Really what difference does it make why? The real questions are, is it the right thing and will it diminish public criticism? After all, according to one CEO, these firms are doing "God's Work."
Wall Street firms, including the greed-is-good 1980s Solomon Brothers, have long given back to the community. Junk Bond King Michael Milken has been one of the financial industries largest philanthropists since his release from prison in 1993. George Soros who "broke the Bank of England" has been an unceasing benefactor for many of the world's neediest for decades.
Financial firms have built schools, underwritten libraries, created poverty programs, fought deadly diseases, and supported environmental sustainability and social entrepreneurship - all in an effort to balance the scales of prosperity.
Three of the biggest contributors to the fallen firefighters' widows and children funds after the September 11 attacks were Merrill Lynch, Lehman Brothers, and Goldman Sachs. All the big Street firms gave hundreds of millions of dollars to rebuild the city and honor its fallen heroes. No one in New York ever forgot that.
Since the days of Andrew Carnegie, people have confused good business with philanthropy. The titans of yesteryear, like Carnegie and Rockefeller, established the big business standard of supporting the arts and other non-profits. These men forced people to work at subsistence level wages in subhuman conditions, and then built libraries and schools for the same folks. In the 19th century selective philanthropy balanced the scales, in the 21st century it does not.
Business has an obligation to give back to the community that supports it. Therefore, charitable giving is a basic reality for any profitable company. However, in the past year it has become unmistakably clear that business also has an obligation not to profit by exploiting that community.
A great example of this model is the former investment bank Bear Stearns. The Bear was one of the most reckless subprime mortgage securities houses leading to the financial crisis. In the 2000's, Bear Stearns also set the trend for "giving" by requiring top executives to contribute 4% of their income to charity. Levered at over 40 to one, Bear's flimsy underwriting standards and outsized trading risk brought the behemoth firm down. Following in its footsteps were Merrill Lynch and Lehman Brothers, both high flying mortgage market makers and generous patrons. The loss of Lehman and Bear to the greater New York not-for-profit community has been heart-breaking.
Yet charitable giving by these firms has not made up for the financial devastation left behind in their wake. Donating 4% to a favorite charity while crushing the working and middle classes has not satisfied stressed taxpayers. The same people who lost their incomes and perhaps their homes directly due to market mayhem are asked to accept charitable donations to quell their rage. Hardly a reasonable offering.
While firms cannot earmark 10% of profits for philanthropy without enraging shareholders, they can invoke the "charity clause." Setting aside 5-10% of earnings for top producers to support a special community fund might establish better relations with the public after all - if that fund is funneled into a program that supports those affected directly.
For example, Goldman has set aside $16bn in a 2009 bonus pool. What if $1.6bn of this executive fund was used to finance small business
loans at zero percent, refinance at-risk homeowners, pay a portion of monthly mortgage payments for unemployed homeowners, or seed money to social entrepreneurship start-ups who guarantee they will hire U.S. workers? These may be highly unusual solutions for profit-seeking Wall Street, but these extraordinary times require extraordinary measures.
To calm the ire of the seething public, firms do need to acknowledge their part in the nation's misery, but not by following the path of Gilded Age robber barons. The way to rectify ongoing economic fallout is not through subjective "charitable giving," but through genuine proactive restitution and reform.