Smart Giving Is Good Business E-Book

Curt Weeden

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 432

Veröffentlichungsjahr: 2011

Beschreibung

Answers to the 12 most common and critical questions about corporate giving

In this groundbreaking resource, Weeden shows how to strategically plan, manage and evaluate corporate contributions. Questions include: Why Should We Give?; How Much?; Who Decides?; Does a Company Need a Foundation?; How to Give Products or Services?; How Do We Know What Works? The book covers a wide range of topics including: The case for conditional corporate philanthropy; increasing stewardship to give more; assigning responsibility for signature programs; how CEOs leverage contributions programs for maximum benefit; effectively staffing corporate contributions programs; the pros and cons of corporate foundations; and more.

• Offers benchmarks for determining if a business has a meaningful philanthropic program that fosters constructive corporate citizenship
• Reveals how an effective philanthropic program and commitment can be incorporated in any organization
• Contains a comprehensive review of the information corporations need to make informed decisions about giving

The author offers a prescription for linking businesses with causes and the nonprofits addressing critical issues in a way that will preserve or restore services and activities essential to our quality of life.

Leseprobe

Table of Contents

Title Page

Copyright

Introduction: Why More Corporations Are Giving Less

The Decline of Corporate Philanthropy

A Stronger Business Case

The Tide Is Still Out

Capacity Building Where It Counts the Most

Questions: A Baker's Dozen

Conditional Grant Making

Intervention Time

Chapter 1: Why Should a Business Give at All?

The “Why?”

Corporate Social Responsibility—A “Why?” or a “Way Out?”

The BP Case

CSR “In Lieu Of” Corporate Contributions

Smart Giving and CSR

When “Why?” Goes Awry

Widget Worldwide and the “Why?”

Company Size and Structure Have an Impact on the “Why?”

The Doing Good–Business Success Link

Chapter 2: What's the Right Amount to Give?

The Comprehensive Corporate Citizen

Why Base Giving Targets on a Percentage of Pretax Profits?

The 1 Percent Logic

The 1 Percent Pushback

The Sabsevitz Ante-Up Formula

Pressure Points for Change

The Payoff

Chapter 3: Who Decides What Gets Funded?

The Ownership Factor

Tools for Decision Makers

Guidelines for Giving

Requests for Proposals (RFPs)

More About “Who” Should Decide

Chapter 4: What's the Right Role for the CEO?

CEOs Set the Tone—Good or Bad

The CEO-Chairman Split

The Four-Plus-Two-Step Plan

Chapter 5: Who Should Administer Company Donations?

Picking a World-Class Manager

What Size Staff?

For Companies with Full-Time Staff

For Companies with Part-Time or No Staff

Lawyers and Grant Making

Finding the Right Home for a Contributions Program

Chapter 6: Does a Company Need a Foundation?

Foundation Pros and Cons

The “PAP” Impact

Dos and Don'ts

Quiz: Should We Have a Foundation?

Chapter 7: Should a Company Donate Products or Services?

Product-Giving Tax Incentives

The “Leave Behind” Impression Benefit

Finding Products to Donate

Product-Giving Resentment

A Self-Administered Product-Giving Checkup

Equipment, Land, and Building Donations

Product Giving and the Ante-Up Factor

Donation of Time and Services

Chapter 8: How Much Should a Company Donate for Dinners and Events?

The Event Request Sorting Process

The Disqualified Persons Minefield

How Much Should We Spend?

Reporting Events as Contributions

Event Fundraising Is Here to Stay

Chapter 9: Should a Company Fund the United Way, or Are There Better Alternatives?

United Way Realities and Misconceptions

Major Corporate Giving Concerns About United Way

The Case for United Way

Two Conditions

Look for Added-Value Options

Postscript

Chapter 10: How Should a Company Respond to a Disaster?

Domestic Disasters

International Disasters

Cash or Product?

Pre-Disaster Planning

Chapter 11: Can a Company Measure What Works?

The Measurement Foursome

Flimsy or Worthless Evaluation Reports

Commonsense Evaluations

Measuring Corporate America's Philanthropy

Chapter 12: How Should a Company Communicate Its Contributions Commitments?

Rifle-Shot PR

Shotgun PR

The Awards Concept as a PR Magnet

Where to Get Help

Think Creatively

Chapter 13: What If a Company's Profits Tank?

The Under 5 Percent of Pretax Net Income Rule

The Over 5 Percent of Pretax Net Income Rule

The Give-While-Downsizing Dilemma

Recession Reaction

Chapter 14: Conclusion: The Nun's Tzedakah

Bibliography

About the Author

Businesses Index

Nonprofit Organizations Index

Subject Index

Copyright © 2011 by Curt Weeden. All rights reserved.

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Library of Congress Cataloging-in-Publication Data

Weeden, Curt.

Smart Giving Is Good Business: How Corporate Philanthropy Can Benefit Your Company and Society / Curt Weeden.

p. cm

Includes bibliographical references and indexes.

ISBN 978-0-470-87363-2

1. Corporations—Charitable contributions—United States. 2. Investments—Social aspects—United States. 3. Social responsibility of business—United States. I. Title.

HG4028.C6W44 2011

361.7—dc22

2010048705

Introduction

Why More Corporations Are Giving Less

“Don't tell me how much we have to give because that turns charity into a tax. Tell me what's worth giving to and why. If you can sell me, we can start talking dollars and cents.”

