Journal of Business Ethics (2007) 75:345359 DOI 10.

1007/s10551-006-9257-4

Springer 2007

The Promise of a Managerial Values Approach to Corporate Philanthropy

Jaepil Choi Heli Wang

ABSTRACT. This article presents an alternative rationale for corporate philanthropy based on managerial values of benevolence and integrity. On the one hand, top managers with benevolence and integrity values are more likely to spread their intrinsic concern for others into the wider society in the form of corporate philanthropy. On the other hand, top managers high in benevolence and integrity are likely to contribute to improved managerial credibility and trusting firm-stakeholder relationships, thereby improving corporate financial performance. Therefore, the article makes the argument that both corporate philanthropy and corporate financial performance can better be interpreted as resulting from managers benevolence and integrity values. KEY WORDS: corporate nancial performance, corporate philanthropy, managerial values, stakeholders

Business corporations continually encounter pressure from groups of social and community activists to participate in philanthropic causes (Margolis and Walsh, 2003; Smith, 1994). Some rms have re-

Jaepil Choi is an Assistant Professor at the Hong Kong University of Science and Technology. His research is focused on organizational justice perceptions, leadership, work-family interface issues, and corporate social performance. He has published in Academy of Management Journal, Journal of International Business Studies, Journal of Organizational Behavior, Leadership Quarterly, Administration & Society, and Management and Organization Review. Heli Wang is currently an Assistant Professor in strategic management at the Hong Kong University of Science and Technology. Her areas of interests are in the resource-based view of the rm, stakeholder incentives, risk management and social performance. She has previously published in Academy of Management Review, Journal of Economic Behavior and Organization, Journal of Applied Psychology, and Long Range Planning.

sponded to these heightened pressures by devoting substantial resources to promote social welfare. For example, approximately $12 billion in cash as well as in-kind donations were made by business corporations during 2004, up 7.3% from the $11.18 billion recorded for 2003 (Giving USA, 2005). Many others rms, however, decide not to become involved in philanthropic causes at all. The divergence in corporations responses to the call of philanthropic causes has stimulated some debate regarding why public corporations engage in corporate philanthropy and how corporate philanthropy relates to corporate nancial performance. Some opponents of corporate philanthropy hold an agency perspective. This perspective is based on the classical argument made by Friedman (1970), who suggested that corporate philanthropy is the result of top managers desires to fulll their own needs at the expense of shareholders. According to this view, there are few economic benets to be gained from corporate philanthropy, but numerous costs associated with it. Furthermore, the costs of philanthropic causes should be borne by charitable not-for-prot organizations or individuals instead of by public rms because valuable corporate resources should be used to improve the rms operational efciency. The reason for some rms engaging in corporate philanthropy, therefore, is that philanthropy can benet top managers themselves by, for example, enhancing their reputations within their social circles or furthering their political and career agendas (Friedman, 1970; Galaskiewicz, 1997; Werbel and Carter, 2002). Sometimes top managers may even engage in philanthropic activities purely because of their other-regarding values (Buchholtz et al., 1999; Salancik and Pfeffer, 1977) without deriving any political or career benets. But to the extent that corporate philanthropy diverts valuable corporate

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Top Managers: Concern for reputation Personal needs and values

Jaepil Choi and Heli Wang

+ _

Corporate Philanthropy

Corporate Financial Performance

Figure 1. The agency perspective of corporate philanthropy.

resources that could be spent on increasing organizational efciency, it still represents a form of agency costs that reduce the rms value and shareholder wealth (Helland and Smith, 2003). Therefore, the agency argument suggests that corporate philanthropy may reduce an organizations nancial performance (Figure 1). The agency perspectives main arguments regarding corporate philanthropy, however, have been challenged by some recent studies that hold a performance-enhancing view of corporate philanthropy (e.g., Drucker, 1984; Porter and Kramer, 2002; Reder, 1995). In contrast to the agency argument, these studies suggest that managers decision to engage in corporate philanthropic activities can indeed improve rm nancial performance and shareholder wealth. The nancial benets to a rm may arise, for example, from the goodwill, the positive image and the improved reputation that are created by corporate involvement with philanthropic causes (Haley, 1991). Positive social image and reputation lead to enhanced morale among employees and greater loyalty among suppliers and customers; and they may also inuence regulators and government ofcials in ways that benet corporations nancially (Figure 2). Furthermore, despite differences in sampling, methods and measurement (Margolis and Walsh, 2003), many studies have found support for a positive relationship between corporate social performance1 and corporate nancial performance (Grifn and Mahon, 1997; Orlitzky et al., 2003; Roman et al., 1999), a result that seems to be consistent with the argument that corporate philanthropy improves rm nancial performance. Although the key argument for the positive effect of corporate philanthropy on corporate nancial

