21 Nov 2005  Research & Ideas

The Geography of Corporate Giving

Where a company is headquartered influences the types of social programs it supports, such as housing assistance, disease research, and the arts, according to new research by professor Christopher Marquis and his coauthors. Is social spending too confined by geography?

 

Why companies support nonprofits and other socially responsible activities is an intriguing question for both academics and practitioners. After all, there is no clear-cut evidence that corporate "do-gooding" results in greater returns for shareholders. In an article forthcoming in the Academy of Management Review, HBS professor Christopher Marquis and coauthors Gerald Davis and Mary Ann Glynn develop a framework for understanding an important aspect of this issue: how social and governmental forces in local communities influence corporate decision making in the social sphere.

As part of their research, they have interviewed more than fifty people in two cities and collected data on some 1,000 communities since the late 1980s. They observe that organizations in different cities seem to have different foci when it comes to their community involvement. Companies in Cleveland are focused on housing, those in Columbus are oriented toward children's' issues, and Minneapolis firms put much of their efforts into the arts. The goal for Marquis and colleagues is to explain these systematic differences across locales.

Understanding the forces that drive corporate giving on a local level provides important lessons for executives, policymakers, and the groups who benefit. But such knowledge also suggests more work to be done in order to learn how global business trends, such as industry consolidation and globalization, might influence local philanthropy efforts.

Sean Silverthorne: How does your work advance other research done on corporate social activities?

Christopher Marquis: Most research on why companies are involved in social activities has looked at the financial impact of such behavior, essentially an attempt to justify social behavior by tying it to firm profitability. But in a review of all of the studies that have been published on the topic over the past thirty years, HBS professor Joshua Margolis and Jim Walsh concluded that the connection between social and financial performance is mixed and often contradictory. So the question becomes: Why are companies doing this despite a lack of clear financial gain?

Our approach to these phenomena centers on understanding why the majority of corporations' social activity is focused on their headquarters' community. Our main advancement over earlier research is identifying the specific mechanisms that generate homogeneity within communities in regard to corporations' social activities. We suggest that there are three main factors that influence corporations to follow locally established patterns: what the government encourages; what local peers are doing; and what they believe to be "right." This typology is similar to work on how industry membership influences companies.

For example, regarding governmental factors, the city of Detroit created an Enterprise Zone to attract local inner-city corporate spending. Cleveland firms have a well-established focus on housing, which some researchers credit to the early actions of local political leadership and governmental agencies that encouraged public-private housing partnerships.

Different locales do seem to have developed different conceptions of what is appropriate activity in this realm.

Corporations are also embedded in local social systems that include common club memberships and overlapping boards. These connections help inform companies what others in their local area are doing and directly put them in touch with local needs. Prior research on Minneapolis has shown how local clubs and the social networks of business leaders and nonprofits positively influence corporate philanthropy. Interviewees in one of the cities we studied described how institutions such as the local community foundation and boards of companies and nonprofits create links between local leaders, and that these links are helpful to get the word out about needs and generate peer pressure for giving.

And different locales do seem to have developed different conceptions of what is appropriate activity in this realm. In Silicon Valley, it is well known that corporate social action is very results-oriented, engendered by the start-up culture of the region. In Atlanta, prior commentators have noted that there is a special "spirit" that enables public-private partnerships to form to attract large-scale events that showcase the city, such as the 1996 Olympics and even the Cotton States Exposition in 1895.

We feel that understanding these factors, and how they operate alone and together, can give future researchers and practitioners not only a handle on corporate social action, but also a framework for understanding how and why communities influence corporations more generally.

Q: You use the term "corporate social action" instead of the more familiar "corporate social responsibility." Why make this distinction?

A: This was a topic of much consideration, both among us and the paper's peer reviewers, some of whom wanted us to use the more traditional term. Our problem with using the term "responsibility" is that it is somewhat value-laden, and suggests that corporations have an obligation to engage in certain behaviors. While all of us believe that corporations do have a responsibility to serve broader constituencies beyond shareholders, we feel that this goal is not best served by advocating what are corporate "responsibilities," but by first understanding why current socially-oriented practices occur.

