The New Corporate Philanthropy
Gone are the days when corporate giving was confined to Little League, food banks, and other traditional causes. On today’s corporate websites, politically charged initiatives to end social or economic “inequity” or advance racial or environmental “justice” have largely replaced references to noncontroversial charities serving the common good. From the 1960s until a decade or so ago, Coca-Cola’s charitable giving was characterized by donations to the National Park Foundation and the Emory University School of Medicine. Now, the charitable giving of that company, and others like it, seems most visible in the millions of dollars it gave to Black Lives Matter (BLM) and the “defund the police” movement.
New incentives have driven many corporations to reject traditional models of giving—namely, the corporate foundation—and replace them with so-called strategic corporate philanthropy, direct giving that explicitly couples a company’s philanthropy with its business operations. This new corporate philanthropy is nontransparent, unaccountable, and irresponsible. It is more partisan and, arguably in substance and certainly in rhetoric, increasingly aligned with the politics and activism of the Left. Sometimes, it even seeks to use that activism to turn a profit. These developments raise new questions about the nature and purpose of corporate philanthropy today.
The Old Corporate Philanthropy
Elites have long sought immortality. For the wealthiest of America’s late nineteenth-century monopolists, this meant the redemption of their reputations and the perpetuation of their influence for posterity. It was to those ends that the Sages, Carnegies, and Rockefellers created the first private foundations. The corporate foundation, a subspecies of private foundation, soon followed.
Although philanthropy had been around in one form or another for thousands of years, the late nineteenth and early twentieth centuries witnessed the birth of what we today recognize to be corporate philanthropy. At first, court rulings and IRS policy dictated that corporate charitable giving directly benefit a company’s business operations, employees, or shareholders. Many today will find such a direct-benefit requirement foreign if not antithetical to the spirit of charity, and some philanthropists at the time viewed things similarly. Contrary to the popular conception of the Gilded Age as an era of unbridled self-interest, some late nineteenth-century corporate managers desired to donate to causes without direct benefit to their companies. Sometimes, they found workarounds. One oft-cited example is that of socially conscious railroad companies which underwrote the operating expenses of local YMCAs along their routes, ostensibly for use by their employees.
As the Progressive Era unfolded, legal attitudes concerning corporate philanthropy began to change. In 1917, Texas became the first state to allow corporations to donate to causes without direct benefit. Others followed suit, and by 1948, fifteen states allowed such philanthropy. Finally, in 1953, federal courts struck down the direct benefit limitation altogether. That year, the Supreme Court of New Jersey ruled in A.P. Smith Mfg. Co. v. Barlow that a $1,500 contribution to Princeton University by the A.P. Smith Company was valid because “the corporate power to make reasonable charitable contributions exists under modern conditions even apart from express statutory provision. . . .” The ruling clarified that contributions that indirectly benefit corporations are permissible because corporations have a social responsibility to uphold the social conditions in which they flourish. (This sowed the seeds of the social responsibility model of corporate purpose, which stands in contradistinction to the profit-maximization model and which, some seventy years later, would be sublated by the Environmental, Social, and Governance, or ESG, movement.)
As laws changed, corporate philanthropy expanded in scale and scope. From 1930 to 1960, corporate charitable giving increased from $31 million to $595 million annually. This increase came with a lack of transparency and accountability, causing the public great concern. Sporadic reports of self-dealing, electioneering, and political intrusions by private and corporate foundations surfaced periodically. The public grew incensed, in no small part because foundations are tax-exempt entities.
Many of the transgressions that so upset the public then would hardly turn heads today. While the origins of contemporary strategic corporate philanthropy trace back to the late 1950s and 1960s—when American business underwent a cultural revolution, breaking free of the stifling Taylorist management theories that characterized the 1950s—the corporate philanthropy of that era was, for the most part, relatively uncontroversial. Even corporations that embraced the counterculture of the 1960s limited their giving to mainstream civil rights organizations—not the Black Panthers, Students for a Democratic Society, or I Wor Kuen, as today’s corporations might have done.
