Recession Driving Changes in Corporate Philanthropy
Joshua Kucera

Companies also looking to incorporate volunteerism into their corporate culture

Not long ago, corporate philanthropy didn't involve much more than writing a check to United Way or the local opera. Nowadays that's changing. Blame corporate shareholders for tightening the purse strings, or credit Barack Obama and an entire generation raised on public service. All are forcing companies to get creative, to focus on making more of a difference while spending less cash.

So, for instance, companies may allow their employees to volunteer while on the clock, or they might reward customers for their volunteerism. Many are giving goods rather than cash and focusing more on areas in which they have expertise, so that $600-an-hour consultants aren't painting walls but are actually consulting for organizations that otherwise couldn't afford their services. And, in what is perhaps the most profound shift, some companies are thinking more long term and aligning their philanthropy with their core business strategies, looking for ways to do good at the same time they improve their bottom lines.

The entire notion of corporate giving is "starting to get a lot fuzzier," says Margaret Coady, director of the Committee Encouraging Corporate Philanthropy, an international forum "focused exclusively on corporate philanthropy." CEOs are now asking, "What is the role of a corporation in society, and how is that role sustainable? And that's moving very far away from what people traditionally think of as philanthropy," she says. As a result, "philanthropy is getting integrated into the strategy of all the departments throughout the company, as opposed to just being a group of 20 people who write checks."

Some of the new developments in corporate philanthropy are being driven, in part, by the stubborn recession. According to a survey by the CECP, 60 percent of companies cut their philanthropic donations from 2008 to 2009, and most of those trimmed them by more than 10 percent. That has helped fuel the move toward giving time and goods rather than money. According to a survey conducted by the Chronicle of Philanthropy, when companies were asked how the recession has changed their philanthropy, by far the largest number said they were encouraging employees to volunteer more. "Companies and employees are seeing their communities in greater need, but they don't have as much cash to give," Coady says.

But volunteerism is also increasingly in the zeitgeist, and companies that want to attract the best recruits are trying to incorporate that into their corporate culture. "This generation of 20-somethings coming into the workforce have gone through high school and colleges that have service volunteerism requirements. And they define philanthropy by action, not cash," says Evan Hochberg, national director of community involvement for Deloitte, an accounting and consulting firm. Two years ago, Deloitte started allowing employees to include volunteer work for nonprofit organizations as paid time, and staffing the work employees do for nonprofits the same way the firm does for paying customers. Deloitte set a three-year goal to do $50 million worth of volunteer work by 2011.

President Obama's focus on volunteering has helped nudge companies as well. Starbucks encouraged its customers to pledge 1 million hours of volunteer time during Obama's first five days in office, offering a free cup of coffee to anyone who did five hours of work through the HandsOn Network, a volunteerism clearinghouse. "Volunteerism is more in the public dialogue" because of Obama, Coady says.

Companies are also focusing more on specific causes to which they think they can contribute particular skills or knowledge. The clothing retailer Gap realized it had more to offer than just expertise in folding T-shirts, says Bobbi Silten, the corporation's chief foundation officer. "In our 41-year history, we've given hundreds of thousands of young people their first job, and so this was a competence we could draw on," she says.

So Gap started the program This Way Ahead, which teaches job skills to poor youth in New York and San Francisco. So far, 400 young people have completed the program, and 170 of them earned internships in Gap and Old Navy stores, Silten says. And like Deloitte, Gap uses its management experience to help nonprofit organizations, allowing staff members of nonprofits to take management courses developed for Gap executives.

"Nonprofits are businesses," says Deloitte's Hochberg. "How do you recruit? How do you develop talent? How do you use technology? What's your financial management strategy? What's your marketing strategy? These are business questions."

Companies are also mixing and matching these approaches. Microsoft has helped set up "Microsoft Innovation Centers" to encourage technology research in over 40 countries, using Microsoft products and training. It also gives Microsoft products to nonprofit organizations and helped train staff from 5,000 nonprofits last year. The company pairs that with the old-style giving-to-charity approach, but with a new crowd-sourcing twist: Microsoft will match any donation of up to $10,000 per year that any employee in North America makes to any nonprofit organization, from the Red Cross to the local animal shelter, no questions asked. So every year, Microsoft ends up donating to between 16,000 and 20,000 different organizations, says Akhtar Badshah, the company's senior director of global community affairs. "It allows our employees the freedom to believe in their issue," Badshah says. "Does it help morale? Absolutely."

That experience is common, says Coady. Programs like volunteering and matching employee contributions can have as much to do with making employees happy as with serving the community. "A lot of the business case for philanthropy has to do with morale and retention," she says.

Wait, the business case for philanthropy? That's right: More and more, companies are trying to use philanthropy to build their businesses at the same time they're doing good. Now that "corporate social responsibility" has matured from a buzzword to standard business practice, it's becoming more common to think of philanthropy and business not as two separate things, but things that are mutually reinforcing.

