Why do corporate managements spend corporate money on charities? The obvious reason is to reduce the amount of corporate income tax due. Yet another motive, not as transparent, has to do with reputational capital, and that motive may also explain corporate social responsibility.
Achieving the low 12.6% effective tax rate was undoubtedly on Bernie Madoff’s mind when he made his firm's charitable contributions. This rationale was by no means unusual at the time. Furthermore, Madoff would not have been above using charity in order to display himself as a very wealthy person. According to Martin Press, a tax attorney, “If [Madoff] actually gave the money to charity, it is a common theme of Ponzi scheme people to make large charitable contributions to show people how wealthy they are.”[3] The perception of Madoff as a financially successful personally rendered him trustworthy in being capable of making investors rich, and the apparent charitable giving gave the impression of trustworthiness in its normative sense (i.e., honesty and integrity).
Similarly, moreover,
corporate strategies may include programs under the rubric of corporate social responsibility as a means of cultivating the impression that
the corporation itself is financially successful and trustworthy both in terms
of competence and fairness. That is, corporate social responsibility may
be more about amassing reputational capital for the corporation than any
acknowledged responsibility to society (other than to provide consumers with
effective products). Achieving the low 12.6% effective tax rate was undoubtedly on Bernie Madoff’s mind when he made his firm's charitable contributions. This rationale was by no means unusual at the time. Furthermore, Madoff would not have been above using charity in order to display himself as a very wealthy person. According to Martin Press, a tax attorney, “If [Madoff] actually gave the money to charity, it is a common theme of Ponzi scheme people to make large charitable contributions to show people how wealthy they are.”[3] The perception of Madoff as a financially successful personally rendered him trustworthy in being capable of making investors rich, and the apparent charitable giving gave the impression of trustworthiness in its normative sense (i.e., honesty and integrity).
Lastly, charitable giving can be motivated by the wrong assumption that it can make up morally for unethical policies. In the case of Bernie Madoff, the firm's business was inherently unethical as a ponzi scheme. Besides providing merely a patina of morality, therefore, charitable giving can also be "rationalized" in corporate boardrooms or CEO offices as making up for any unethical policies or conduct. Like any patina, charitable giving specifically and corporate social responsibility more generally cannot make up for a sordid company culture and any unethical policies or conduct within a company. Put another way, fighting the temptation to have an unethical company when expedient is worth more ethically than having a corporate-responsibility program. Theoretically speaking, such a program is not primarily ethical; rather, it narrows the gap between existent corporate and societal norms, whereas an ethical policy or conduct is so because it survives critique of the underlying ethical justification. The difference here is between the is and the ought. To get ought out of is (i.e., business ethics out of a CSR program) is, according to David Hume, the naturalistic fallacy. Norms exist, and therefore are, whereas ethical policies and conduct pertain to what should be.
Sources:
1. John Waggoner, “Madoff ‘Donated’ a Lot to Charity,” USA Today, December 13, 2013.
2. Ibid.
3. Ibid.
