This week Wall Street Journal MarketWatch commentator Herb Greenberg delivered interesting commentary on how corporate philanthropy often reflects that a company has strong cash flow and overall positive financial performance. He likens philanthropy to paying dividends: it sends a positive message to investors not only that the company has cash on hand, but that the company is a good corporate citizen.
We are delighted to see this because, as we have found in our research, companies that are good corporate citizens do win the favor of investors. In 2007, we found that 66 percent of Americans consider a company’s commitment to social issues when deciding which stocks or mutual funds to invest in, a longitudinal increase of 65 percent from 2001. There seems to be a cyclical effect here: as companies perform well, they have the ability to increase their charitable giving, which in turn creates an increasingly positive vibe among investors who will then increase their support for the company in the financial marketplace. So, to stay ahead, companies should sharpen their focus on investors, making sure they make a significant effort in analyst presentations, annual reports and news releases to communicate their commitment to social issues.