demand a service from the police but rather to acquire trust, gain cognitive legitimacy, and establish a warm bond. Social recognition, albeit an immaterial asset, is more valuable than a returned favor, because it is of long-term importance. A police inspector noted,

Some time ago, we received several “second hand” computers as a sponsor’s donation. I do not know from what firm, but the chief knows. I do not know what benefits the donors enjoy, but even if these benefits are having good relations with the boss, it helps, doesn’t it? [3]

Signaling

The police donation practice triggers a certain competitive spirit among the business executives—a desire to out-tip their market rivals. In such circumstances, the managers use their donation as a “signaling mechanism to signal and negotiate status.” Entrepreneurs, anxious about their status in the city, fear to make an error that would lower their perceived position with the police. Donors face a trade-off between giving too little or too much. Giving too little is potentially damaging. Acting under these constraints, a rational donor would compete with his competitors to position himself right at the top of the donation distribution, yet within close range of others’ contributions, so as to avoid excessive spending. The business executives are not so interested in what their competitors would think about them. They are interested in what the police officers think about them instead. Therefore, the donation competition is asymmetric in this sense. ¹³⁸ The SMEs and the large corporations exhibit different donation strategies. While the bigger corporations tend to compete with companies of similar financial capital, the SMEs tend to collude into coalitions, so as to use economies of scale and raise their political clout. A businesswoman noted,

Often several smaller firms unite for a certain donation cause, so as to use economies of scale . . . If the corporations are large telecommunication companies, mobile operators or banks, of course these firms will have the feeling of competition and will compete with each other, . . . so as to appear stronger and more noticeable. [5]

Peacemaking

Underfinanced police officers with higher propensity to engage in corruption may engage in predatory policing, in order to extort (non)financial assets from businesses. Predatory police officers may fabricate evidence or use minor violations by the entrepreneurs, so as to racketeer them. In these circumstances, certain legal entrepreneurs use their donations as a political reconciliation, so as to avoid what Sahlins refers to “negative reciprocity” (the attempt to get something for nothing with impunity) by the police. ¹³⁹ In this context, the police gift plays the role of a “peace treaty” between the two parties, a kind of a hedge against future uncertainties. ¹⁴⁰ The business executive is not donating to cover-up past crimes but rather to protect his or her business from over-regulation. A businessperson noted,

I am a successful legal businessman. I do not have a criminal record, or relatives in the police. Why should I donate to them? The answer is simple—I do not want unnecessary complications. Underpaid, greedy police officers can always find a reason to sanction you, so as to extort money. Outdated equipment, not visible registration numbers—you name it. Nobody is flawless. The risk increases when they are aware of your wealth or you are a new investor in town. I donate, so that the police have fewer temptations to engage in unnecessary inspections. This is a kind of a peace treaty between us.

Protection

We found strong evidence of “reciprocal exchange” in police donation practices. Reciprocal exchange is based on unilateral giving and receiving. The actor who gives something expects to get something good in exchange, but what exactly and when is not spelled out. The counter is not determined by time, quantity, or quality. ¹⁴¹ Both businesspeople and the police officers admitted that in most cases the donations to the law enforcement agency are not disinterested. Oftentimes, police donors receive more lenient treatment by the police than those who do not donate. However, the nature and timing of the service required from the police is not necessarily negotiated at the time of the donation offer. A police officer explained:

It is an established practice for the funds which support the police activity to come from donors. . . . In my opinion, however, each donation contract for police sponsorship has always an element of mutual commitment between the donor and the respective unit of the MI. [5]

If the donations to the police were indeed “thank you for a job done well,” then what type of services did the donor entrepreneurs receive? A 2011 survey conducted by the Higher School of Economics with current Bulgarian police officers (N = 500) shows that common “extralegal” services that business executives demand from the police include irregular, unlawful, or faster issuing of permits, acquiring confidential files, protection and investigative services, court case manipulation, or the appointment of a donor or his relatives at key police posts (see Figure 3). The interviewees stressed that the donations are not given for the purpose of covering up planned crimes. They are typically made by firms that have already committed a crime and want their criminal record erased to avoid further complications. A businesswoman remarked,

These “donations” to the police are made for the purpose of covering up past crimes and not planned illegal operations. On the occasion that the firm commits a crime again, it will find a way to make another donation, so that it does not appear in newspapers’ headlines, and is not investigated or prosecuted. [1]

