By Todd Cohen
In an increasingly competitive global economy, a growing number of corporations are integrating their philanthropy into their business.
Treating it as a strategy to help build their brand, appeal to customers and strengthen employee satisfaction, companies also are working to measure the impact of their charitable giving on the bottom line.
“Corporate philanthropy is healthy, and businesses value what philanthropy can do for them in corporate citizenship and promoting the company in the marketplace,” says Francine Lynch, a corporate-philanthropy veteran who serves as director of the Institute for Not-for-Profit Management at Columbia Business School in New York City.
Because of the growing role philanthropy plays in corporate strategy, experts say, people who want to work in corporate philanthropy need greater business savvy, as do nonprofits that want to develop partnerships with corporations.
Corporate-giving officers “have to be able now to interact more directly with senior management and have to have an answer for what their role is in the overall strategic reorientation of a company,” says Daniel Diermeier, a professor of management at the Kellogg School of Management at Northwestern University in Evanston, Ill., and director of its Ford Motor Company Center for Global Citizenship.
And nonprofits “need to understand what makes the business tick,” he says. “That makes an attractive partner.”
Yet even as they increase their impact by more closely aligning their giving with their business, corporations could have an even greater impact, says Charles Moore, executive director of the New York City-based Committee Encouraging Corporate Philanthropy.
“If they really understood the interdependence of business and society,” he says, “they would be more inclined to give, they would give more effectively and become more involved.”
In the late 1980s and early 90s, with a downturn in the economy and cuts in corporate budgets, corporations were taking a tougher look at the bottom line and “questioning why corporations should even be making charitable contributions,” says Lynch.
As a result of limited resources and growing scrutiny, she says, corporations repositioned their charitable contributions, making them more integral to their corporate strategy.
An early change for companies making that shift was to team their marketing departments with their corporate philanthropy, she says.
So if a corporate foundation made a grant to a ballet company, for example, the corporation’s marketing department might provide advertising dollars to promote the partnership and host client events at the ballet.
Diermeier says corporations in recent years have been reevaluating their role in society, and thinking about how to adapt the way they think about their social impact in the face of social change.
Ten to 15 years ago, he says, corporate philanthropy and community involvement generally were considered “optional and nice to have but not essential.”
But corporations, particularly those that operate globally, increasingly are being recognized as “the main engine of social change, particularly on a global scale,” Diermeier says. “It’s companies that are having that impact, not public institutions.”
As a result, he says, the media, nonprofits, concerned consumers and socially-responsible investors are holding companies “accountable for the consequences of that social change.”
The business of philanthropy
Fueled by rising expectations on the part of their employees, customers, suppliers and communities that they be more socially-responsible corporate citizens, companies are aligning their philanthropy with their business model and core competencies, says Moore.
“It’s not how much you’re giving but how effectively you’re giving,” he says.
And effective giving requires strong business skills, experts say.
“Gone are the days when you just did a good job and did your community work,” says Lynch. “Today in corporate philanthropy, you are part of a team that is responsible for supporting the business. It’s tied to the bottom line.”
Corporate-giving officers need “to understand the industry they’re working in,” she says. “You have to operate within the larger corporate day-to-day world and know what the company is doing in their industry, and be expected to provide supports and evaluation metrics on your charitable contributions.”
Diermeier says corporate officials responsible for philanthropy and community involvement increasingly work directly with senior management and “have to have an answer for what their role is in their overall strategic reorientation of a company.”
Their work now involves making “tradeoffs,” he says.
A philanthropy officer might need to compare, for example, investment in a program to match employees’ charitable giving with development of strategic alliance with a relief charity, and weigh the relative impact of those two programs on consumers and corporate brand, on the one hand, and employees, on the other.
“That’s a strategic decision,” Diermeier says. “It depends on your industry, your market position and your business challenge.”
So, like brand managers for particular product lines, he says, the more corporate-giving officers understand the entire business, the greater their opportunity to make decisions that strengthen their own work and affect the company overall.
Effective corporate philanthropy will require a solid business background and an understanding both of social issues and the constraints of running a business, experts say.
It also will require the ability to measure the impact of corporate philanthropy, they say.
“The most important challenge for the next few years will be to develop metrics that can be integrated into the kind of metrics that companies care about,” Diermeier says. “You need now to be able to go to the CEO and make a case for why to spend $10 million rather than $5 million on a project, and you need to have metrics to back it up.”
Measuring the impact of corporate philanthropy on sales or stock price, for example, would be “nice but not critical,” he says. “What you do need to have is something the company cares about and you can have your activity linked to.”
Companies care about reputation, employee satisfaction and brand recognition, for example, so corporate-giving officers should develop metrics tying the impact of the company’s philanthropy to those impacts, he says.
Moore says corporate CEOs overall are divided over whether to invest in tracking the impact of corporate philanthropy.
“It takes at least five years, maybe 10 years, to measure the social outcomes,” he says.
Yet the average tenure of CEOs is less than five years, and that of chief giving officers, or CGOs, is five or six years, he says.
“By the time you get a program teed up,” he says, “the CEO or CGO is gone.”
The emergence of strategic corporate philanthropy and its alignment with a company’s overall business strategy creates challenges and opportunities for nonprofits seeking corporate support, experts say.
“The more a company aligns or integrates its philanthropy with the business model, the easier it is for the nonprofit to understand how to build a better partnership,” says Moore. “It’s all about partnerships.”
Lynch says nonprofits need to do their homework, particularly research about companies from which they are seeking support.
“It’s a really a different landscape” for nonprofits, she says. “They have to be aware of what is expected of them if they’re going to go after corporate funding.”
Diermeier says that just as
nonprofits “need to operate more like businesses anyway for their own benefit,” the alignment of corporate philanthropy with overall corporate strategy is the “right strategic response” for corporations and creates opportunities for nonprofits.
“So a strategic alliance between for-profit and nonprofit is the right way in which to engage in philanthropic efforts,” he says.
Moore says it is “important for corporations to see and to be seen” as solving social problems.
“We’re not just giving money or product,” he says. “Your people are there, your resources are there. The partnerships are there.”
The challenge, he says, is for corporations to be more effective in their giving and community involvement, and to better understand the connection between business and society.
“The potential for corporations to lead social change,” he says, “is far greater than the present reality.”