Congress nevertheless responded to the public’s concerns. In 1969, it passed the Tax Reform Act (TRA), which established the regulatory strictures that have governed philanthropy ever since. The TRA seeks to ensure that philanthropy is transparent, accountable, and in service to the common good. It recognizes that public charities usually operate “on the ground” in pursuit of their charitable missions, while private foundations are primarily grant-making organizations removed from their constituencies. The former, with their broad financial support, are deemed more accountable to the public, while the latter, endowed by an individual, family, or corporation, and largely funded with income earned on investments, are considered less accountable. Thus, the TRA marks the first time that the federal government recognized public charities and private foundations as distinct, mutually exclusive categories of 501(c)(3) organizations with specific privileges and restrictions.
As Brooklyn Law School professors Dana Brakman Reiser and Steven A. Dean detail in their 2023 book For-Profit Philanthropy, Congress did not “adopt an openly hostile stance toward private foundations,” but rather “approached elite philanthropy with a wary openness.” The TRA upheld the perpetuity of private foundations—a major victory for philanthropists—but subjected foundations to more stringent taxation and regulatory scrutiny than public charities. It also saddled them with a greater—albeit still insignificant—tax burden and diminished the tax benefits reaped by their donors and endowers. Furthermore, the TRA banished foundations from politics. Any spending by foundations “to carry on propaganda, or . . . influence legislation,” or “to influence the outcome of any specific public election” constitutes a violation. The reforms of the 1969 Act applied equally to corporate foundations, which it expressly forbade from mingling with or leveraging the business divisions, operations, or assets of their parent companies, even in furtherance of their charitable missions. As with private foundations, the TRA required that corporate foundations grant 5 percent of the fair market value of their assets each year to qualifying recipients. Failure to do so incurs significant tax penalties on the undistributed amount. The TRA also required that private and corporate foundations disclose publicly in their annual IRS Form 990-PF filings the amounts, purposes, and recipients of their grants. Both of these provisions were intended to ensure that private foundations adhere to their charitable missions and remain accountable to the public.
Philanthropists determined that the perpetuity, legitimacy, and tax benefits of foundations under the TRA outweighed the increase in regulatory scrutiny. Thus, the TRA effectively normalized the private foundation as the preferred philanthropic vehicle for corporate and elite giving. For three decades, corporations and elite philanthropists acted largely within these guardrails. But by the 1990s, a wave of “strategic corporate philanthropy” had begun to swell, and it would soon transform corporate giving.
Strategic Corporate Philanthropy
Many corporations today reject the foundation model and instead engage in strategic corporate philanthropy. To them, corporate foundations have grown unattractive because the TRA restricts the kind of politicized giving they now engage in. Corporate foundations were useful for issuing grants to traditional charities, but they obstructed the pursuit of increasingly ambitious social and environmental initiatives. This was partly because of transparency rules, which required the public disclosure of grant amounts and recipients, and partly because of restrictions that prevented corporations from leveraging their business assets for philanthropic purposes. The former made supporting controversial causes politically risky, while the latter limited the scope of corporate social and environmental initiatives.
Furthermore, the once-enticing tax benefits of foundations are insignificant in the eyes of today’s corporate behemoths, which can offset forgone benefits with for-profit philanthropy (e.g., social investing, or investing that seeks to generate both a financial return and social change). Besides, any direct charitable contributions corporations make are still tax deductible despite circumventing their foundations, and the percentage cap for direct contributions is the same as that for grants issued by corporate foundations.
The advent and popularization of social media also contributed to the decline of the corporate foundation. As Reiser and Dean note, in 2000, before Twitter, Facebook, or Myspace, Bill Gates chose to “embrace tradition” by creating a private foundation to redeem his reputation and signal his accountability to the public. But in 2015, Facebook CEO Mark Zuckerberg forwent the creation of a foundation, choosing instead to establish a boutique philanthropy limited liability company (LLC), the Chan Zuckerberg Initiative. Unlike Gates, Zuckerberg had the means to craft his own narrative around his philanthropy and, therefore, did not have to act transparently to court the opinion of a hostile press.
