Wednesday, August 08, 2012

Target Gives $3 Million a Week to Its Communities. Q: Aren't Its Prices Too High, or Wages Too Low?


The Minneapolis-based Target Corporation makes a big deal about its "caring for the community" and brags on its website and in its stores that "since 1946, Target has given 5% of our income - which today totals more than $3 million a week - to our communities" (see graphic above).   

Q1: Doesn't that mean Target is really overcharging its customers with "everyday high prices" in amounts that are sufficient to generate the $3 million necessary to give those dollars back every week to the very communities where Target shoppers live?  

Q2: Couldn't Target give the $3 million back to its communities more directly by just lowering its prices, or having more sales? 

Q3: Alternatively, if Target has $3 million every week to give back to its communities, doesn't that mean Target is really underpaying its employees in amounts sufficient to generate the $3 million extra it needs to give back to the very communities where Target employees live?

Q4: Couldn't Target give $3 million to the communities it serves more directly by just increasing its wages for hourly employees, who are members of "Target's communities"?  

Q5: What does Target mean by "our income"?  Isn't that really the shareholder's income, and why is Target management spending $3 million of shareholder income every week on community giving?  

Q6: Couldn't that $3 million per week be paid out in dividends to shareholders, who could then decide how best to spend their money?    

Bottom Line:  Isn't Target's strategy just a deceptive publicity stunt or public relations gimmick that allows it to overcharge customers with high prices and/or underpay its employees with low wages, under the guise of a "caring corporation"? 

I'd love to see this advertisement from a retail giant

"Our rock-bottom prices are so low and our wages are so high that we give money directly back to our communities daily through our "everyday low prices" and "everyday high wages."  We believe that's a more effective, direct and honest strategy of serving our communities than if we were to over-charge customers with high prices and/or under-pay employees with low wages and then generate publicity by bragging about how we give back 5% of our inflated profits to the community. Our goal is to cut out the charitable foundation middlemen with expensive overhead, bureaucracy, and administrative costs, and serve our communities by giving money directly to our customers and employees through low prices and high wages. Our commitment to publicized community giving is 0%, because we've already given everything we can through low prices and high wages, and after a normal rate of return for our shareholders, we've got nothing left to give back."  

Update: The chart below shows the performance of Target (blue line) vs. Walmart (green line) over the last five years -- Target stock has been flat (0% return), while Walmart stock has appreciated by 60% since 2007.  While other factors could certainly be playing a role in the financial performance of the two companies, we do know that Target was selling for about $60 in August of 2007 and it's selling for about that same price today.  During the same period, Walmart's stock has increased from about $45 to $75.  Judging by their stock prices, Walmart's "everyday low prices" is apparently a more effective corporate strategy than Target's strategy of high prices and $150 million a year in community giving? What might Target be selling for today if instead of spending $750 million over the last five years on charity, it had repurchased $750 million of its shares?       


164 Comments:

At 8/08/2012 10:30 PM, Blogger Steve said...

Wow, Good points.

 
At 8/08/2012 10:58 PM, Blogger Ron H. said...

*like*

 
At 8/08/2012 11:16 PM, OpenID fmtrading said...

I can't see how Target is being in any way deceptive? If its a gimmick, what's wrong with that? Couldn't all marketing be described as some sort of gimmick (not that there's anything wrong with that)?

 
At 8/09/2012 12:58 AM, Blogger Scott Drum said...

How is this different than a Congressman who pushes through earmarks, then boasts to his constituents that he is bringing jobs and money to the district (with funds the government extracted from them in the first place)?

 
At 8/09/2012 1:32 AM, Blogger Don Culo said...

They should give back to the community for polluting the community with their crappy clothes.

 
At 8/09/2012 2:45 AM, Blogger PeakTrader said...

Anti-Walmart activists, e.g. socialists, environmentalists, pagans, etc. need a place to shop too.

It seems, community organizers want to divide retail stores:

Chick-fil-A critics to sip at Starbucks
8/7/12

"To counter Mike Huckabee’s Chick-fil-A Day...gay rights activists are launching “National Marriage Equality Day” on Tuesday that will end up supporting one chain in particular: Starbucks."

******

Local news in Southern California on Aug 1st "Appreciation Day:"

Customers flock to support Chick-fil-A restaurants
Aug. 1, 2012

"A national show of support for Chick-fil-A on Wednesday has meant jammed parking lots and roadways.

The packed restaurants are part of a national effort to support the chain, which has faced heated protests online and at its restaurants from gay-marriage advocates for comments by Chick-fil-A Chief Operating Officer Dan Cathy supporting "the biblical definition of the family unit."

At the Brea Plaza restaurant, 50 cars were lined up for the drive-through, at least 125 customers jammed the restaurant, eating and ordering, and another 100 waiting outside.

In Costa Mesa, at least 400 people packed in and around the Chick-fil-A on Harbor Boulevard. At the Santa Ana location, employee Viviane Raths said business is 10 times what it typically is during lunch.

Members of The Rock church showed up in force at the Fullerton location, with lines running the length of the building and the wait as long as an hour.

Robby Duckworth, 29, of Placentia said he was upset when he heard some city officials in Chicago and Boston were threatening to ban Chick-fil-A restaurants from their communities."

 
At 8/09/2012 3:09 AM, Blogger Jet Beagle said...

Mark,

I think you're asking some good questions. I wish that the general public understood economics enough that Target could make the statement you suggested without being misunderstood. But the general public does not, and for this and other reasons I think Target's tactic is very smart.

I'm going to respond to each of your questions separately. Each one interests me, but in a different way.

 
At 8/09/2012 3:24 AM, Blogger Jet Beagle said...

"Doesn't that mean Target is really overcharging its customers with "everyday high prices" in amounts that are sufficient to generate the $3 million necessary"

Prices are determined by the competitive market. If Target can charge the prices it does and still meet its revenue goals, then it should do so.

$3 million weekly represents about 0.2% of Target revenues. Lowering its prices by that amount could have some impact on Target traffic, but probably not much.

 
At 8/09/2012 3:40 AM, Blogger Jet Beagle said...

"if Target has $3 million every week to give back to its communities, doesn't that mean Target is really underpaying its employees"

Again, wages are set in a competitive market. If Target is attracting and retaining employees, then it cannot be underpaying its employees.

I guess the question is really:

"Could Target better attract and retain employees if it increased employee wages rather than give to community programs, and thereby increase the revenue and profits of the corporation?"

I'm assuming that increased profits is the ultimate goal for Target management.

In its annual report, Target management notes that employees also donate nearly 500,000 hours of community service related to the dollars which Target gives to the communities. That's a key piece of information which needs to be factored into our analysis of Target's donation tactic.

IMO, corporations which are successful in the long run have cultures which contribute to the bottom line in ways not always immediately apparent. Like many other corporations, Target likely uses its long tradition of community service to maintain the morale and team cohesiveness of its workforce. In my industry, both FedEx abd Southwest Airlines do so - though probably not at the level of donation of Target. (Neither FedEx nor Southwest has $68 billion in revenues, of course.)

I question whether Target needs to donate $150 million or more annually in order to maintain its culture. I believe there are other important reasons for that level of donation.

 
At 8/09/2012 3:55 AM, Blogger Jet Beagle said...

"Couldn't Target give $3 million to the communities it serves more directly by just increasing its wages for hourly employees, who are members of "Target's communities"?"

Increasing the wages of Target's 365,000 employees by $8.22 a week would have a one time but small PR benefit for Target. But that would be quickly forgotten by the employees and by the communities.

Continued funding of libraries and literacy programs, on the other hand, provides a continuous and visible PR benefit to the company. How valuable is PR to a company such as Target?

We shouldn't forget the power of local governments have over retail businesses. Target's ultimate interests are better served by providing local elected officials with cover to enable them to approve zoning requests and reject legislation which would interfere with Target's ability to do business. The PR Target achieves through its donations very likely allows local elected officials to portray the company as a good citizen.

 
At 8/09/2012 4:07 AM, Blogger Jet Beagle said...

"Isn't that really the shareholder's income, and why is Target management spending $3 million of shareholder income every week on community giving?"

Shareholders should be well aware that its employees, corporate management, has chosen to spend $150 million or more in this manner. If shareholders object, they have ways to make those objections known. The fact that Target has long maintained this tradition of giving 5% of operating profits to communities indicates that shareholders have not voiced objections.

IMO, the PR benefit and the corporate culture benefit of sponsoring library funding, literacy, and disaster response programs is ultimately valuable to shareholders. I don't know if it is worth $150 million or $200 million annually. That's a decision Target management and Target owners need to make. Apparently they have.

 
At 8/09/2012 5:33 AM, Blogger Larry G said...

it's plain and simple marketing practiced by more than a few retail companies who want people in a community to believe that the store is also a contributing part of the community.

For instance, our local Target just had a "National Night Out" to have the cops and first responders on site in their vehicles and gear ostensibly for crime prevention, etc.

Also...by this logic - one could also say that sales and coupons are paid for by those who don't buy sales items or use coupons.

In the end, it matters what the purpose of the money is for as much as it matters what it is spent on.

If the money is ultimately intended to boost business, strengthen their image in the community, increase community "likes", etc, then it's really a calculated business strategy no different than them spending money on other "overhead" such as advertising or BOGO sales, etc.

And their competitors are free to say "we don't give to charities" ... we keep our prices low to you instead.

 
At 8/09/2012 6:23 AM, Blogger The High Priest said...

Some major companies spend far more than that on their advertising budgets. Wouldn't 3 million dollars basically get you one 30 second spot as a Super Bowl ad?

My point is this: couldn't this be viewed as a cost-effective way of marketing themselves in a positive light, given that consumers like this sort of thing?

 
At 8/09/2012 6:26 AM, Blogger The High Priest said...

My other thought on this is that perhaps they want to target (no pun intended) where that 3 million a week is put. They could do across the board cuts and give back to everyone, including the middle and upper classes who shop there, or they could just focus their giving back on low income communities. I do agree, however, that higher wages could also accomplish this same thing.

 
At 8/09/2012 6:34 AM, Blogger Larry G said...

exactly.

When our local Target donates money to local schools for school supplies - it brings teachers and parents into the store to buy stuff and if it works as desired, it INCREASES sales.

it's simply part of their advertising budget.

but using the same logic - one could argue that senior citizens discounts or even discounts for armed service personnel are also "subsidies" and non-seniors and non-armed services folks pay more and "contribute" to the discounts. Eh?

and again - the competitors can argue "we don't screw you by offering discounts to others - everyone gets the same price"

and if their price is actually lower for everyone - then there are a lot of people who choose lower prices.

 
At 8/09/2012 7:13 AM, Blogger Jet Beagle said...

Larry G: "it's simply part of their advertising budget. "

It's more than that, Larry.

Contributing to community causes has been part of the Dayton Corporation culture for nearly 100 years. Dayton Corporation increased their charitable contributions to 5% in 1946, two decades before the corporation went public.

Giving back to the community is good PR for Target. But it is also a key part of the company's culture. Maintaining corporate culture is - for companies such as Target, FedEx, Southwest Airlines, and many more - a critical part of their success.

My guess is that economists will tend to ignore the impact of culture because they are unable to quantify it. But I'd like to hear Mark's opinion on that.

 
At 8/09/2012 7:23 AM, Blogger Larry G said...

re: part of their culture

I agree. Just as local retailers many years ago would actually run a tab for people in between paydays or give discounts to needy people in the community or donate goods and services to the community,

You'll see road signs identifying local businesses as their employees perform little cleanup.

but in the end - if there are two competitors in a town and one of them does not contribute in ways that cost them money AND their prices are lower - many folks will take the lower prices no matter how community-minded the competitor might be.

I think globalization and the advent of big box stores has put a pretty big dent in much of it.

I note here that Toyota and Subaru and Ford all donate vehicles to local community organizations.

Ford donates vans to the local food pantry and to VFW. Toyota and Subaru donate to local environmental and community focus groups.

http://corporate.ford.com/our-company/our-company-news/our-company-news-detail/fmcfcs-hunger-relief

 
At 8/09/2012 7:35 AM, Blogger VangelV said...

How is this different than a Congressman who pushes through earmarks, then boasts to his constituents that he is bringing jobs and money to the district (with funds the government extracted from them in the first place)?

