Corporate Giving Gets a Strategic Makeover (1994)
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Holmes Report

Corporate Giving Gets a Strategic Makeover (1994)

In 1992, in the wake of continued reces­sion, a major scandal at one of the coun­try's highest-profile charities and a marked change in corporate attitudes, corporate charitable contributions decreased for the first time in modern history.

Paul Holmes

by Paul A. Holmes
In 1992, in the wake of continued reces­sion, a major scandal at one of the coun­try's highest-profile charities and a marked change in corporate attitudes, corporate charitable contributions decreased for the first time in modern history, to a level of around $6 billion. It is likely that a further decline will be seen when the 1993 returns are in.
"What makes this potentially tragic is that corporate philanthropy has just emerged from the shadow of private foun­dations to become a distinct and precious instrument of social policy," says Craig Smith, editor and publisher of Corporate Philanthropy Report, a newsletter. "Name any social issue affecting America—school reform, illiteracy, homelessness—and you'll find that corporate philan­thropy can be the necessary catalyst for real change. It is hard to imagine how any big problems could be resolved without well-integrated participation by business."
Smith contends that in the current eco­nomic climate, many companies define their social responsibility in terms of sur­vival. Under such circumstances, he says, companies need to be persuaded that phil­anthropy can provide a long-term benefit. He cites a recent study by David Lewin of U.C.L.A. that shows a causal link between improved financial performance and increased philanthropy.
IBM, which has long been the nation's most generous corporate donor, cut its worldwide philanthropic program by 20%, although it still managed to hand out close to $120 million and hold on to the top spot. Moreover, many of the company's contributions were in computers rather than cash.
That's one trend in corporate giving. Another is the linking of corporate gifts to employees' individual contributions. Another is an increased interest in interna­tional and global causes. But the over­riding trend is a desire on the behalf of the corporations forking over the cash to get something in return.
It is clear that in the past, companies have often approached philanthropic activ­ities in a somewhat undisciplined manner. Frank Koeh, author of Corporate Giving: Policy and Practice, argues that the policy of many companies to make contributions based on employee preference or manage­ment's pet projects "often substitutes per­sonal whim for clear-cut objectives and decision-making, a style of management that is as disastrous in the corporate giving as it would be in research and develop­ment, production, financing or market­ing."
Such lack of discipline has all but been eliminated from corporate giving pro­grams today. Today, companies are hand­picking the causes they wish to contribute to, seeking out causes that have some rele­vance to their own corporate strategies or to their consumers, and making sure they receive credit for their gift-giving.
"One of the major changes I have seen has been in terms of categories of giving," says Paul Ostergaard, vp and director of corporate contributions at Citibank. "After A Nation At Risk was published in 1983, drawing attention to the poor per­formance of the public school system in this country, a lot of companies that had traditionally supported higher education started putting more and more money into public schools."
Citibank was one. Ostergaard says that the company spends 70% of its $21 million annual philanthropic spending on two issues: education and community develop­ment. IBM is another company that focuses on education, which has fast become the most popular cause for corpo­rate givers.
San Francisco-based Chevron was one of the first companies to designate a por­tion of its donation to the area's United Way for specific causes. The company was concerned that while the United Way did an excellent job of identifying and assisting organizations that Chevron's small internal staff could not give the necessary attention, it also filtered the funds and separated the corporation from the recipient.
Says Carol Cone, president of Boston based PR agency Cone Communications, which specializes in the related field of cause related marketing: "There's a move­ment in corporate America to look at every asset and resource and figure out how to get a better return from it, and corporate contributions are not exempt. Instead of giving a half a million dollars here and a half a million there, companies are asking themselves why they should not get some­thing out of it."
That may sound pretty cynical, but it should be remembered that there are those who argue companies should not get involved in social issues at all, that their first responsibility is to deliver profits to their owners. The economist Milton Friedman has long argued that sharehold­ers rather than management should decide which causes should be the beneficiaries of corporate profitability.
Management responds that targeted giving is an investment, both in goodwill and in the future of society. In the long term, advocates of corporate social philan­thropy argue, a well-educated and healthy society will be in a better position to pro­vide a competitive workforce and afford a company's products.
That's why companies embark on pro­grams such as Coors Brewing's commit­ment to literacy. The company says that illiteracy is a major problem for American companies, making employees less produc­tive. Coors bass spent millions of dollars on reading programs for children and adults over the past three years.
Other companies select causes that are of concern to their consumers. Avon Products is one, having committed vast corporate resources to the fight against breast cancer, and combining straightfor­ward philanthropic activity with cause mar­keting. Liz Claiborne is another, selecting domestic violence as its primary cause.
One company that believes firmly in the benefits of strategic philanthropy is Dayton-Hudson, the Minneapolis-based retail giant. While the company's generous gift-giving once got it into deep trouble (it withdrew a grant to Planned Parenthood because of concerns about the politiciza­tion of the health education charity) it also helped the company survive a hostile takeover battle.
"When we were under attack, many of the community groups we had given money to over the years rallied to our sup­port," says Ann Barkelew, vp of PR. "We learned then just how important our rela­tionship to the community was." Indeed, in the wake of that incident, the company dedicated considerably more time to pro­moting its philanthropic activity, with in store promotions, for example.
