Ethical Issues in Corporate Sponsorships

As Government funding for the Not for Profit, or Charitable, sector has decreased, organisations have sought to raise money from an increasing variety of sources to continue their work. One area which has been targeted is the corporate sector and charitable organisations have been forced to become more commercially orientated to communicate effectively with this sector.

In this environment, charitable organisations have begun to target not only a corporation’s philanthropic budget but also their marketing budget. These approaches to corporations from the charitable sector have included such proposals as ‘Cause related or Public Purpose’ marketing campaigns (eg ‘Help Pal train Guide Dogs’), product endorsements (eg the Australian Heart Foundation ‘healthy product’ endorsement) and organisation or event sponsorships (eg Westpac with ‘Clean Up Australia).

This shift towards a more commercial orientation for charitable organisations has been encouraged by the recent Industry Commission enquiry into the sector but it has not been met with universal praise. In a recent article entitled ‘Does Charity Begin at the Marketplace ?’ (Quadrant Magazine, Jan 1995), David de Carvalho, refering to an increased level of competition for Government funding, stated

"... in offering itself as an extension of the state which aims to turn it into a kind of social service supermarket, the community welfare sector is in danger of being seduced ....... (into) selling its soul and its potential to effect worthwhile social change."

Similar criticisms have been levelled at charitable organisations that have formed partnerships or undertaken sponsorship arrangements with commercial organisations.

This paper examines the ethical issues in corporate sponsorships of charitable organisations and the considerations a charity should make before accepting certain types of sponsorship. The focus is not on donations but on those types of corporate support which require the charitable organisation to publicly acknowlegde/endorse the sponsoriung organisation.

The basis for analysis is through the use of a particular case study and then a framework for evaluating sponsorship proposals from the corporate sector is proposed. The emphasis of this paper is on the charitable organisations themselves and the decisions that they must make in dealing with the commercial sector.

A CASE IN POINT

An organisation (henceforth refred to as Company X) which facilitates gambling, decides that as part of its marketing strategy it will sponsor a high profile charitable organisation. In view of this, the Company’s Management selects two organisations which provide a range of services to homeless and severely disadvantaged people.

Company X’s intention is that the organisations in receipt of their not inconsiderable financial sponsorship should recognise their support by placing the Company’s logo and a caption "Sponsored by:", on their letterhead.

On approaching the two organisations, the Company is surprised to find that one of the organisations refuses to even consider the offer whilst the other gladly accepts.

The question is, on what ethical basis have these two organisations made their decisions and what lessons can be learned from the different approaches that these two organisations have taken.

ALTERNATIVE ETHICAL FRAMEWORKS

Before examining how the two charitable organisations came to their respective decisions it is worthwhile to briefly examine four methods of moral reasoning that the organisations may have used.

The first method is Teleological theory or utilitarianism, which is based on the principle of utility and is concerned with the consequences of an action. It was proposed by Jeremy Bentham in the eighteenth century and the key question to be asked is

"Do the benefits of the action outweigh the negative consequences of the action more than any of the alternatives ?".

An extension of utilitarianism is Rule utilitarianism which looks at the consequences of adopting a general rule exemplified by an action, rather then the action itself. According to the rule utilitarian, one should act according to a general rule, which, if adopted, would maximise good. (Donaldson and Werhane, 1993 p. 10).

Alternatively, deontological theory or universalism, proposed by Immanuel Kant, states that it is not the consequences but the intentions of the individual doing the act which is important. One must ask,

"Would we wish that if everyone, when faced with the same set of circumstances made the same decision or took the same action as the action in question ?".

More recently, John Rawls proposed the theory of distributive justice. This theory focuses on justice and the question to be asked when looking at a decision or action is,

"Are the least advantaged members of our society better off after the decision or action than they were before ?".

Finally, a decision or action can be assessed on moral grounds by considering liberty. The question in regard to an action or decision is,

"Do all members of our society have greater freedom to develop their own lives in their own way after the decisions or action than they did before ?".

AN ANALYSIS OF THE TWO DECISIONS

Before considering the decisions made by the charities it is useful to consider two issues faced by the charities in making their decision. The first issue is the provision of the money itself whilst the second and more controversial issue is the acknowledgement of the source of the money.

I propose that the charity which has agreed to accept the money has focused their attention on the provision of the money itself rather than the acknowledgement of the source of the funds.

Using any of the frameworks for moral reasoning given above it is clear that the results of the provision of the money would generate more positive than negative consequences. It is also understandable that the charity would wish that everyone would provide money for the cause of social welfare, that the least advantaged members of our society would benefit more after the money was provided than the did before and, that the value of personal liberty is upheld by the provision of the money.

The Charity which is willing to accept the money has presumably come to the conclusion that any negative message that it is giving to the general public by acknowledging the source of funds is outweighed by the positive effects of the money itself. In this sense the charity has taken on a utilitarian stance.

But what possible messages could the charity be giving to the general public by acknowledging Coimpany X as the source of funds ?. There are three possibilities. Firstly, that Company X has donated some of its profits and that the charity is acknowledging their support as a show of gratitude. Secondly, that the charity is actually endorsing Company X as a valid member of our society, as is given in the legislation. Thirdly, that the charity is openly supporting the act of gambling.