You can't see the difference. In the case of Target the management has control over wages, prices, and donations. A Congressman has no control. He can vote against a budget but if he loses the money will be spent. Once he has lost he can either choose to divert money to projects in his district or let the White House decide how it will be spent. Since the Constitution says that it is Congress that gets to decide all spending should be earmarked.

 
At 8/09/2012 7:39 AM, Blogger VangelV said...

Giving back to the community is good PR for Target. But it is also a key part of the company's culture. Maintaining corporate culture is - for companies such as Target, FedEx, Southwest Airlines, and many more - a critical part of their success.

I disagree. Management is in no position to speak to the values of its shareholders, employees, vendors, or customers and the decisions about what cause to donate to is a subjective one that is made by too few people. If prices are lowered the customers will be able to make their own decisions what charities their savings will support. If wages are increased the employees will be able to make their own decisions what charities their savings will support. If the profits are passed on the the investors they will be able to make their own decisions what charities their savings will support. All three options, or a combination of them are better than a PR stunt in which a corporate board decides which high overhead charity should be funded.

 
At 8/09/2012 7:53 AM, Blogger Larry G said...

Management is in no position to speak to the values of its shareholders, employees, vendors, or customers

without poking a hornets nest, wouldn't you say that Chick fil A management has every right to do just that?

 
At 8/09/2012 7:59 AM, Blogger Jet Beagle said...

vangeiv,

I think you're confused about what I wrote. I didn't say that employees are better off when they participate in a shared culture (although I am certain that many are). Rather, I said that the company is better off when its employees do.

About the shareholders of Target: contributing 5% of the company's pre-tax profits was not a decision made by a board of directors independent of shareholders. When the family firm Dayton Corporation made that decision back in 1946, the Board was the Shareholders. Also, the type of contribution - funding library expansions and literacy - has been consistent for all of those decades since.

Management of Target believes that contributing 5% of operating profits to communities - and specifically to libraries and literacy - is an important part of their strategy. That has been made clear to shareholders in every annual report. That such funding continues to be approved by the Board of Directors - the elected representatives of those shareholders - certainly indicates to me that the owners of the company are on board.

 
At 8/09/2012 8:02 AM, Blogger VangelV said...

without poking a hornets nest, wouldn't you say that Chick fil A management has every right to do just that?

No. Each individual can only speak for himself. But private property rights mean that the owner can set up rules that employees may not really like very much.

For the record, what exactly do you think that 'Chick fil A management' has done?

 
At 8/09/2012 8:07 AM, Blogger Larry G said...

For the record, what exactly do you think that 'Chick fil A management' has done?

...." the owners of Chick-fil-A have donated millions to various causes, including Christian organizations dedicated to preserving traditional heterosexual marriages"

 
At 8/09/2012 8:07 AM, Blogger Jet Beagle said...

me: "Maintaining corporate culture is - for companies such as Target, FedEx, Southwest Airlines, and many more - a critical part of their success."

vangeiv: "I disagree."

I've worked for many years in two of those three corporations. I can confidently say that the management and employees at each one believe whole-heartedly that corporate culture is critical to their success. Perhaps not every single manager and every single employee. But by far the majority of the managers and employees.

I also know for a fact that large shareholders of two of those corporations agree that maintaining corporate culture initiated by the founder is important to future success.

 
At 8/09/2012 8:13 AM, Blogger VangelV said...

I think you're confused about what I wrote. I didn't say that employees are better off when they participate in a shared culture (although I am certain that many are). Rather, I said that the company is better off when its employees do.

I am not confused at all. I question your idea of a shared culture. Some employees don't like rap. Some do. Some employees think about marriage in traditional terms. Others do not. Some employees see no problem with abortion. Others are strongly against it. Some employees are cheering the attacks on Libya, Syria, and Iran. Others are against them. Some employees like foreign films. Others do not. Some are socialist. Others are national socialists. What 'shared culture' would be helped by contributions made by a small group of people and how would those contributions lead to better outcomes than having each individual decide?

About the shareholders of Target: contributing 5% of the company's pre-tax profits was not a decision made by a board of directors independent of shareholders. When the family firm Dayton Corporation made that decision back in 1946, the Board was the Shareholders. Also, the type of contribution - funding library expansions and literacy - has been consistent for all of those decades since.

I think you need a calendar. We do no live in 1946. And the board still gets to decide what 'charities' to support. If I were an investor in Target why would I want my earnings to go to support UNICEF's program to stop adoptions in Guatemala or to support OXFAM's war against private schools that serve the poor in third word countries? When I give money to others I like to think about what type of programs it funds and how they fit in with my values. When someone else donates my money that does not happen.

Management of Target believes that contributing 5% of operating profits to communities - and specifically to libraries and literacy - is an important part of their strategy. That has been made clear to shareholders in every annual report. That such funding continues to be approved by the Board of Directors - the elected representatives of those shareholders - certainly indicates to me that the owners of the company are on board.

What does literacy have to do with libraries? When I look around at my own library I see that there are more CDs and DVDs being lent out than books. Libraries are not very responsive to consumers because they do not operate in a competitive market where performance is necessary for survival.

 
At 8/09/2012 8:21 AM, Blogger VangelV said...

...." the owners of Chick-fil-A have donated millions to various causes, including Christian organizations dedicated to preserving traditional heterosexual marriages"

It is a private company. The owners can use their money in any way they want because it is their money. That is not true for Target, where the management gets to make decisions for the millions of investors who have shares. If you can't see the difference you are not trying.

 
At 8/09/2012 8:22 AM, Blogger Jet Beagle said...

Larry G,

Perhqps I wasn't clear about why local funding is important to nig box retailers. IMO, it's not just to attract customers. It's also to make it easier for local city councils to approve zoning changes and road modifications. If Target has a national reputation for helping local communities, that fact will be presented to local elected officials in public meetings.

For what it's worth, I disagree with your assertion that price is all that matters to retail customers. Target and WalMart are both big box retailers, but they pursue a different segment of the population.

Here in north Texas, Walmart is trying to make inroads into Target's suburban upper middle class customer base. I think Walmart's having problems doing that because they're low price, blue collar image conflicts with the values of many of the professional middle class.

FYI, I shop at WalMart not because of price but because I want to piss off pretentious liberals who hate the company.

 
At 8/09/2012 8:25 AM, Blogger VangelV said...

I've worked for many years in two of those three corporations. I can confidently say that the management and employees at each one believe whole-heartedly that corporate culture is critical to their success. Perhaps not every single manager and every single employee. But by far the majority of the managers and employees.

We are talking about different things. Donating to charities that investors or employees do not really support and would not donate to if given a choice has nothing to do with corporate culture.

I also know for a fact that large shareholders of two of those corporations agree that maintaining corporate culture initiated by the founder is important to future success.

You are talking about something else and diverting the discussion from the point. Raising money to charities that do things that I oppose morally and ethically has nothing to do with maintaining corporate culture unless PC and ignorance are a part of that culture.

 
At 8/09/2012 8:30 AM, Blogger VangelV said...

Perhqps I wasn't clear about why local funding is important to nig box retailers. IMO, it's not just to attract customers. It's also to make it easier for local city councils to approve zoning changes and road modifications. If Target has a national reputation for helping local communities, that fact will be presented to local elected officials in public meetings.

So we agree. It IS a PR move designed to buy off politicians and keep competitors from being approved. It would have been easier if you wrote that in the first place.

 
At 8/09/2012 8:43 AM, Blogger Scott Drum said...

From a rational economic perspective, customers, employees and shareholders would be better off if Target did not make these donations. They would each (in some proportion) have more money that they could use as THEY saw fit. I might, for instance, prefer a different charitable use than the ones Target is choosing for me.

 
At 8/09/2012 8:50 AM, Blogger Jet Beagle said...

vangeiv: "It IS a PR move designed to buy off politicians and keep competitors from being approved. It would have been easier if you wrote that in the first place."

I did, smart guy. If you look at my comments you will see I made that point early on. But I also said that the contributions were more than just PR.

 
At 8/09/2012 8:51 AM, Blogger Jon Murphy said...

This comment has been removed by the author.

 
At 8/09/2012 8:51 AM, Blogger Jon Murphy said...

I'll just inject my thoughts here and back off:

Target's profit margin (4.15%) is larger than its competitors and industry average (about 2%). This may suggest Target is able to charge higher prices, which it then turns into goodwill through these donations.

However, without any in-depth knowledge of the company, I cannot be sure.

 
At 8/09/2012 8:58 AM, Blogger Jet Beagle said...

Scott Drum: "From a rational economic perspective, customers, employees and shareholders would be better off if Target did not make these donations."

I disagree. It is not the customer's money that is being donated. It is not the employees' money that is being donated. It is money that belongs to the shareholders. Through their representatives - the Board of Directors - the majority of shareholders have already given approval for the donations.

As I've tried to point out, the value of the contributions is threefold:

1. maintain a corporate culture which management believes will motivate employees;

2. provide a positive image which enables local governments to resist the special interests which would paint Target as an uncaring large corporation that wipes out small businesses;

3. enhance the reputation of Target in the minds of its customer base - which is definitely motivasted by more than just low prices.

Just because we cannot precisely calculate the value of reputation and corporate culture does not mean we should dismiss it as not rational.

 
At 8/09/2012 9:03 AM, Blogger Jet Beagle said...

Jon Murphy: "This may suggest Target is able to charge higher prices, which it then turns into goodwill through these donations."

Thanks for researching Target's profit margin. I'll get back to that in a few minutes.

Your sentence may be a reversal of cause and effect. IMO, the goodwill - combined with Target's targeting of upper middle class professionals - allows the retailer to charge slightly higher prices and achieve higher profits.

 
At 8/09/2012 9:07 AM, Blogger Jon Murphy said...

Your sentence may be a reversal of cause and effect. IMO, the goodwill - combined with Target's targeting of upper middle class professionals - allows the retailer to charge slightly higher prices and achieve higher profits.

That is a strong possibility. I really would not be able to speak on it one way or the other.

 
At 8/09/2012 9:18 AM, Blogger Jet Beagle said...

John Kotter references his research on corporate culture and profitability:

"We published a book, Corporate Culture and Performance, arguing that strong corporate cultures that facilitate adaptation to a changing world are associated with strong financial results. We found that those cultures highly value employees, customers, and owners and that those cultures encourage leadership from everyone in the firm."

I haven't read Kotter's book. But I know that both FedEx and Southwest Airlines have been cited by many researchers as evidence that shared values across the workforce can lead to industry-leading profitability even during strong periods of growth.

It is likely that the donations of Target - enhanced by employee participation in the very same programs to which the company contributes - drives the shared values of its workforce. That, IMO, is a big contributor to the industry-leading profits which Jon Murphy noted above.

Some may think it a stretch to believe that working together on a community project helps a company's workforce become more adaptive. What it does is open lines of communication and promote respect. I've seen it happen.

 
At 8/09/2012 9:23 AM, Blogger Jet Beagle said...

vangeiv: "It IS a PR move designed to buy off politicians and keep competitors from being approved."

I read that too quickly before replying. What Walmart and Target are doing is not preventing other firms from being approves. Rather, they are ensuring the approval of themselves. It is the big box retailers which often get shut out by teh influence of special interests on small local governments.

 
At 8/09/2012 9:31 AM, Blogger Jet Beagle said...

vangeiv: "Donating to charities that investors or employees do not really support and would not donate to if given a choice has nothing to do with corporate culture. "

I think you've got this backwards. In both cases - Chick Fil A and Target - the corporate culture represented by their donations was in place before the current investors or employees existed.

Investors come and go. Employees come and go. But the culture - the soul, if you will - of Target and Chick Fil A are constants.

When you invest in Target, or when you go to work for either Target or Chick Fil A, you are implicitly accepting the culture of the two organizations. To their credit, neither one tries to hide what they believe in.

The charitable donations of Chick Fil A and Target - and Southwest Airlines - have everything to do with their corporate culture.

 
At 8/09/2012 10:04 AM, Blogger marmico said...

Why is Perry silent about Walmart community giving? Hmmm...

 
At 8/09/2012 10:07 AM, Blogger Jon Murphy said...

Why is Perry silent about Walmart community giving? Hmmm...

Wal-Mart is part of the Koch-News Corp.-Illuminati group. We wouldn't want to destroy one of our own, would we? Hell no. We want to attack and destroy Target. That way, Wal-Mart can continue the enslavement of all the poor people and, hopefully, the Third World as well.

