Hidden Hand: Just How Self-Interested is Corporate Philanthropy?

Katherine Welles/shutterstock

Katherine Welles/shutterstock

Especially at the highest levels, corporate philanthropy is becoming increasingly strategic, more tightly weaving together the quest for social impact with the drive for profit. Some leaders in that push, JPMorgan Chase among them, argue that supporting causes like community development or workforce training contribute to the long-term bottom line. Of course, these efforts also generate nice PR and, in the case of the big banks or companies like Walmart, help repair battered reputations. Such investments exemplify enlightened self-interest.

But there’s a seamier side to strategic corporate giving, one that’s generated plenty of anecdotes over the years, but little rigorous corroboration. In a 2018 working paper published by the National Bureau of Economic Research (NBER), a team of researchers led by Marianne Bertrand of the University of Chicago’s Booth School of Business attempts to change that. Their findings are significant and troubling. In a nutshell, the research suggests widespread corporate use of charitable giving as a tool to influence federal rulemaking, swinging regulatory deliberations in companies’ favor.

We’ve all heard stories about, say, the soft drink industry bankrolling favorable health science or fossil fuel companies funding studies that downplay the effects of climate change. But as Bertrand et al. note, nailing down how corporations actually influence policy is a difficult task, and so is determining how pervasive these sorts of activities are. In this case, Bertrand and her colleagues dug deep into what they call “a rich and virtually untapped empirical environment”—public commentary on federal rulemaking accessible at regulations.gov.

Federal agencies are required by law to publish proposed rules and accept public comment before finalizing them. “While there is no legal requirement for agencies to act on feedback received in comments,” the researchers write, “the agencies themselves often attribute changes between proposed and final rules to arguments made via rulemaking.” The purpose of this system is to expose regulators to a range of policy perspectives from diverse stakeholders, limiting the influence of any single interest group. However, as might be expected, the voices of the well-resourced likely ring out the loudest here, as they tend to do across the public sphere.

The researchers’ findings basically confirm that suspicion. Their sample is vast, encompassing 22,654 comments from 414 major corporations with charitable foundations dating from 2003 through 2017, and 318,841 comments from 11,746 of their nonprofit grantees over the same period. The team’s analysis, rigorously outlined in the paper, supports the following three patterns.

First, shortly following a donation, nonprofit grantees are more likely to comment on rules their benefactors also weighed in on. Second, comments on the same rule by a corporate donor and its recent nonprofit grantee tend to be more similar in content than those submitted by other parties. And third, regulators’ published discussion of final rules bears a greater resemblance to a firm’s comments when that firm’s grantees also commented on the same rule.

Taken together, the researchers write, those patterns suggest that firms strategically deploy tax-deductible philanthropy to exert “some form of suasion” over grantees, which “translates into regulatory discussion that is closer to the firm's own comments.” 

The researchers note that these patterns are predominantly “positive” in that grants appear to increase nonprofits’ tendency to support corporate positions. They find little evidence of “hush money” acting to dissuade nonprofits from offering opposing comment. The researchers also address the argument that coincidences might arise from the simple fact that firms support nonprofits sharing their views or operating in the same sector. Content similarity between donor and grantee comments tends to spike directly after a grant goes out, they write, an issue of timing that indicates more pointed forces at work.

Of course, the exact nature of those forces could vary. In some cases, nonprofits may simply feel obliged to put in a good word for their backers. In others, corporate donors may be working directly with grantees behind the scenes to advocate for particular policies. Regardless, the overall pattern highlights how the donor-grantee power imbalance affects an arena where the public—not just the grantees themselves—will feel the effects of interested giving.

The patterns Bertrand and her team uncovered are yet another indicator of money buying clout in a new Gilded Age. We’ve written before about the growing reliance of supposedly objective think tanks on corporate interests and the very wealthy, who maintain an unmistakable presence on those institutions’ governing boards. The same trend is present among private and even public research universities. Even NBER, which published this research, gets plenty of money from some of the nation’s largest firms. In such an environment, it may be possible for research institutions to remain entirely independent from the influence of wealthy interests. But it isn’t probable.

Of course, one of the truly disturbing things about these findings is that in this instance, philanthropic influence-mongering isn’t limited to think tanks and research entities. Even nonprofit grantees whose missions have little to do with the specific rule in question appear to mimic their benefactors’ comments when money has changed hands. The danger here is that although regulators could dig through tax forms to find out who donated to whom, they’re unlikely to do so. Given a range of commenters on a rule, the researchers write, regulators may “interpret similar comments stemming from different segments of the public spectrum as indicative of merit.” But through philanthropic grants, it’s possible for one entity to essentially purchase a spectrum of biased advice.

The implications are ominous. But at least Bertrand and her colleagues could access the datasets they used. The donations they studied, after all, were awarded by corporations’ charitable foundations. But what of less transparent giving vehicles? And what of the influence of private foundations over their grantees’ commentary? Even given transparency, who’s actually keeping track of all this? Perhaps what this boils down to is this: If so many donors feel the need to conceal their strategic advocacy from the public eye, maybe it’s time to rethink what we allow to remain hidden.

Related: