Is Glaxo's Charity Really Theft?

Is there a fine line? Corporations have a duty to shareholders to maximize profits. But when they donate to charity -- which is regularly done these days, often through foundations -- this takes money out of shareholders' hands or stifles future growth. It instead provides that money to some cause that management deems appropriate. But Glaxo-SmithKline's recent decision to put thousands of chemical compounds which may cure malaria into the public domain gives this question a new dimension, adding additional complexity.First, a disclaimer: make no mistake -- I think charity is great and important. My personal view is that there is often a moral obligation to help others when given the ability to do so. But I also feel passionately that I should not force my morality upon others. As a result, I do not believe in involuntary charity. The end does not justify the means. With that said, should corporations give to charity? In a general sense, there are many ways in which that's perfectly acceptable. If shareholders vote to create a corporate foundation, for example, then by all means. If donations are made for tax reduction purposes, so to enhance profit, then that benefits shareholders, and probably doesn't even need approval. In general, if shareholders don't like how a corporation doles out its earnings, then that investor can voice the concern and sell her stake if unsatisfied with the firm's response. But Glaxo did something a little different in the example I'm interested in. The Guardian reports:

GSK will publish details of 13,500 chemical compounds from its own library that have potential to act against the parasite that causes malaria in sub-Saharan Africa, killing at least one million children every year. It took a team of five investigators a year to screen the two million compounds in GSK's library - its entire collection of potential drugs and possibly the biggest such library in the world.

Here a company is surrendering its intellectual property for the greater good. While this might be admirable on a moral level, I'm not so sure shareholders should be pleased. This isn't a situation where Glaxo has some profits, and feels like donating a portion to a cause. This isn't even a situation where it developed a revolutionary new drug and wants to give it away for free to those who need it. Instead, the company invested countless millions of dollars in drug research to come up with those 13,500 chemical compounds. That investment, of course, came from shareholders. So in a more direct way, Glaxo management has decided to take investor dollars and donate the profit that may come from it to the world -- without knowing what that profit may be. Because remember, this is raw intellectual property -- not an end product. Maybe one of those compounds also holds a cure for some other disease completely unrelated to malaria, unbeknownst to Glaxo. But now that drug would be in the public domain, much to the dismay of shareholders who thought their dollars would be directed at investment to reap profit. Again, don't get me wrong: on many levels a donation like this seems wonderful for the world. And if shareholders go along with it, then by all means, Glaxo should donate away. But without explicit shareholder approval, I'm a little unclear how this is different from taking investors' money and misappropriating it. In this case, that end happens to something most people consider ethically courageous -- hoping to cure an awful disease in poor countries. But if that money was appropriated in a less ethical manner without shareholder consent -- say, a trip of leisure for the CEO and his wife to Barbados -- how would that be any different from a logistical standpoint? Note: I've got a call into Glaxo to ask them if shareholders are on board with this initiative, but the company has not yet responded. If it turns out that shareholders have green-lighted this move, then I'll update this post, but I don't understand that to be the case. Quick Update: I spoke to a spokesperson from Glaxo this morning. She informed me that the board is generally supportive of the initiative, but no formal shareholder feedback has been solicited.

This article available online at:

http://www.theatlantic.com/business/archive/2010/01/is-glaxos-charity-really-theft/33872/