"There is also a marketplace case to be made for this," says Hochberg. "When we're out there doing this work, we're showcasing what Deloitte is all about, which is solving business problems. We just happen to be doing it for the Boys & Girls Club, not for a Fortune 500 client. It's showing people what we do best."

Long-term goals. Nestlé, the Swiss food giant, has led the way in this trend by developing a philanthropic focus that is closely aligned with its long-term business goals. It focuses its charitable work on helping boost productivity among the farmers it works with, reducing water use, and developing more nutritious products. "For our business to be successful in the long run, it must consider the needs of two primary stakeholders at the same time: the people in the countries where we operate and our shareholders," Nestlé's corporate leaders said in a statement.

Other companies have followed Nestlé's lead. McDonald's has worked with Conservation International to improve sustainable fishing stocks to in turn ensure a healthy supply of its Filet-O-Fish sandwiches into the future. Cisco has set up "networking academies" around the world to develop information technology professionals who could eventually become Cisco customers.

Nestlé even changed its articles of association to say the company aims for "long-term, sustainable value creation" rather than short-term financial gains. And its chairman, Peter Brabeck-Letmathe, has gone so far as to say he doesn't believe companies should be involved in charity work at all. "I'm personally very much against corporate philanthropy," he said in a television interview earlier this year. "You shouldn't do good with money which doesn't belong to you. What you do with your own money, this is absolutely fine."

But this attitude has raised the question: If it's smart business, then at what point does it stop being charity? If these are things companies should be doing anyway, why do they deserve a pat on the back (and a tax break) for it?

"If the business is explicitly enhancing its profit along the way, is it really altruism? Isn't that just good business?" asked a report published this year by the CECP, based on research by the consulting company McKinsey. "In light of the explicit profit motive, it's easy for external stakeholders to be cynical about companies taking action of this kind. But seen from the opposite point of view, satisfying the financial expectations of the company's owners (shareholders, for public companies) is paramount."

Give to get. And reasons for cynicism are not hard to find: Microsoft gives away its software, but it reaps a tax benefit (deducting the full retail cost of the software from its taxes) and cements its dominance of the software market. Likewise with pharmaceutical companies--Pfizer alone reported more than $2 billion in donated drugs in 2009. Companies can form think tanks or advocacy groups that are ostensibly nonprofit but that serve the interests of the company (say, by promoting lower taxes or less stringent regulations). An emphasis on win-win programs, worthy as they might be, can leave out other important goals that could hurt a company's bottom line. For instance, the need for cheap labor could conflict with the ideal of raising incomes in poor manufacturing countries.

Given the strenuous public relations efforts that usually accompany corporate philanthropy, it's easy to ask whether a company's intentions are genuine.

The idea that corporate philanthropy should be win-win "is a very appealing proposition. You can have your cake and eat it too! But it's an illusion, and a potentially dangerous one," wrote Aneel Karnani, a business professor at the University of Michigan, in a Wall Street Journal editorial in August. In most cases, he said, "doing what's best for society means sacrificing profits. This is true for most of society's pervasive and persistent problems; if it weren't, those problems would have been solved long ago by companies seeking to maximize their profits."

This new paradigm has also left some out. Arts and cultural organizations, like theaters, museums, and public radio, have all seen their donations drop. The Atlanta Opera had to cut one of its productions scheduled for next season because of a budget shortfall. The stalwart United Way has had steadily declining revenues the past several years.

Close cooperation with businesses can carry risks for nonprofits as well. After the BP oil spill, the environmental group Nature Conservancy came under fire from some of its supporters because it had taken BP money and worked collaboratively on some programs with the company. After the spill, the organization's chief executive wrote on its website that it was "difficult to fathom the tragedy" that was unfolding but added that "now is not the time for ranting," a statement that some critics said amounted to a sellout.

But defenders of this form of philanthropy say that, as self-serving as it might be, it's better than the old approach, which too often was just writing checks with no strategy. "I would much rather see a McKinsey consultant doing strategy for a nonprofit organization than swinging a hammer for Habitat for Humanity," says Tim Ogden, editor of the blog Philanthropy Action. "Lots of companies do things well that are of use to the nonprofit sector," he says. Wal-Mart, the largest corporate donor in the United States, has taken on hunger as its primary cause. "Most food banks are terrible at logistics, but Wal-Mart is great at it," Ogden says.

Like it or not, a more hands-on approach to corporate philanthropy will likely become more common. "Social problems will become increasingly complex and widespread over the next decade," the CECP report said. "At the same time, societal expectations that companies should take a substantial role in addressing those issues will escalate." Pressure from shareholders, however, means that companies will likely have to act in ways that improve the bottom line as well. It's a balancing act that will challenge CEOs for years to come.

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