Corporate Philanthropy
+

performance has gained increasing acceptance and received largely consistent empirical support, several key issues remain to be resolved. First, the current state of the research still lacks integrative and systematic frameworks that illustrate the underlying mechanisms and contingencies through which corporate philanthropy is associated with corporate nancial performance2 (Orlitzky et al., 2003; Rowley and Berman, 2000; Ullmann, 1985; Wood and Jones, 1995). As a result, the literature still falls short in guiding future research and helping practitioners to make appropriate corporate policies regarding philanthropic activities. Second, although there is some support for a positive relationship between corporate philanthropy and corporate nancial performance, because of the existing studies lack of due consideration of causality in this relationship (e.g., Hillman and Keim, 2001; Waddock and Graves, 1997), we are unable to conclude that corporate philanthropy leads to greater nancial performance. Lastly, agency-related variables such as managers shareholding, ownership structure, board composition and managerial discretion have been continually cited as the most robust factors that predict corporate philanthropy (e.g., Atkinson and Galaskiewicz, 1988; Bartkus et al., 2002; Boatsman and Gupta, 1996; Helland and Smith, 2003; Johnson and Greening, 1999; Wang and Coffey, 1992). If managers engage in more corporate philanthropy when they are able to act out of self-interest and personal preferences, we should not observe that on average corporate philanthropy is positively associated with nancial performance.3 However, the weight of evidence seems to support a positive philanthropyperformance relationship, inconsistent with the agency theory argument.

Corporate image and reputation Enhanced morale and loyalty among stakeholders Advertising

Corporate Financial Performance

Figure 2. The performance-enhancing perspective of corporate philanthropy.

The Promise of a Managerial Values Approach to Corporate Philanthropy Incorporating ideas from organization theory, strategic management and social psychology, this article provides alternative explanations for corporate philanthropy and its relationship with corporate nancial performance, and attempts to resolve the issues highlighted above. The main argument of the article is drawn from the observation that managerial values4 strongly inuence organizational behavior (Beach and Mitchell, 1978; Hambrick and Mason, 1984; Hemingway and Maclagan, 2004). Strategic behavior and decision-making in organizational settings can, therefore, be viewed as reections of the values of top managers. The managerial values that are of particular interest in this context are benevolence and integrity. Benevolence leads managers to demonstrate intrinsic concern for others, while integrity results in managerial behaviors that are consistent with their values and/or based on morally justiable principles. It will be argued in this article that, on the one hand, top managers with benevolence and integrity values are more likely to spread their intrinsic concern for others into the wider society in the form of corporate philanthropy. On the other hand, top managers high in benevolence and integrity are likely to contribute to trusting rm-stakeholder relationships, thereby improving corporate nancial
Managerial values: Benevolence Integrity

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performance. The key argument made in this article, therefore, is rather different from the conventional argument that corporate philanthropy directly leads to higher corporate nancial performance. Instead, it suggests that the relationship between corporate philanthropy and corporate nancial performance found in the existing literature may be largely spurious. An organizations philanthropic activities and nancial performance may be correlated, but this relationship is not necessarily a causal one: Both corporate philanthropy and corporate nancial performance can be the results of managerial values (Figure 3). In fact, this argument is in accord with the role of integrity in strategic leadership suggested by Worden (2003). According to Worden, tension can occur when strategic planning is aimed at enhanced nancial performance while the rms mission strives to contribute to the wider society. Here, integrity can function as a mediator providing for credible leadership that resolves this tension. In this regard, this article expands Wordens (2003) argument on integrity to also include managerial benevolence as such a mediator. The article thus directly contributes to the extant literature that examines the relationship between corporate philanthropy and corporate social performance: The role of managerial values should be

Organizational culture Managerial credibility and stakeholder trust

Corporate philanthropy

Corporate financial performance

Figure 3. A managerial value model of corporate philanthropy.

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Jaepil Choi and Heli Wang consistent with ones values, people often behave in ways that express their important values or promote the attainment of those values (Bardi and Schwartz, 2003). It then follows that managerial values, which reect the managers philosophical view of how others inside and outside the corporation should be treated, are fundamental to managerial decisionmaking (Beach and Mitchell, 1978; Buchholtz et al., 1999; Hemingway and Maclagan, 2004) and strongly inuence organizational outcomes (Hage and Dewar, 1973). Similar argument also emerges from the upper echelons perspective (Finkelstein and Hambrick, 1990; Hambrick and Mason, 1984), which suggests that managerial values and characteristics combine with top managers eventual perception of a situation to provide the basis for making strategic choices. Among multiple values of managers, of direct relevance to corporate philanthropy are clusters of managerial values that reect benevolence and integrity. According to Schwartzs (1992) value structures, benevolence encompasses all those specic values having as their core objective the preservation and enhancement of the welfare of others. Therefore, top managers who value benevolence show understanding of and appreciation for the welfare of others and attempt to promote it. In this sense, benevolence shares the common feature of placing others welfare ahead of ones own, in common with some of the other-regarding values that have been emphasized in previous studies, such as altruism (Batson, 1991; Krebs, 1970), concern for others (Korsgaard et al., 1996), and social interest (Crandall, 1975). Another dimension of managerial values relevant to this discussion is integrity. In this article, we dene integrity as encompassing two key elements, both of which are essential for a complete understanding of its meaning. The rst element of integrity refers to consistency between an individuals values and behavior; and the second element refers to the adherence to the moral principle of fairness. The rst element of integrity, i.e., consistency between values and behaviors, has been argued by various researchers (Badaracco and Ellsworth, 1989; Simons, 1999; Yukl and Van Fleet, 1992; Worden, 2003). For example, Yukl and Van Fleet have stated integrity means that a persons behavior is consistent with espoused values (1992, p. 151). Similarly, Worden has dened integrity as consistency

