The Underbelly of Corporate Charity as Corporate Social Responsibility

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). 
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.

Is Corporate Governance Anti-Democratic?

Assuming all the votes cast in an election are accurately tallied, the pronouncement of the winner would seem to be straight-forward. What it means to have won, however, is considerably more complex. Specifically, is winning getting over 50% of the vote, or should a mere plurality of, say, 38% suffice? It could be argued that a super-majority of 60% or two-thirds is necessary for there to be a discernible will of the people behind the winner. To claim that 51% represents the will of the people seems a bit of a stretch, since almost half of the voters cannot be considered to be of that will. Typically, much is read (or projected) into the 1% over the 50% in terms of a mandate. All of a sudden, 51% of the voters become “the people.”  Certainly a winning plurality of 38% cannot be said to stand for or represent the will of the people, for 38% is a minority in the total votes cast. Yet in Delaware’s corporate law, which is binding for most American corporations, a mere plurality is sufficient for a candidate to be elected to a board of directors. While this arrangement is not ideal, it is a legitimate basis even if some stockholder activists beg to differ.
Writing for the New York Times in April 2013, James Stewart defines losing a board election as “more than 50 percent of the shareholders withheld[ing] their votes of approval.” Stewart expresses his amazement that 41 boards retained directors whose pluralities in 2012 were tantamount to a resounding vote of no confidence--meaning that those directors got less than 50 percent of the votes cast. According to Stewart, those directors “actually lost their elections” and yet were allowed to remain on the boards. It sounds corrupt as well as anti-democratic. “As fiduciaries, we can’t sit by and let the board make a mochery of our fundamental right to elect directors,” John Liu, New York City’s comptroller, said in reference to Cablevision Systems. As manager of the city’s pension funds, which are invested as more than 532,000 shares in the company, Liu wrote to the company concerning three directors whose pluralities were significantly less than majorities. “The fact that all three directors remain on the board suggests that one of the few rights” afforded shareholders is “illusory,” he wrote. The company’s management did not respond. Moreover it nominated the three directors for yet another term.
Although Liu is on solid ground that insiders should not be allowed to subvert director elections. However, he is wrong in his assumption that plurality voting is not legitimate under democratic auspices. Plurality simply means that the candidate with the most votes gets elected to the given seat. Were a board to turn around and award the seat to a candidate who did not get the most votes, that would be illegitimate from the standpoint of democratic principles.
The question here is not that of legitimacy. More to the point, the question regards how much of the total vote on a seat should be sufficient for the candidate with the most votes to deserve the seat from the standpoint of the stockholders. If there are several candidates and none gets the percentage deemed by the stockholders to be sufficient, then presumably a run-off would be held.
Even though a plurality is a legitimate criterion from democratic principles, it may play into the dominance that many managements have over “their” respective boards of directors.   Where there is no stockholder-nominated candidate, management’s nominee can be elected all too easily even without much stockholder approval. Even the presence of stockholder-nominated candidates would not necessarily solve the problem; management could see to it that several “stockholder-nominated” candidates spread out the anti-management vote so the management-nominated candidate can obtain a plurality. Rather than being anti-democratic, that is merely politics.
From the stockholder standpoint, the political solution would be to up the bar on the percentage of votes cast that a candidate must have in order to be elected. Put another way, the dominance in corporate governance typically enjoyed by management (unless management really screws up) could be reduced by routinizing stockholder nominations and increasing the percentage needed for a candidate to be elected.

Source:

James Stewart, “When Shareholder Democracy Is Sham Democracy,” The New York Times, April 12, 2013.