 
At 8/09/2012 10:17 AM, Blogger givemefreedom said...

I don't see this as that big of a deal. They support community programs, that's good for the programs that get the money. I bet none of them are complaining that Target donated to them.

The shareholders have the option to sell their shares if they don't approve of the company's donations. Since the donation are approved by the board, then the shareholders have basically given their approval since the board represents the shareholders.

The employees have the option of quiting if they don't approve of the donations. I doubt that many of them feel that the company should not donate and should instead just give the money to the employees.

The customers have the option of shopping someplace else if they don't approve. Based on Target's success, I don't that is an issue with most shoppers.

The motivation behind Target's donations don't matter much either....deceptive practice, public relations, corporate culture, etc.. If the donations do not add to the company's profitability and are significant relative to their overall costs, then competitors can take advantage of this weakness and it will hurt Target. However, the company is doing quite well so it either helps them or is not that much of a hinderance.

Bottomline, it is shareholders money. If they agree to it through the board of directors them it is their business.

 
At 8/09/2012 10:26 AM, Blogger VangelV said...

I did, smart guy. If you look at my comments you will see I made that point early on. But I also said that the contributions were more than just PR.

If they are PR they are not really more than PR. As has been explained above by more than one person, it would be better if individuals would be given the money to donate as they wished rather to have the Target board make the decision.

 
At 8/09/2012 10:27 AM, Blogger VangelV said...

I disagree. It is not the customer's money that is being donated. It is not the employees' money that is being donated. It is money that belongs to the shareholders. Through their representatives - the Board of Directors - the majority of shareholders have already given approval for the donations.

Through their representatives? I do not see the board asking investors where to donate their portion of the earnings. What I see is a central board calling the shots and decisions reflecting the desires of the members of that board, not investors.

 
At 8/09/2012 10:33 AM, Blogger morganovich said...

"Isn't Target's strategy just a deceptive publicity stunt or public relations gimmick that allows it to overcharge customers with high prices and/or underpay its employees with low wages, under the guise of a "caring corporation"?"

another possible explanation is that it is a bribe to the local government who approved the zoning, traffic studies etc.

companies get mugged like that in san francisco all the time.

to build an apartment complex, 10% have to be "below market rate" for low income residents.

to build a whole foods, you have to pay for road alterations, parking structure upgrades, and pay congestion fees.

i'm not sure you can blame target here. they may just be responding to the realities of local bureaucrats that can hold up build plans for years if you do not pay them off.

 
At 8/09/2012 10:35 AM, Blogger morganovich said...

"Through their representatives? I do not see the board asking investors where to donate their portion of the earnings. What I see is a central board calling the shots and decisions reflecting the desires of the members of that board, not investors."

this seems like an overstatement.

so don't buy the stock if you don't like the policy. become activist and seek to replace the board and failing that, sell.

no one is forcing shareholders to own target.

 
At 8/09/2012 10:42 AM, Blogger VangelV said...

I haven't read Kotter's book. But I know that both FedEx and Southwest Airlines have been cited by many researchers as evidence that shared values across the workforce can lead to industry-leading profitability even during strong periods of growth.

Those values are 'very' different from what we mean by values when we choose which charities to support.

 
At 8/09/2012 10:46 AM, Blogger VangelV said...

I think you've got this backwards. In both cases - Chick Fil A and Target - the corporate culture represented by their donations was in place before the current investors or employees existed.

Chick Fil A is a private company. When its owners donate money they are donating their own money. Target is a public company. When its board donates money they are deciding for the owners. That is a big difference that you refuse to acknowledge.

Investors come and go. Employees come and go. But the culture - the soul, if you will - of Target and Chick Fil A are constants.

You are diverting attention from the real issue. In one case you have the owners donating their own money to the charities that they support and in the other you have the board donating the owner's money to the charaties that the board supports.

 
At 8/09/2012 10:56 AM, Blogger Jet Beagle said...

vangeiv: "In one case you have the owners donating their own money to the charities that they support and in the other you have the board donating the owner's money to the charaties that the board supports."

Shareholders do empower the Board of Directors to make those decisiosn. In the case of Target, the Board of Directors has been funding libraries and literacy programs for decades - for longer than the company was publicly traded. The long term strategy of Target explicitly states that such programs will be funded. Anyone who doesn't want to fund those programs has the choice to not buy Target stock.

 
At 8/09/2012 11:00 AM, Blogger morganovich said...

"Chick Fil A is a private company. When its owners donate money they are donating their own money"

that is actually quite possibly less true than it would be at target.

private companies have minority shareholders too, and, in most cases, those shareholders have fewer rights than do their public company counterparts and, perhaps even more limiting, find it far more difficult to sell their shares if they disagree with the board's decisions.

owning 2% of chick fli a likely leaves you far fewer options than owning 2% of target.

 
At 8/09/2012 11:00 AM, Blogger VangelV said...

this seems like an overstatement.

so don't buy the stock if you don't like the policy. become activist and seek to replace the board and failing that, sell.

no one is forcing shareholders to own target.


What you say is true. But it does not change the fact that the donations reflect the desires of the board and have no real regard for the investors, employees, or customers. Surely you would agree that it is better for us to spend our own money as we see fit rather than to have some central planner decide for us. What the Target board does is not all that different than when governments decide to use our own money to fund programs that are favoured by the bureaucrats.

 
At 8/09/2012 11:03 AM, Blogger VangelV said...

Shareholders do empower the Board of Directors to make those decisiosn.

No they don't. The shareholders are not asked which charities the Board can decide are deserving of funding by Target's investors. This is the same type of scams politicians pull when they claim that just because they got elected they can do what they want even if the actions taken were never a part of the debate and never got majority support.

 
At 8/09/2012 11:05 AM, Blogger Jet Beagle said...

vangeiv: "Those values are 'very' different from what we mean by values when we choose which charities to support."

That's irrelevant. The goal for the charitable activity of Southwest Airlines is to improve shareholder value.

The purpose for organizing the workforce around a specific charity - and supporting it with corporate donations - is exactly to promote teamwork and team spirit. Promoting teamwork is essential for achieving the productivity which has, over the past four decades, made Southwest Airlines the only profitable U.S. airline.

You may believe that shareholder value could be increased without the donations and the employee voluntarism. The founder and the current CEO of Southwest would disagree with you.

 
At 8/09/2012 11:09 AM, Blogger Jet Beagle said...

vangeiv: "No they don't. The shareholders are not asked which charities the Board can decide are deserving of funding by Target's investors. "

Sorry, but I think you are mistaken. By continuing to own the stock of Target, the shareholders are voicing their approval of the Board's actions.

That's very different from the voter's relationship with his government. One cannot live in the U.S. and not be subject to the decisions made by Congress.

 
At 8/09/2012 11:10 AM, Blogger givemefreedom said...

VangelV said...
What you say is true. But it does not change the fact that the donations reflect the desires of the board and have no real regard for the investors, employees, or customers. Surely you would agree that it is better for us to spend our own money as we see fit rather than to have some central planner decide for us. What the Target board does is not all that different than when governments decide to use our own money to fund programs that are favoured by the bureaucrats.


You are missing the biggest fact of all: all parties in this situation have participated Voluntarily. That is the most important fact.

We still have the choice to spend our money as we see fit. The shoppers were not directed by the "central planners" to buy at target. The employees were not directed by the "central planners" to work at Target. The shareholders were not directed by bureaucrats to invest their money in Target.

That's a big point you missed VangelV.

 
At 8/09/2012 11:14 AM, Blogger Jet Beagle said...

vangeiv: "Surely you would agree that it is better for us to spend our own money as we see fit rather than to have some central planner decide for us. What the Target board does is not all that different than when governments decide to use our own money to fund programs that are favoured by the bureaucrats."

Completely different, sir. We can volunatrily be a shareholder of Target - or not. We cannot live and work in the U.S. and voluntarily be subject to the laws of Congress.

And I do not agree that shareholders are better off if they were given the money Target donates. The leaders of Target have convinced shareholders that the total package of spending by the corporation - including capital spending, labor spending, and charitable donations - will increase the value of the shares they hold. If the shareholders did not have confidence in the decisions being made by the corporate leadders, they would not buy the shares.

 
At 8/09/2012 11:25 AM, Blogger morganovich said...

"Surely you would agree that it is better for us to spend our own money as we see fit rather than to have some central planner decide for us"

this seems like a bit of a straw man.

you are free, as an investor to do so. target has made its policy clear. if you do not like it, do not own the stock. it's not a trait i look for in an investment, but there are social conscious funds etc.

i think you need to take your own argument and extend it further.

target are free actors and should be allowed to do as they like. so are the shareholders. if they agree on giving, well fine. i would not run my company that way, bu t they should be free to just as shareholders should be free to vote them out or sell their stock.

and again, the picture here may be more complex.

this "giving" may be a rational and profit maximizing response to being extorted by local governments.

if a few million greases the wheels and gets permits faster (or at all) and more attractive land use etc, then it may be a great investment.

if such an expenditure attracts customers who care about such things, it may be a great investment as well.

in the former case, i am sure that we will agree that it's a horrid expense to have to have and that the answer is to dis-empower these popinjay local bureaucrats, but as that is how the field currently lies, you have to hit the ball from there.

on the latter, who knows if it works, but it is a potentially plausible strategy.

 
At 8/09/2012 11:26 AM, Blogger morganovich said...

"
That's very different from the voter's relationship with his government. One cannot live in the U.S. and not be subject to the decisions made by Congress."

exactly. the ability to vote with your feet and not participate is what separates private enterprise from governmental coercion.

 
At 8/09/2012 11:30 AM, Blogger Jet Beagle said...

givemefreedom: "The employees have the option of quiting if they don't approve of the donations."

Exactly.

Last weekend I talked with a Chick Fil A employee who is looking for another job. Why? Because she doesn't agree with the beliefs expressed by the owners. Nothing special about that. People make such employment decisions all the time.

 
At 8/09/2012 11:39 AM, Blogger juandos said...

"Q5: What does Target mean by "our income"? Isn't that really the shareholder's income, and why is Target management spending $3 million of shareholder income every week on community giving?"...

Does anyone know if shareholders of any publically traded company have publically ridiculed the management of the company for stealing shareholding wealth with these pseudo charity stunts?

 
At 8/09/2012 11:41 AM, Blogger givemefreedom said...

Jet Beagle,

Our firm donates to a range of charities. I can also participate with my own donations and can direct them to a specific charity of my choosing, which I do.

I don't agree with all the charities the firm chooses but not to the point that it bothers me. I actually am proud of the fact that the firm does contribute to charity, regardless of the real motivation behind those contributions.

I am sure that the charities that receive the money are happy also and are not concerned with the motivation behind the giving.

 
At 8/09/2012 11:42 AM, Blogger Jet Beagle said...

juandos: "Does anyone know if shareholders of any publically traded company have publically ridiculed the management of the company for stealing shareholding wealth with these pseudo charity stunts?"

Not sure I understand what you mean. Are you being serious?

What do you mean by "pseudo charity stunts"?

 
At 8/09/2012 11:51 AM, Blogger VangelV said...

That's irrelevant. The goal for the charitable activity of Southwest Airlines is to improve shareholder value.

If charity is being used as a PR stunt to get shareholder values higher that is fine. But let us stop pretending it is something more than that because the argument that a small group of men and women can donate the money of a group of investors in a manner that is more reflective of the 'values' of the individual members of that group is not very credible.

 
At 8/09/2012 11:52 AM, Blogger VangelV said...

Sorry, but I think you are mistaken. By continuing to own the stock of Target, the shareholders are voicing their approval of the Board's actions.

No they are not. If people want the earnings they are willing to tolerate stupid moves by the board that they do not approve of.

 
At 8/09/2012 11:58 AM, Blogger givemefreedom said...

VangelV said...
But let us stop pretending it is something more than that because the argument that a small group of men and women can donate the money of a group of investors in a manner that is more reflective of the 'values' of the individual members of that group is not very credible.


Nobody argued that at all.

 
At 8/09/2012 12:01 PM, Blogger givemefreedom said...

VangelV said...
If people want the earnings they are willing to tolerate stupid moves by the board that they do not approve of.