During my ten-year stint with Johnson & Johnson, my CEO was what I called a yardstick kind of guy. If you brought a proposition to Ralph Larsen, it had to measure up. It didn't matter if it happened to be a business opportunity or a plan to help the company meet its social obligations.

“Make the case,” Ralph would demand. Then the yardstick would come out.

When it came to corporate philanthropy, Ralph measured twice before cutting (a check) once. First, he wanted assurance that company contributions were legal and ethical and would be going to the most appropriate charitable organization possible. And second, a proposed cash or product donation was subjected to this sometimes gut-churning question: “Why is this contribution relevant to the company?”

An outsider might come to the wrong conclusion that Ralph used his yardstick to suppress Johnson & Johnson's giving. After all, how many contribution recommendations could stand up to this double-barreled type of scrutiny—particularly question number two? As it turns out, many requests can and do. Ralph's intent wasn't to use his yardstick to stifle philanthropy. Rather, he used it like a shepherd's staff to guide a potentially undisciplined outpouring of gifts into a more logically directed stream of social investments.

Over the years, I have worked with dozens of senior executives charged with running some of America's largest businesses. Only a few have been as demanding as Ralph Larsen in requiring that corporate contributions have social value and have clear relevance to their businesses. CEOs who don't insist on keeping charitable commitments close to a company's mission and business objectives represent the first of three reasons why American corporate philanthropy has periodically been stuck in neutral or, even more troublesome, has edged downward for nearly three decades in a row.

The “Big Three” Trouble Spots for Corporate Philanthropy

1.CEO myopia. Business leaders at the top of the private sector food chain who simply don't get it.

2.Muted middle management. Company personnel charged with planning and carrying out philanthropy activities who don't have or who are prevented from using a loud enough voice to be effective.

3.NGO misfires. Proposals or “pitches” by nonprofit organizations that lack the “business relevance” factor.

There's a reason why CEO near-sightedness makes it to the top of this list. If chief executives don't recognize the potential of creative and conditional grants as resources to enhance a company's mission and business objectives, then corporate philanthropy drifts into a “difficult to justify” zone. Ralph Larsen didn't let that happen. He understood it wasn't his money he was doling out to charity—it belonged to shareholders. Hence, each contribution decision had to be footnoted with a logical, persuasive business rationale.

As the “Big Three” list points out, corporate philanthropy is plagued by other problems aside from narrow-thinking or totally clueless CEOs. The men and women who have line management responsibilities for planning and executing corporate giving too often aren't given a long enough leash to do their jobs—or, in some cases, are simply not prepared or competent enough to turn a gift into an impressive business social investment.

Then there are the nation's one million-plus 501c3 charities parked at the receiving end of the corporate giving continuum. How could these non-private-sector entities share a portion of the blame for a slowdown or decline in corporate philanthropy payouts? Answer: when nonprofits use a tin cup approach to companies—when they beg for money without remembering that businesses are not set up to be charitable wellsprings—their “same old, same old” fundraising tactics usually fall short of prompting a business to be more responsive to social challenges. Far too few nonprofit groups have come to understand that it makes more sense to approach a company with a deal rather than an appeal.

The Decline of Corporate Philanthropy

This book opens with a claim that corporate charitable giving has been heading south for years, interrupted only by a few brief periods of stagnation. How can that be? What about all those generous and well-publicized donations companies pump out after a natural or manmade disaster? One case in point is the huge corporate response to the 2010 earthquake in Haiti.

Within forty-eight hours after the 7.0 magnitude earthquake shook much of one of the poorest countries on the planet into ruins, businesses responded with over $100 million in charitable contributions. The first wave of donations came fast, and many business gifts were larger than even those made to the three other most devastating catastrophes of the twenty-first century's opening decade: 9/11, Hurricane Katrina, and the South Asian Tsunami. The cruise company Carnival donated $5 million. Deutsche Bank gave $4 million. There were million-dollar checks from Google, Hess, UPS, MorganStanley, and a host of other businesses. ADM supplied seven hundred tons of rice, and a million cans of water came from Anheuser-Busch. Donations included medical supplies, water filters, Crocs shoes, backpacks, solar lights, mattresses—a mind-boggling inventory of donated goods and services.

This extraordinary benevolence was indicative of the ongoing philanthropic practices of the nation's largest corporations. Right?

Wrong.

Actually, the response to the tragedy in Haiti was more a blip on a not-so-stellar corporate philanthropy continuum. Here's a reality check: when measured as a percentage of profits, business grant making has actually been on a bumpy decline for well over two decades.

The erosion in corporate giving runs counter to the assumption many people have that companies are more supportive of nonprofit causes and programs now than they have been in the past. That's understandable, since the mainstream media include news stories and advertisements that point to businesses positioning themselves at the front of the line to provide help after some notable crisis. And in many instances, corporations do stand tall with their philanthropy. But too often, appearance looms larger than a company's actual responsiveness.

Even during the recession that officially began chewing up the U.S. economy in 2007, corporate grant making—with some notable exceptions—was notoriously sluggish. Although an abundance of companies (especially many of the 5.7 million smaller, privately held corporations that employ one or more workers) sustained or even increased their contributions during the two-year recession, many larger corporations—including highly profitable businesses—pulled back their philanthropy.

