NEW YORK -- Corporate philanthropy generally doesn't rank very high, if at all, on the list of shareholder grievances. That may be a mistake, since charitable giving can be ripe for abuse and self-serving behavior by executives.

The magnitude of such misbehavior can range from outright crime to more subtle acts such as funding a charity in which a top manager is involved, a donation that can benefit an executive's social standing more than the company and its shareholders.

At the extreme, though it remains to be proven, shareholders of mortgage lender Fannie Mae are alleging in a federal lawsuit that former chief executive Franklin Raines used charitable contributions to compromise the judgment of six board members in the $11 billion accounting scandal at the company.

In a court filing Monday, the plaintiffs point out that Fannie Mae's charitable foundation, "when chaired by Raines, poured millions of dollars in grants into organizations in which other members of Fannie Mae's Board held senior positions."

The recipients of this charity might strike you as worthy causes. According to the suit, about $1.75 million was donated to the National Alliance to End Homelessness Inc., John Hopkins University and Howard University, organizations whose board members included Fannie Mae directors.

Because these donations made the directors "beholden" to Mr. Raines, the suit says, they never raised any opposition to the CEO during dozens of board, audit committee and compensation committee meetings, "enabling and fostering the perpetuation of his schemes."

The company declined comment on the charges. Raines' lawyer did not immediately return a call seeking comment.

But the possible misuse of corporate philanthropy needn't involve circumstances so unsavory as an outright scandal.

Instead, it may just be a question of whether corporate giving serves the interests of the company. While some people believe charity should be an act of altruism, some experts and shareholder activists argue that donations must, at a minimum, further the financial interests of the company.

Economist Milton Friedman, professor emeritus at the University of Chicago, asserted several decades ago that public companies have no business donating money that rightly belongs to shareholders. Money not needed for a corporate purpose, such as investing in the business or maintaining a cushion for a potential market downturn, should be distributed to owners, he contended, so they could decide whether to donate it and to what cause it should go.

By contrast, many executives and academic experts see philanthropy as a legitimate way to burnish a company's public image. Strategist Michael Porter of Harvard Business School has written that philanthropy can be justified if designed to achieve a defined benefit for the company such as expanding its potential market or supporting educational efforts that increase the pool of skilled workers.

There have been numerous shareholder proposals in recent years, all defeated, calling for companies to halt charitable contributions completely. This proxy season, one activist group has taken a different approach, submitting nonbinding proposals to Boeing, Coca-Cola, Citigroup and PepsiCo that would require more disclosure about donations, including a clear description of the business purpose for giving.

The proposals were submitted by the National Legal and Policy Center, a conservative group that opposes corporate donations to organizations affiliated with Jesse Jackson, as well as government funding for organizations such as AARP.

While its goals appear to be primarily politically motivated, the NLPC proposals are worthy of consideration since increased disclosure is rarely a negative for investors.

In general, corporate reporting of donations range from very vague to detailed descriptions of amounts and purposes, said Jim Letsky a senior analyst for Institutional Shareholder Services, an advisor to money managers on proxy votes. ISS recommended against past proposals calling for companies to cease all donations, but has not yet determined its position on the disclosure proposal.

According to the NLPC, only Pepsi has attempted to keep the proposal off its proxy statement for this year's annual meetings. The Securities and Exchange Commission has not yet ruled on Pepsi's request, which says the company already provides extensive disclosure of charitable giving on its Web site.

Like most shareholder proposals, this one likely won't draw a majority when the companies hold their annual meetings. Still, given the experience at Fannie Mae, it's a topic shareholders should take seriously when assessing the management of companies.