If the board makes enough "stupid" moves then the earnings will disappear. Seems to me that looking at Target's earnings, their board has made plenty of smart decisions.

 
At 8/09/2012 12:10 PM, Blogger Jet Beagle said...

vangeiv: "If charity is being used as a PR stunt to get shareholder values higher that is fine. But let us stop pretending it is something more than that because the argument that a small group of men and women can donate the money of a group of investors in a manner that is more reflective of the 'values' of the individual members of that group is not very credible"

You were responding to my comment about Southwest Airlines. I am qualified to inform you about that company's charitable donations.

Did you read what I wrote about how Southwest's support of Ronald McDonald House promotes teamwork among its employee workgroups?

Southwest does contribute funds to Ronald McDonald House. But, more importantly, the airline's employees organize a number of volunteer efforts to help that non-profit group. The two actions - donations of funds and volunteer work - go hand in hand.

You may not believe teamwok is critical to the operation of Southwest Airlines. If so, you are very mistaken.

You may doubt whether employees of Southwest believe Ronald McDonald House to be a worthy recipient of Southwest's funds and its employees time. If so, you are very mistaken.

 
At 8/09/2012 12:13 PM, Blogger Jon Murphy said...

Does it really matter what Target does with their money? They are a private company. So what if it's a publicity stunt?

 
At 8/09/2012 12:23 PM, Blogger Jet Beagle said...

Why all this cynical crap about "publicity stunts"? Charitable funding at the level of $200 million a year is not a stunt.

Do you folks not believe that Target and its employees are sincere in their efforts to increase literacy and improve the effectiveness of local libraries?

Do you not believe that Southwest Airlines and its employees are not sincere in their efforts to provide accomodations and food for families with children undergoing medical treatment?

These are not "stunts".

It is true that the motivation for Southwest is to increase shareholder value by increasing employee teamwork and morale. But that motivation does not make the effort a "stunt".

 
At 8/09/2012 12:27 PM, Blogger morganovich said...

jon-

i presume by private, you mean privately owned? target is a publicly traded company. (TGT)

that said, i think your point about how they use profits being entirely up to them and their shareholders is completely valid.

unless they can compel you to own their stock, then you can just vote with your feet.

shareholders disagree with board decision all the time be they management comp, new product initiatives, acquisitions, divestitures, or whatever.

if you don't like it, sell (or go activist and change the board).

 
At 8/09/2012 12:30 PM, Blogger Jon Murphy said...

i presume by private, you mean privately owned?

Yes, that is correct. They are not a GSE or public utility.

 
At 8/09/2012 12:37 PM, Blogger Jet Beagle said...

This comment has been removed by the author.

 
At 8/09/2012 12:39 PM, Blogger Jet Beagle said...

Mark Perry: "Isn't Target's strategy just a deceptive publicity stunt or public relations gimmick that allows it to overcharge customers with high prices and/or underpay its employees with low wages, under the guise of a "caring corporation"?"

After re-reading this, I wonder whether Mark is not just trying to stimulate us to think like economists.

Is it possible to "overcharge" customers?

Is it possible to "underpay" workers?

If customers buy Target's products, then they could not have been overcharged, could they?

If employees continue working at Target, then they could not have been underpaid, could they?

 
At 8/09/2012 1:04 PM, Blogger Ron H. said...

Jet:

"If customers buy Target's products, then they could not have been overcharged, could they?

If employees continue working at Target, then they could not have been underpaid, could they?
"

No and No.

And Target's owners, by the very act of becoming owners, indicate that they either approve of or tolerate the board's decisions regarding their (owners) earnings.

Every relationship with Target is voluntary.

 
At 8/09/2012 1:10 PM, Blogger Ron H. said...

"Yes, that is correct. They are not a GSE or public utility."

Now THAT is a scary thought.

 
At 8/09/2012 1:47 PM, Blogger VangelV said...

You are missing the biggest fact of all: all parties in this situation have participated Voluntarily. That is the most important fact.

The fact that investors like the prospects of the company does not mean that they approve of individual policies of the board.

We still have the choice to spend our money as we see fit. The shoppers were not directed by the "central planners" to buy at target. The employees were not directed by the "central planners" to work at Target. The shareholders were not directed by bureaucrats to invest their money in Target.

But the board decided where to donate the profits, not the owners of those profits.

That's a big point you missed VangelV.

Sorry but your central planning cannot be justified by making claims that cannot be supported by facts or logic.

 
At 8/09/2012 2:07 PM, Blogger givemefreedom said...

VangelV said...
"The fact that investors like the prospects of the company does not mean that they approve of individual policies of the board."



Actualy, the fact that they are owners of the stock tells you that they approve of the overall policies of the board, or they wouldn't own the stock. You don't know if they approve or diapprove of any individual policy. But you do know that the charitible donation policy doesn't bother them enough to sell the stock. If you are going to make an assumption then you must assume that on balance the shareholders approve of the charity decisions as you have no evidence that they do not.

 
At 8/09/2012 2:10 PM, Blogger givemefreedom said...

VangelV said...
But the board decided where to donate the profits, not the owners of those profits.



As more than a few posters have pointed out, the board members are the representatives of the shareholders.

 
At 8/09/2012 2:13 PM, Blogger juandos said...

"What do you mean by "pseudo charity stunts"?"...

Stunts like the United Way jet...

United Way has a track record jet...

 
At 8/09/2012 2:20 PM, Blogger givemefreedom said...

VangelV said...
Sorry but your central planning cannot be justified by making claims that cannot be supported by facts or logic.


My claim was that the voluntary nature of the involvement of all parties in this situation was a big point that you have overlooked.

You called it central planning and attempted to equate it with government central planning. That was your attempt to mock the posters here who beleive in limited government and free markets.

It is nothing of the sort. It is a business decision made by the board, who represent the shareholders. It is no different than the board deciding where to locate a facility or how to allocate the resources of the company.

The fact is that the voluntary nature of the involvement is the most important aspect and makes it nothing like government central planning where people have no choice but to deal with the government.

Your logic is lacking.

 
At 8/09/2012 3:00 PM, Blogger Jet Beagle said...

juandos,

I do not see how your link to the fraud at United Way relates to your earlier statement:

"Does anyone know if shareholders of any publically traded company have publically ridiculed the management of the company for stealing shareholding wealth with these pseudo charity stunts?"

I usually get your point immediately, and generally agree with it. But I don't understand what you're meaning.

Do you believe that Target and its employees committed fraud when they funded and worked to makeover over 100 school libraries since 2007?

The United Through Reading program sponsored by Target allows deplayed military parents to read aloud with their children they are separated from. As far as I can tell, it is not connected in any way to the United Way. Do you have any reason to believe the United Through Reading program is a fraud?

 
At 8/09/2012 3:12 PM, Blogger VangelV said...

My claim was that the voluntary nature of the involvement of all parties in this situation was a big point that you have overlooked.

The investors did not volunteer to support some of the charities that are receiving money from Target. I would argue that most would rather donate the profits to their own favourite charities even if it is a PR stunt that provides benefits.

You called it central planning and attempted to equate it with government central planning. That was your attempt to mock the posters here who beleive in limited government and free markets.

No. I also believe in limited government. I am saying that the same argument holds. The board should limit its activity to the functions that have to do with the business, not activism of any sort. Just like taxpayers are better capable of deciding what to do with their own money than government bureaucrats, investors are also more capable of deciding what to do with the profit than the Target board.

It is nothing of the sort. It is a business decision made by the board, who represent the shareholders. It is no different than the board deciding where to locate a facility or how to allocate the resources of the company.

It is only a business decision if it is a PR stunt designed to bring other benefits to the company. But even if that were true I would allow every investor to pick from a wide selection of charities to better reflect their individual values rather than have the directors make the decision for everyone.

The fact is that the voluntary nature of the involvement is the most important aspect and makes it nothing like government central planning where people have no choice but to deal with the government.

Your logic is lacking.


As I said, the charity part is not voluntary. When people buy the shares they do so because of the economic considerations, not every non-essential function done by the board. Pretending otherwise is not very logical.

 
At 8/09/2012 3:21 PM, Blogger VangelV said...

If the board makes enough "stupid" moves then the earnings will disappear. Seems to me that looking at Target's earnings, their board has made plenty of smart decisions.

That is not the argument. The argument is about who is best able to determine where the 5% of the profit goes and who should decide which charities should be getting financing. I argue that if it is not done for some direct payoff purposes the decision should be made by the investors. Obviously, local and regional managers are best able to determine how the payoffs are to be made and which local groups will be of most use when trying to keep competitors from getting a foothold. I am sure that Target stores in Chicago can find plenty of local 'charities' that can oppose Wall-Mart's plans to build stores in certain areas.

 
At 8/09/2012 3:28 PM, Blogger VangelV said...

Southwest does contribute funds to Ronald McDonald House. But, more importantly, the airline's employees organize a number of volunteer efforts to help that non-profit group. The two actions - donations of funds and volunteer work - go hand in hand.

I do not dispute or oppose charitable giving. I am only saying that people should donate their own money and their own time rather that using money earned by others.

You may not believe teamwok is critical to the operation of Southwest Airlines. If so, you are very mistaken.

I have not said that. I kept my comments confined to the issue of who should decide where the contributions should go.

 
At 8/09/2012 3:30 PM, Blogger VangelV said...

Does it really matter what Target does with their money? They are a private company. So what if it's a publicity stunt?

If it is a stunt I have no objection to the board directing the charitable giving. If it isn't the investors should decide what to do with the 5% of profits because they may have better charities in mind or prefer to keep the money themselves.

 
At 8/09/2012 3:34 PM, Blogger VangelV said...

that said, i think your point about how they use profits being entirely up to them and their shareholders is completely valid.

unless they can compel you to own their stock, then you can just vote with your feet.


This is the same thing that the statist say when talking about foreign wars. They say that voters elected the government and if those that oppose the wars have a problem they could always move.

Sorry but this argument is crap. People buy shares because they want returns, not because they support a particular charity. It is very possible to like the shares of a company but have problems with specific actions of its board.

 
At 8/09/2012 3:40 PM, Blogger VangelV said...

Actualy, the fact that they are owners of the stock tells you that they approve of the overall policies of the board, or they wouldn't own the stock. You don't know if they approve or diapprove of any individual policy. But you do know that the charitible donation policy doesn't bother them enough to sell the stock. If you are going to make an assumption then you must assume that on balance the shareholders approve of the charity decisions as you have no evidence that they do not.

This is not true. Many of the shares are owned by fund managers who don't give a damn about anything but returns. And if individual investors like the stock because of economic factors they will still hang on even if they would rather have the 5% of profit returned so that they could decide what it is used for.

It is amazing how people who keep suggesting that they favour free markets and individual responsibility have no problem with using money earned by others for some 'worthwhile' purpose. And still they wonder why the idea of limited government can not be taken seriously.

 
At 8/09/2012 3:42 PM, Blogger VangelV said...

As more than a few posters have pointed out, the board members are the representatives of the shareholders.

Just as much as the people in Congress are representatives of voters when they decide to subsidise ethanol or fund 'research' projects that examine the self esteem of prostitutes.

 
At 8/09/2012 3:55 PM, Blogger juandos said...

"Do you believe that Target and its employees committed fraud when they funded and worked to makeover over 100 school libraries since 2007?"...

No jet I don't believe that Target and its employees committed fraud, I believe if the board of directors sent any profits (regardless of how small the amount might be) to an outfit like United Way they have basically stolen from the shareholders...

"The United Through Reading program sponsored by Target allows deplayed military parents to read aloud with their children they are separated from"...

jet stick with the 'United Way" for a minute please...

We're talking about Target a pubically traded company and its worse case scenario, giving shareholder money to a questionable outfit...

Now to your point jet regarding the reading program...

O.K. it really is a pretty good program...

I take part in a similer program here in the St. Louis area...

The question still remains (well at least as far as I'm concerned) is it O.K. for Target to use shareholder profits and donate a portion of them to this program without asking each shareholder?

BTW Target does pressure their people in MSP to donate also to the United Way...

 
At 8/09/2012 4:21 PM, Blogger Ron H. said...

juandos

"The question still remains (well at least as far as I'm concerned) is it O.K. for Target to use shareholder profits and donate a portion of them to this program without asking each shareholder?"