So, in this paper we do not take up the argument that corporations have a responsibility to engage in social behavior. Instead, we simply seek to understand the mechanisms that contribute to a type of corporate practice—those oriented toward social benefits outside the firm. We define corporate social action as those firm behaviors and practices that extend beyond immediate profit maximization goals and are intended to increase social benefits or mitigate social problems for constituencies external to the firm. We feel that understanding the reasons why corporations act in certain ways will empower local nonprofits and other beneficiaries of corporations' social activities.

Q: Give some examples of how corporate social action today differs according to region.

A: In the paper, we contrasted the social activities of major corporations in two Ohio cities—Cleveland and Columbus—and discovered that they have very different patterns. In Columbus, there is a preponderance of activities targeted to children's needs. These include programs providing kindergarten tutoring to financial support of Pediatric AIDS, The Children's Defense Fund, and Action for Children. It is likely that the Columbus corporations' interest in benefiting children stems from the influence of Dave Thomas, the founder of Wendy's, a major Columbus firm. Wendy's promotional materials describe how Thomas worked to influence other large corporations to support his causes—which centered on children's issues such as adoption. Other Columbus-headquartered companies as diverse as The Limited, Bob Evans, and Cardinal Healthcare evidence similar attention to children.

Cleveland does not have the same focus on children. But in addition to the city's focus on housing, it appears that a tradition of employee volunteering has developed. For example, Eaton has given an award for employee volunteers since 1933. Nordson, as a supplement to offering paid time off for volunteering, created the "Talent and Time" program, which was designed to match employee interests and talents with community needs. And many other Cleveland-headquartered firms have a similar commitment to employee volunteering.

Q: Do you think it is surprising that, in a globalizing business environment, headquarters' communities still have such an important influence on companies?

A: This is one of the most surprising, and to some extent counterintuitive, aspects of our research. Sure, corporations may be globalizing, but there is a tremendous amount of evidence that their social involvement is still very local and in particular focused on firms' headquarter locale. For example, Doug Guthrie, a sociologist who has been visiting HBS for the last year, conducted a study of 2,776 firms' giving behavior across fifty U.S. cities. He found that 77 percent of giving across these communities stayed within the headquarters' community and that 80 percent of corporations claim that their largest single donation was within their community. Further, HBS professor Rosabeth Moss Kanter, in a study published in the late 1990s, showed that companies headquartered in Miami, Boston, and Cleveland contributed considerably more to the community and were much more involved in civic leadership at the local level than non-locally headquartered companies. So, while companies may be globalizing in terms of sales and operations, their social spending is still mainly a local phenomenon.

For executives, we hope this will illustrate the need to geographically diversify social spending.

I want to point out also that this may have social implications that have not yet been systematically explored. Given the continuing trends in large-scale mergers and consolidation of U.S. industries, if corporate social action maintains its focus on the headquarters location, this may have a detrimental effect on areas that are losing headquarters. Our interviewees described how local banks used to be the largest supporters of social programs in one of the communities we studied. But now, after out-of-town banks bought the major local firms, these organizations have drastically reduced their local support because the key decision makers are no longer in touch with the needs of this locality.

Q: Does your research have practical implications for corporate executives, policymakers, or the groups who benefit from corporate philanthropy?

A: We feel that our research has very substantial implications for all three groups. Perhaps the most immediate are for groups such as local nonprofits and others that benefit from corporate social activities. Understanding the local funding environment and the key levers with which to influence local funders is important information. Our interviewees suggest that local firms have a very intuitive sense of this from their fundraising activities and we hope our framework will make this more systematic.

For executives, we hope this will illustrate the need to geographically diversify social spending. There is currently a lot of talk about how companies support programs in all communities where they have employees, but our interviews and prior studies just do not support this claim. For policymakers, at both the national and more local levels, perhaps the major implication is the need to consider how social spending changes as industries consolidate and mergers change the locations of major corporate headquarters.

Q: What are your next research steps in this line of work?

A: Building on this paper, Gerald Davis from Michigan and I are in the process of systematically examining corporate and nonprofit growth for close to 1,000 communities over the period from 1987 to 2002. In addition to the interviews for this study, we have also created a database that enables us to understand the statistical relationships between communities, corporations, and local nonprofits in a rigorous fashion. I welcome suggestions and comments from readers who have experience in this area.

About the author

Sean Silverthorne is the editor of HBS Working Knowledge.