Just as Silicon Valley billionaires like Zuckerberg were among the first to eschew foundations for philanthropy LLCs and tailor-made donor-advised funds (DAFs), Silicon Valley firms were some of the first to embrace alternative models such as strategic corporate philanthropy. Google, a company with vast powers over public opinion and the public square, was one such pioneer. When the tech giant went public in 2004, it established both a corporate foundation and an internal philanthropic division, Google.org. The latter oversaw the former until 2017, when Google shuttered its foundation and relocated all of its philanthropic activities within the company, overseen by its business executives. That same year, General Motors shuttered the GM Foundation and transferred its activities to an internal corporate giving department. The change coincided with a reorientation of the company’s philanthropy away from small gifts to local charities and toward “social investment” and “high-tech education, safety and economic sustainability.” Other companies followed suit, escaping the regulatory confines of the TRA to pursue more ambitious projects.
Many corporations have since opted to embed their philanthropy within their business practices. A 2021 study by Chief Executives for Corporate Purpose (CECP) found that at the world’s 230 largest companies, just 2 percent of full-time employees who focus on corporate giving or volunteering are located within a corporate foundation or philanthropy department. The rest are dispersed throughout marketing, public relations, administrative, legal, C-suite, strategy, and ESG-related departments. Some companies provide slush funds to identity-based affinity groups, such as employee resource groups (ERGs), to be donated to causes of their choosing. These slush funds can total half a million dollars or more.
What few corporate foundations remain operational are less prominent than before. Many no longer spend income from investments; instead, they are treated by their parent companies as mere pass-throughs for annual or recurring donations. For example, in 2020, S&P Global CEO Doug Peterson announced that the company would be contributing $1 million to nonprofits supporting equity and racial justice via the S&P Global Foundation. The foundation’s Form 990-PFs reveal that it is almost entirely funded by annual donations from its parent company rather than income earned from an invested endowment. This lack of discretionary and financial independence is a departure from the foundations envisioned by the TRA.
In some ways, the new corporate philanthropy marks a return to pre-TRA philanthropy. Corporate giving and business operations are once again inextricable, yet today, direct benefit and for-profit philanthropy are not only tolerated but celebrated. In other ways, the new corporate philanthropy is a departure from the past. Corporations contribute directly to causes rather than channeling their philanthropy through foundations, and the causes that they support are often far more radical than before. As we will later see, the forces driving corporate decision-making have also grown to include powerful exogenous actors such as the ESG cartel.
Unfettered “Philanthropy”
By eschewing foundations, corporations circumvent the only regulatory framework that guaranteed transparency to their philanthropy. If corporations engaging in strategic corporate philanthropy choose not to disclose their activities, the public simply remains none the wiser, as the recipients of corporate giving are in no way obligated to disclose donor information. In other words, corporations that circumvent the foundation model escape the regulatory guardrails that are supposed to ensure that corporate giving remains essentially philanthropic in nature.
This means that corporations are free to pursue political and for-profit schemes under the guise of philanthropy, common examples of which include partisan-inflected “get out the vote” initiatives, lobbying for controversial causes, and social investing. These sorts of activities make the disentangling of philanthropy from political activity or business interests impossible.
The legal framework of the TRA was not designed to preside over this sort of “philanthropy.” Its increasingly apparent insufficiencies are further compounded by the assumptions built into the existing shareholder governance framework. When shareholders muster up a challenge to corporate fiduciaries on the grounds that they violated the duties of care or loyalty, courts make determinations by applying the Business Judgment Rule. This rule grants fiduciaries immunity from liability as long as they acted in good faith, with the care that a “reasonably prudent person” would exercise, and with the reasonable belief that they were acting in the best interest of the corporation. These are vague conditions in general, but particularly with respect to corporate giving; past applications of the rule make clear that just about any apparently philanthropic action is permissible under them—even those coinciding with losses in company revenue, layoffs, or dividend cuts.
