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Best Intentions

Three rules can guide philanthropic companies that seek a profitable path toward a better world.

“We must become a good company,” the chief executive declares, having just returned from a conference featuring the philanthropic Google Guys, co-founders Sergey Brin and Larry Page. “And I don’t just mean good in the business sense; I mean good in the ‘Don’t be evil’ sense. You know about the One Percent Rule? One percent of profits, 1 percent of equity, and 1 percent of employees’ time allocated to doing good. That’s what they do at Google — so we are going to do 2 percent!”

What should you, the CFO, do? Hug the CEO, because deep down you always wanted to work for a charity? Protest or even resign, because frittering away shareholders’ equity on good causes might breach your fiduciary responsibilities? (Google can get away with the One Percent Rule because that was part of its IPO prospectus, so shareholders bought into it.) Or is there a way you can ensure that your company does good in ways that maximize its long-term profitability and shareholder value?

A first impulse might be to urge the CEO to delegate good deeds to the public-relations department, since doing good can burnish a company’s reputation. But much PR-driven corporate philanthropy or other spending on corporate social responsibility (CSR) has, frankly, wasted money. Done badly, CSR can actually spur greater criticism from activist nonprofits, so it is too risky to be left to PR.

Companies do have an important role to play in tackling some of society’s biggest problems, but it is a role that needs to be well thought out and strategic. Those on the cutting edge of what is now being called “good corporate citizenship” apply three rules to get the best out of their philanthropy: one, be good with what you’re good at; two, stick close to what matters to your business; three, don’t be afraid of turning a profit by doing good.

Google does all three. The Internet search giant’s core expertise is finding patterns in complex amounts of information, a skill it is now applying philanthropically to develop an early warning system against pandemics. This project also obeys the second rule, as Google’s mission as a business is to organize the world’s information. The philanthropic division of the company, Google.org, which is the main driver behind the One Percent Rule, is free to use the best available means to achieve virtuous goals, from giving money away to political lobbying to investing in for-profit business opportunities.

Other leading companies have begun to apply these rules. Wal-Mart, for example, leveraged its logistical expertise to assist relief efforts in the wake of Hurricane Katrina. The effort won plaudits for a speed of response far faster than the federal government’s. “We didn’t just get needed goods to Katrina victims — we did it less expensively than anyone,” said Lee Scott, Wal-Mart’s CEO, soon afterwards. Shortly after this turning point in Scott’s thinking about how the company could do good, Wal-Mart harnessed its core business assets to fighting climate change. As Scott explained with a twist on the retailer’s popular marketing slogan, “The environment is begging for ‘Every Day Low Cost’ — for the Wal-Mart business model.”

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