Corporate charitable giving has long been considered a key tool in companies’ environmental, social, and governance (ESG) arsenal. Notably, in 2023, corporate giving in the United States is estimated to have exceeded $36 billion. And while corporate philanthropy can generate value for firms, their shareholders, and society at large, it can also act as a channel for corporate insiders to increase their own benefit.

For instance, under CEO Jamie Dimon, JPMorgan Chase donated millions to the American Museum of Natural History, where Dimon’s wife served on the advisory council. Similarly, Enron contributed significant sums to the University of Texas M.D. Anderson Cancer Center, where two of its directors held leadership roles. Indeed, corporate charitable donations to nonprofits affiliated with directors (“conflicted grants”/”conflicted giving”) may well represent self-dealing at shareholders’ expense. Nonetheless, under U.S. law, shareholders are not entitled to vote on, or otherwise directly participate in, the decision-making process regarding corporate philanthropy. Furthermore, because companies are not required to disclose corporate charitable gifts in their filings with the SEC, and voluntary disclosure is severely lacking, most corporate giving flies below the radar.

Over the years, several proposed acts have sought to expand the disclosure of corporate charitable giving. While some targeted all donations, others focused on those benefiting insider-affiliated nonprofits, but none have succeeded in gaining Congressional approval. Public company investors have also expressed continued interest in obtaining information about corporate giving, with companies such as Disney, Target, Starbucks, General Electric, Wells Fargo, Alphabet, Apple, and Home Depot having received shareholder proposals requiring disclosures of charitable contributions. Finally, ISS has also stressed the importance of enhanced disclosure of corporate charitable grants made to insider-affiliated nonprofits, as such payments may hinder director independence, and are of great importance to their institutional clients.

While companies are not required to disclose their direct giving activity, many firms establish and operate corporate charitable foundations. These foundations report all their activities annually, using IRS Form 990-PF, and their giving is thus visible. My Article, Granting Favors: Insider-Driven Corporate Philanthropy, presents a comprehensive analysis of conflicted grants and their attributes, using giving data derived primarily from 990-PF forms. This data was then supplemented with information obtained from BoardEx on affiliations between nonprofits and corporate insiders. By constructing a sample consisting of the visible giving by S&P 500 firms between 2014 and 2019, I investigated the extent to which corporations channel donations to director-affiliated nonprofits. The data show that conflicted grants are commonplace; 50% of the companies in the sample engage in conflicted giving, and 34% of the giving years (i.e., firm-years in which any nonzero donation was documented) include one or more conflicted grants. The average conflicted grant is $273,000. Furthermore, each director who engaged in conflicted giving was associated, on average, with $715,000 in conflicted grants per year across the full data sample. By means of comparison, between 2014 and 2019, the average yearly compensation for a director in an S&P 500 company was $280,000. Overall, almost $300 million in conflicted grants was documented during the sample period. Of those companies that were found to have engaged in this practice, conflicted giving represented 2.3% of their overall visible charitable donations during this period.

In approximately half of all cases in which a conflicted grant was detected, the company began funding the recipient nonprofit only after a connection had been established between the two by means of the director’s dual-role. This suggests that insider self-interest is often the motivation behind conflicted giving, and that insiders are able to exert a critical level of influence over the charitable donations made by their companies.

Moreover, these empirical findings likely underestimate the full scope of conflicted giving. First, this data does not include links between nonprofits and directors’ immediate family members, which are just as relevant in evaluating the complete extent of conflicted giving. Second, and more importantly, this data only represents visible giving that was done primarily by corporate foundations. However, as evident from the graph below, the majority of corporate giving is not channeled through foundations, and thus travels below the radar. Corporate insiders may well choose to administer questionable donations using unobservable giving channels, such as giving directly to nonprofits or using donor-advised funds (DAFs).

Breakdown of foundation (light grey) and non-foundation (dark grey) corporate giving for U.S firms, 2013-2020

Because many nonprofits publicly acknowledge their corporate donors on their websites or in their annual reports, my article was able to address that concern and achieve a better sense of the full scope of conflicted giving. Specifically, I constructed a sub-sample of fifty S&P 500 firms, and manually searched the websites and annual reports of affiliated nonprofits for evidence of financial support by these companies. In this manner, I was able to detect conflicted giving administered through invisible giving channels. My findings show that 70% of firms analyzed engaged in conflicted giving through invisible channels. The average conflicted grant (for those companies that engage in invisible conflicted giving) is $230,000. This figure is almost as high as the average conflicted grant documented through visible channels, suggesting that invisible conflicted giving is substantial.

My findings suggest that corporate charitable giving may be used as an undetected means of promoting directors’ self-interests at shareholders’ expense. Thus, the SEC should mandate disclosure of conflicted grants. Furthermore, substantial ties to the firm through conflicted grants may hinder directors’ independence. However, NYSE rules do not disqualify independence based on conflicted giving. While grants to nonprofits affiliated with independent directors must be disclosed under NYSE rules if they exceed a certain threshold, my findings reveal that in practice, only 2% of these donations trigger disclosure. The NYSE should thus reevaluate its current rules. Lastly, stock exchanges should consider the full scope of each independent director’s conflicted giving, rather than grants given to each nonprofit separately. Otherwise, firms will be able to strategically allocate donations between affiliated nonprofits to circumvent stock exchange requirements.