Ofer, Granting Favors: Insider-Driven Corporate Philanthropy

Leeor Ofer (John M. Olin Fellow in Empirical Law and Finance, Harvard Law School) has published Granting Favors: Insider-Driven Corporate Philanthropy, 86 Ohio St. L.J. 509 (2025). Here’s the abstract:

Corporate charitable giving has long been considered a key tool in companies’ environmental, social, and governance (ESG) arsenals. And while corporate philanthropy can generate value for a company, its shareholders, and society at large, it can also act as a channel for corporate insiders to increase their own benefit. This potential for abuse is further aggravated by the lack of reporting requirements for corporate philanthropy, allowing the majority of corporate giving to fly under the radar. This Article focuses on corporate charitable donations to nonprofits affiliated with directors (a phenomenon I refer to as “conflicted grants”). While companies are not required to disclose their direct giving activity, many establish and operate corporate charitable foundations. These foundations file yearly IRS reports, and their giving is thus visible. Using a sample consisting of the visible giving by S&P 500 companies, I provide empirical evidence that the amounts of conflicted grants are not only substantial, but they also constitute a nontrivial fraction of overall giving. I also discovered evidence of conflicted giving administered through invisible giving channels, such as direct giving by firms. Finally, the evidence showed that in half of all cases where a conflicted grant is detected, the firm began funding the recipient nonprofit only after a connection had been established between the company and the nonprofit through the director’s dual role. These findings suggest that corporate charitable giving may be used as an undetected means of promoting directors’ self-interests at shareholders’ expense. Thus, the Securities and Exchange Commission (SEC) should mandate disclosure of conflicted grants. Furthermore, substantial ties to the firm through conflicted grants may hinder directors’ independence. The New York Stock Exchange (NYSE) should reevaluate its current rules, which do not disqualify independence based on conflicted giving. And 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.

 

Samuel D. Brunson