Over the past few years, there has been a growing sense that companies should move away from the Friedman doctrine of only being interested in profits and returns to shareholders, and focus instead on their wider impact upon society.

How true is that really, however?  Research from Berkeley Haas explores the matter through the lens of philanthropic donations and finds that often these donations are strongly linked with policy changes that benefit the company.

For instance, the authors cite the example of a donation made by the Coca-Cola Foundation to the American Association of Pediatric Dentistry.  While the donation was ostensibly to improve dental health in children, not long after the donation, the group ceased its objection to sugary drinks to one of saying that they don’t cause cavities.

Ulterior motives

The researchers set out to explore whether there is any tangible evidence that the company’s philanthropic endeavors move the needle in policy terms.

They highlight the often crucial role nonprofit organizations play in the fashioning of the rules and regulations that govern us.  This process can be effective, so long as those organizations aren’t being themselves influenced by corporate donors.

The researchers examined a few hundred thousand rules and proposed rules discussed by the federal government since 2003, and then compared those discussions with data on grants made by corporate foundations.

The analysis found a clear link between corporate donations and the likelihood that the recipient will contribute to discussions on a rule concerning the donor.  Indeed, nonprofit organizations were 76% more likely to contribute to the debate after receiving a donation, with those contributions found to be more likely to align with the wishes of the companies themselves.  This in turn proved to be influential, with the government subsequently adopting language in line with that of the company.

“At a minimum, regulators are paying more attention to what the firm has to say, and devoting more time towards discussing the same kinds of issues the firm was discussing in their letters,” the researchers say.

While the researchers accept that it’s not clear whether company donations are swaying nonprofits or whether they’re backing nonprofits that already agree with them.  Nonetheless, they argue that more transparency is needed to ensure that policymakers aren’t being unduly influenced.

“Either way, they are distorting the information policy makers receive,” they conclude. “If officials are looking for signals from different players in society, and the message from the nonprofit and the firm are the same, they might weight that position more heavily, not realizing that the two are linked.”