A CHANGING SOCIAL CONTRACT
The corporate world has always had a contract with society, but the dynamic of that relationship is rapidly changing. As recently as the 1980s, companies believed that by making cash donations to hometown charities, they were administering effective philanthropy that would help ful ll their social contracts. Today, society’s expectations have changed dramatically.
Consumers now have more ability to put pressure on companies to contribute to the public good. Shareholders are exerting pressure to increase companies social investment. And the news media, employees, community activists and nonpro t organizations are all increasing attention on what companies give and how they give it. All of these groups can in uence, and may even rede ne, the social contract and what it means to a company to ful ll or exceed it.
–67% of US consumers continue to believe “it is important to purchase products with social and environmental bene ts.”2
–51% say they are “willing to pay more” for those kinds of products.3
“Fifteen years ago, responsible shareholders knocked on the doors of corporate America and asked companies to add no discrimination on sexual orientation to
their human resources policies,” says Timothy Smith, senior vice president of Boston-based Walden Asset Management and chair of the board of the Social Investment Forum. “Today, 99 of the Fortune 100 companies have included this in their policies.
So where does this lead us? CECP leaders say a company’s contract with society is not an obligation but a source for competitive advantage and a powerful opportunity to attract and retain talent and ensure the health of their markets over the long term.5 With this in mind, companies are now focused on the development of sophisticated, holistic approaches to their corporate philanthropy.
A MOVE TOWARD STRATEGIC CORPORATE PHILANTHROPY
–84% of corporate executives believe that society expects businesses to take a more active role in environmental, social and political issues than it did ve years ago. Corporate philanthropy is one effective way to meet these new expectations.
How does the current economic climate impact corporate giving?
Historically, corporate philanthropy is most affected by Gross Domestic Product (GDP), pro ts and changes in top marginal tax brackets. According to Giving USA, corporate philanthropy in 2008, including both nancial and in-kind donations, accounted for ve percent of all charitable giving in the United States in 2008, about $14.5 billion.
Though this gure is down from $15 billion in 2007, corporate philanthropy has withstood what some are calling the “Great Recession” in relatively good condition, considering corporate pro ts were down 16 percent during the same period. One reason why corporate giving did not decline as much as corporate pro ts could be the rise in in-kind donations. 2008 saw a marked trend toward increased in-kind giving, suggesting many companies want to maintain their support for the nonpro t sector through more creative ways that may not involve cash.
Looking ahead, forecasts for 2010 indicate that 52 percent of corporations and 47 percent of corporate foundations are reporting declines in their giving budgets.7
Adding complexity and pressure to the corporate philanthropy landscape are consumers, many of whom have become savvier about the goods and services they purchase. They are asking, and in many cases requiring, more authenticity, commitment and transparency from companies regarding how their businesses impact people and the environment. Strategic corporate philanthropy can offer signi cant competitive advantages to companies trying to build relationships with consumers and be heard over the din of negative news.
By now, you might be asking what’s the good news here?
In the past, much of corporate philanthropy was done without realizing the strategic value it provided. Recent re-evaluations from corporate givers provide a powerful impetus to leverage change. The long-term outcomes will likely be more strategic and deliberate corporate philanthropy, improving outcomes for both the corporation and the community.
CREATING WIN-WIN SCENARIOS
Giving back to the community can and should create a win-win scenario for businesses and the public. From boosting employee job skills, opening new markets, and heightening brand recognition, business and society both stand to bene t greatly if companies can demonstrate programmatic effectiveness, scal accountability, and good stewardship in their philanthropic contributions.
While large corporations typically have staff dedicated to philanthropy with structure and parameters built in, giving at small companies tends to be more grassroots. Small and privately held companies can utilize unique ways to give, such as putting their companies in a charitable trust or donating company stock. But, businesses of any size can reap the bene ts of social investment when communities support socially responsible businesses in turn.
Strategic philanthropy helps the company meet its mission of nourishing people and ideas, and strengthens ties with its employees. Giving back to the community matters to employees and, therefore, helps to attract and retain good people. Top CEOs recognize that prospective employees are highly in uenced by corporate culture, and philanthropy is an integral component of a desirable work environment. College graduates frequently have long records of community service and therefore seek employers that support their interest in community engagement.
A NEED TO MONITOR PHILANTHROPIC PROGRAMS
“We treat our philanthropic foundation as a business unit… We say: how much did you disburse, what is your penetration, what are your measurements, how are you communicating, what’s your return on investment?”
—Ivan Seidenberg, Chairman and CEO, Verizon Communications8
Getting corporate philanthropy right is challenging. Business leaders recognize that in order to be effective, their philanthropy programs should be actively monitored, measured and communicated. Consumers expect transparency, and shareholders expect speci city about the business value of corporate philanthropy.
Managing corporate philanthropy similar to other key business disciplines, with clear objectives, established metrics and reporting structures to senior management, re ects best practices and helps ensure the stability of these programs, especially in periods of company change and volatility.
Among shareholders who rate a company’s philanthropy favorably, 78% say they will continue to invest in the company.
A NEW WAY OF DOING BUSINESS
When businesses think of corporate philanthropy as social investing, not charity, they become more alert to possible inef ciencies. Due diligence with potential nonpro partnerships ensures that every dollar is spent wisely. Collaborating with other companies on philanthropic initiatives provides for even greater impact. Collectively, businesses can move the needle on important social issues far more than any individual company.
When companies adopt the approach of social investment to up-level their competitive context—using their charitable efforts to improve the quality of the business environments in the locations they operate—they align social and economic goals. They improve their long-term business prospects and direct their philanthropic activities to areas where they can be far more effective.
NO TIME LIKE THE PRESENT
“Typically, in a bad market, companies spend less money on marketing,” says Philip Nourie, President of Park Lane Communications in New York City. “But in this instance, there is a great opportunity for companies to take a strategic approach to how they market their services and their track record. By cutting philanthropy in a time of greater community need, companies may miss an opportunity to communicate their messages and reinforce their brands.”10
Governments at the local, state and federal level have fewer dollars available to address the most pressing problems within communities. Companies have an opportunity to ll the void, make investments in their communities and leave lasting legacies. “The best corporate philanthropy is about passion,” says Nourie, “and consumers and the public are drawn to a company that has a passion for something.”
Nourie recommends a few tips for successfully protecting a company’s philanthropic investment:
—Don’t consider philanthropy solely a marketing expense. Consider it an operations expense that re ects human resources and nancial objectives as well.
—Increase payout in down markets, even if pretax pro ts will be lower. The impact of a company’s giving will be noticed more during dif cult times.
—Retool the philanthropic construct. Is it nancially based, a combination of goods and services or all three? Where is the greater need, hence opportunity, for a corporate presence and response to the needs of targeted constituencies?
—Clarify expectations with nonpro t partners. Ensure that there is agreement on the expected outcomes of contributions. Build an evaluation component into the giving strategy to measure the investment over a reasonable time period and determine whether the company’s philanthropic commitment was met with stated goals and objectives.
—Be patient. Successful philanthropy is often a learning process, in any market. Patience, continuity of involvement and open communication are important criteria for success. This is even truer in a troubled economy where trust and good intentions will need to be earned, not assumed.
—Leverage opportunities. With fewer dollars it may be advantageous to all parties to explore how to partner with other corporate entities or executives.
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