I think only shareholders can answer that question, as they are the only ones with a stake in the answer.

As has been pointed out, the practice existed before any shares were traded, so any current shareholders knew, or could have known going in that some of their profit would go to a specific charity.

"This program contains graphic scenes that some viewers might find disturbing. Viewer discretion is advised."

If you don't wish to observe an autopsy, change the channel.

If you don't like Target's practice of donating to charity, buy some other shares.

Start your own company instead, so you can direct any profits wherever you wish.

Ain't choice great?

 
At 8/09/2012 4:46 PM, Blogger Jet Beagle said...

juandos: "The question still remains (well at least as far as I'm concerned) is it O.K. for Target to use shareholder profits and donate a portion of them to this program without asking each shareholder?"

Of course it is! When the shareholders purchased shares of Target stock, they automatically delegated to the Target Board the decisions about how to use that money to run the company. If the Board of Directors believes that donating 5% of operating profits will ultimately increase the value of Target, they are completely justified in doing so.

As we've tried to point out, Target (previously Dayton Corporation) has been donating 5% of operating profits since 1946. As I understand what I've read, the company has been very consistent over 7 decades in the type of organizations which receive its donations. This is not some back room secret. Any investor who bothered to read their annual report or did a minimal amount of investigation about Target would know this.

Target management is not in any way obligated to get the permission of every single shareholder for any decision it makes about the company. Do you think its donation decisions should be subject to different approval requirements than its capital spending decisions? its merchandise selection decisions? its employee selection decisions?

 
At 8/09/2012 4:54 PM, Blogger VangelV said...

Do you think its donation decisions should be subject to different approval requirements than its capital spending decisions?

Yes, I do. When I buy shares of a company I give my explicit permission for the management of the company to make financial decisions that have to do with the business of the company. If charitable giving is a PR stunt that has to do with protecting the company from competition by buying off local groups that can be used to harass Walmart or some other company that wishes to enter the area then the board should be free to have the local and regional managers decide how the groups are to be bought off. But if it is not a PR stunt and the charitable giving has nothing to do with the business of the company then the board should get explicit permission from voting shareholders.

 
At 8/09/2012 5:18 PM, Blogger juandos said...

"Of course it is! When the shareholders purchased shares of Target stock, they automatically delegated to the Target Board the decisions about how to use that money to run the company"...

Funny thing is jet after perusing at the paperwork of a couple companies I own shares in I must have missed that part where it said the board could be frivolous with my money...

" Do you think its donation decisions should be subject to different approval requirements than its capital spending decisions?'...

Yes...

I've dumped stock for that very reason...

" its merchandise selection decisions? its employee selection decisions?"...

No and no, that's what the management is being paid to do, not make feel good decisions with someone else's money...

 
At 8/09/2012 5:19 PM, Blogger Jet Beagle said...

vangeiv: "But if it is not a PR stunt and the charitable giving has nothing to do with the business of the company then the board should get explicit permission from voting shareholders."

Good luck on that. Not going to happen with any publicly traded U.S. corporation.

In any case, every donation decision made by companies such as Target and Johnson & Johnson has to do with the business of the company. Spending a hundred million dollars or more to enhance a company's image - or to ensure employee morale - is not a "PR stunt". Decisions made at that level are carefully thought out, and the impact on the company's long term profitability is always on the minds of the decision makers.

 
At 8/09/2012 5:23 PM, Blogger Jet Beagle said...

juandos: 'Funny thing is jet after perusing at the paperwork of a couple companies I own shares in I must have missed that part where it said the board could be frivolous with my money..."

There is nothing frivolous about the decision of corporate leaders to spend tens or hundreds of millions of dollars on charitable causes. If you believe so, you are certainly entitled to "dump their stock". But you would definitely be missing out on the gains made by some of the nation's most profitable large companies.

 
At 8/09/2012 5:50 PM, Blogger Ron H. said...

Vangel

"Yes, I do. When I buy shares of a company I give my explicit permission for the management of the company to make financial decisions that have to do with the business of the company. "

I think you're wrong on this one. As far as I know, the board decides what has to do with the business of the company, in fact the board decides what the business of the company IS.

As a shareholder you can vote your shares, and if enough shares want to change something or elect a new board they can do it. Obviously current Target owners know about the 5% charitable giving, and that giving probably serves all of the purposes mentioned previously on this thread.

The choice is to buy or not buy Target stock, knowing the conditions attached to such ownership, just as we can choose whether to buy a car that only comes in red, or real estate that doesn't include mineral rights, or which is zoned to disallow raising pigs.

 
At 8/09/2012 5:53 PM, Blogger Ron H. said...

juandos

"I've dumped stock for that very reason..."

But was that contribution decision in place when you bought the stock, or was it a new decision during your ownership?

 
At 8/09/2012 6:04 PM, Blogger juandos said...

"But was that contribution decision in place when you bought the stock, or was it a new decision during your ownership?"...

ron h that is always one of the first things I look for when purchasing shares...

If the board and or the CEO are making these frivolous donations then what other stupid and or dishonest things are they going to do?

I dumped both Coke and Pepsico when it was reported that both companies were contributing to the Sierra Club, that was in fact the reason I've been checking ever since...

 
At 8/09/2012 7:44 PM, Blogger RjLais said...

Nobody is forcing shareholders to invest, workers to work at Target, or consumers to buy at Target, so if they don't like their strategy they can go elsewhere. This post highlights how lucky we are to have choices. Consumer sovereignty!

You all sound like a bunch of anti-capitalists trying say one consumer's choice is better than the others.

BTW, I am an equal opportunity shopper...I'm a fan of Target and Wal-Mart.

 
At 8/09/2012 7:44 PM, Blogger RjLais said...

This comment has been removed by the author.

 
At 8/09/2012 7:48 PM, Blogger Larry G said...

You all sound like a bunch of anti-capitalists trying say one consumer's choice is better than the others.

no.no. I'm quite sure all are "UBER" capitalists but so anti-govt that anything that sounds remotely like "central-planning" gets the whole hen house in an uproar.

 
At 8/09/2012 7:50 PM, Blogger RjLais said...

This comment has been removed by the author.

 
At 8/09/2012 9:31 PM, Blogger VangelV said...

In any case, every donation decision made by companies such as Target and Johnson & Johnson has to do with the business of the company.

If that is true donations are a PR cost.

Spending a hundred million dollars or more to enhance a company's image - or to ensure employee morale - is not a "PR stunt".

But if that is the reason the spending is little more than advertising. That makes it just PR.

Decisions made at that level are carefully thought out, and the impact on the company's long term profitability is always on the minds of the decision makers.

That is fine. All advertising campaigns and PR budgets should be well thought out.

 
At 8/09/2012 9:38 PM, Blogger Jon Murphy said...

This post lost all sense of rationality about 80 posts ago.

 
At 8/09/2012 9:40 PM, Blogger VangelV said...

I think you're wrong on this one. As far as I know, the board decides what has to do with the business of the company, in fact the board decides what the business of the company IS.

If all you have is business being disguised as benevolence than I would agree. But if the charitable giving is separate from the business the board should not make the decision. It should be done by the people that the profit belongs to.

As a shareholder you can vote your shares, and if enough shares want to change something or elect a new board they can do it. Obviously current Target owners know about the 5% charitable giving, and that giving probably serves all of the purposes mentioned previously on this thread.

Wake up and smell the napalm. No board election is ever about the issue of charitable giving. You are giving me the political line that Larry and others typically give when they talk about being happy that your money is taxed away to give more money to public unions because the voters wanted it. According to them politicians have every right to tax you and use your money as they wish because they were elected. Are you now saying that you were wrong and that they have a point? If that is what you are saying you might want to consider that no politician that you are likely to get a chance to vote for will ever bring up the subject or run on that issue.

This is simply a property rights issue. As I said, if charitable giving is just business I have no problem with the board engaging in it. But if it has nothing to do with the business they should not tax investors 5% and give it to their own chosen charities because the money does not belong to the board.

The choice is to buy or not buy Target stock, knowing the conditions attached to such ownership, just as we can choose whether to buy a car that only comes in red, or real estate that doesn't include mineral rights, or which is zoned to disallow raising pigs.

You are sounding like those guys who say that if you don't like FEMA, DHA, or the wars in Afghanistan and Iraq you can choose to leave the country. Things don't work that way. As I said, when you buy a fund the managers may choose to buy you Target shares because of the prospects and earnings, not because of anything related to the charitable giving policies.

Your line of argument is too muddled and gets too complicated too quickly. Mine is simple, logical and is based on property rights.

 
At 8/09/2012 9:42 PM, Blogger VangelV said...

I dumped both Coke and Pepsico when it was reported that both companies were contributing to the Sierra Club, that was in fact the reason I've been checking ever since...

I guess that you don't own any shale companies because they are donating to the Sierra Club as a way of attacking coal.

That comment aside, I would say that 99% of people care about returns when investing. They worry about charities when deciding where to invest their own money, not when buying stocks.

 
At 8/09/2012 9:50 PM, Blogger VangelV said...

You all sound like a bunch of anti-capitalists trying say one consumer's choice is better than the others.

Anti-capitalist? Sorry but that is not true. The argument is about property rights. Should your money be used by others to fund activities that you would not support if you knew about them? Is the profit yours or can it be taxed away by the board to do what the board wishes?

I refer you to the decision that Buffett made when he made changes to the BH plan. After long discussions and arguments looking at all sides of the debate he wrote, "‘[These] representatives of the owners direct funds to their favourite charities, and never consult the owners as to their charitable preference. (I wonder how they would feel if the process were reversed and shareholders could invade the directors’ pockets for charities favoured by the shareholders’"

He went on and pointed out the conflicts that could arise. "Neither our operating managers nor officers of the parent company use Berkshire funds to make contributions to broad national programs or charitable activities of special personal interest to them, except to the extent they do so as shareholders. If your employees, including your CEO, wish to give to their alma mater or other institutions to which they feel a personal attachment, we believe they should use their own money, not yours.’"

Of course, Buffett is no fool and when the special interest groups boycotted one of his companies because some shareholders wanted to give for family planning groups that fund abortions the idea and the plan were terminated.

 
At 8/09/2012 10:03 PM, Blogger Mark J. Perry said...

See update in post with chart comparing Target and Walmart stock prices over the last five years: Target stock price has been flat (0%), while Walmart stock has appreciated by 60%.

Judging by their stock prices, Walmart's "everyday low prices" is apparently a more effective corporate strategy than Target's strategy of high prices and $150 million a year in community giving? Instead of giving $750 million in charity over the last five years, imagine how Target's stock price might have gained if instead Target had purchased $750 million of its shares.

 
At 8/09/2012 10:21 PM, Blogger VangelV said...

Judging by their stock prices, Walmart's "everyday low prices" is apparently a more effective corporate strategy than Target's strategy of high prices and $150 million a year in community giving? Instead of giving $750 million in charity over the last five years, imagine how Target's stock price might have gained if instead Target had purchased $750 million of its shares.

But the directors would not have the satisfaction of building a new hockey arena at their university.

 
At 8/09/2012 11:04 PM, Blogger givemefreedom said...

VangelV,

Okay, I will grant you your point regarding the boards deciding the charitible donations, not the shareholders. The shareholders were not consulted.

But it is understood when you buy shares in a company, that the board will make many decisions without bringing it to the shareholders through a vote.

Some important decisions are brought to a vote, most are not. a company could not operate if every decision had to be made by a shareholder vote.

I don't feel that charitable giving is something that requires a shareholder vote, unless it will have a significant impact on the company, then it should be voted on. The good thing about the markets is you are free to choose where to invest your money. If corporate charity is a big issue for you, then you should use it as one of your parameters when choosing stocks.

While I haven't done a study on how many companies give to charity, my guess is that the percentage is quite high. Is your solution to mandate that all charitable decisions be brought to a vote by shareholders. I would disagree with that.

As I said before, because we are free to invest or not invest, this is not a big issue for me.

 
At 8/09/2012 11:22 PM, Blogger givemefreedom said...

Mark J. Perry said...
See update in post with chart comparing Target and Walmart stock prices over the last five years: Target stock price has been flat (0%), while Walmart stock has appreciated by 60%.

Judging by their stock prices, Walmart's "everyday low prices" is apparently a more effective corporate strategy than Target's strategy of high prices and $150 million a year in community giving? Instead of giving $750 million in charity over the last five years, imagine how Target's stock price might have gained if instead Target had purchased $750 million of its shares.