On a smaller scale, the Embassy Suites hotel chain clearly understood the impor­tance of leveraging its corporate philan­thropy when it made a donation to South Florida in the wake of Hurricane Andrew last year. Understanding that its $180,000 grant was tiny by comparison to contribu­tions by major companies, the company focused on the results of the donation rather than the donation itself.
"We wanted to create a noteworthy visual event that would stimulate interest among the media," says Rob Martin, presi­dent of Embassy Suites PR firm Meltzer & Martin of Dallas. "The hotel chain decided to earmark the donation for the Greater Miami Habitat for Humanity. Because the money would finance the con­struction of six new homes in Homestead, the donation ceremony focused on the actual bricks and mortar rather than the size of the contribution."
Citibank's Paul Ostergaard agrees with this strategy: "Handing over a check is not news," he says. "But solving a problem is. Public relations efforts need to concentrate on the results of the donation rather than the donation itself." Ostergaard says the media is increasingly willing to cover these kinds of good news stories to counteract the impression that society's problems are too overwhelming to do anything about.
There are concerns about more targeted giving, however. Ralph Dickerson, presi­dent of the United Way of New York City recently warned that "by default rather than by design, many companies may fuel their charitable efforts to sexy, headline issues and ignore other causes equally important to the community."
This is already happening, Dickerson contends. While corporations fund pro­grams to battle drug abuse, hunger and homelessness, few have pinpointed equally compelling concerns such as domestic vio­lence, crime and foster care. Companies, he says, should recognize that they may lack the expertise necessary to identify where help is needed most.
If education has been the big winner, the big loser has been culture and the arts. "Corporate America is with­drawing from the arts in droves," says Milton Rhodes, president of the American Council for the Arts in New York. "When it comes to fighting the problems of society, corporations don't see us as a problem."
Many companies apparently consider the arts, which once received the lion's share of corporate philanthropy, elitist. Some have withdrawn funding entirely—IBM recently canceled its long-standing support of the Gallery of Science and Art in New York, for example—while others have shifted money from the ballet or opera, which may have been the chair­man's wife's favorite indulgence, to more community-based programs.
Another major trend, meanwhile, is the linkage of corporate contributions to employee volunteerism. Many companies now have matching funds programs—giving one dollar to a cause for every dollar an employee donates—while others, like Coors, work hard to encourage employees to volunteer time and energy to the causes they support.
This may result in less focused giving, but it does have enormous advantages in terms of relationship building, both with employees and the community.
"If I had my way, we would give our entire budget to three or four causes, because with that kind of focus we could really make a difference," says Paul Ostergaard. "But the reality is, a corpora­tion has several different constituencies it must work with, and each of those con­stituencies has different demands."
At Chevron, corporate giving is becom­ing more decentralized, with grant-making decision authority pushed as far down the line as possible, says chairman and CEO Kenneth Derr. While the headquarters staff provides policy guidance and analysis, each of the company's grants is "spon­sored" or handed out by a front-line employee, be it a plant manager or a refin­ery mechanic.
The company also looks for non-profits with results-oriented programs that corre­spond, even indirectly, to Chevron's busi­ness objectives. "For example," says Derr, "we support The Nature Conservancy, which works to preserve natural resources that otherwise would be destroyed by bulldozers, and The Jefferson Energy Foundation, which promotes environmen­tally safe energy."
And both Chevron and Citibank are becoming more international in their focus. As American businesses expand into global markets, corporate donations are addressing social problems in markets other than the United States. That is likely to compound one of the biggest problems facing corporate contributions executives: the ever-expanding roster of organizations with their hands out.
At the end of fiscal 1992, there were more than 546,000 U.S. charities eligible to receive tax-deductible donations, up almost 50% from, the 366,000 that existed in 1985. Corporations with largesse to dis­pense thus face a bewildering array of choices, with little concrete information upon which to judge whether monies will be used wisely.
A panel of experts from companies such as Hewlett-Packard, Merck, Coca-Cola, General Electric and Merrill Lynch recently told Financial World magazine what they looked for in a prospective ben­eficiary. The list of criteria included:
  • A focused mission. Any charitable organization should be able to sum up its purpose in one or two brief, easily under­standable sentences;
  • Results that can be evaluated. Hewlett-Packard, for example, demands that all groups asking for donations pro­vide written, quantifiable goals;
  • Inspired and dedicated leadership. According to Westina Matthews, manager of corporate giving at Merrill Lynch: "When we give, we're betting on people. In corporate America, when we look at companies and judge their performance we look at the CEO. You bet on a person to make a difference. That's a big part of how we choose whom we're giving to."
  • Response to a proven community need. The work of the organization must be valued, and must be work not being done by anyone else.
  • A board of directors that understands its role and reflects the diversity of those being served;
  • Money spent on programs outweighs administration and fund-raising costs. Most corporate giving programs fund charities that follow guidelines established by the Council for Better Business Bureaus' Philanthropic Advisory Service and the National Charities Information Bureau;
  • Training for volunteers and efforts to develop leadership skills. The best chari­ties give people in the community the skills they need to solve their own prob­lems.
  • Innovative, creative programs.
Clearly, such an approach is a far cry from the day when the chairman doled out cash to his pet charity and the only public­ity was a grip-and-grin photograph. Other companies, meanwhile, are com­pensating for their decreased monetary contributions by supplying product and tapping their advertising and marketing budgets to support causes.
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