For companies that collapsed or operated in the red, it was reasonable to expect grant making to come to a halt (although some businesses such as Chrysler continued their philanthropy even while experiencing prolonged losses). But the recession didn't wipe out the earnings of the vast majority of U.S. corporations. Quite the contrary: in 2008, the nadir of the recession, U.S. companies earned $1.3 trillion in pretax profits, which gave them the capacity to be far more generous than they were that year. Instead of ramping up their giving to meet the mounting needs of those communities where they had a presence, too many of the country's largest businesses used the recession to challenge the fundamentals of corporate philanthropy by asking questions such as

How can we possibly defend making charitable donations when we're laying off our own workers?Why should we continue matching employee (and sometimes, retiree) gifts when we are cutting other benefits?What's the point of supporting the United Way when we hear how many United Way organizations are dysfunctional or are overpaying their staffs?Why promote employee volunteerism when we need all hands on deck to keep our business afloat?Recession or no recession, why should corporations be making charitable contributions at all? We're in business to make a profit—shouldn't we be passing along our earnings to shareholders and owners so they can make their own donations?

These are not new questions for American businesses. They have lingered below the surface for decades and may help explain why over the past twenty-five-plus years, America's private sector cut its charitable giving as a percentage of its profits by half.

For some highly profitable businesses, the recession became a handy excuse to make even deeper cuts in their giving. Other companies were not as quick to slash their contribution budgets but became genuinely confused about what the appropriate level of charitable support should be.

A Stronger Business Case

The recession made it more obvious than ever before that a much more compelling business case for corporate contributions is badly needed—a case that definitively addresses the following:

Why a business should carve out a portion of its earnings to assist nonprofit causes and programsHow much of a company's pretax profits should be used for such purposesWhat conditions should be in place in order to justify the use of corporate resources for support of nonprofit organizations

In other words, a case that will measure up to Ralph Larsen's two-sided yardstick.

This is the underlying intent of Smart Giving Is Good Business—to give businesses a roadmap that will enable them to make a convincing case for corporate philanthropy—one that legitimizes when and how a company should use profits to pay for strategically positioned “conditional” contributions.

While doing consulting work for companies such as General Motors, Merck, Xerox, and Bank of America, I made a curious discovery. Top executives were struggling with several questions about corporate philanthropy—and most sounded remarkably similar. After I hired on with Johnson & Johnson to run its philanthropy program in the 1990s, the same questions surfaced. When I left J&J to launch a national trade association of corporate contributions professionals in 2000, ditto. Identical questions again flew over the transom from 150 different member companies. More recently, having returned to the corporate consulting world, I field inquiries from client companies such as Target, Novartis, Bausch & Lomb, Starbucks, and several others that all are echoes of the past.

I realized that whether a corporation is a huge multinational with revenues in the billions or a small mom-and-pop operation, executives tend to have very similar inquiring minds when it comes to framing a plan—a case—for giving away money, products, or employee time. Business leaders want concrete answers that will allow them to

1. Determine why a company should be in the corporate giving “business” at all

2. Decide what the minimum price of entry should be (assuming corporate philanthropy can be justified as a generally accepted business practice)

3. Identify value-added options for going beyond the “minimum” and the risk-benefits of being more than marginally generous

As noted, these are hardly new concerns. One of my first consulting clients, Tom Donohue, who managed the U.S. Chamber of Commerce Foundation, voiced them loud and clear. Tom would eventually leave the Chamber to climb the executive ladder at other trade associations and then return to the Chamber as its president and CEO. Tom presented me with a chance to get a crow's nest view of the private sector, and even thirty years ago, it wasn't hard to spot trouble brewing. The business of corporate philanthropy, it seemed, wasn't a business at all—it was too often viewed as a bottom-drawer function that rarely got much attention or respect by a company's line and staff. Yet Donohue, who has a tough exterior that covers up a goodly amount of compassion, thought corporate philanthropy deserved better. He helped me see that when effectively managed, the donation of company money and employee time could be more than a social tonic—the resources could also help a corporation advance its own business interests.

That perspective took on greater clarity during my many years of consulting when I worked with a mix of businesses in different industry sectors, including the health care giant Johnson & Johnson. At the time, J&J was among the most respected companies when it came to philanthropy. And for good reason. The corporation's simple but profound four-paragraph mission statement called its Credo mandated philanthropy as a business requirement. One of those paragraphs read (and still reads):

We are responsible to the communities in which we live and work and to the world community as well. We must be good citizens—support good works and charities and bear our fair share of taxes. We must encourage civic improvements and better health and education. We must maintain in good order the property we are privileged to use, protecting the environment and natural resources.

It was J&J's strong commitment to the “support of good works and charities” that convinced me to join the corporation as a V.P. charged with handling its contributions program. I signed on for a five-year tour of duty, but nine years later, I was still at the company's impressive I. M. Pei–designed headquarters in downtown New Brunswick, New Jersey, managing a $150 million contributions budget, trying to fend off up to a hundred unsolicited donation requests a day, and having the time of my life.

The Tide Is Still Out

Just before the start of the new millennium, my professional conscience nagged me out of one of the best jobs in America. At about the same time my career clock was winding down, something else was inching downward as well. From 1990 through 1999, corporate contributions in the United States were shrinking. During the 1980s, corporate charitable giving was averaging about 2 percent of pretax profits (the decade-long range ran from 1.5 percent to 2.3 percent of before-tax earnings). When the 1990s arrived, business generosity started slipping until it nosedived to around seven-tenths of 1 percent. To put things in a more emphatic perspective: on the basis of a percentage of earnings, for every $2.50 a company set aside for corporate philanthropy in the early 1980s, only $1 was earmarked for giving at about the time the new millennium arrived.