explicitly taken into consideration in order to discover the true philanthropy-performance relationship. Further, this article also contributes to the literature on the antecedents of corporate philanthropy, by outlining a much richer argument for the role of benevolence and integrity values in affecting corporate philanthropy and the mediating role of organizational culture. Although some previous empirical studies have established some association between managerial values and corporate social activities (e.g., Buchholtz et al., 1999; Lerner and Fryxell, 1994; Thompson et al., 1993), their discussions were often limited to very general terms and thus did not identify the specic managerial values. Furthermore, few studies have discussed the indirect link between managerial values and corporate philanthropy through organizational culture. The main focus of the article, therefore, is to argue for two main inter-related relationships. The rst is that between managerial values (i.e., benevolence and integrity) and corporate philanthropy: Managers high in these values are more likely to spread their concern for the welfare of others to community settings in the form of corporate philanthropy. The second relationship is that between managerial values and corporate nancial performance: The same set of values also helps to build trust among the rms primary stakeholders, which in turn may contribute to the rms nancial performance. We now turn to the discussion of the rst relationship between managerial values and corporate philanthropy.

Managerial values and corporate philanthropy Managerial values Individual values are fundamental elements in peoples belief systems. They consist of denable goals that motivate and guide peoples preferences, attitudes, and behaviors (Bardi and Schwartz, 2003; Rokeach, 1973; Schwartz, 1992, 1994). Individuals demonstrate considerable differences in personal values and beliefs (Middlemist and Hitt, 1981; Schwartz, 1992).5 Due to a need for consistency between ones values and actions (Rokeach, 1973) and the reward one obtains from taking actions

The Promise of a Managerial Values Approach to Corporate Philanthropy between word and deed, in line with a consistent set of principles or commitments, especially in the context of a temptation or challenge to the contrary (2003, p. 33). Integrity, however, means more than mere consistency.6 It also refers to adherence to a set of principles. Although no agreement has yet been reached regarding which specic principles are required for integrity (Worden, 2003), it is often argued that they must be morally justiable. For example, fairness and honesty are often cited as necessary (Badaracco and Ellsworth, 1989), although not sufcient (Becker, 1998), principles underlying integrity. In this article, we combine these two aspects of integrity to posit that managers who value integrity are considered more likely to demonstrate both consistency between their values and behavior and adherence to fairness as its underlying moral principle. The inclusion of fairness in the denition of integrity is particularly relevant in the context of this article, where interpersonal dynamics between managers and other stakeholders (and society at large) is the primary concern. Before proceeding, it is worth noting that that although we focus on benevolence and integrity, these values are only part of a top managers value system, which is typically composed of multiple values ranked in a hierarchy (Hambrick and Brandon, 1988). Top managers may be confronted by situations in which they cannot satisfy all their values. For example, they may sometimes have to choose between fullling their duty to an organization and devoting resources to the community. When there are conicts among multiple values, they will submerge other values in favor of the dominant values at the top of their value systems. Thus managers can indulge their benevolence and integrity values only when these values do not conict with other values or they are dominant in their value systems.

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Benevolence and integrity values as the antecedents of corporate philanthropy In this section, the contention that top managers benevolence and integrity affect a rms likelihood of engaging in corporate philanthropic activities, both directly and indirectly through top managers

