Corporate donors adjust to economic slump

Ret Boney

Corporate America is hurting.

The federal government took over the two largest U.S. mortgage banks. One of most respected investment banks has filed for bankruptcy. And corporate profits for the first half of 2008 are down almost 7 percent from the same period last year, according to the Conference Board.

Americans also are hurting.

Unemployment has climbed to a five-year high. Nearly one in 10 homeowners have fallen behind on their mortgages or into foreclosure. And skyrocketing gas and food prices are eating away at paychecks.

While the corporate sector provides only about 5 percent of all charitable giving in the U.S., money and in-kind donations from the nation’s businesses are critical, totaling almost $15.7 billion last year, according to Giving USA.

Experts are divided on how the corporate sector will respond to increasing need in the face of dwindling profits.

The outlook

Based on the numbers alone, the outlook for corporate giving is bleak.

The economic downturn has been in swing for about a year and likely will continue for another year, says Ken Goldstein, an economist with the Conference Board.

Over that two-year period, he expects corporate profits will shift to a 5 percent decrease from an historical annual average of 8 percent to 10 percent growth, a swing representing a total decline of about 25 percent.

And that doesn’t bode well for corporate giving, which in large part is driven by changes in corporate profits and overall economic activity, says Patrick M. Rooney, interim executive director of the Center on Philanthropy at Indiana University.

As goes the economy, so goes corporate giving, he says, only more so.

In good times, corporate giving grows about 3 percent a year, he says, while it typically falls almost 2 percent in a recession.

“Based on these historical trends, you’d predict this would have a deleterious effect on corporate giving,” he says.

And over the past two decades, corporate giving as a percentage of pretax profits has averaged 1 percent, says the Conference Board.

If that average contribution holds steady, charities will be getting 1 percent of a shrinking pie.

Layer in recent natural disasters, including flooding in the Midwest and hurricanes Gustav and Ike, and corporate coffers are being squeezed from yet another angle.

“We’re not seeing ‘over and above’ the way we did in 2005” in response to natural disasters, says Stephen Jordan, executive director of the Business Civic Leadership Center. “We’re seeing people say, ‘We have to be fiscally prudent.'”

But companies are not disengaging, he says. Nor are they giving more. Rather, they’re spreading their giving budgets thinner by reallocating from one sector to another.

“When the smoke clears, I bet corporate giving is either even or up slightly because of the disasters,” says Jordan.

These trends, along with day-to-day experiences, are making fundraisers edgy.

Two years ago, six in 10 professional fundraisers said corporate giving was a successful tactic, according to a survey by the Center on Philanthropy.

That has dropped to fewer than five in 10 today.

The good news

But with recent changes in corporate giving, all may not be lost. More and more companies are taking a strategic approach to their philanthropy.

“Corporations are past just writing checks,” says Charles H. Moore, executive director of the Committee Encouraging Corporate Philanthropy. “They’re making investments in their communities. That kind of deliberate investment is more recession-proof.”

There’s a competitive context to corporate giving as well, he says.

More and more, consumers and employees expect companies to be involved in solving society’s problems, and they make their purchasing and work decisions accordingly.

Even though they’re losing billions, for example, Ford and GM still are giving money away because of a sense of responsibility to their communities, experts say.

“It’s good business,” says Moore of corporate largesse. “And customers are watching.”

Building on that sense of obligation, more corporations are developing long-term philanthropic commitments, which are better able to weather quarter-to-quarter profit swings.

Almost nine in 10 large corporations have some form of foundation for charitable giving, says Moore, and when that foundation is endowed, it can help weather the down years.

Almost two in three companies increased their giving last year, as did more than half the companies whose profits were down, based on recent research by Moore’s group.

“In this case it’s pretty clear that companies recognize the imperative that they have to support their communities,” he says.

What’s a nonprofit to do?

Not only are all the old community needs still there, nonprofits across the U.S. are seeing dramatic increases. So fundraising must continue.

“Diversify, diversify, diversify,” says Rooney of the Center on Philanthropy. “Diversify your fundraising tactics, and diversify your revenue stream so you have some that is earned.”

That way, if philanthropic support ebbs a bit, the impact won’t be as dramatic.

It’s also important for nonprofits to continue to make their case, he says, because when funders have to make tough decisions, they will focus on mission and evaluate whether programs are truly important.

Moore of the Committee Encouraging Corporate Philanthropy agrees.

“Nonprofits need to understand their funders and their motivations for giving,” he says. “That takes research.”

But it’s time and energy well-invested. Armed with that knowledge, charities can pursue the long-term relationships that are more likely to endure through good times and bad.

One way into that is through volunteer relationships, he says. Another is to look for the shared benefits between a corporation and nonprofit.

Increasingly, that win-win relationship may involve education-related nonprofits, says Stephen Jordan, head of the Business Civic Leadership Center, an affiliate of the U.S. Chamber of Commerce.

“Unfortunately, there’s a little shift away from the old-line groups – like YMCAs and United Way – to education,” he says, noting that, in addition to K-12 education, corporate funders are turning to early-childhood education.

“It’s a knowledge economy,” he says. “The disconnect between what our kids are prepared for and the jobs the economy is producing is significant.”

Economic storms have come and gone; history says this one will, too. The best advice may be for nonprofits to hunker down, continue to work hard and wait for the pendulum to swing back.

“If you stop fundraising because you think giving is going down, that becomes a self-fulfilling prophecy,” says Rooney. “But if you stay in the game, it may not go up, but it won’t go down as much.”

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