The corporate response to the 2020 Black Lives Matter (BLM) riots reveals the contours of the new corporate philanthropy landscape. In what the ESG rating agency S&P Global characterized as an extraordinary convergence of employee demands and “socially aware” customer expectations, corporations temporarily revealed the details of some philanthropic initiatives to the public, providing rare insight into the substantive directions of the new corporate philanthropy.
In the wake of George Floyd’s death and the ensuing riots, companies pledged or contributed more than $97 billion to the BLM movement and related causes, as documented by the Claremont Institute Center for the American Way of Life’s BLM Funding Database. The consulting firm McKinsey estimates that the number is actually far larger. They calculated that, from May 2020 to October 2022, companies made contributions and pledges totaling about $340 billion “to racial equity, specifically for black Americans after the murder of George Floyd in May 2020.” Few of these donations were made by corporate foundations; rather, the vast majority were made directly by corporations to left-wing nonprofits or toward corporate initiatives such as “social investment” programs.
Thus far, corporations have paid out more than $122 million to the Black Lives Matter Global Network Foundation (blmgnf) and the Movement for Black Lives (M4BL), the two major BLM umbrella organizations. Some of that money no doubt supported the “mostly peaceful protests,” which damaged more than two hundred American cities, causing more than $2 billion in damages and at least twenty-five deaths. Yet that is just the tip of the iceberg. Corporations donated to hundreds of left-wing nonprofits, including various BLM organizations, other members of the “defund the police” movement, left-wing bail funds, questionable academic institutions (e.g., Ibram X. Kendi’s Center for Antiracist Research, which is now accused of mismanaging funds), PreK–12 groups pushing critical race theory and critical gender theory, anti-assimilationist immigration centers, partisan-inflected voter registration initiatives, transgender groups, pro-Palestinian groups, and more. Corporations also instituted Diversity, Equity, and Inclusion (DEI) initiatives and social investment schemes on an unprecedented scale.
A few examples to illustrate: JPMorgan Chase’s $30 billion Racial Equity Commitment included billions of dollars for race-based lending targeting “structural barriers” to “close the racial wealth gap” and “build diversity into the supply chain.” The program, like many others of its type, was only made available to “Black, Hispanic, and Latino customers and communities.” The bank also helped found OneTen—an explicitly race-based hiring platform—and made donations to groups such as Chinese for Affirmative Action, a Maoist organization that supports BLM and has ties to the Chinese Progressive Association and the Chinese Communist Party.
Both Universal Music Group and Warner Bros. Discovery contributed to partisan-inflected voter registration initiatives, the former donating to Michelle Obama’s “When We All Vote” and the latter creating its own initiative, the Oprah Winfrey Network’s “OWN Your Vote.” The purpose of these thinly veiled partisan initiatives is to mobilize Democratic voter blocs to confront “gun violence,” “climate change,” “racial injustice,” “voter suppression,” and other left-wing issues. Universal Music Group also established a $25 million “Change Fund.” The fund donated to essentially partisan organizations like BLM, the Equal Justice Initiative, The Bail Project, Color of Change (an official partner of blmgnf), and the Colin Kaepernick Foundation, many of which advance explicitly race-based agendas. Warner Bros. Discovery donated $15 million across similar “racial justice” organizations. It also set aside $100 million in “creative resources and in-kind ad placements” for its forty-plus social justice partners working to “promote equity,” partnered with the National Black Justice Coalition to create comics that teach children about “gender pronouns and respect,” and signed BLM cofounder Patrisse Cullors to an exclusive, multiyear deal to produce scripted and unscripted series, animated and children’s programming, and digital content.
Gilead Sciences’ internal Racial Equity Community Impact Fund doled out $30 million in donations between 2020 and 2022 to dozens of organizations such as the Center for Racial Justice in Education (an outfit promoting critical race theory), the Marsha P. Johnson Institute (a black transgender organization), the Trevor Project (an organization that promotes lgbtq+ lifestyles to minors), the Equity Alliance (a neo‑Marxist, BLM-aligned organization), and Southerners on New Ground (an official member of M4BL which seeks “lgbtq liberation across all lines of race, class, abilities, age, culture, gender, and sexuality” through its mission to “transform communities” in the Deep South).