It was time to at least try to turn the tide.

I left Johnson & Johnson the same year my book Corporate Social Investing was released. The book got a fair amount of attention thanks to prefaces written by legendary investment guru Peter Lynch and the late actor and entrepreneur Paul Newman. If the philanthropic world had a Hollywood Boulevard, these two men would be immortalized on the contributions Walk of Fame. When it comes to figuring how symbiotic corporate philanthropy can be to corporate success, these two truly understood the connection.

A year after the release of the book, it was apparent that the power of the pen had its limitations. Corporate giving—again, as a percent of profits—continued to sink. Paul Newman decided enough was enough. He joined with retired deputy secretary of state and retired co-chair of Goldman Sachs John Whitehead to launch an organization more exclusive than Augusta National Golf Club. Open only to corporate CEOs or chairmen, the group's purpose was to move the corporate contributions needle in the right direction.

I sat in on one of the earliest meetings of the Newman-Whitehead organization, where the still strikingly handsome movie star and king of his own line of salad dressings wondered out loud why his business (Newman's Own) could direct all its profits to worthwhile causes but U.S. corporations on average could barely scrape together 1 percent of their pretax profits for charity. For a time, Newman's new organization pondered setting a contributions spending target for U.S. companies but abandoned that idea when several CEOs pushed back. That development came as no surprise because almost every industry captain I have come to know sings the following refrain: don't turn charity into a tax.

Although Newman had to be disappointed that businesses couldn't agree on a minimum level of annual giving, he and Whitehead, along with the cadre of other CEOs who joined the organization (now called the Committee Encouraging Corporate Philanthropy), did manage to move the issue a little closer to the front of the stove.

Capacity Building Where It Counts the Most

While Newman and Whitehead were working the front office, I went about testing a different theory. Maybe, I thought, if the staffs charged with overseeing corporate contributions programs were afforded more business management skills, they could become more influential in convincing companies to increase their annual giving. The theory rested on a few untested suppositions:

Suppose corporate philanthropy and community relations managers were to be put through a mini-MBA program customized to meet their particular job requirements?Suppose these staffers were given the kind of leadership skills that would amplify their voices and give them added standing so as to get senior management's serious attention?Suppose these middle managers could demonstrate how to leverage social investments to generate as much or more business benefit as advertising or marketing initiatives?Bottom line—suppose these people became such polished business professionals that they wouldn't be viewed as extraneous to the P&L interests of the corporation?

That theory and its interconnected suppositions led to the launch of the Contributions Academy—a venture that brought together small clusters of corporate giving administrators and pushed them through an intensive three-day program that included everything from budgeting to evaluation methodology, from strategic planning to leadership development.

Five years after the Academy was born, a group of graduates proposed recasting the loose-knit enterprise into a stand-alone, independent professional organization. Executives from Hasbro, Sony Electronics, Tupperware, Boeing, Northwestern Mutual, Becton Dickinson, Verizon, Johnson & Johnson, Novartis, and Chrysler took the lead and hammered together the framework for the Association of Corporate Contributions Professionals (ACCP). The organization grew with extraordinary speed, and within two years its membership stood at over 150 businesses representing more than $20 billion in annual cash and product contributions. I left ACCP in 2008 to return to the consulting world, but the organization continues to provide unparalleled professional training thanks to an exemplary board of directors and an outstanding management team.

With Newman and Whitehead working the top tier of business and ACCP grooming the professional staffers within the ranks of larger corporations, one would think companies would push the pedal on their philanthropy programs.

Such was not the case.

Questions: A Baker's Dozen

Just before the economic upheaval struck the United States and the world in 2007, business contributions continued to slip downward. In spite of Newman, Whitehead, and ACCP; in spite of philanthropy programs sponsored by the Conference Board, U.S. Chamber of Commerce, and the Council on Foundations; and in spite of higher education programs that addressed corporate giving issues at schools including Indiana University, Boston College, and UC-Berkeley—company grant making stayed stuck in low gear. Only because profits took such a beating in 2008 and 2009 did corporate philanthropy consume a slightly larger chunk of company earnings—but clearly that was an unintentional “benefit” of the sub-prime fiasco and the crumbling of Wall Street.

So where are we? With the exception of a few blips, businesses have fallen into a comfort zone where an acceptable level of corporate giving equates to doling out around 1 percent of before-tax profits. But here's the kicker—larger businesses are often spending far less than this on average. Yes, there were—and are—noteworthy exceptions. Some sizeable companies continue to spend 2 percent to 5 percent of their profits for good works. But these corporations are truly outliers. What has become obvious is that most U.S. businesses have not taken to heart what former Chase Bank chairman and CEO David Rockefeller told the New York Economic Club in 1996:

“Business leaders appear to have devoted themselves to making more and more money and find themselves with less and less time to devote to civic and social responsibilities and to sinking roots in their communities….”

What appears to be standing in the way of a serious corporate philanthropy turnaround are a cluster of those previously mentioned hurdles that can so easily put a damper on efforts to bring the level of company giving back to where it once was. There are thirteen of these hurdles, a baker's dozen that Smart Giving Is Good Business has translated into the following questions:

1. Why should a company even consider making a charitable contribution?

2. Assuming a case can be made for corporate philanthropy, how much should a company give, minimum and maximum?

3. Who should decide which nonprofits get funded, and what criteria should be used to make those decisions?

4. What's the most effective role for a CEO when it comes to grant making?

5. Where should a company's contributions program be parked inside a company, and who should have the day-to-day responsibility of overseeing the giving process?

