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Bill George
Scholar/Former CEO

Bill George

Bill George is a management professor at the Harvard Business School, the former Chairman and CEO of Medtronic, Inc., and the author of several best-selling books on leadership. His latest release is 7 Lessons for
Leading in Crisis
.

Milton Friedman's mistake

The late Milton Friedman got it wrong when he wrote many years ago that any corporate leader that gives a portion of company profits to philanthropy is "a pure, unadulterated socialist." Actually, thoughtful corporate philanthropy, like that practiced by Target, Wal Mart, Merck, Novartis, Exxon, Goldman Sachs and many other companies is capitalism at its best.

At a time when non-profits are struggling to balance their budgets and endowments are deflated, corporate philanthropy is more important than ever. Companies should not rely on government to address social inequities and long-standing societal problems, like health care, education, job creation, environment, and global peace.

In a time of rising profitability, corporations have an obligation to step up their philanthropic efforts to collaborate with non-profits and government organizations to help address these intractable problems. This should be an integral part of their missions and business strategy. Social entrepreneurs are great, but they need the support from corporate foundations and the collaboration that goes with it.

By Bill George

 |  November 17, 2009; 6:30 AM ET
Category:  Corporate leadership Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   Del.icio.us   StumbleUpon   Technorati  
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Although the comment above may be coldly mathematically correct, it is very one-dimensional in its analysis. It doesn't, for example, take into account the effects philanthropy has on future profits. That is, people will be willing to do business with a company that puts a little of its profit margin into philanthropic efforts before doing business with a company that doesn't. It's all about corporate image, and philanthropy is an excellent form of positive advertisement.

Posted by: IndependentRamjet | November 23, 2009 2:46 PM
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Lets take an example.

The corporation has a profit of $10,000,000. If no donations are made, each stockholder would recieve $1000. Instead, the corporate executives donate $100,000 to charity, thereby reducing the stockholders payout to $900. Essentially taking $100 from each stockholder without their permission.

Some of the stockholders may be philanthopists themselves and their ability to make contributions of thier own choosing has just been reduced by $100. Others may be senior citizens trying to supplement Social Security and they must now look elswhere (to charity?) for the $100 lost to the executive's philanthopy. The majority are probably pension funds trying to meet their obligations to retirees and they must now spend down their trust fund to make up the $100. Whatever their circumstances, they all have one thing in common. Corproate executives whom they trusted to maximize the stockholders return on investment have instead taken profits that rightfully belonged to the stockholders and diverted the funds to other purposes. And who is to say the executives are choosing more wisely than the stockholders? Is a single large corporate donation to charity A more worthy than several small contributions to charities B,C, & D? Does society benifit more from corporate charity or from senior citizens being able to pay their bills and pansion funds meeting their obligations to retirees?

Sorry, Milton Friedman was right. Corporate executives should use thier own money, rather than the stockholders, to make charitable contributions. Using corporate profits for these purposes does very little to increase the available pool of sociatal capital. It merely moves the decision making process from the stockholder to the executive.

Posted by: WoodbridgeVa1 | November 17, 2009 10:09 AM
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