Dr. Perry, Target has about 661 million shares outstanding according to Google Finance. Assuming that there was no benefit received from Target's donations and also that they did not save taxes by making those donations (these are very big assumptions), it works out to $1.15 per share over the 5 years. That is about 2% of the current price per share.

Did this affect their share price? Hard to say one way or the other. What was the donation level of Walmart and the other comparable companies? It would be difficult to isolate the impact on Target's share price from their donations.

However, this whole issue really only deals with whether you should buy Target or not, and whether you should consider the level of corporate donation when making your stock selections.

Are you trying to make the point that some type of regulation is needed so that this type of corporate activity does not occur. do you really think shareholders need protection from this?

 
At 8/09/2012 11:26 PM, Blogger VangelV said...

But it is understood when you buy shares in a company, that the board will make many decisions without bringing it to the shareholders through a vote.

Yes it is. But those are decisions that have to do with the business model and with trying to be more profitable. That means that the only time the directors can legitimately run a charity funding operation is if it is a part of the PR or advertising budget or if it is used to bribe local groups to prevent competition. I agree with Buffett. If directors want to support a charity they should do it with their own money and let shareholders make their own decisions based on their own values.

I don't feel that charitable giving is something that requires a shareholder vote, unless it will have a significant impact on the company, then it should be voted on. The good thing about the markets is you are free to choose where to invest your money. If corporate charity is a big issue for you, then you should use it as one of your parameters when choosing stocks.

Given the effect of compounding I would say that 5% of profits is very significant.

 
At 8/09/2012 11:30 PM, Blogger VangelV said...

While I haven't done a study on how many companies give to charity, my guess is that the percentage is quite high. Is your solution to mandate that all charitable decisions be brought to a vote by shareholders. I would disagree with that.

As I said before, because we are free to invest or not invest, this is not a big issue for me.


I am not against charity. I am pointing out that taking individual shareholders' money to give to causes that they do not approve of is not right. If the directors want to build a football stadium let them use their own money. The best judge of how your money is spent is you, not some PC fool who thinks that he knows better than you do.

 
At 8/09/2012 11:33 PM, Blogger VangelV said...

Are you trying to make the point that some type of regulation is needed so that this type of corporate activity does not occur. do you really think shareholders need protection from this?

That is not what I read. Mark knows the effects of compounding and has argued that the 5% should be reinvested in the company or that should be donated by the shareholders as they wish, not as the directors decide. It is after all the investors' money.

 
At 8/10/2012 2:04 AM, Blogger Ron H. said...

Vangel:

"You are sounding like those guys who say that if you don't like FEMA, DHA, or the wars in Afghanistan and Iraq you can choose to leave the country. Things don't work that way."

No, of course they don't, but that is nothing like buying shares of Target. The difference is choice. I can't choose to be a US citizen - it is the default for me. I CAN choose to buy Target, or not buy it. The equivalent would be deciding whether to move TO a country that had FEMA, DHA and foreign wars. These things have all happened since my birth.

If I could rid myself of those things with a few keystrokes I would certainly do so, just as I would dump my Target shares if I thought their charity giving wasn't good business.

Target giving 5% to charity existed since before I ever owned stock, and would be something I should consider in any buying decision, just as I should consider the CC&Rs when buying a townhouse, and realize that the HOA has made prior decisions without my input. If I buy, it is with the acceptance of certain conditions and fees.

It would be an entirely different story if the board NOW decided to begin giving 5% to charity, but that's not the case.

"As I said, when you buy a fund the managers may choose to buy you Target shares because of the prospects and earnings, not because of anything related to the charitable giving policies."

And that is fine. I want the managers to maximize my gains. If Target performs well I don't much care what reasons the board has for giving 5% to charity. It has either a positive effect or a nuetral one.

"Given the effect of compounding I would say that 5% of profits is very significant."

Yes it is. Is it more or less significant than the positive benefits, if any, of improved company image, improved employee morale, customer moral, community attitude, and the ease of doing business in a new location due to cooperative local officials?


"But if that is the reason the spending is little more than advertising. That makes it just PR."

Does that mean that if board members aren't cynical they shouldn't spend the money? :)

"Your line of argument is too muddled and gets too complicated too quickly. Mine is simple, logical and is based on property rights."

Mine is also about property rights and about choice. You can choose to buy a company with a business model that appears to work well without liking all the details.

By the way, since this was posted I've written to the Target board of directors, and they assure me that thay really don't care a fig about literacy, only about the *perseption* of employees, customers and stockholders that they care, so it's all cool. :)

 
At 8/10/2012 2:08 AM, Blogger Ron H. said...

And of course that word is "perception", nor "perseption".

 
At 8/10/2012 5:06 AM, Blogger Jet Beagle said...

Mark Perry: "Judging by their stock prices, Walmart's "everyday low prices" is apparently a more effective corporate strategy than Target's strategy of high prices and $150 million a year in community giving?"

From the WalMart corporate website:

"Overall, Walmart and the Walmart Foundation’s giving in the last fiscal year includes:

•$872.7 million in cash and in-kind gifts in the U.S., up from $732 million in fiscal year ending 2011;

•$86.2 million in cash and in-kind gifts in international markets, up from $66.8 million in fiscal year ending 2011;

•$958.9 million in global charitable contributions from Walmart and its Foundation in fiscal year ending 2012; and

•Included in the $958.9 million is $101.3 million in cash and in-kind gifts given by Sam’s Club and the Sam’s Club Giving Program to support local U.S. organizations which included 49.6 million pounds of food or more than 38 million meals. The Sam’s Club Giving Program also supports small business success and preventative health and wellness programs.


That's almost a billion dollars contribution in one year.

I'm not arguing that Target didn't give enough. But I think charitable contributions is not the reason for the difference in stock price growth.

 
At 8/10/2012 7:54 AM, Blogger Dr. Goose said...

I enjoyed the provocative questions raised by Dr. Perry as well as the lively discussion that follows. It appears that the conclusion is that charitable giving is too small to have a significant impact on shareholders and employees, but can contribute significantly to the company's image and culture, as well as the quality of life in places where it does business.

I have to point out that the comparison of TGT's price to that of WMT is ill-advised for three reasons:
1. You didn't bother to check on Walmart's level of charitable donations before using it as an assumption;
2. You did not analyze all of the significant valuation factors of each company before making the comparison based on a single, not very relevant factor;
3. Your claim that WMT has outperformed TGT is only valid for the time period you selected. Looking at your chart, I observe that an investor who purchased both stocks in March 2009 would have done much better in TGT. By your logic, I can now claim that this three-year outperformance is due to Target's charitable giving.

 
At 8/10/2012 8:19 AM, Blogger VangelV said...

No, of course they don't, but that is nothing like buying shares of Target. The difference is choice. I can't choose to be a US citizen - it is the default for me. I CAN choose to buy Target, or not buy it. The equivalent would be deciding whether to move TO a country that had FEMA, DHA and foreign wars. These things have all happened since my birth.

But often you can't choose because you are given limited options to buy a fund by your company or you may be interested in total returns far more rather than some policy or another. If you had to agree to every policy of a board before you bought the stock you would never own one.

The issue is whose money is it. I claim that the profit belongs to the investors and as such the board should not be making charitable decisions on behalf of those owners. As Buffett has said, if the directors want to sponsor a particular charity they are free to do so with their own money.

This means if the charitable donations are not connected to the pursuit of profit the money should be going back to investors who can choose which charities to support.

If I could rid myself of those things with a few keystrokes I would certainly do so, just as I would dump my Target shares if I thought their charity giving wasn't good business.

If the charity giving was done to advance the financial goals then I have no problem with your statement. But if it had nothing to do with bribing local groups to help Target keep competitors out or push for minimum wage laws that push out the mom and pop businesses into bankruptcy the board should not be making decisions for investors. This is not about deciding where to put a new store or figuring out how to streamline the distribution system. It is about giving for the sake of giving and I don't see how we can morally justify using someone else's money to give to causes that management supports.

As I pointed out before, Buffett used to write a lot about this topic in his letters to shareholders over the years until a boycott made him end the charitable giving by the company.

Target giving 5% to charity existed since before I ever owned stock, and would be something I should consider in any buying decision, just as I should consider the CC&Rs when buying a townhouse, and realize that the HOA has made prior decisions without my input. If I buy, it is with the acceptance of certain conditions and fees.

While that may be a reasonable argument from one perspective the issue is still about who owns the 5% profit and who should decide where it goes.

It would be an entirely different story if the board NOW decided to begin giving 5% to charity, but that's not the case.

Actually, you are avoiding the important question again. Most people don't know about the charitable giving policies of their companies. Most people don't know that they own Target in their funds. I would argue that the compounding effect of the 5% would shock most people who want to be long term holders of the stock.

 
At 8/10/2012 8:32 AM, Blogger Jet Beagle said...

The most profitable large retailers in the U.S. all make sizeable donations to charity or to non-profit organizations. These include Target, Walmart, Best Buy, Krogers, Walgreens, CVS Caremark, Home Depot, and many more.

Mark has suggested in this post - as Milton Friedman did decades ago - that corporations could better benefit shareholders by instead buying back stock or paying dividends to shareholders.

I think the question to ask should be:

What economic factors drive all of these corporations to donate shareholders' money rather than give it directly to the shareholders?

I'm suggesting that economists - even the great Milton Friedman - may not be aware of the economic benefits which a corporation realizes by making these donations.

 
At 8/10/2012 8:32 AM, Blogger VangelV said...

Yes it is. Is it more or less significant than the positive benefits, if any, of improved company image, improved employee morale, customer moral, community attitude, and the ease of doing business in a new location due to cooperative local officials?

Now the sands have shifted away from principle. All you are saying is that the charitable giving is a cost of doing business because the PR benefits outweigh the costs. If this is true I would have no objection but if you go back and read the Buffett comments on the subject a different picture emerges. It may well be that the board can get the same PR benefits by donating 1% of profits or by increasing their employee wages by 3% of profits. I am saying that the 5% number is mostly arbitrary and that any penny not related to buying goodwill from local groups that are useful in pursuing business goals should be returned to shareholders.

Let me make the point here that if employees are interested in feeling good by giving money they may feel better if they are donating their own money rather than that of the investors.

Does that mean that if board members aren't cynical they shouldn't spend the money? :)

Absolutely. The board's job is to make money for the investors. Let the investors decide what to do with any of the profit that goes to them. If a profit cannot be used properly it should be used to buy back shares and paid out as dividends, not to support the directors' favourite causes or to buy more DVDs for public libraries

Mine is also about property rights and about choice. You can choose to buy a company with a business model that appears to work well without liking all the details.

And the fact that your money is being stolen from you to fund the pet projects of the board is fine? Sorry but it is not fine with me.

By the way, since this was posted I've written to the Target board of directors, and they assure me that thay really don't care a fig about literacy, only about the *perseption* of employees, customers and stockholders that they care, so it's all cool. :)

Sarcasm aside that would be perfectly acceptable and entirely cool.

 
At 8/10/2012 8:36 AM, Blogger VangelV said...

I have to point out that the comparison of TGT's price to that of WMT is ill-advised for three reasons:
1. You didn't bother to check on Walmart's level of charitable donations before using it as an assumption;
2. You did not analyze all of the significant valuation factors of each company before making the comparison based on a single, not very relevant factor;
3. Your claim that WMT has outperformed TGT is only valid for the time period you selected. Looking at your chart, I observe that an investor who purchased both stocks in March 2009 would have done much better in TGT. By your logic, I can now claim that this three-year outperformance is due to Target's charitable giving.


Another point is the funding for charitable giving. If the money comes from employees or from customers who donate at the till the numbers could be very significant without shareholders giving anything.

 
At 8/10/2012 8:50 AM, Blogger givemefreedom said...

VangelV,

You are right of course, it is the shareholder's money.

It has become expected that corporations give to charity and as a result many of them do. I am sure that the level varies and it would be difficult to determine what should be the appropriate percentage.

Whether corporations should give or not is debatable. I tend to agree with you that boards should only use corporate money for the profit motive but we have no way of measuring whether all of Target's 5% is necessary.