AT&T earmarked more than $3 billion toward racial equity and “police reform,” i.e., defunding the police. According to Ken McNeely, the company’s western region president, AT&T’s financial contributions are “but a slice of the pie.” “We actually took a more direct route,” McNeely said. “Filing testimony or a letter of support in our name—using our brand—is in many instances more impactful than giving money to a third party.” Accordingly, employees in AT&T’s legislative and public affairs teams had lobbying for police reform added as a metric in their annual reviews.
McKinsey expanded its DEI programs, donated $5 million to racial justice nonprofits selected by the company’s Black Network ERG, committed $15 million to LISC’s Black Economic Development Fund, established training and advancement programs exclusively for “black learners,” and pledged $200 million in pro bono work to “advance racial equity and economic empowerment among black communities.” Mastercard pledged to invest $500 million “to help close the racial wealth gap and opportunity gap for black communities across America.” And Wells Fargo partnered with OneTen and spent $150 million to lower mortgage rates and reduce refinancing costs exclusively for its black customers. Such examples continue ad infinitum.
Again, we only know these details because an unusually large number of companies voluntarily disclosed them in 2020. Strategic corporate philanthropy normally proceeds unannounced and unnoticed. Although corporations discreetly inform ESG ratings companies and consulting firms such as McKinsey of their actions, the public—and shareholders—remain in the dark. This makes it difficult to ascertain how much money corporate America is giving to other partisan-inflected causes. The rapid growth of the lgbtq+ movement, and the deluge of pro-lgbtq+ marketing by corporations, for example, suggests that it is no small amount. What is evident is that these causes are highly politicized and controversial, and yet this sort of “philanthropy” only continues to increase in scale and scope. According to CECP, corporate investments in “social justice and racial equity” increased 90 percent in 2021, even as public interest in BLM waned.
New Philanthropy, New Incentives
The new corporate philanthropy is driven in no small part by the emergence of new incentive structures. First among them is ESG, which should be thought of as compulsory, though it presents itself as optional. The unprecedented accumulation and consolidation of capital and power by the ESG cartel, especially the “Big Three” asset managers BlackRock, Vanguard, and State Street Global Assets, provide the cartel with a great deal of leverage and control over corporations. Companies that reject the dictates of the ESG cartel are alienated from large parts of the financial system and corporate advertisers, including the Big Three’s services, investment capital, and lines of credit. ESG compliance has become increasingly politicized, particularly its emphasis on implementing DEI initiatives and transforming business models to conform with the ESG cartel’s social and environmental agenda. It also means remaining in good standing with organizations like the Human Rights Campaign and Southern Poverty Law Center—proxy raters for the major ESG rating agencies—which many on the right-of-center consider groups with partisan left-wing agendas. Should companies resist, the Big Three are the largest shareholders in more than 96 percent of Fortune 250 companies and nearly 90 percent of S&P 500 companies. They are unhesitant to vote their shares, as Exxon Mobil learned, or to leverage their stakes in backroom meetings with management (from July 1, 2021, to June 30, 2022, BlackRock had more than 3,693 such “engagements” with 2,464 companies).
The ESG cartel is not bashful about how it wields influence. In a 2017 New York Times interview, Larry Fink, CEO of BlackRock, declared that
[corporate] behaviors are gonna have to change and this is one thing we’re asking companies. You have to force behaviors, and at BlackRock we are forcing behaviors. . . . What we’re doing internally is if you don’t achieve these levels of impact, your compensation could be impacted. You have to force behaviors. If you don’t force behaviors, whether it’s gender or race or just any way you want to say the composition of your team, you’re going to be impacted. . . . We’re gonna have to force change.
Sitting next to Fink was Kenneth I. Chenault, then CEO of American Express. He concurred with Fink and admitted that his company was doing the same thing. Collectively, the Big Three have a 16.69 percent stake in American Express, as of this writing. As Lucian A. Bebchuck of Harvard Law School and Scott Hirst of Boston University demonstrate in “Big Three Power, and Why It Matters,” even a 10 percent voting block of index fund votes can determine whether or not a vote passes for proxy contests or ESG matters, and even where votes are not close, the voting decisions of large, institutional shareholders influence the behavior of corporate managers substantially.
The ESG rating agencies are less than transparent about their methodologies and standards. This does not, however, mean that corporations receive no guidance about how they must behave. Companies can simply mimic the behavior of the ESG cartel members themselves, as they routinely publicize their own DEI initiatives, social justice activism, and sustainability efforts. The ESG cartel also signals to companies in publications and media articles how they should conduct themselves. For example, the ESG rating agency Sustainalytics produced an ostensibly analytical article titled “Tomorrow’s Board: Challenges in a Fast-Changing World,” in which it asserts, among other things, that “board diversity is no longer ‘a nice thing to do,’ but rather an essential tool in ensuring sustainable long-term performance and quality leadership.” Sustainalytics continues:
in the U.S., almost half of S&P 500 companies have already appointed a chief diversity officer or CDO. These appointments are often seen as one element of the strategies adopted by companies to remedy potential shortfalls in the company’s culture and workforce diversity and inclusion efforts. . . . Broadening the diversity topic on the board agenda is now unavoidable. As most companies do indicate in their statements that their diversity policy includes various factors such as gender, ethnicity, area of expertise, industry, one can only expect companies’ boards to provide enhanced disclosure on the implementation of such diversity at all levels of their organization. More companies are publishing specific targets for increased diversity across many dimensions over the near term. As companies around the world disavow systemic racism, investors, in turn, expect them to take concrete actions, be fully transparent and demonstrate that their efforts are having an impact.
In another article titled “Answering the Call for Progress: How Companies Can Respond to Investor Demands on DEI,” Sustainalytics cites the UN-sponsored Principles for Responsible Investment (PRI) and declares that “companies need to step up and demonstrate action” on DEI. “This call to investors,” says Sustainalytics, “is a strong indicator for organizations that they will need to show progress on DEI performance within their operations, value chain, and local communities.” Mona Naqvi, the manager of S&P Global’s ESG index, was even clearer. In an interview on CNBC, she described how S&P’s scoring system takes into account
things like how companies are behaving with respect to their raw stakeholders. So, not just their employees and their shareholders, but how do they interact with their broader community, which is really important in terms of building good will in times of stress like this [the George Floyd protests]. It’s also important through ESG to take into account things like diversity. How does a company actually hire? What are its hiring practices? Is it diverse throughout its broader business operations? And I think these are all the types of issues that these protests are demonstrating are very important to many people that ESG can help capture.
In what is perhaps the most explicit example of signaling by the ESG cartel in the wake of George Floyd’s death, S&P Global published an article titled “Why Corporations’ Responses to George Floyd Protests Matter” that describes how “the huge number of demonstrators calling for justice and change—among them customers, suppliers, and shareholders—has put the onus on corporate leaders to show how their policies are contributing to a more equitable and inclusive workplace.” The article continues:
Companies are realizing that failure to listen to all stakeholders, nurture a diverse and inclusive workforce, and engender strong community relations can damage their reputations and undermine their business models. The next step could be the elevation of social factors to the same level as the environment and governance. Only time will tell how social factors, such as racism and inequality, will affect companies’ futures. However, failure to address them could have an impact on their ESG performance and, ultimately, on credit quality if loss of customers reduces profitability.
The tacit threat to companies is evident: listen to “stakeholders,” i.e., left-wing activists, and support the “communities” they speak for, or receive a poor ESG score. As companies’ actions demonstrate, this effectively means supporting progressive causes. S&P Global says as much. Below the header “Social Commitment Is an Inextricable Part of ESG,” the ratings agency details how “major brands are uniquely positioned to influence people’s mindsets globally” and how “a younger generation of consumers” want companies to “make a financial investment to enhance diversity and inclusion, combat pay inequality, and support anti-racism initiatives, thereby addressing practices or policies that might be perpetuating racism in its many forms.” By “recognizing how historical foundations have preserved racial biases,” companies “may foster more inclusive workplaces, which would likely translate into positive ESG benefits. . . .”