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Figure 3

Police off-duty work and corrupt practices

Favor for favor

Falling under the shadow of mutual indebtedness, in time the business and police start exchanging gifts of higher value and long-term importance. In return for their extra-legal services, the police request not only money but also favors from business executives. A police officer explained how top police officials lobby business executives to recruit their close friends or relatives into well-paid positions in their corporations:

It is possible and logical for the donors to expect more benevolent treatment on behalf of the police people. . . . In exchange for certain services, the police senior personnel demand financially well rewarded positions for selected police officers or their close friends or relatives in the donor company. Of course, such symbiosis between the business and police may lead to inefficient police protection. [1]

There are numerous examples of resource exchange between the police and (il)legal organizations. Convicts have testified that a criminal organization has bought the rank of the former secretary of the interior ministry and current prime minister of the Republic of Bulgaria Boyko Borisov, so that he can provide political umbrella and promote their political interests. There are also rumors that Borisov’s common-law wife, Tsvetelina Borislavova, who manages a large Bulgarian bank, has been involved in laundering money for organized criminal groups, as well as for Borisov’s own illicit affairs. ¹⁴²

Who Donates What?

Figure 4 presents the descriptive statistics in local currency units. From 2005 to 2011, 5,502 distinct donors gave 15,779 donations to about 527 unique police units across all the twenty-eight Bulgarian provinces, amounting to a total of 140,288,319 BGN ($89,193,024.6). ¹⁴³ Police donors budget for political expenditures rather than burn cash. Only a few organizations (<5 percent) prefer to signal greater wealth. An average donor donates only about 2.7 times. The median donation is 632.7 BGN ($442.3). A possible explanation can be that political expenses represent a sunk cost that may not contribute to future investment, and higher than usual donations may attract unwanted attention. After a notable peak in 2006, the donations steeply declined, reaching only BGN 7,113,689 ($4,972,521) in 2011—a trend consistent across most donors. This downward trend may be explained by the economic crisis and the corruption scandals associated with the controversial practice.

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Figure 4

Descriptive statistics

The police donors comprised SMEs (63.8 percent); big (inter)national corporations (15.7 percent) (including Russian energy companies); ministries and municipalities (7.4 percent); physical persons (5.1 percent); foreign governments (mainly Germany, the Netherlands, the United States, and the United Kingdom) (3.3 percent); cooperatives (2.2 percent); elite sport clubs (1.8 percent); associations, unions, and NGOs (0.5 percent); courts (0.3 percent); and high schools (0.1 percent). There are two plausible explanations why SMEs gave the overwhelming majority of donations. In the early 1990s, privatization, market liberalization, and a new constitution guaranteeing private property rights and modern commercial code have led to a considerable increase in small private firms in Bulgaria. As a period of major socioeconomic transformations, transition offered numerous opportunities for low-level, start-up businesses to transfer resources from low- to high-productivity uses in the new market economy. Second, smaller firms require less capital and bureaucracy to register. It is possible that some SMEs are fly-by-night firms registered to serve narrow circles of interest. Figure 5 illustrates donor industry by firm size. Most big corporations were (inter)national banks and large industrial enterprises. SMEs comprised mostly security, transportation, and construction firms, small merchants, and retailers. The donated money were spent on fuel (32.6 percent), hardware (17.6 percent), gasoline (16.7 percent), office equipment and stationeries (10.0 percent), vehicles or vehicle-related items (5.6 percent), software (3.4 percent), money in cash (2.7 percent), and many others. Interviewed police officers explained that certain police departments accept mostly fuel because “fuel is a convertible commodity easy to resell. We do not have sufficient fuel because many colleagues steal fuel to resell it on the market” [3]. Bigger regional police directorates received the largest share of money (77 percent), followed by border (7.9 percent), security (4.6 percent) and traffic police (3.5 percent). This distribution implies that the donors attempt to influence the national regional, border, and security policy. Next, we apply network methodology to uncover hidden micro-level interactions between donors and police. We visualize the data as a two-mode network of donors and police departments donated to using the Kamada-Kawai ¹⁴⁴ algorithm which separates more connected from less connected clusters. The squares represent unique police units and the circles—donor firms. The edges illustrate money transfers. This algorithm enables us to distinguish between more and less dominant interest groups in the covert network. Predominantly smaller firms at times in cooperation with bigger enterprises mobilize in small, loose cliques to finance police departments in their district. We observe a single dominant interest group in the center of the graph surrounded by numerous minor cliques. The dominant interest group, comprising the strongly connected cluster, can quickly mobilize to promote or block institutional change, crowding out the interest of the isolated cliques. Such network configuration resembles North’s limited access order. In limited access orders, the “state does not hold a secure monopoly on violence, and thus society has to form a dominant coalition containing all individuals and groups with sufficient access to violence able to control violence among the elite factions, in order to maintain social order.” Figure 6 illustrates the donations’ geographical distribution from 2005 to 2011 for two actor groups—SMEs and big corporations. The donations by SMEs and bigger corporations correlate positively (r = .65, ρ = .00 from 2010 to 2011, and r = .77, ρ = .00 from 2005 to 2006) suggesting that the less experienced small firms mimic the market behavior of the older, more influential corporations, in order to survive in the market. In 2005, both SMEs and big corporations donated predominantly in Bulgaria’s coastal provinces. During state socialism, the communist party built legendary resorts along the Bulgarian 380-kilometer coastline. Once the mass privatization started in 1995, oligarchs and criminal groups were among the first to seize the sea resorts assets. The concentration of police donations at the coastal area in the early 2000s suggests that firms have used their contributions to influence the privatization process. Nevertheless, from 2011, the firms started relocating their contributions to more central regions. To examine to what extent the donations were motivated by corrupt intentions, we correlate them with an index ¹⁴⁵ of business perception of corruption from 2010 to 2011. We find a statistically significant positive correlation between business perceptions of corruption and corporate philanthropy. The Pearson correlation coefficient is slightly higher for the big corporations (r = .37, ρ = .03, N = 56), implying that they are more likely than the SMEs (r = .30, ρ = .04, N = 56) to use donations as a mechanism to manipulate public officials. A possible explanation can be that bigger enterprises make better use of political expenditures since they can manipulate petty bureaucrats and use economies of scale. ¹⁴⁶