6. Should a company have a foundation?

7. Should corporations be donating products, services, or both—possibly as a preferred form of giving over cash donations?

8. How should businesses handle the onslaught of dinner and special event (such as golf outing) requests?

9. Should a company fund the United Way, or are there better options?

10. How should a company respond to a natural or manmade disaster?

11. Is it possible to measure the impact of a grant—including its impact on the company?

12. How much should a company say about its contributions, and when does promotion morph into out-and-out bragging that triggers negative public reaction?

13. How should a corporation handle its philanthropy if its profits tank?

Conditional Grant Making

Many of the answers to our baker's dozen hinge on a concept that for the past few years I've been calling “conditional grant making.” The premise is based on this fundamental principle:

Businesses have an obligation to shareholders, employees, and other stakeholders to be exceedingly careful and responsible in any contributions decision they make.

As Ralph Larsen was prone to remind me—when a company hands out a contribution it's doing so with someone else's money. A corporation could use those funds for an array of other business purposes. In some cases, that would include hiking a dividend to shareholders so they could make their own charitable choices.

But how can a company best ensure that its philanthropy is properly aligned with its business purposes? As a starter, make certain three basic conditions have been met before even thinking about making another contribution. These are the three essential lynchpins that can make the difference between a lackluster, largely irrelevant giving program and a vibrant, meaningful social investment venture.

Conditional Grant-Making Requirements

1. A crystal clear strategy and process that ensures corporate contributions are relevant to both society and the company (Ralph's yardstick)

2. A CEO and other senior executives who openly endorse smart giving—the donation of cash, product, and employee time that yields a beneficial return on investment for society and the business itself

3. A day-to-day administrative system that provides for competent oversight of company contributions to ensure good intention doesn't dissipate into a bad outcome

By meeting these conditions, a company builds itself a platform for the kind of corporate philanthropy program that is more likely to expand than contract.

Intervention Time

The past couple of decades provide us with plenty of evidence that the future won't bring about much change in how the private sector thinks or acts in respect to corporate philanthropy. Corporate giving probably will stagnate at its current low level or possibly sink even lower. Unless—

Forward-thinking CEOs rally for change. We need a new crop of David Rockefeller–type business leaders who will take the lead in advocating for responsible (a.k.a. conditional) corporate philanthropy on the part of all companies large or small.Businesses fully commit to smart giving. Adopting the principles presented in this book will get companies past the thirteen impediments that too frequently stand in the way of a corporate philanthropy rebound.Nonprofit organizations solicit businesses differently. Nongovernmental organizations (we will call them NGOs throughout this book) can do a lot to prime the corporate philanthropy pump if they come forward with the right kind of business-relevant proposals.

If corporate giving is resuscitated, businesses will be in a position to mine the benefits of a resource that regularly gets underused or totally ignored. NGOs will stand to gain big time. If Smart Giving funding recommendations are widely implemented, an estimated $8 billion in cash will get added to what companies annually allocate for nonprofit programs and activities.

But these end benefits won't be realized if the hurdles in our baker's dozen loom large and aren't cleared. If company leaders conclude that corporate giving really is nothing more than a self-imposed tax, game over. If the validity of corporate philanthropy is challenged more aggressively and executives don't have the right defense in place, for sure there won't be a surge in philanthropy spending. If NGOs pepper companies with generic appeals that have nothing to do with the business, don't look for a wave of new company contributions.

America's corporate philanthropy is currently mired in a not-so-impressive place. To get it unstuck, thirteen irksome questions need thirteen persuasive answers.

Chapter 1

Why Should a Business Give at All?

This is what Nestle SA Chairman Peter Brabeck said during a London television interview:

“I am personally very much against corporate philanthropy. You shouldn't do good with money that doesn't belong to you.”

Brabeck is not alone in his thinking. Far from it. His reservations were echoed in a prominent Wall Street Journal article written by a University of Michigan professor who argued “The Case Against Corporate Social Responsibility.” Aneel Karnani undoubtedly struck the right chord with some business leaders when he wrote:

Managers who sacrifice profit for the common good also are in effect imposing a tax on their shareholders and arbitrarily deciding how that money should be spent.

There is no denying that a contingent of company senior executives would just as soon see corporate philanthropy disappear. But there are also CEOs who are willing to go along with company grant making if the level of giving is kept way under the radar. In my own unscientific surveying, I have found that most business leaders fall into a third category: company executives who think corporations should have the latitude to support charitable programs and causes but are looking for clear-cut guidelines to justify such expenditures and a framework for deciding what the most appropriate level of giving should be.

A lot of people have asked me, “Is corporate philanthropy something CEOs and other top executives actually even think twice about?” With everything that gets thrown on an executive's plate, it is difficult to conceive that grant-making issues could possibly work their way into the front office. But surprisingly they do.

“It's not that charitable contributions rank up there with mega-merger decisions or figuring out how to shut down a plant,” one CEO told me. “But you can't escape them. People or organizations looking for donations eat up time and attention. And because solicitations are often made by friends or even family members, it's easy to get backed into a corner.”

Most high-level company executives I have met over the years share the same complaint. They can't escape being hustled by family, friends, business acquaintances, golf club members, high school alumni—all of whom assume the executive should have no trouble putting a hand into the company's very deep pocket.

