Is Doing Good “Good Enough”?

Summary: Many family businesses have a desire to share in their good fortunate by giving back to the community through philanthropy. And that, of course, is a good thing. But at the same time, too often they assume that their motives for doing so have to be purely altruistic, just giving back because it’s the right thing to do. But in our experience, people are motivated to give more, and to do it more effectively, when there is something to be personally gained from their philanthropy. There can be real benefits for the business and the family, if philanthropic efforts are strategic, with measurable results, and a long-term perspective. This benefits society, too, because it helps encourage the family to stick with an initiative through tough times. It’s a win-win. And that’s a good thing.

Note from the Author:

A mistake that many companies make when considering their charitable activities is to make sure that no one will misconstrue their efforts as a thinly-disguised effort to generate more profit. So they almost go out of their way to ensure that there’s no clear connection between charitable effort and the business. But that is short-sited. There’s no reason that you can’t devote your family’s energy and resources to a cause that also helps your core business.

– Josh Baron

Encouraging businesses and individuals to identify what they can get out of philanthropy can feel uncomfortable, even tawdry. But there are two problems with relying on altruism as the main motivation for philanthropy. First, most people are altruistic only a small percentage of their time. To really get their attention, they have to see some value for themselves. Second, it is relatively easy to do good. Real change is more likely to happen when there is a goal in mind in addition to satisfying the altruistic urge. Therefore, to take advantage of the unprecedented opportunities for philanthropy to make a difference in society, we have to encourage people to think more consciously and creatively about: “What’s in this for me?”

The rationale for self-interested philanthropy can be traced back to the market economy — the source of the wealth that makes philanthropy possible in most countries. Capitalism is fundamentally based on the idea that society benefits from each person looking out for himself. As Adam Smith put it, “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest.” It is worth noting that Smith was a moral philosopher by training and not an economist; he believed in the virtue of individual acts of self-interest.

The same “invisible hand” can help unlock the full potential of philanthropy. I have seen this possibility in action over the last several years in advising family-owned businesses. In my experiences across a number of clients and continents, I have found that people are motivated to give more, and to do it more effectively, when there is something to be personally gained from their philanthropy. Without exception these people have participated in philanthropy because they have a genuine desire to make the world a better place. Yet many of them also see the benefits that it can bring to them as a business and as a family. Achieving those benefits requires them to think strategically, measure their results, adopt a long-term perspective, and stick with their initiatives through tough times, which serves their own needs as well as society’s.

Family businesses have a natural desire to see more connection between their business and philanthropic activities. But the same logic applies to non-family businesses, as well as to individual philanthropists. Corporations often go out of their way to show how their work in the community is separate from any profit-motive. Instead, they should look for causes that are closely aligned with their core business.

Philanthropy is more likely to be scalable and sustainable if it is perceived to be central to the company’s strategy rather than just a “do-good” project. Since such endeavors can only payoff when they deliver real results, the more they profit, the more society does too.

I was fortunate to be part of one such effort. In 1999, Bain’s former CEO Tom Tierney led the formation of a new organization that would bring strategic and management consulting to foundations and non-profits. The launch of The Bridgespan Group was supported by Bain in a number of ways, most importantly by allowing, even encouraging, its employees to spend part of their careers doing externships. I know from working at both places that this support was done out of a heartfelt desire to make a difference. But the success of the collaboration was also due to the benefits that Bain received. Beyond the positive press, Bridgespan has served as an incredibly valuable tool for recruiting and retaining talented people who want to make a difference in addition to a bonus. Even those that never take advantage of the externship opportunities value having the option available.

The same point applies to individual philanthropists. In his rationale for participating in the Giving Pledge, Bill Ackman, the American hedge fund manager, said: “While my motivations for giving are not driven by a profit motive, I am quite sure that I have earned financial returns from giving money away. Not directly by any means, but rather as a result of the people I have met, the ideas I have been exposed to, and the experiences I have had”. Beyond financial returns, philanthropy can be a vehicle for enhancing the legacy of donors, preparing their children to deal responsibly with wealth, and bringing their families closer together. Gaining those benefits requires philanthropists to do it well, which in turn serves society.

The need for philanthropy is greater now than ever in the wake of the Great Recession and the austerity measures required by governments to cut their deficits. The same companies and individuals who are creating the extraordinary wealth of our time have the potential to make a tremendous difference when they channel more of their energies towards social change. Doing good will not be good enough. Instead, it is time to unleash the power of self-interest.

Originally published in the Huffington Post, 07 Feb, 2013.