inuence on organizational culture (see Figure 3), will be explored in greater detail. Corporate philanthropy is, by denition, gifts given by corporations to social and charitable causes. It is generally considered as a component of the larger domain of corporate social responsibility. Carroll (1979) identied four levels of corporate social responsibility: economic, legal, ethical, and discretionary. Since corporate philanthropy often extends beyond areas that are directly associated with a corporations business relationships, it ts within the discretionary category of social responsibility, which has been weighted the lowest in importance among the four categories. Wood, for example, rates corporate philanthropy as last in, rst out (1991, p. 698) on a rms action inventory. Thus philanthropic contributions are generally described as purely voluntary (Hemingway and Maclagan, 2004; Wood, 1991). Such a categorization of corporate philanthropy suggests that top managers at the apex of the corporate hierarchy are likely to be the key players in setting policies and making decisions about corporate philanthropy (Buchholtz et al., 1999). Indeed, according to Salancik and Pfeffer (1977), administrator (manager) impact is greatest for issues not directly subject to the constraints established by powerful interest groups. Similarly, Galaskiewicz has stated that corporate philanthropic contributions fall to the discretion of managers who can only use their good judgment in deciding whether to give and at what level (1997, p. 445). The discretionary nature of corporate philanthropy suggests that philanthropic activities are largely under managerial discretion (Finkelstein and Hambrick, 1990; Hambrick and Finkelstein, 1987). Thus top managers personal characteristics, such as the values that they hold, are expected to play a signicant role in decisions on corporate philanthropy. The evidence provided by some empirical studies, albeit limited, seems to be supportive of the existence of a relationship between managerial values and corporate philanthropy. For example, Lerner and Fryxell (1994) found that corporations demonstrate high levels of corporate philanthropy when top managers are scored high in community orientation,7 which is a proxy for managerial values. Using similar measures of managerial values, Thompson et al. (1993) have reported that in small businesses, owner values are the most important factor

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Jaepil Choi and Heli Wang interrelated ways. First, integrity is expected to moderate the relationship between managerial benevolence and corporate philanthropy highlighted in Proposition 1a. Since one important aspect of integrity is the consistency between words and deeds, or between an individuals values and behaviors (Simons, 1999; Yukl and Van Fleet, 1992), top managers with integrity should be more likely to engage in behaviors that are consistent with the values that they hold. This suggests that benevolent top managers with integrity will be more likely to behave according to their value of benevolence in organizational decision-making. Integrity thus ensures that behavior based on the value of benevolence will be delivered to stakeholders with consistency, regardless of the existence of direct business relationships with the stakeholders. Therefore, when a benevolent top manager also values integrity, the effect of managerial benevolence on corporate philanthropy will be stronger than when the top manager only values benevolence but is lack of integrity.
Proposition 1b:

predicting levels of charitable donations. In addition, a study by Buchholtz et al. (1999), which measured managerial values by asking top managers to weight the relative importance of six different organizational goals, demonstrated that managerial values emphasizing service to the community is positively associated with corporate philanthropy. Benevolence, integrity, and corporate philanthropy As we have seen, a key feature of benevolence is a concern for others welfare, like similar otherregarding values such as altruism (Batson, 1991; Krebs, 1970). Since benevolent top managers are more likely to show understanding of and appreciation for the welfare of others, and to act to promote it, their intrinsic concern for other people is likely to be expressed in the form of corporate philanthropy that enhances social well-being. Consistent with the above argument, Campbell et al. (1999) have demonstrated in a study of food distributors and producers that top managers social consciousness could reliably predict which rms would or would not indulge in philanthropic activities. In addition, Agle et al. (1999) examined the levels of CEOs self-interest versus their otherregarding interest, a construct similar to benevolence, and reported that CEOs compassion for others and willingness to work for the welfare of others were associated with philanthropic service to the community. Therefore, rms with top managers who value benevolence would be expected to engage in greater corporate philanthropy. As managers vary greatly in their values (Hambrick and Brandon, 1988; Hambrick and Mason, 1984), substantial variation in corporate philanthropy as a function of such variability is to be expected.
Proposition 1a:

Managerial integrity positively moderates the effect of benevolence on a rms likelihood of engaging in corporate philanthropic activities.

Managerial benevolence has a positive effect on a rms likelihood of engaging in corporate philanthropic activities.

In addition to benevolence, integrity is also expected to affect corporate philanthropy. Based on our definition of integrity as encompassing both consistency between values and behavior and adherence to fairness as a fundamental moral value, we argue that integrity affects corporate philanthropy in two

In addition to the moderating effect of integrity on the relationship between benevolence and corporate philanthropy, managerial value of integrity may have some direct impact on corporate philanthropic activities as well. Another important aspect of integrity is the adherence to principles deemed morally acceptable8 (McFall, 1987). For example, some authors argue that integrity involves adherence to moral and ethical principles (Simons, 1999, p. 90) or includes moral obligation (Husted, 1998). Becker (1998) has also stated that the principles in integrity require moral justication. While there is no overall agreement on the specic principles that underlie integrity (Worden, 2003), it may be possible to identify the particular moral principles that are relevant to corporate philanthropy. Several researchers (e.g., Bews and Rossouw, 2002; Mayer et al., 1995) have suggested that fairness should be considered one of the moral principles underlying integrity. Fairness refers to equal moral