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Figure 5

Donor industry by firm size

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Figure 6

Police donations and business perception of corruption

Discussion and Conclusion

On Theory

We sought to understand the corporate motivations for donating to the police in Bulgaria. To address this question, we integrated theories of corporate philanthropy, entrepreneurial orientation and social exchange and used a unique interview data with business executives and police officers. In contrast to former philanthropy models which focus on only one or two motives for giving, we proposed a more complex model comprising six motivations beyond those considered in the corporate philanthropy literature. Moreover, we showed how these motives can work simultaneously or transition from one form to another. Figure 1 illustrates our findings. Table 2 presents our typology of corporate giving.

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Table 2

Typology of Corporate Motivations for Donating to the Police

Donor Motivation	Model of Corporate Social Responsibility	Social Meaning	Exchange Type	Donor Benefit	Police Benefit
Social responsibility	Moral	Richesse oblige, philanthropy	Generalized reciprocity	Social benefit: symbolic capital	Economic benefit: financial or nonfinancial assets
Networking	Utilitarian	Alliance	Generalized reciprocity	Social benefit: social and symbolic capital	Social benefit: connections to the economic elite; Economic benefit: financial or nonfinancial assets
Signalling	Utilitarian	Competition	Generalized reciprocity	Social benefit: social and symbolic capital	Economic benefit: financial or nonfinancial assets
Peacemaking	Utilitarian	Peace treaty	Market exchange	Social and economic benefits: predatory policing deterrence	Economic benefit: financial or nonfinancial assets
Protection	Utilitarian	Facilitation payment, extortion, bribe	Market exchange	Social and economic benefits: law enforcement deterrence	Economic benefit: financial or nonfinancial assets
Favor for favor	Utilitarian	Favoritism	Market exchange	Favors	Professional appointments; insider information

Similarly to previous research, we found that businesses donate in order to comply with moral norms. ¹⁴⁷ Certain businesses see philanthropy as a form of social responsibility whereby they pay back to the police and local community for being financially successful. The exchange is altruistic in the sense that there are no initial conditions attached to the gift. These firms may benefit from social and psychological rewards such as warm glow, empathic joy, enhanced reputation, and guilt alleviation. ¹⁴⁸

We challenged the common scholarly view that corporations only engage in philanthropy, so as to establish profitable political connections. ¹⁴⁹ Networking is a low-risk strategy for new market entrants to tie the police into a network of mutual indebtedness. The purpose of the first gift is not to request a favor but to make a positive first impression and to establish a long-term strategic alliance. Networking firms may benefit from intangible rewards such as gratitude, legitimacy, and recognition by the police and local community.