As for what Warren Buffet does with BH, I wonder if he put his charitable donation policy to a vote of BH shareholders? What he and his board have decided to do or not do with BH corporate contributions does not bother me as I don't own the stock. What does bother me is whether he used his influence with Obama to get Keystone stopped so that his railroad could benefit from transporting by rail all that trapped oil in Alberta/North Dakota. That bothers me alot.

 
At 8/10/2012 8:59 AM, Blogger givemefreedom said...

BTW,

Buffet's BH was $141,600 on Jan 1st. 2008. It is currently $126,509. Plus BH does not give dividends and both WMT and TGT do at about the 2.2% level. So it underperformed both Walmart and Target over that time frame. Not that this proves anything but I just wanted to throw that out there.

 
At 8/10/2012 9:02 AM, Blogger Jet Beagle said...

givemefreedom: "It has become expected that corporations give to charity and as a result many of them do."

Do you know for certain that the reason corporations give to charity is because they are expected to do so?

I see things a little differently.

As I see it, large corporations are under assault in the U.S. It's not just by Washington. Elected officials at the state and local level , as well as most of the nation's media and Hollywood, constantly paint corporations as evil in their greed. Small businesses and other special interests convince voters to pressure elected officials into putting roadblacks in the way of the large and succeessful businesses.

The assault on corporations has taken its toll on the wealth of shareholders. So what can a corporation do to protect shareholders from this assault?

Almost all large corporations have chosen to spent large sums to upgrade their public image. Some do so with advertising. Others use large charitable contributions. Most use both tactics.

IMO, large corporations donate to charity not because they are expected to do so, but because it is a good economic decision.

 
At 8/10/2012 9:14 AM, Blogger givemefreedom said...

Jet Beagle,

I meant what you said. Just that you said it alot better than I.

Cheers.

 
At 8/10/2012 9:24 AM, Blogger Jet Beagle said...

"Just that you said it alot better than I."

Well, I used a lot more words.

 
At 8/10/2012 9:37 AM, Blogger VangelV said...

As for what Warren Buffet does with BH, I wonder if he put his charitable donation policy to a vote of BH shareholders? What he and his board have decided to do or not do with BH corporate contributions does not bother me as I don't own the stock. What does bother me is whether he used his influence with Obama to get Keystone stopped so that his railroad could benefit from transporting by rail all that trapped oil in Alberta/North Dakota. That bothers me alot.

Buffett had a 90% response rate when he went to the shareholders on the contribution issue. And let me point out that retail companies can collect contributions from employees, customers, and shareholders at the till. The can be a conduit for voluntary contributions and still get much of the PR benefit without incurring a significant expense.

 
At 8/10/2012 9:38 AM, Blogger VangelV said...

Buffet's BH was $141,600 on Jan 1st. 2008. It is currently $126,509. Plus BH does not give dividends and both WMT and TGT do at about the 2.2% level. So it underperformed both Walmart and Target over that time frame. Not that this proves anything but I just wanted to throw that out there.

For a guy who hates gold Buffet has certainly underperformed bullion for more than a decade.

 
At 8/10/2012 11:44 AM, Blogger juandos said...

"I guess that you don't own any shale companies because they are donating to the Sierra Club as a way of attacking coal"...

You're right vangeIV...

Still there are plenty of companies in that sector that aren't wasting sharehold money on these charity frauds...

 
At 8/10/2012 12:01 PM, Blogger cactusKP said...

The prices are NOT too high because people are still willing to pay those prices. Wages are NOT too low because people are willing to work for those wages. What Target chooses to do with thier profits is their own business.

 
At 8/10/2012 12:49 PM, Blogger Ron H. said...

Vangel

"But often you can't choose because you are given limited options to buy a fund by your company..."

And one of those options is to not buy it.

"...or you may be interested in total returns far more rather than some policy or another."

Absolutely.

"If you had to agree to every policy of a board before you bought the stock you would never own one."

Again, absolutely true. A board of directors exists to direct a company for the owners, and their job is to maximize returns for the owners.

The beauty of this arrangement is that various owners with various interests and personal moral values can own the same stock and feel that the board represents their interests and values.

I may value only maximum returns and say "Oh look. Target is doing well, due in part to their policy of spending on goodwill." someone else could say "Oh look. Target is a 'socially responsible corporate citizen'". Yet another person might say "I believe charitable giving should be my choice, not that of the board, so I won't buy Target." We are all correct in our own views, and are correct to buy or not buy Target based on those views.

As I wrote, charitable giving appears to serves a number of functions, including influencing public officials to the detriment of competitors, and unless someone is strongly opposed to a particular policy for their own reasons, they may choose to allow the board to make those decisions for them.

Someone who buys a fund is effectively choosing to not involve themselves in the details of individual stocks, and is delegating that job to a fund manager.

At the bottom line you are correct, and I agree - the company belongs to the shareholders, and all profit is theirs, but I believe the value of charitable giving can't be objectively quantified and isn't as clearly either/or as you suggest.

 
At 8/10/2012 1:29 PM, Blogger Ron H. said...

"Let me make the point here that if employees are interested in feeling good by giving money they may feel better if they are donating their own money rather than that of the investors."

Some few might, but most people seem more interested in spending other people's money. Especially taxpayer's money.

"It may well be that the board can get the same PR benefits by donating 1% of profits or by increasing their employee wages by 3% of profits. I am saying that the 5% number is mostly arbitrary and that any penny not related to buying goodwill from local groups that are useful in pursuing business goals should be returned to shareholders."

Agreed. It may well be. How would anyone ever know? If I don't like the 5% figure I can avoid it.

A point I may not have been clear on earlier, is that the 5% charitable giving has been a part of Target since the beginning. There hasn't been any attempt to hide it, and every share ever issued has come with that condition. "Battery not included." If you insist on battery included you need to buy a different toy. If you buy Target, expect to give 5% of your earnings to DVD borrowers. Don't like that idea? Don't buy Target. It really seems that simple.

"And the fact that your money is being stolen from you to fund the pet projects of the board is fine? Sorry but it is not fine with me."

I don't consider money "stolen" from me when I freely agree to give it based on choice. This is nothing like taxation.

 
At 8/10/2012 1:48 PM, Blogger Ron H. said...

givemefreedom

"What does bother me is whether he used his influence with Obama to get Keystone stopped so that his railroad could benefit from transporting by rail all that trapped oil in Alberta/North Dakota. That bothers me alot."

I think that bothers many people. The problem is that the power to benefit Buffet even exists. I would expect a business to do everything possible to maximize returns - including buying favor with public officials, but public officials selling that favor is a direct violation of their mandate to act for the "general welfare", and a direct violastion of their oath of office.

Hopefully Buffett at least uses his own money to buy favors.

 
At 8/10/2012 1:50 PM, Blogger Ron H. said...

"What Target chooses to do with thier profits is their own business."

If by "Target" you mean the *owners* of Target than you are correct.

 
At 8/10/2012 2:00 PM, Blogger Larry G said...

re: " Hopefully Buffett at least uses his own money to buy favors"

unlike Trans Canada who wants the govt to allow them to take land from people:


"Randy Thompson, a cattle buyer in Nebraska, was informed that if he did not grant pipeline access to 80 of the 400 acres left to him by his mother along the Platte River, “Keystone will use eminent domain to acquire the easement.” Sue Kelso and her large extended family in Oklahoma were sued in the local district court by TransCanada, the pipeline company, after she and her siblings refused to allow the pipeline to cross their pasture.

“Their land agent told us the very first day she met with us, you either take the money or they’re going to condemn the land,” Mrs. Kelso said. By its own count, the company currently has 34 eminent domain actions against landowners in Texas and an additional 22 in South Dakota."

I'm surprised that those who consider themselves free-market libertarians would support the use of ED for any company much less a foreign company.

 
At 8/10/2012 3:08 PM, Blogger VangelV said...

I'm suggesting that economists - even the great Milton Friedman - may not be aware of the economic benefits which a corporation realizes by making these donations.

I think that economists are quite aware that 'charitable contributions' could be used to buy political support and special interest support that can be used to damage competitors. If Walmart and Target can use special interest groups to push for higher minimum wage levels they could force many of their mom and pop competitors out of business and improve their positions. If Target can fund 'charities' that can push for the unionization of retail workers they can do a lot of damage to Walmart. Those are 'legitimate' uses of investor funds even if they smell bad and are immoral and unethical.

 
At 8/10/2012 3:15 PM, Blogger VangelV said...

Someone who buys a fund is effectively choosing to not involve themselves in the details of individual stocks, and is delegating that job to a fund manager.

At the bottom line you are correct, and I agree - the company belongs to the shareholders, and all profit is theirs, but I believe the value of charitable giving can't be objectively quantified and isn't as clearly either/or as you suggest.


The bottom line is whose money is it and who should make decisions that have little to do with the business goals of the company. I claim that the only principled position is to have the owners of the profit decide.

 
At 8/10/2012 3:46 PM, Blogger Ron H. said...

"I'm surprised that those who consider themselves free-market libertarians would support the use of ED for any company much less a foreign company."

And no one has suggested they support ED. Where did you read a comment by someone you consider a free market libertarian supporting ED?

You must be confusing this blog with your other favorite, the Statists-R-Us blog.

 
At 8/10/2012 3:51 PM, Blogger Larry G said...

Where did you read a comment by someone you consider a free market libertarian supporting ED?

how else could you support the Keystone since they plan on building it by using ED?

I haven't seen too many say they support Keystone but they are opposed to the use of ED,

In fact they blame Obama for holding it up but if he gave approval of it wouldn't it result in the use of ED?

perhaps I missed it.

see maybe Trans Canada needs to talk to Target about how to do PR "right", eh?

 
At 8/10/2012 4:01 PM, Blogger Ron H. said...

"The bottom line is whose money is it and who should make decisions that have little to do with the business goals of the company. I claim that the only principled position is to have the owners of the profit decide."

And there's the part open to interpretation by individuals. What exactly ARE the goals of the company?

 
At 8/10/2012 4:23 PM, Blogger Ron H. said...

"perhaps I missed it."

Yes you did. The only "approval" required from Obama is to cross an international border. He certainly hasn't withheld it out of concern for private property rights. The ED question is separate from that, and involves numerous jurisdictions and property owners.


It is possible to support the concept of an international pipeline without supporting the taking of private property. One need not support the actions of Trans Canada to support a pipeline.

I know the difference between absolute ownership of private property and ownership except when government wants your land may be lost on you, but there's a big difference.

Your inability to see the distinctions I've just pointed out, which would be immediately obvious to a libertarian, made me think you might have gotten the idea from some statist source where all government actions are considered legitimate.

 
At 8/10/2012 4:27 PM, Blogger Larry G said...

I bet if Trans Canada offered each landowner a percent of the action, they'd have no trouble at all!

And if TC had already acquired all the land they needed THEN Obama would be in deep doo doo, eh?

besides, WHERE is The Institute for Law and Justice (ILJ) on this?

shouldn't they be protecting landowners from KELO type actions?

 
At 8/10/2012 4:31 PM, Blogger Ron H. said...

Thank goodness the comic relief has arrived so we can all sit back and relax a little, and wipe those scowls off our faces, and maybe even chuckle a little. This has been a mostly serious discussion until now.

 
At 8/10/2012 4:46 PM, Blogger Ron H. said...

"And if TC had already acquired all the land they needed THEN Obama would be in deep doo doo, eh?

besides, WHERE is The Institute for Law and Justice (ILJ) on this?
"

As usual you don't appear to know what you're talking about.

1. Why would you expect a company to acquire property before they had reason to believe they could use it?

2. You probably meant to ask about theInstitute for Justice not the Institute for Law and Justice.

 
At 8/10/2012 4:48 PM, Blogger Larry G said...

" A TransCanada spokesman, Shawn Howard, says the company does not have to wait for a license from the State Department to begin securing land. He said the company has tried to obtain voluntary agreements, but when that fails the company has the right to force lease agreements upon landowners in all six states the pipeline would pass through. All of TransCanada’s permit applications, he said, have been made through its subsidiary in Omaha, Keystone Pipeline.

“We have been given the legal advice that we can do this in parallel to the process going on in Washington,” Mr. Howard said. “If we didn’t think we had the authority or ability to do this, we wouldn’t be doing it.”

 
At 8/10/2012 5:10 PM, Blogger Ron H. said...