The Promise of a Managerial Values Approach to Corporate Philanthropy consideration of the interests of others (Bews and Rossouw, 2002, p. 382), as seen in the common metaphor of a level playing eld. Mayer et al. (1995) have pointed out that the belief that a person has a strong sense of fairness affects the degree to which the person is judged to have integrity. McFall (1987) also states that a key requirement for moral integrity is impartiality, a construct close to fairness. In the moral connection between a business and its many social constituencies, corporate philanthropy can be understood as a mechanism for managers to promote fairness in society by alleviating its burdens. For example, rms may endeavor to level the playing eld by equalizing opportunities for education for a disadvantaged group (Schwartz and Post, 2002). Similarly, programs supporting childcare, cultural events, minority education, and sports activities help people in local communities enjoy similar quality of life. A concern for fairness has also prompted many U.S. companies to give a big donation to victims of 9/11 or of natural disasters, victims who are generally considered to have been unfairly damaged. A concern for fairness, one of the moral principles underlying integrity, is thus likely to result in greater corporate philanthropy. It then follows that a manager who values integrity will also value fairness as a moral principle and will be more likely to engage in corporate philanthropy. Therefore,
Proposition 1c:

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Managerial integrity has a direct positive effect on the likelihood of engaging in corporate philanthropic activities.

Organizational culture as a mediator The discussion so far has focused on the direct effect of the values held by a rms top managers on the rms likelihood of engaging in corporate philanthropy. However, the direct effect of managerial values may be limited, to the extent that top managers are not always in direct charge of decisionmaking regarding corporate philanthropic activities. For example, many large rms have set up independent corporate foundations to institutionalize philanthropic programs, which to some extent reduce the direct inuence of top managers in making decisions about corporate philanthropic activities (Werbel and Carter, 2002). Moreover, in some rms, authority to make these decisions is delegated

to specialized divisional managers (Saiia et al., 2003; Waddock and Boyle, 1995). When other specialized managers plan, execute, and monitor philanthropic programs, the inuence of top managers would be expected to dwindle. Therefore, the argument that top managers values will directly determine corporate philanthropic activities may be an oversimplication. Still, top managers can, at least in part, have an impact indirectly via their inuence on organizational culture. Organizational culture describes the social interactions among members of an organization (Rousseau, 1990). It shapes members behavioral patterns and creates an environment in which certain behaviors are encouraged and receive support (Trice and Beyer, 1993). Although top managers are affected by already established organizational values and culture, they are also often considered the architect of their organizations culture (Day and Lord, 1988; Schein, 2004). Their inuence on organizational culture can even go beyond their career span in rms (Zucker, 1986). Top managers can, in various ways, affect the formation of a corporate culture and thereby promote patterns of behavior that are consistent with their personal values throughout the entire organization. They indoctrinate and socialize employees to their ways of thinking through, for example, speeches, stories, rituals, and mission statements. They also mold organizational culture through daily management practices, strategic decisionmaking, and other exemplary behaviors that reect their personal values. They also interpret social reality faced by organizational members in such a way that particular values are emphasized (Smircich and Morgan, 1982). Over time, organizational members may thus develop mental schema that are consistent with the managers values, ideologies, and strategies. Top managers personal integrity may also shape organizations moral culture through its role in facilitating the development of integrity capacity at the rm level. According to Petrick and Quinn (2000, 2001), integrity capacity is the individual and/or collective capability for repeated process alignment of moral awareness, deliberation, character and conduct that demonstrates balanced judgment, enhances sustained moral development and promotes supportive systems for moral

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Jaepil Choi and Heli Wang indirectly affect a rms likelihood of engaging in corporate philanthropic activities. So, even when independent corporate foundations are not directly controlled by top managers, the activities of such charitable foundations may reect an organizational culture as established on the basis of top managers values. Therefore,
Proposition 2:

decision-making. Integrity capacity encompasses four dimensions of rm capability: process, judgment, development, and system. These dimensions of integrity capacity represent the rms capacity to be aware of moral issues and to prepare to act, to make balanced judgments on those issues, to foster an ethical work culture in the rm, and to institutionalize organizational policies and systems to handle moral complexity. Therefore, to the extent that the integrity of top managers inuences a rms capacity to foster an ethical work climate and to institutionalize relevant policies for ethical issues, it reinforces an organizational culture that emphasizes integrity (Petrick and Quinn, 2000, 2001). Top managers values can also shape organizational culture through attraction-selection-attrition cycles (Schneider, 1987). As managerial values become integrated into the normal channels of organizational decision-making, such as the development of missions and strategic goals, the allocation of resources, and the promotion of key employees, those values will have an impact on the type of people who are attracted to, are selected by, and stay with the organization. Over time, people who belong to the same organization become more alike because organizations tend to attract and retain those individuals who appreciate top managers values and organizational culture, while those who do not t the culture leave (Schneider, 1987). Taken together, though many other factors can affect the formation of organizational culture (Martin et al., 1985), top managers play a very crucial role in inuencing culture as they pass down their own values to other organization members through their direct inuence or through the development of organizational integrity capacity. In addition, top managers may also inuence culture through the process of attracting and retaining those who appreciate their values (Schein, 2004). It then follows that a rm with a top manager who values benevolence and integrity is likely to have an organizational culture that promotes such values. As a result, benevolence and integrity values provide a behavioral norm that organizational members follow when they interact both among themselves and with outside stakeholders. For instance, to the extent that those directly in charge of corporate philanthropic activities internalize the values of the top managers, top managers benevolence and integrity values will

Managerial benevolence and integrity have an indirect effect on a rms likelihood of engaging in corporate philanthropic activities through the top managers impact on organizational culture.

