Public Corporations Shouldn’t Give To Charity

The inspiration for this post came from a Facebook post by the Motley Fool in which they were advertising one of their articles spotlighting various companies who have donated significant amounts of money to Autism Speaks.  The Facebook post asked a simple question:  “Who doesn’t love seeing big business give back?”

Well, this guy for one!  That’s right, I’m the guy who thinks big businesses shouldn’t “give back” (we’ll save the discussion of how this is a loaded and incorrect term for some other time).  My opposition to this isn’t based on some sort of Randian “charity is evil,” position.  I’m a big fan of charity in general (as a libertarian, you pretty much have to be, as “charity” is the standard answer for “without government what will stop poor people from starving to death in the streets” objections).  I am completely and entirely in favor of individuals choosing to give to charities of their choosing.

My concern when it comes to public corporations doing so stems from the classic principal-agent problem.  These companies do not really have their “own” money to give away.  A corporation does not “own” it’s cash balance, it is merely a custodian of this cash for the real owners, the shareholders.  When Home Depot donates a million dollars to Autism Speaks, it is giving away a million dollars of shareholder’s money.  While this isn’t necessarily the most terrible thing in the world, it begs a simple question.  Why not return this money to the shareholders, so that they can donate to a charity of their own choosing?  Any time a publicly traded company donates money to charity, it is essentially requiring that its shareholders donate to that same charity.  In this case, it is engaging in the least efficient method of spending money possible:  spending other people’s money on other people.

If the directors and officers of publicly traded companies believe in the mission statement of a particular charity, they should donate their own money towards it.  To donate company funds to private charities is essentially forcing minority shareholders to donate to these same charities regardless of whether they desire to or not, which is inefficient, unnecessary, and entirely undermines the concept of charity in general.