Executives don't relish being pestered (sometimes plagued) by unsolicited requests for company donations. But even more troublesome is dealing with an unhappy shareholder, a laid-off worker, or an inquisitive journalist looking for an explanation of why the company is making a charitable contribution when money could be used for so many other purposes seemingly more important to the corporate P&L.

The “Why?”

It is this last concern that brings us to the lead question drawn from our baker's dozen list:

Question 1: Why should a company give at all?

Answer: There are three primary reasons.

Moral and Social Responsibility

With all due respect to Peter Brabeck and the University of Michigan professor who views corporate social responsibility as deeply flawed, businesses do have an elemental obligation to do the right thing. And acting philanthropically is proper business behavior if a company is following the three principles for conditional grant making as outlined in our introduction.

This answer gets easier to grasp if you think about the similarities people and businesses have when it comes to philanthropy. People generally support causes and programs that are most meaningful to them. Corporations should do the same. Consider this: Americans who make charitable contributions each year donate 2.7 percent of their adjusted gross income to charity (for those over age sixty-five, the average giving level jumps to over 3 percent). Is it too much to expect a business to donate 1 percent to 2 percent of its profits (not its income)? The answer is “no—it's not” as long as a company's giving is directed toward business-relevant programs and activities.

To Benefit the Company

To some, this answer to “Why?” may not make sense. How can a charitable commitment benefit a donor and still be a legitimate contribution? The U.S. tax laws seem to make this kind of quid pro quo impossible. The Treasury Department says companies or individuals wanting to take a charitable tax deduction must make sure funds or properties are “transferred to a qualified organization without the donor's expectation that there will be a financial or economic benefit commensurate with the donation being made.” So what benefit(s) can a company accrue without violating the tax code?

Properly directed, company donations can be used to affect conditions that influence a corporation's ability to function. Examples include enhanced company or brand name recognition, basic research that is a door-opener to discoveries that may have long-term commercial potential, community services that improve a plant location so it becomes a more desirable site for new hires, and the list goes on. The direct benefit a corporation receives may not be “commensurate with the donation being made.” But the indirect advantages that come from making the right kind of contribution can be substantial.

In 2007, McKinsey & Company surveyed 721 executives to get a better perspective as to what business benefits should accrue from social efforts carried out by a corporation. Only 12 percent of respondents said there should be no business goals linked to a company's philanthropy activities. What executives did say they wanted from a corporation's social spending were

Enhanced reputation for the company, brand, or both (70 percent)Bolstering of employee skills (44 percent)Improved employee respect and pride for the company (42 percent)A differentiation from competitors (38 percent)

If answering the “Why?” doesn't include an explanation about how corporate philanthropy affects a business, then we are circumventing our conditional grant-making principles. There has to be a defined connection between a gift and a business. Otherwise it probably shouldn't be made.

To Benefit Society

Businesses aren't exempt from playing a role in addressing social problems and challenges. So “Why?” has to include a statement that corporations are committed to leveraging contributions to make a difference to society. But the key is to aim donations of cash, product, and even employee time at causes and issues relevant to the company.

Go back to our company-is-like-a-person analogy. If you or a loved one is unfortunate enough to have cancer, you're inclined to make a donation to one of the more than seven thousand nonprofit organizations in the United States that work to prevent or cure cancer. In making the donation, your hope isn't that the gift will lead to a treatment breakthrough that will be helpful just to you. The contribution comes with a hope that it will be advantageous to anyone suffering from cancer. Apply that same line of thought to a company.

For example, during the 1990s, Johnson & Johnson, along with dozens of other pharmaceutical companies, put a high priority on finding a drug that would slow down or prevent Alzheimer's disease. But research was stymied because there were no mice that had the genetic make-up needed to carry out essential experiments. J&J awarded “basic research” grants to medical schools—funds used to breed mice that had the characteristics necessary for Alzheimer's research.

Because basic research findings are non-proprietary, whatever discoveries the grant produced would be in the public domain. Certainly J&J had a strong interest in developing mice that would move its own research forward. At the same time, the company recognized how important these mice would be to an array of other scientific experiments totally outside its commercial interests. The grants were legitimate charitable contributions that turned out to be a win for the corporation and a win for society.

Corporate Social Responsibility—A “Why?” or a “Way Out?”

Missing from our list of answers to “Why give?” is a call for businesses to live up to their corporate social responsibility (we'll call it CSR). The omission might seem strange to some. After all, CSR is a widely touted business notion that on the surface seems to be a bugle call for an increase in conditional grant making. In reality, too often CSR has had just the opposite effect on corporate philanthropy. With some exceptions, it has been a drag on the growth of smart giving. To understand why this has happened, here is a brief explanation of the often-confusing concept of CSR.

The idea that businesses have responsibilities that transcend their corporate walls has been around a long, long time. But during the 1970s, the concept began a more open relationship with business ethics, and by the 1980s and 1990s, the two had coupled and became all the rage—particularly in the academic community.

In the classroom, CSR (also called corporate citizenship, sustainable responsible business, and a host of other terms) is a thing of beauty. Public interest blends with corporate decision making and gives an added zing to the “triple bottom line”: people, planet, and profit. When CSR hits the road, though, things change.