Managerial values and corporate financial performance Having discussed the relationship between managerial values of benevolence and integrity and corporate philanthropy, we move onto examine the effect of the same set of managerial values on corporate nancial performance. In particular, we argue that managerial benevolence and integrity should enhance top managers credibility and help to generate trust among stakeholders, both directly and indirectly through top managers inuence on organizational culture. High levels of credibility and trust will, in turn, augment corporate nancial performance (see Figure 3). Benevolence is likely to inuence trust formation through an attribution process. Stakeholders draw inferences about top managers intentions and motives by looking behind their words and behaviors (Deutsch, 1973; Doney et al., 1998). If stakeholders perceive top managers to behave predominantly according to self-interested motives, they are unlikely to trust the managers. In contrast, if an attribution of benevolent intentions is made by the stakeholders, a trusting relationship will develop (Lindskold and Bennett, 1973). To the extent that top managers benevolent values lead them to demonstrate genuine interest in the welfare of stakeholders and society and to the extent that the interpretation of such benevolent intentions by the stakeholders is facilitated, for example, through sufcient interactions between the two parties, stakeholders will experience affective attachments

The Promise of a Managerial Values Approach to Corporate Philanthropy to top managers (Williams, 2001). As a result, trust emerges in the relationship between top managers with benevolent values and the rms stakeholders. On the other hand, integrity may affect the development of managerial credibility and trust between a rm and its stakeholders through a prediction process (Doney et al., 1998). When managers demonstrate integrity, i.e., when the managers future behavior is predictable based on their past actions and words, the credibility of the managers is established (Simons, 1999, 2002; Worden, 2005). Managerial credibility is in turn necessary for the development of stakeholder commitment and trust between the two groups (Good, 1988; Whitener et al., 1998). In addition to their direct effects on rm-stakeholders trust formation, managerial values of benevolence and integrity may also inuence credibility and trust indirectly through organizational culture as a mediator. To the extent that organizational culture reects and supports top managers values, employees will be inuenced and guided by those values in their interactions with stakeholders. Furthermore, as we have argued earlier, the personal integrity of top managers facilitates the development of integrity capacity at the rm level, which in turn reinforces an organizational culture that emphasizes integrity. In particular, a rms capacity to foster an ethical work climate and to institutionalize policies to handle ethical issues allows stakeholders to attribute a moral character to the rm at the system level (Petrick and Quinn, 2000, 2001). Thus, while some stakeholders, such as suppliers and customers, may not have direct contact with the top managers themselves, they can be indirectly affected by the top managers values when they interact with employees who have internalized the same values. So to the extent that top managers benevolence and integrity values are institutionalized and become embedded in an organizations culture over time, the organization is likely to be perceived by stakeholders as a trustworthy entity. Hence organizational culture promoted by top managers values may have a long-term and persistent effect on credibility and trust formation. High level of managerial credibility and trust between a rm and its stakeholders, either as a direct result of managerial values of benevolence and integrity, or as an indirect result of these values

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through organizational culture, often has nancial consequences for the rm. First, managerial credibility and trust facilitate information and knowledge sharing between the rm and its stakeholders, which improves the rms problem-solving abilities, providing important foundations for organizational learning (Huff and Kelley, 2003; McEvily et al., 2003). Second, trust mitigates stakeholders concerns about holdup by the rm, especially when stakeholders are required to invest in valuable rmspecic assets. Thus, when there is sufcient trust, the stakeholders will have stronger incentives to make valuable rm-specic investments that promote new revenue generation and competitive advantage (Das and Teng, 1998; Shleifer and Summers, 1988). Credibility and trust can also reduce transaction costs (Barney and Hansen, 1994; Whitener et al., 1998) and expand a rms exchange opportunities (Carson et al., 2003; Ring and Van de Ven, 1994; Zajac and Olsen, 1993). Economic exchange relationships are often replete with various risks of opportunism (Barney and Hansen, 1994; Whitener et al., 1998; Williamson, 1975). Although some monitoring and bonding mechanisms may be used to manage these risks and thus reduce transaction costs, high levels of credibility and trust is often a more effective alternative that reduces the need for complex contracts and further enables the rm to exploit otherwise foregone exchange opportunities (Hagen and Choe, 1998; Hosmer, 1995). The above arguments suggest the following:
Proposition 3:

Managerial benevolence and integrity enhance corporate nancial performance through promoting managerial credibility and high levels of trust among rm stakeholders.

Implications of the managerial values approach to corporate philanthropy To recapitulate, top managers benevolence and integrity values lead to corporate philanthropy; these same managerial values also facilitate the development of managerial credibility and trust with stakeholders, which, in turn, increase corporate nancial performance. This suggests that the relationship

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Jaepil Choi and Heli Wang implication drawn from the managerial values model agrees to some extent with the thinking of Werbel and Carter, who argued that even if charitable donations are not supportive of the companys mission, cost control constraints that intrude on CEO decision latitude may have more negative nancial consequences than positive nancial consequences (2002, p. 57). Thus, even though as the agency perspective argues, corporate philanthropy itself may reduce a rms wealth by diverting valuable resources, the managerial benevolence and integrity values that lead to corporate philanthropy may also have countervailing positive effects on the rms nancial performance, because these values help the rm build credibility and trusting relationships with its stakeholders. When the increase in corporate nancial performance more than offsets the cost of corporate philanthropy, the rms shareholders will benet from top managers benevolence and integrity, and thus they may not put signicant constraints on managers with these values. In this sense, managerial benevolence and integrity can be considered as mechanisms intervening between corporate philanthropy and corporate nancial objectives, making the seemingly contradictory goals complementary (Worden, 2003). Second, as having been illustrated earlier, the main difference between the managerial values argument and the performance-enhancing argument for corporate philanthropy is that the former suggests that the corporate philanthropy and nancial performance are both the result of managerial values of benevolence and integrity, while the latter suggests that rms engage in corporate philanthropic activities because they lead to better corporate nancial performance. Although the two perspectives provide different explanations for the positive relationship between corporate philanthropy and corporate nancial performance, they do not have to be mutually exclusive: a manager who values benevolence and integrity may engage in corporate philanthropic activities that also induce positive stakeholder support and thereby improve the rms nancial performance. Therefore, although the managerial values approach to corporate philanthropy suggests that the relationship between corporate philanthropy and corporate nancial performance may be correlated but not causal, this approach does not entirely exclude the possibility that a direct relationship between

between corporate philanthropy and corporate nancial performance that has been found in previous research could be a spurious one, since both corporate philanthropy and corporate nancial performance are derived from the same set of managerial values. To further understand the insights provided by the managerial values model of corporate philanthropy, it is helpful to discuss some of the implications the model, especially in relating the two other existing perspectives of corporate philanthropy: the agency perspective and performanceenhancing perspective. First, although the managerial values model suggests that top managers engage in philanthropic activities because of their benevolent values and moral obligations without deriving any personal nancial benets, corporate philanthropy based on this motive can still be considered an agency cost to shareholders since it indulges the managers utility for doing good while shareholders incur opportunity loss (Helland and Smith, 2003, p. 2). In this sense, the argument developed here appears to be aligned with the basic argument of agency theory, which states that corporate philanthropy is the result of top managers desires to fulll their own needs or values at the expense of shareholders (e.g., Friedman, 1970; Margolis and Walsh, 2003; Werbel and Carter, 2002). Despite this apparent consistency, the argument presented here makes an important departure from the agency argument. A key difference is that the managerial values model identies an additional relationship that links managerial values with corporate nancial performance. The addition of such a link has important implications for understanding corporate philanthropy. According to the agency perspective, because corporate philanthropy is inconsistent with shareholder wealth maximization, top managers who engage in such activities should be constrained by various corporate governance mechanisms. The managerial values approach, however, suggests just the opposite. It implies instead that constraints imposed on managers who value benevolence and integrity may be costly, because these constraints will also reduce the potential nancial benet that these managers can bring to the rm and its shareholders. As a result, shareholders may nd it to their own benet to give more discretion to such managers, even if doing so encourages more corporate philanthropy. This

The Promise of a Managerial Values Approach to Corporate Philanthropy corporate philanthropy and corporate nancial performance still exists. However, it is our conjecture that the argument based on the managerial values model should be able to demonstrate greater validity in explaining the link between corporate philanthropy and corporate nancial performance than the argument that corporate philanthropy enhances corporate nancial performance. The latter perspective emphasizes the instrumental use of corporate philanthropy. But as stakeholders scrutinize the organization for cues as to its morality (Godfrey, 2005; Trevino and Youngblood, 1990), the instrumental use of ethics and other-regarding values by the organization may cause mistrust from these stakeholders. Moreover, if such tactics are perceived as insincere by stakeholders, they may even be counterproductive (Greenberg, 1990). Thus, to the extent that such an instrumental use of corporate philanthropy is anticipated by stakeholders, its role in inducing positive stakeholder support will be discounted, and the validity of the argument will be challenged. On the other hand, the managerial values model of corporate philanthropy, which argues that corporate philanthropy and stakeholder trust result from managers benevolence and integrity, is less subject to such concerns. Intrinsic benevolence and integrity are hard to fake (Depaulo et al., 1980; Frank, 1988), so rms without such managers will not be able to reveal such values in order to build stakeholder trust. Similarly, Barney and Hansen (1994) have argued that mimicking others values to achieve high levels of trustworthiness is not easy, and even if some trustworthiness is achieved, it is difcult to sustain. Further support for this argument can be found in the resource-based view of the rm. Managerial attributes, such as values, principles, and standards, which make high levels of trustworthiness possible, reect top managers unique paths through history (i.e., path dependence) and are socially complex. This makes these types of individual attributes immune from imitation and rapid diffusion (Barney, 1991; Barney and Hansen, 1994; Dierickx and Cool, 1989). Therefore, the process underlying the managerial values model whereby intrinsic managerial values lead to stakeholder trust may be more robust than that underlying the argument that corporate philanthropy improves corporate nancial performance. Conclusions