It is reasonable to assume that the charity which is willing to accept the money, could use a utilitarian framework to justify its decision if its assumption is that the message being given to the public is one of the first two. If however, the message being given is the last one, that is, that the charity supports the act of gambling, then it is unlikely that they would agree to accept the money.

The belief that the message being given is the endorsement of gambling could be the reason that the charity which rejected the money has come to its decision. But is gambling immoral ?

MORAL FRAMEWORKS AND GAMBLING INSTITUTIONS

The frameworks for moral reasoning described above, enable a subjective decision to be made regarding the morality of gambling institutions.

Legal gambling venues always have the odds stacked in its favour so that even though some people may win money, over the long term the venue always wins. The profits from ganbling institutions are generally distributed to the shareholders after the payment of taxes to the Government and other charges. Because the shareholders have enough capital to own shares in the first place they are obviously not the least disadvantaged in our society.

Gambling in a licensed venue does not therefore benefit a majority of the people, nor would you wish that everybody established a gambling institution, nor does its existence benefit the least advantaged members of our society. However, the existence of a gambling institution does however give greater freedom to all members of our society to indulge in the art of gambling.

The charity which rejected the money could therefore be saying on utilitarian grounds that the negative impact of promoting gambling is greater than the positive benefits which would ensue form the receipt of the money.

However, this viewpoint is debatable because it is questionable how many people would accept the action of placing Company X’s logo on their letterhead as an endorsement of gambling. What I propose instead is that the charity which has rejected the sponsorship has done so on the basis of Rule Utilitarianism. That is, the charity has decided on the general rule that gambling is wrong and that anything to do with gambling is therefore also wrong. In this context the approach by Company X would be seen as a clear violation of that rule and should therefore be rejected.

Alternatively, universalism would state that rejecting the offer wills that others take the same action. In this sense, the charity is clealry focusing on the moral correctness of the existence of Company X itself.

The two charities appear to have made their decisions using different methods of moral reasoning. One has concentrated on the positive effects that the provision of money would achieve whilst the other has concentrated on the acknowledgment of the Casino itself and the implied validation of the act of gambling.

LESSONS TO BE LEARNED IN EVALUATING SPONSORSHIPS

Arguably, neither of the two charities are right or wrong, each has simply used a different method of assessing the ethical issues raised. The analysis above does however give us some clues as to how to evaluate offers of sponsorship or support from organisations when ethical issues are involved.

Using a utilitarian method of reasoning, the question to be asked is "Do the benefits that would result from the receipt of the money outweigh the possible negative messages given to the general public by the sponsorship ?". This method of reasoning places the emphasis on what message the charity believes is being given to the public by the sponsorship. For example, if Company X had asked the charities to put on their letterhead, "Gambling is good", then it would be highly unlikely that either of the organisations would accept the money.

However, when the sponsorship simply requires an acknowledgement of the source of the funds in the from of the placement of a logo and a small caption "Sponsored by:", the answer to the question is not so clear. Obviously it is up to the charity itself to make that decision, however it is worth considering an example. Let’s say that in an unlikely scenario, a tobacco company approaches a charity which researches heart disease, and offers to give them half a million dollars to assist with their research into heart disease. In exchange for the money, the tobacco company requires that the charity recognises on all of its promotional material that the tobacco company is a sponsor. What is the message being given to the public ?. No-one would believe that the Charity is saying that smoking is good for you. In this instance then, using utilitarianism, the Charity should accept the money as the benefits would clearly outweigh the negative impacts of the action !

Both of the other two methods for evaluating sponsorships on moral grounds focus on the act of endorsing the donor and or the activities that they represent.

The first of these methods that could be used in analysing sponsorships is the Rule Utilitarian way of reasoning. In the case of the tobacco sponsorship the charity’s rule might be that "anything to do with cigarette smoking is wrong" and therefore the sponsorship would be rejected. The general rule for evaluating sponsorship proposals is therefore, "If the endorsement of the donor violates a generally accepted rule to have nothing to do with the activities of the company in question, then the sponsorship should be rejected".

The third method for evaluating sponsorships, universalism, focuses on intent and the question to be asked is, "Would we like everyone to make the same decision of endorsing the moral validity of the existence of the donor organisation and the activities it represents ?". This method does not look at the consequences of the action but of the intent of the decision or action. In the case of the tobacco sponsor mentioned above, the intent would be that the tobacco company and the activities they represent are morally valid.

A FINAL POINT

From the analysis above it is easy to see why some charities are having difficulty with approaches by corporations. Although it is impossible to assess all of the ethical issues, the case study does provide an opportunity to examine the different decisions made by two similar organisations faced with the same issues.

The point also needs to be made that none of the three proposed methods for moral reasoning are right or wrong, they are simply three alternative frameworks that can be used as a starting point for discussion.

REFERENCES

• Donaldson, T. and Werhane, P.H. "Ethical Issues in Business - A Philosophical Approach" (1993, Fourth Edition)
• de Cavallo, D. "Market values killing the work of charities" in Association Times (Feb. 1995)