Over the years, I have pressed dozens of corporate executives to give me their take on CSR. “What does it mean to your company?” I would ask. Here are some of the answers I jotted down:

Mainly showing we have decent environmental standardsFirst, you have to be responsible to your own employees—reasonable labor practicesJust doing the right thing all the timeQuality control for whatever products we makeSustainable developmentLive up to fair trade policiesWorker health and safety—mainly safetyEthics training for all employees

In other words, CSR has no consistent definition within the real corporate world. Attempts have been made to bring some agreed-upon clarity to the concept. For example, the Geneva-based International Organization for Standardization has come up with a proposed global set of standards for corporate responsibility called ISO 26000. And a few companies hold up “Deming's 14 Points” as the recommended standard for CSR. (Deming was an American statistician whose fourteen management action points became the foundation for the TQM or Total Quality Management movement.) But in spite of these efforts, CSR is largely amorphous and assumes different shapes and sizes depending on a company's interpretation of the concept.

One of the more comprehensive CSR reports that at least tries to link general CSR activities with contributions spending is produced annually by ExxonMobil (the company calls its statement, which usually runs fifty pages or more, a Corporate Citizenship Report). The central theme is “sustainability,” which ExxonMobil defines as a balancing of economic growth, social development, and environmental protection. But what exactly does that mean?

ExxonMobil uses a third party (Lloyd's Register Quality Assurance) to validate its efforts to address several “citizenship focus areas.” These include

Corporate governanceSafety, health, and the workplaceEnvironmental performanceManaging climate change risksEconomic developmentHuman rights and security

Part of the company's report is a breakdown of its philanthropy (what it calls “community investments”). In 2009, ExxonMobil awarded $235 million in grants, or about seven-tenths of 1 percent of its pretax profits—about the average level of giving for larger companies that year. The report attempted to show how these contributions as well as employee volunteerism intersected other CSR categories throughout the year. The attempt fell short in a few areas—but ExxonMobil deserves credit (as do a few other businesses) for at least trying to demonstrate what should be a connection between contributions and other CSR interests.

The BP Case

CSR critics complain that too many companies use corporate responsibility rhetoric as a cover—that words and hype mask genuine commitment and meaningful action. (In his Wall Street Journal article, Professor Aneel calls the tactic “greenwashing.”) Nothing helped that argument more than the Gulf of Mexico crisis that vilified the oil giant BP as the culprit most responsible for America's worst environmental disaster.

Ironically, years before a series of accidents that led up to the Gulf pipeline calamity, BP had branded itself as a global CSR leader. Lord John Browne, who led the company from the mid-1990s until his resignation in 2007, promoted BP as the leading “green” energy business. The corporation developed a green logo and produced slick publications that trumpeted its CSR advocacy.

In addition to numerous inside-the-company CSR initiatives, BP also ballyhooed its external social responsibility efforts. Here are excerpts from a 2002 speech by the company's VP for global social investment:

Today the over-arching social goal that inspires us everywhere is the concept of sustainable progress. Clearly the definition of this progress can vary. In some places it means supporting capacity building. In others it means helping education or health care reform. Or it may mean underwriting job creation schemes or conservation projects or moves to achieve greater self-sufficiency.

Last year we invested nearly $95 million on social initiatives globally… One-third of BP's contributions went to community development, 30% to education and 15% to environment and health.

The range of projects is vast—everything from aiding small farmers in Colombia to underwriting female adult literacy in Angola, heightening environmental awareness among children in China, teaching corporate governance in Zambia, encouraging clean business in Poland and comforting cancer patients in Egypt. Not to mention scores of initiatives in Europe and North America.

Sounds good, right? With a $95 million contributions program, no wonder BP cited itself as a frontrunner in the CSR field. But let's add some perspective to this story. BP's contributions payout for 2001 equaled seven-tenths of 1 percent of the $13 billion in pretax profits it earned for the year. The payout wasn't that out of line with what many other mega-sized corporations were spending on philanthropy that year. But note that this was about half the average level of corporate giving for 2001 (the business community in total donated around 1.3 percent of its aggregate pretax net income).

For those looking to debunk CSR, BP served (and still serves) as a classic case. When a company shouts about its response to social challenges but doesn't even make par with its social investments, then it has wandered into risky territory. Of course, BP could probably point to other CSR projects conducted outside the contributions arena that probably cost more than $95 million. And that comeback is exactly why CSR has contributed to the downward trend in corporate grant making.

CSR “In Lieu Of” Corporate Contributions

CSR efforts that are largely internal in focus—for example, employee ethics training, environmental improvements, diversity outreach, workplace safety changes, and so on—can be expensive. A business can easily rationalize that these often costly initiatives have just as much value—maybe even more value—than any program folded into its contributions program. “We need to ensure the safety and well-being of our employees before we worry about funding the local symphony so it can add a bassoonist,” the corporation might conclude.

And that's the CSR jab to the corporate contributions jaw that's been a problem over the years. I have had conversations with executives who complain they are under so much pressure to pay for CSR-prompted internal changes that even thinking about a hike in corporate giving borders on absurdity.

My counterpunch to these statements is that when considering what to spend on grant making, don't lump corporate contributions with whatever else a company may have bundled under the CSR umbrella. Most all the internal CSR-related adjustments are carried as usual business expenses and taken into account before a company figures out its profit and loss for the year. A company's conditional grant-making payout should be tied directly to a company's pretax earnings—earnings that are calculated after all other internal CSR expenses have been paid.

Smart Giving and CSR

Where corporations too often fall short in their CSR strategic planning is to overlook how grant making can be used as a fuel line for at least some of the firm's most important social responsibility activities. It would behoove any company to identify all its CSR objectives and then think creatively about how smart giving could address those goals. For example, suppose BP had spent more of its annual contributions on funding environmental protection methods and standards at universities and research institutions known for their expertise in oil and mineral exploration. Such basic research grants may have generated information useful to the petroleum industry as a whole—and who knows, they possibly might have prevented the crisis in the Gulf of Mexico.