355

The article provides alternative explanations for corporate philanthropy and its relationship with corporate nancial performance. It argues that corporate philanthropy can be the direct result of top managers benevolence and integrity values, and that these same values also bring other benets to the rm: they facilitate building trusting relationships with stakeholders, and thus improve corporate nancial performance. These arguments provide additional insights into some ndings of previous empirical research in this area. Many studies have examined the relationship between corporate social responsibility and corporate nancial performance. The overwhelming evidence suggests that there is a positive relationship between them (Grifn and Mahon, 1997; Margolis and Walsh, 2003; Roman et al., 1999), which is often interpreted as evidence that corporate philanthropy leads to high levels of nancial performance. However, there is a lack of theory to clarify how these two should be related (Wood and Jones, 1995). The managerial values model developed here illustrates clear theoretical links among managerial values, corporate philanthropy, and corporate nancial performance, and argues that without appropriate control for managerial values, a positive correlation between corporate philanthropy and corporate nancial performance may suggest a spurious relationship between the two but does not imply causality. However, the validity of the managerial values model of corporate philanthropy and the implied spurious relationship between corporate philanthropy and corporate nancial performance are ultimately empirical issues. There are clearly challenges involved in conducting empirical tests of the model and its implications, given the complicated chains of causality and the difculty in obtaining measures of some key variables such as managerial values and stakeholder trust. To overcome these potential difculties, future research would benet from using ne-grained and carefully designed primary data to measure the key variables. For example, while managerial values are perhaps the most difcult to measure directly (Hambrick and Mason, 1984), some background characteristics of top managers, such as socioeconomic background and religious beliefs (Weaver and Agle, 2002), may serve as possible proxies. Or, it may be

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6

possible to indirectly measure top managers values by examining their communications, such as speeches delivered to stakeholders (Sussman et al., 1983). Moreover, since we argue for causal effects of managerial values on corporate philanthropy and corporate nancial performance, future empirical studies that are able to clearly demonstrate causality, for example, through collecting longitudinal data and designing appropriate methods that effectively control for alternative explanations, would be most desirable. We hope that the arguments developed in this article have emphasized the need for researchers to take a more comprehensive perspective in examining both the motives for corporate philanthropy and its relationship with nancial performance. When this has been done, the results should be able to provide scholars and managers with a fuller picture of corporate social behavior.

Indeed, if integrity means simply having ones behavior consistent with ones values, then Hitler had integrity. We thank an anonymous reviewer for helping us clarify this point. 7 Specically, Lerner and Fryxell (1994) developed a survey instrument to measure CEO community orientation as one of six CEO orientations toward generic stakeholder groups. For the community group, four types of corporate activities were identied: nancially supporting charitable and philanthropic activities, supporting arts and cultural activities, nancially supporting colleges and universities, and responding to requests for support from social service agencies. 8 McFall (1987) terms it moral integrity.

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Notes
Although the results of these studies are informative, their implications should be interpreted with caution. This is because corporate social performance generally has a broader meaning than corporate philanthropy. Among the four levels of corporate social responsibility identied by Carroll (1979), i.e., economic, legal, ethical, and discretionary, corporate philanthropy belongs to the discretionary category. 2 An exception is a recent study by Godfrey (2005), who outlined a more complex theoretical explanation for why corporate philanthropy may enhance shareholder wealth. 3 Of course, it is still possible that corporate philanthropy could sometimes simultaneously cater to a managers taste for charity and has a positive effect on nancial performance. 4 In this article, we use the term managerial values to refer to values held by managers and thus applied to managerial settings. Value as a general concept, however, can be held by any individual and thus applied to much broader contexts than purely managerial settings. 5 For example, based on the universal requirements of human existence, Schwartz (1992) clusters values into ten distinct types that serve different motivational purposes: power, achievement, hedonism, stimulation, self-direction, universalism, benevolence, tradition, conformity, and security. Further, those 10 values are grouped into four higher order values: openness to change vs. conservation, and self-transcendence vs. self-enhancement.
1

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Jaepil Choi Management of Organizations, Hong Kong University of Science & Technology, Clear Water Bay, Kowloon, Hong Kong SAR, China, E-mail: mnjaepil@ust.hk Heli Wang Management of Organizations, Hong Kong University of Science & Technology, Clear Water Bay, Kowloon, Hong Kong SAR, China, E-mail: mnheli@ust.hk