Friday, May 07, 2010

Nestle Chairman on Corporate Philanthropy

Over at Business Week, I read the following about Nestle's approach to corporate philanthropy:

"Nestle SA Chairman Peter Brabeck- Letmathe said he opposes corporate philanthropy because it misuses shareholders’ money and said government, business and civic groups should team up to tackle society’s problems. 'I’m personally very much against corporate philanthropy,” Brabeck said in a television interview in London. “You shouldn’t do good with money which doesn’t belong to you. What you do with your own money, this is absolutely fine.'

Nestle’s strategy in corporate and social responsibility focuses on areas that are key to its own business strategy and that boost shareholder value as well as helping society, 65- year-old Brabeck said. The maker of Nescafe, based in Vevey, Switzerland, has three main areas of action: helping boost productivity among the more than 500,000 farmers it works with, reducing water use and developing more nutritious products."

I'm curious as to what readers think about Brabeck's comments. He has a point that companies shouldn't be using shareholder funds without their agreement/support. The question, it seems to me, is how one interprets the question of how philanthropy fits with a firm's strategy, and how it relates to long term shareholder value. One can interpret that very narrowly, or much more broadly. That is where things get tricky.


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mistermenucha said...

Sick thinking. It is the consumer not the shareholders that make Nestle what it is. and therefor it is morally correct and socially responsible to give back to the community. and since large corporations have benefited most from the public and have the most ability to give, they should give. and give a lot more than individuals give. shame on Brabeck.

Jagadeesh Venugopal said...

There is no moral imperative for Nestle to engage in philanthropy.

Consumers they engage in arm's length transactions with Nestle where they benefit mutually. Consumers are not doing Nestle any favors in buying its products (e.g. voluntarily paying Nestle more than the asking price), and neither do they have the right to expect favors in return. The transaction is a straightforward exchange of value.

Another argument that is often propounded is that companies need to give back to the communities in which they operate. Well, they already do by providing products that people want to buy, paying taxes, employing local citizens, and contracting with local firms.

Nonetheless, if Nestle were to start donating to charities, what if an individual shareholder did not believe in the particular charitable cause to which his money was given without his approval? How about giving to Planned Parenthood -- would all shareholders agree that it is a good idea? How about religious charities? What if Nestle decided to donate more to charities aligned to Republican causes than Democratic ones, or vice versa?

Ultimately, as Brabeck states, Nestle's money is its shareholders' money. And the best thing Nestle can do is to give them as good a return as possible. the shareholders in turn, can decide how they wish to use that money for societal and charitable good.