Although the power of the Big Three asset managers is the primary driver of ESG compliance, these efforts are bolstered by other top-down forces. For instance, companies are pressured to comply with ESG by supranational organizations, such as the United Nations (UN) and the World Economic Forum, and by federal actors, such as the Securities and Exchange Commission (SEC) and the Environmental Protection Agency. Pressure exerted by corporations’ own workforces is another force driving ESG compliance. Corporate workforces are increasingly dominated by officially sanctioned, identity-based ERGs, DEI officers, and boardroom activists, many of whose roles were created by ESG metrics. Generational shifts have resulted in C-suites that are less afraid to opine on hot-button political issues or to integrate progressive activism with business operations. The rise of millennials, who disproportionately favor ESG, up the corporate ladder has populated C-suites with executives who are more activism-oriented than their predecessors.
For example, on May 30, 2020, Adidas retweeted rival competitor Nike’s digital campaign urging action against racial injustice after George Floyd’s death. Activist employees immediately seized on the opportunity to chastise Adidas for not doing enough to combat racial injustice, calling for increased DEI in hiring and demanding an internal investigation into “race-related issues” in the workplace. Adidas complied. It increased its financial donation to black communities to $20 million, committed to filling a minimum of 30 percent of all new positions in the United States with black or Latino hires, and financed 250 university scholarships for black students. S&P Global describes the Adidas case as “a clear example of how internal and external stakeholders can take a company to task on its social commitment,” adding that “from an ESG perspective, it gives us a glimpse into possible consequences for a brand’s image, and customer and employee loyalty, if companies fail to take what stakeholders perceive to be appropriate and effective action.”
In some cases, this behavior might be seen as wasteful corporate virtue signaling. But some companies are able to tailor their philanthropy to advance their business interests and ESG compliance efforts simultaneously. Large tech companies routinely support race- and gender-based digital literacy organizations. Gilead Sciences, a pharmaceutical company specializing in antiviral drugs for the treatment of hiv/aids, Hepatitis B, and Hepatitis C, demonstrated its ESG bona fides in part by donating to nonprofits promoting lgbtq+ issues. Nike’s $140 million “Commitment to the Black Community” appeals to ESG rating agencies and the company’s customers alike. And Goldman Sachs’s “One Million Black Women Initiative,” which commits $10 billion in direct investment capital and $100 million in philanthropic support “to address the dual disproportionate gender and racial biases that Black women have faced for generations,” will turn a profit as long as borrowers are not delinquent.
In these cases, ESG proponents may be correct to argue that their goals align with corporate profit maximization. But when ESG and corporate philanthropy are tools to be wielded for financial gain, the implications are perhaps even more unsettling. ESG poses an existential threat to entire industries, and even when it does not, certain companies are better positioned than others to comply with the ESG cartel’s demands. This presents a mechanism by which the Big Three and the largest banks can consolidate the market to their benefit. For example, by boycotting fossil fuel companies, the Big Three harm the fossil fuel industry and increase the value of their own investments in renewable energy, generating profits and advancing their environmental agenda.
What Is to Be Done?
Corporate philanthropy, once seemingly nonpartisan, increasingly looks like left-wing political activism disguised as charity. Much can be done to change the current dynamic. Both state legislatures and Congress can reform the legal regime governing corporate philanthropy to place limits on corporate social entrepreneurialism and require that corporations disclose the details of their philanthropy to the public. Such action would not be unprecedented. In 1997, Congress nearly passed H.R. 944, which would have mandated that corporations disclose their charitable giving to shareholders. The impetus at the time for the proposed legislation was the budding Corporate Social Responsibility movement—a UN-sponsored precursor to ESG. The proposed legislation was only quashed by a torrent of disapproving SEC comments that, upon close inspection, fail to convince.
