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Making sense of the differences between CorporatePhilanthropy (CP) and Corporate Social Responsibility(CSR) has become something of a challenge for bothmanagers and academics. As Michael Porter and MarkKramer suggest in the opening debate, CP and CSR co-exist and should complement each other. While CP isconcerned with the improvement of the competitivecontext, benefiting both the company and society,other CSR activities are either superfluous, as in the

case of generic social initiatives, or are marginally nec-essary, as in the case of supply chain initiatives.

Despite the intuitive appeal of both arguments, Ibelieve the first shows significant logical flaws as soonas one examines the underlying assumptions behindthe two concepts, and that the second only makessense under the strict assumptions of the CP model.As soon as one adopts a broader perspective thataccommodates both CP and CSR as special cases withcommon dimensions, does the division between gen-

eral social, value chain and strategic philanthropyactivities lose its meaning.

CSR is defined following the green paper issued bythe EU Commission in July 2002, as the integration ofsocial and environmental concerns in (the) daily oper-ations and in the interactions with stakeholders on a

voluntary basis. There are three models representingpositions in the debate on the relationship betweenbusiness and society, and the responsibilities the for-mer has towards the latter (Table 1). The first, which Ilabel the trade-off model, was forcefully articulatedby Nobel Laureate Milton Friedman in 1970. The sec-ond captures the essence of the CP approach proposedby Porter and Kramer (2002), and the third conveysthe characteristics of the CSR model as discussed by

Preston and Donaldson, 1995).The distinction between the trade-off model and

the other two - and implicitly the similarity between theCP and CSR models - is related to assumptions aboutthe existence of activities that can produce both eco-nomic and social value for the companys stakeholders.Whereas Friedmans model assumes that no suchactivities exist, and that therefore any social initiativewill affect profits negatively, both CP and CSR relax thisassumption and accept that companies can identify

such activities. In fact, recent surveys of academicstudies on the business case (Margolis and Walsh,2003) confirm that the correlation between social andfinancial performance is either positive or neutral; thetrade-off model does not seem to gain support fromreal data analysis.

However, the comparison between CP and CSRreveals a series of important differences that might begenerally under-represented in the debate. First, thecausal logic underlying the motivation for the initia-

tives is different. In the CP model, the logic goes fromthe social performance to the economic one.Companies engage in philanthropic activities becausethey are convinced that by doing so they will be able togain a significant advantage in terms of reputation,social capital and business development. On the other

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Philanthropy or CSR:

a strategic choiceManagers and academics need to understand the differentmotivations behind the two approaches

By Maurizio Zollo

Recent surveys confirm that thecorrelation between social andfinancial performance is eitherpositive or neutral

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hand, given the definition of CSR, achieving full inte-gration of social and environmental concerns meansthat the causal reasoning goes in the opposite direc-tion: the ultimate purpose of a company is the

enhancement of social welfare, and economic per-formance is a necessary condition to achieve that.Economic profit is a means to an end, rather than anend in itself.

So can you have it both ways? Can managers thinkand act according to both causal logics? Obviously not.Even though they might be working on similar initia-tives, such as tackling the health crisis in Africa, theywould be doing so for different reasons and treatingtheir investments in very different ways. In the case of

CP, the initiative would be an ad-hoc project aimed atshort-term social impact and long-term financial gain.In the case of a fully embedded CSR model, the initia-tive would be part of a companys routine operations,with its economic profit serving the long-term goal ofcontributing to social welfare.

This leads to the second point, that the division ofactivities among generic social issues, value chainimpact and the competitive context makes perfectsense only within the instrumental logic that charac-

terises the trade-off and the CP model. In a companythat has integrated CSR, the driver for managerialdecisions and actions is both different and simpler:decisions are made and actions are taken only after afull analysis of the economic and social implications.Moreover, sustainability means different things in the

two models: it is about sustainable competetiveadvantage in the CP model, and it is about social andenvironmental sustainability in the CSR model.

Novo Nordisks activities in the fight against dia-

betes in developing countries is a good example ofCSR, not CP. This is not an ad-hoc initiative aimed at along-term financial benefit via significant short-terminvestments (and immediate returns of image). Rather,it is part of Novo Nordisk way to understand its rolevis--vis the rest of the world and the work is fullyembedded in its way of doing business. The economicprofitability of the initiative is a short-term considera-tion in order to ensure the long-term goal of eradicat-ing diabetes from, and therefore eventually putting

themselves out of, business. Hardly a recipe forsustainable competitive advantage, but an exemplarycase of sustainable development.

Maurizio Zollo is Associate Professor of Strategy andManagement at Insead

REFERENCES

Donaldson, T. and Preston, L.E. (1995). The stake-

holder theory of the corporation: Concepts, evidenceand implications. Academy of Management Review,20(1): 65-91.Margolis, J.D. and Walsh, J.P. (2004). Misery loves com-panies: Rethinking social initiatives by business.Administrative Science Quarterly.

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Table 1: Comparing Three 'Business & Society' Models

Trade-offModel

CorporatePhilanthropy

SocialResponsibility

Wealth creation

Risk protection

Ultimate purpose offirm existence

Financial v Socialperformance

Resource allocationcriterion

Type of socialimpact activities

Economic logic ofsocial actions

Governance mode

None, unless necessary

Shareholders'value max. (SVM)

Shareholders' rule

Trade-offCorrelation < 0

Social and economicdevelopment

Wealth creation

Jointly achievableSocial => Financial

Jointly achievableSocial => Financial

Shareholders' rule Shareholders' mode

Fully integrated

SVM long-term +ST social impact

LT social impactST financial impact

Embedded in allnormal activities

Add-on to normal(special projects)

Revenue growthopportunities