Organizational scholars have argued that companies donate in order to acquire power, status, security, or prestige. ¹⁵⁰ Nevertheless, fewer studies have examined how corporations signal their hidden intentions. ¹⁵¹ We illustrated how in competitive markets enterprises, being substitutes for one another in the same donation network, use their donations as a signaling mechanism to jockey for power in the eyes of the police. In such circumstances, the gift takes the form of cash burning; it may or may not require a service in return.

While previous research has found that firms use philanthropy as a defense mechanism to manipulate or deceive (non)state actors, ¹⁵² fewer scholars have regarded gifts as peacemakers. ¹⁵³ In provinces, where the police are underfinanced, they may engage in predatory policing to increase their income. In such circumstances, companies may use their donations as a form of political reconciliation to avoid overregulation. Here the gift plays the role of a “peace treaty” preventing police protection rackets from extorting firms’ wealth. Since the first three motivations involve the exchange of quantifiable and intangible resources we classified them between philanthropy and social exchange (see Figure 1),

Like previous research we found that firms use donations to pursue narrow-interested egoistic motives ¹⁵⁴ such as mutually beneficial relationships ¹⁵⁵ and covering up fraudulent activities. ¹⁵⁶ We illustrated how grease payments, speed-up money, or bribes can take the form of donations as a means to circumvent the law. We also showed how the police and business interpenetrate each other by exchanging favors and human capital. We placed the latter two motivations in the intersection between philanthropy, social exchange, and entrepreneurial motivation because they involve the exchange of quantifiable resources, are profit-driven, and come under the form of legitimate payments.

Overall, we found more motivations in favor of the utilitarian model of CSR. Future research can examine which of these six motivations for donating most strongly predict police donations and how much money was donated for moral or utilitarian reasons. Do altruistic-benevolent donors generate higher value than self-interested ones? Not all donations given with moral intentions generate positive externalities. The police should spend and use the donations in the interest of the organization and the local community. ¹⁵⁷

Our study is distinct in that it relates theories of philanthropy, gift exchange, and corruption in a novel way. We found a statistically significant correlation between regional business perceptions of corruption and corporate donations to the police, implying that the utilitarian model of corporate social responsibility prevails. We further showed that greasing and sending the wheel hypotheses are not mutually exclusive. Firms can simultaneously bribe to speed up slow administrative services and pay to prevent or delay investigations.

How are the Bulgarian police donations similar to other forms of gift giving? The donations are not a random, incidental, or spontaneous affair but an intelligent diplomatic maneuver. Corporate philanthropy to the police resembles the Chinese guanxi and the Russian blat ¹⁵⁸ in that it follows prior collegial, trust, and kinship ties; requires secrecy and networking; and may involve the reciprocation of scarce goods, services, and human capital. Therefore, our findings conform to Iliycheva’s hypothesis that Bulgarian corporate philanthropy is embedded in close trust relationships. The donation also resembles Bearman’s tips and bonuses in that it represents simultaneously a prepayment, postpayment, and downpayment for goods and services, and at times, a hedge against uncertainties. Future studies should examine whether police donations follow prior ties to the secret police or communist party. It is possible that certain police donors are descendants of the very families who served as SS informants or employees.

Our results have some more general implications for entrepreneurial orientation. Police donors are entrepreneurially oriented, innovative, proactive, and willing to take considerable risks. We showed how companies collude in cartel-capture coalitions to lobby the state, and engineer covert but nonviolent institutional innovations to influence the direction of state intervention in the economy.

We further make a minor contribution to SET. While most scholars have applied SET to study rational decision making in modern, legitimate, and perfectly competitive markets, our study is unique in that it examines exchange behavior in transitional, imperfect, and informal markets. Economists have examined corporate philanthropy as one-directional transaction. However, they did not examine its hidden social order and symbolic value. Similarly to Emerson, we suggest that exchange relationships are not restricted to concrete, quantifiable resources. They may involve intangible rewards such as recognition, social status and peace. Donations to the police resemble more social than economic exchange, because the nature of the obligations involved is not necessary specified. ¹⁵⁹