The bill’s detractors argued that disclosure would impose unduly restrictive and costly recordkeeping processes on companies, wasting resources and disincentivizing corporate philanthropy. They also argued that disclosure would prevent certain types of donations from being made (in the words of Frank Emery, manager of corporate planning and communications at the Watkins-Johnson Company, the bill “would have the effect of eliminating corporate contributions except for the most non-controversial recipients at a time when Corporate America is receiving growing calls for support from a wide range of nonprofit organizations servicing philanthropic needs with [sic] our society”). Lastly, detractors argued that charitable contributions are an immaterial matter, and that companies’ charitable budgets are insignificant.
These objections are still parroted today by opponents of more disclosure, and they are easily refuted. Corporations in the digital age are perfectly capable of documenting their charitable giving. Indeed, corporations already keep digital records of nearly every other activity, and a growing number of ESG metrics. The typical case proffered by disclosure’s detractors is that of a restaurant chain whose franchises donate leftover foodstuffs to local homeless shelters. They claim that the documentation of these donations would prove such a burden as to eliminate them altogether. This seems implausible, but regardless, a simple legislative carveout for small in-kind contributions would resolve the matter. As for the other type of donation that disclosure would disincentivize, the kind Frank Emery refers to, public companies should not be in the business of making such donations.
The assertions that charitable contributions are an immaterial matter and that charitable budgets are insignificant also fail to stand under scrutiny. The former assertion contradicts the rationale for ESG offered to the public by the ESG cartel: that companies’ attitudes and actions do affect shareholders, as well as society at large. Contributions to transformative or revolutionary causes are hardly immaterial to these stakeholders. The latter assertion that charitable budgets are of insignificant size is belied by the figures contained within the BLM Funding Database and McKinsey’s study.
State legislatures should also consider reforming the Business Judgment Rule. Under the rule, corporate fiduciaries can satisfactorily justify ideological philanthropy by simply claiming that they acted to improve their company’s market share; that the recipients in many cases are anti-capitalists or partisan radicals is immaterial. Coupled with better disclosure, shareholders should have recourse to investigate and challenge corporate directors who violate the fiduciary duties of care and loyalty under the guise of philanthropy. Especially since strategic corporate philanthropy is said to be aligned with profit maximization and not separated from standard business operations, shareholders should be empowered to exercise their rights in this area. Although it is unlikely that legislatures will eliminate the Business Judgment Rule entirely, narrower reforms specifically around strategic corporate philanthropy are conceivable.
Lastly, lawmakers should take antitrust action to break up the ESG cartel. Some argue that the Big Three should be prosecuted under Section 1 of the Sherman Act and Section 7 of the Clayton Act. This is a long shot, partly because antitrust law after Reiter v. Sonotone and Continental T.V. v. GTE Sylvania, Inc. rests on a narrow consumer welfare standard. If, however, that standard is reformed along Neo-Brandeisian lines, lines that point toward a more holistic understanding of the public interest in robust competition, the ESG cartel will present an obvious target to regulators.
Consider that the Big Three are together the largest shareholder in more than 90 percent of S&P 500 companies. Individually, they are the largest shareholders in each other and in their investors. They also hold significant amounts of shares in other major financial institutions, including 20.4 percent of JPMorgan Chase, 21.4 percent of Citigroup, 19.6 percent of U.S. Bank, 27.3 percent of T. Rowe Price, and 41.2 percent of Wells Fargo. As of 2021, the Big Three held a median stake of 21.9 percent in S&P 500 companies, which meant that proportionally they cast 24.9 percent of the votes at those companies’ annual meetings (this figure does not include votes cast by other companies effectively controlled by the Big Three). Recall that even a 10 percent voting block is often decisive. This concentration of centralized private power hampers market competition and is antidemocratic.
The above prescriptions only narrowly address troubling trends in corporate philanthropy. Other political, economic, and social factors are at play in incentivizing these developments. But if policymakers and the public at large want to ensure that corporate philanthropy remains devoted to the common good, rather than partisan ideological causes, then they need to update the policy frameworks that have lagged behind corporate philanthropy’s disturbing evolution.