The value of corporate philanthropy is a topic of ongoing and vigorous discussion. That was especially the case at this year's Independent Sector conference. One of the most intriguing panels titled: "Beyond Checkbook Philanthropy" debated whether corporations should lead social progress directly by engaging their enormous capacity rather than just doing plain corporate philanthropy. The attendees of the panel agreed with my premise that shared value ventures would be a better fit for corporations rather than just writing a check as it encompasses core strengths such as talent and infrastructure. However, philanthropy needs to maintain its role in development as it's a response to social problems that cannot be always addressed within markets.
From the early on at the panel, it was noted that shared value initiative is not philanthropy. Yet, philanthropy can be an incubator in the process. Through shared value initiatives corporations do not only socially invest towards societal needs but they also make profit out of it. Harvard Business Review of Jan/Feb 2011 cover story, "How to Fix Capitalism," which made the term, creating shared value, popular, defines it as a wave of innovation and growth to fix capitalism. As I listened to the panelists, I struggled with the question of, "What if the market cannot provide a solution to the social problem?" Then, the question that was obviously in the minds of many others in the room was asked, followed by a round table applause: "Should corporations abandon philanthropy all together and address social issues only through 'shared value' initiatives? What if the markets cannot provide a solution? Is corporate philanthropy, as we know it, dead?"
Free markets have their limitations. My view is that philanthropy at its best often solves the very problems that result from market failure. Some social issues cannot just be addressed by questioning the return on investment. Philanthropic giving has been roughly two percent of GDP for more than a generation in the U.S. It's really a drop in the bucket compared to what private capital can offer. As the real value of philanthropic giving is not increasing, social value initiatives have the potential to grow the amount of corporate funds addressing social problems. This would enlarge the pie tackling our global problems. However, philanthropy should continue to be a part of solutions offered by corporations.
Corporate capital has a huge potential that can be tapped into. The level of corporate giving has not grown in real terms over the last 20 years even though it became a part of every major corporation's budget. Corporate giving accounts for just six percent of the total giving in 2012. Businesses awarded a median of 0.8 percent of their pretax profits to charity last year. In the last six years, that percentage stayed at the same level -- varying from one to 1.4 percent. How can we be sure that corporations that haven't increased their philanthropic giving ratios in recent years would give more to solve the world's problems? In other words, how is shared value initiative different than philanthropic corporate giving, especially in the eyes of corporations?
The initiative's difference stands out when corporations realize that they are large enough and have plenty resources and skills to address social problems in our communities. And, the catch line is they can make profit while doing that. Yet, the concept is still not well understood even by corporations. Cisco's Networking Academy program teaches hundreds of thousands of students worldwide the skills needed to build, design and maintain, networks -- improving their career prospects while filling the global demand for networking professionals. With 10,000 academies in 165 countries, Networking Academy helps individuals prepare for industry-recognized certifications and entry-level information and communication technology careers in virtually every type of industry. The initiative was cited as a "shared value" venture at the panel yet the corporation still calls it Corporate Social Responsibility on their website.
Shared value initiatives also paves way for corporations to build new relationships that can decrease the cost of getting into a new market. A recent report of FSG that studied the future roles of 50 international NGOs' finds that there are many local organizations that can do their work so they should use their assets to find more scalable and impactful solutions to societal problems, and look for ways to partner with businesses. The collaboration between Coca-Cola and Gates Foundation is a great example. While Coca-Cola wanted to find a market for its fruit juice in East Africa, Gates Foundation was looking for ways to promote sustainable agriculture in the region. The region's small farmers were not interested in growing mango and passion fruit due to high costs and lack of demand. Gates Foundation connected Coca-Cola to Techno Serve, a mid-size NGO that trains farmers for sustainable agriculture. Farmers became interested in growing the products, Gates supported sustainable agriculture in the region and Coca-Cola found a new market for its products. A win-win situation for everyone.
As the panel discussion came to an end, the moderator surveyed the room to see who believes corporations should do just shared value giving, and who believe just corporate philanthropic giving. Most in the room, like me, believe that we need both. U.S. companies are increasingly interested in quantifying the business benefits generated by being socially responsible. Measuring the return on investments through shared value initiatives can be very easily done. Yet, corporations should view their shared value initiatives as only one piece of their overall social responsibility. Philanthropy cannot just be an incubator for understanding both community and corporate needs. In an era of increasingly complex corporate relationships, it's scary to think of a world where corporations are less interested in writing unrestricted checks than in leveraging their talent, technology, and infrastructure to help those in need. Shared value giving definitely cannot substitute philanthropy, as we know it. A world with both may be " the fix to capitalism."