" A TransCanada spokesman, Shawn Howard, says the company does not have to wait for a license from the State Department to begin securing land. He said the company has tried to obtain voluntary agreements, but when that fails the company has the right to force lease agreements upon landowners in all six states the pipeline would pass through."

Well there's one opinion, not surprisingly by a TransCanada spokesman.

That NYT article mentioned several other opinions that were contrary to this one. Didn't you think we would want to read those also, for balance?

 
At 8/10/2012 5:23 PM, Blogger Larry G said...

"balance" in CD?

surely you JEST!

 
At 8/10/2012 5:34 PM, Blogger Ron H. said...

""balance" in CD?

surely you JEST!
"

Actually you're correct. CD commentators seem to overwhelmingly prefer "right" to "wrong".

It's helpful that you keep presenting "wrong" so others can reaffirm that they are right.

 
At 8/10/2012 5:35 PM, Blogger Larry G said...

I KNEW you'd find a way to thank me!

:-)

 
At 8/10/2012 6:35 PM, Blogger givemefreedom said...

You are right Ron H., comic relief.

It is hilarious that this "crew" really believes that they are furthering their cause and promoting their beliefs by coming onto CD to argue with the other posters.


Hydra said...
It is kind of a desperate situation: blogging only with those who validate your beliefs. Also a waste of time. In order to advances the causes you believe in, you need to proselytize.



Help me out here Ron H., does proselytize mean to continually come onto CD and take a beat down from the other posters? Because I thought that continually doing the same thing and expecting a different result is the definition of insanity. Just saying....

 
At 8/10/2012 7:33 PM, Blogger VangelV said...

And there's the part open to interpretation by individuals. What exactly ARE the goals of the company?

To make money. It can only do that by serving its customers in the best and most efficient way possible so that it can convince them to buy their products. If you look around you will find that most people are primarily interested in price when buying. That means that Target's goals should be to give its customers what they want at the best price possible.

 
At 8/10/2012 7:58 PM, Blogger Ron H. said...

givemefreedom:

"Help me out here Ron H., does proselytize mean to continually come onto CD and take a beat down from the other posters? Because I thought that continually doing the same thing and expecting a different result is the definition of insanity. Just saying...."

I don't know what Hydra's thoughts are, and I don't really care. I only know they are muddled. As with his comment that you quoted, he often posts comments with no context, so I mostly just skip them, as they make no sense.

If he's trying to convert someone, he will need to do a much better job.

 
At 8/10/2012 8:21 PM, Blogger Ron H. said...

"To make money. It can only do that by serving its customers in the best and most efficient way possible so that it can convince them to buy their products. If you look around you will find that most people are primarily interested in price when buying. That means that Target's goals should be to give its customers what they want at the best price possible."

It would appear from casual observation that they are succeeding at that, although I don't actually own any Target, so I don't follow their performance closely. Is that not the case?

I can only assume that if their charitable giving was harmful to that effort, they would be punished by customers and/or stockholders.

 
At 8/10/2012 10:47 PM, Blogger Jet Beagle said...

vangeiv: "I think that economists are quite aware that 'charitable contributions' could be used to buy political support and special interest support that can be used to damage competitors."

I agree economists are aware of the value of buying political support. Based on what Milton Friedman wrote about corporate charity, I do not believe he was aware of the economic value of contributions made to enhance good will.

IMO, the marketing officers of Target and the other retail giants I listed are far more qualified than economists to assess the economic value in 2012 of their organizations' charitable contributions. Charitable contributions for these corporations are part of an overall marketing strategy. It is the job of those marketing executives and their bosses to decide how much money to allocate to advertising, to promotions, to direct marketing, and to charity.

For Target, the decision to allocate 5% of operating profits was made long ago. But the officers of Target and Target's Board of Directors must decide every year whether to continue funding at that level.

 
At 8/10/2012 11:09 PM, Blogger Jet Beagle said...

vangeiv: "The bottom line is whose money is it and who should make decisions that have little to do with the business goals of the company."

The courts in the U.S. have made it very clear that the Board of Directors and officers of corporations have the responsibility to determine whether charitable contributions enhance shareholder value. As I understand it, this is covered by the legal concept known as the Business Judgment Rule.

If a shareholder wishes to challenge the actions of the Board of Directors in making corporate contributions, the shareholder would have to prove that the Board breached their fiducuary duties. I believe the legal counsel for any large corporation will make certain that the economic benefits for charitable contributions are well documented.

The "bottom line", vangeiv, is that corporate contributions made by Target and other large corporations are legal.

 
At 8/11/2012 2:08 PM, Blogger VangelV said...

It would appear from casual observation that they are succeeding at that, although I don't actually own any Target, so I don't follow their performance closely. Is that not the case?

I would not touch retail companies that compete directly with Walmart so you are asking the wrong guy.

I can only assume that if their charitable giving was harmful to that effort, they would be punished by customers and/or stockholders.

Not at all. The volatility is so high that investors who are more interested in short term moves, which is most of them, will ignore the long term performance or by comparing the actual to what would be the likely performance if the 5% of profit was reinvested, used to buy back shares, or increase the dividends. Keep in mind that Target can still play the charity game by doing collections at the registers (as many retailers do), by running employee contribution plans, and by allowing investors to donate a portion of their dividend to their favourite charities. If there is a PR effect such voluntary schemes would capture the gains easily without violating the property rights of investors by an overzealous board. I don't think that you will see Costco, which is doing a lot better than Target engage in taking 5% of the profit and giving it away to the directors' favourite charities.

 
At 8/11/2012 2:13 PM, Blogger VangelV said...

I agree economists are aware of the value of buying political support. Based on what Milton Friedman wrote about corporate charity, I do not believe he was aware of the economic value of contributions made to enhance good will.

Friedman understood that good will was obtained by companies that gave customers what they wanted at the best price. You seem to have a problem understanding that point.

IMO, the marketing officers of Target and the other retail giants I listed are far more qualified than economists to assess the economic value in 2012 of their organizations' charitable contributions. Charitable contributions for these corporations are part of an overall marketing strategy. It is the job of those marketing executives and their bosses to decide how much money to allocate to advertising, to promotions, to direct marketing, and to charity.

So what you are saying is that charitable giving is simply a marketing ploy and little different than an advertising budget.

For Target, the decision to allocate 5% of operating profits was made long ago. But the officers of Target and Target's Board of Directors must decide every year whether to continue funding at that level.

People are not comfortable with major change and I do not believe that you will get much of a discussion on that issue because Target has many other pressing issues to deal with.

The bottom line still comes to whose money is it and who should be making the decision. I maintain that it is best that the investors choose what to do with their own money when it is not applied for business purposes. I see no argument on your part that disputes that point.

 
At 8/11/2012 2:15 PM, Blogger VangelV said...

The "bottom line", vangeiv, is that corporate contributions made by Target and other large corporations are legal.

And killing American citizens without a trial is also legal if the President signs an order. The issue is not legality but does the act violate natural rights. I say that it does and I point out to the so called small government voices that when you compromise on those rights you are just enabling more intrusion by various bureaucracies and allowing them to perform activities that they have no business doing.

 
At 8/11/2012 3:56 PM, Blogger Ron H. said...

"The bottom line still comes to whose money is it and who should be making the decision. I maintain that it is best that the investors choose what to do with their own money when it is not applied for business purposes. I see no argument on your part that disputes that point."

And I see no basic disagreement with that view. It is indeed the investors money, and they should choose how it is spent. What would you say to a Target owner that has *chosen* to buy Target because they approve of the 5% spent on libraries?

It appears that you are telling them they are wrong, and that they should not delegate that giving to a board of directors, but should make the contribution themselves.

What would you say to investors in so called "socially responsible" companies, even though they don't maximize the investors' returns in dollars?

My point is that people should be "free to chose" where they invest or spend their money, for whatever reasons they have for doing so.

If deception or fraud were involved, that would be a very different story, but in the case of Target, it is completely open. Some people may *like* the idea of charitable giving and shop at Target or buy shares for that reason even if it's not the most rational economic choice. Who's to say they're wrong?

And I don't see any connection to anyone's view on limited government. I have many choices of stores at which to shop, and many choices of investments, but little or no choice in government.

Private businesses will either meet the needs of shoppers and investors or go out of business - unless they have political connections of course - nothing remotely like that happens with government.

 
At 8/11/2012 8:18 PM, Blogger Jet Beagle said...

vangeiv: "I maintain that it is best that the investors choose what to do with their own money when it is not applied for business purposes"

That's fine. "Maintain" whatever you wish.

Target and every other large retailer has made it clear that charitable donations ARE made for business purposes. It is their business judgment that such donations increase shareholder value.

You can disagree all you wish with their judgmnet. You can try to invoke "natural law", whatever that is. But in the U.S., business leaders - the Boards of Directors elected by shareholders - have the legal right to decide what is and what is not a business purpose. If you do not understand that they have that right, then you probably should not invest in U.S. corporations.

 
At 8/11/2012 8:31 PM, Blogger Jet Beagle said...

Ron H: "Some people may *like* the idea of charitable giving and shop at Target or buy shares for that reason even if it's not the most rational economic choice. Who's to say they're wrong?"

And who's to say that charitable giving does not increase the value of retail corporation common stock?

The fact that all large retailers make sizeable charitable donations should make us ask the question I posed before:

"What economic factors drive all of these corporations to donate shareholders' money rather than give it directly to the shareholders?"

Many of the commentors on this blog seem to feel they know better than all the CEOs of all these large retailers how to maximize shareholder value.

 
At 8/11/2012 10:26 PM, Blogger VangelV said...

And I see no basic disagreement with that view. It is indeed the investors money, and they should choose how it is spent. What would you say to a Target owner that has *chosen* to buy Target because they approve of the 5% spent on libraries?

I would say that he could donate 5% of his share of the dividend to his library of choice if he wished to do so. And would point out that trying to impose certain beheviours on other people is not a good foundation of a free society because we have no right to interfere with how they use their own property.

It appears that you are telling them they are wrong, and that they should not delegate that giving to a board of directors, but should make the contribution themselves.

Not at all. I am saying that it is possible to ask that the board set up a plan where investors can check off a box that gives directors the power to donate the 5% earned by their own shares. They have no right to dictate how the 5% earned by the shares of others are to be used because it is not their money.

What would you say to investors in so called "socially responsible" companies, even though they don't maximize the investors' returns in dollars?

I would say that they are getting what they want. To them the increase in self esteem is of a higher value than the extra profit. But I would say that if you think that investors are hoping for lower returns because the companies do good you are fooling yourself. As I said, investors always have a choice to be 'socially responsible', whatever that means to them, if they wish to by other means that are far more effective.

My point is that people should be "free to chose" where they invest or spend their money, for whatever reasons they have for doing so.

Me too. But I do not believe that 51% of voters should be able to direct my money to causes that I do not support even though I may hold the stock because I like the total returns. That is certainly the case when I hold shares through funds.

If deception or fraud were involved, that would be a very different story, but in the case of Target, it is completely open. Some people may *like* the idea of charitable giving and shop at Target or buy shares for that reason even if it's not the most rational economic choice. Who's to say they're wrong?

If they give their own money they are not wrong because they are free to do what they wish with it. It is when they give the money that belongs to others that there is a problem.

And I don't see any connection to anyone's view on limited government. I have many choices of stores at which to shop, and many choices of investments, but little or no choice in government.

Sure you do. You can move to a lower tax state, a lower tax city, a less intrusive county, or a country that respects your rights more than your current country of residence. If you don't like paying for the war in Iraq you can move elsewhere. :)

Private businesses will either meet the needs of shoppers and investors or go out of business - unless they have political connections of course - nothing remotely like that happens with government.

Tell it to all the governing parties that have been overthrown.

 
At 8/11/2012 10:29 PM, Blogger VangelV said...

Target and every other large retailer has made it clear that charitable donations ARE made for business purposes. It is their business judgment that such donations increase shareholder value.

As I wrote many times above, I have no problem with this. If charitable giving is simply a PR stunt designed to get higher returns for shareholders the directors should give as much as they can as long as it maximises those returns.

Two problems still persist though. First of all, it is clearly not the case that 5% is not an optimum amount. It is just pulled out of a hat and does not change along with market conditions. That means that the directors are not really doing their job well because it could be that 1% or 10% will generate a better return.

 

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