BP's retort might be that the company does make these types of grants. True—after the Gulf oil spill, the company pledged a half billion dollars for a Gulf of Mexico research initiative, including three grants totaling $25 million to southern universities working on oil and dispersant technologies. But a review of the company's publicly reported giving prior to the Gulf crisis shows similar commitments to be relatively minor.

“But had this kind of sharply focused conditional grant making been going on before the oil spill, it might have resulted in a reduction of BP support for adult literacy programs in Angola or projects to help farmers in Colombia,” some would complain. If the company had kept its giving level at a comparatively low level, yes, that's probably what would have happened. It's the reality of any kind of philanthropy—choices have to be made. For businesses, smart giving means making smart choices.

So CSR could be added to our list of answers for “Why give?” if companies (a) clearly identify what those CSR objectives are; and (b) use conditional grant-making principles to find ways of directing resources (contributions and employee time) to address those CSR issues.

When “Why?” Goes Awry

There's a right answer to “Why give at all?”—

We carefully manage our corporate philanthropy as a unique type of business resource. We use cash and product donations to address critical problems and quality-of-life issues and to advance important opportunities that have a clear relevance to our business. Managed this way, our philanthropy is beneficial to both society and our company.

And there's a wrong answer—

We support causes and organizations on behalf of our senior management and other employees. We view contributions as an added employee benefit with special consideration given to our highest-level executives.

The ugly truth is that the “wrong answer” is sometimes the dominant (albeit nontransparent) answer within certain businesses. The corporate giving pot sometimes gets turned into a slush fund for top-tier executives and on occasion even outside board members. The rationale is that contributions become inducements for retaining high-quality talent.

The slush fund shouldn't be confused with set-aside funds for employee matching gifts—limited and controlled commitments that ride on the back of employee or retiree donations. These are vastly different from free-standing $25,000, $50,000, or $100,000 unrestricted gifts that are fired off to the CEO's alma mater as a way of giving the executive added status (plus a V.I.P. box seat at the fall homecoming game).

Peter Brabeck has every right to be critical of a corporate philanthropy program that in essence is a CEO's personal cash drawer. His displeasure with corporate philanthropy is also understandable if a company simply “gives for the sake of giving” and doesn't have a conditional grant-making management model in place.

Even for smaller businesses, a corporate philanthropy program doesn't have to be (and shouldn't be) a private cash register for upper-tier management. It can be (and should be) a much more powerful resource that brings added value to the company and society.

Widget Worldwide and the “Why?”

In running workshops and speaking to both business and nonprofit audiences, I have used a brief quasi–case study to underscore two points: (a) how top corporate executives sometimes are driven to the brink by—of all things—corporate contributions and (b) how to come up with an acceptable answer to the question “Why give at all?”

The following case is an amalgamation of many experiences I have had with senior managers over the years. The company is a fictional Fortune 500 manufacturing firm with its headquarters in New York City. But the business could be just about anywhere in the United States, and the CEO you will meet next could be Peter Brabeck or maybe the frazzled, pressured individual running a company you work for.

The Widget Case

“Do we have to?” Charles “Chuck” Gilfant asked me. Six months in the hot seat at Widget Worldwide, Inc., and a profit squeeze had the CEO bottom feeding for nickels and dimes.

“Nope, you don't have to,” I answered. “This isn't a tax.”

“Isn't it?” Chuck wasn't buying it. “As far as I'm concerned, it's a self-inflicted tax. Businesses making gifts to charity—I mean, what the hell is that all about? We're not philanthropists, you know. So why is it that every Mr. Good Shoes running a charity thinks companies should be giving the store away?”

There was a reason Chuck Gilfant wasn't in a benevolent mood. Widget hadn't met analyst expectations for the second quarter in a row. Sales were flat, and profits, although still respectable, weren't respectable enough for analysts, which meant Chuck had to start cutting costs even if it meant looking for loose change in all the wrong places.

“Your top line hasn't been growing the way you might like, but you're still making money and a lot of it,” I reminded Gilfant. Widget had pretax profits of $940 million last year.

“Not enough,” Chuck responded quickly. “Since sales are going nowhere, I need to cut costs to move my next quarter's profit in the right direction. And I'm talking about all costs. Corporate contributions won't get a pass. No matter how pretty you package them, donations are still expenses, and they're on the block.”

“Suppose contributions were expenses that improved the business?” I asked. “Suppose they helped put into place the right conditions so Widget had a better shot at improving sales?”

“Yeah, right,” was the comeback. “And suppose Wall Street starts regulating itself. Some things aren't meant to happen. Fact is, we've got hundreds of charities sucking millions out of us each year. I want as many of those hustlers as possible to get their fingers out of my cookie jar. Can that be done?”

“Sure,” I advised. Like most consultants, I learned long ago never to say no to a client. “But how about taking a breath before swinging the hatchet?”

Widget's top dog gave me one of those looks usually reserved for McKinsey or Booz Allen Hamilton when they pushed for more billing hours.

Why Should Widget Give at All?

“A couple of minutes ago, you asked if Widget had to give to charity. Rephrase the question: Why should Widget Worldwide be making any tax-deductible charitable contributions?”

“Exactly!” Chuck yelped. “Why?”