The last few years have been rough on U.S. corporations – and their charitable giving programs.
Corporate giving has been in decline since 2005, when it stood at $15.8 billion in inflation-adjusted dollars, according to Giving USA.
Then came the onset of the recession in 2008, a year during which corporate profits shrank and stock prices plunged 38.5 percent.
All that bad news took a toll on corporate charitable giving, which in 2008 fell 9.6 percent to $13.3 billion after adjusting for inflation.
But last year, in the aggregate at least, corporate giving rebounded 5.9 percent to reach $14.1 billion, perhaps a sign that things are headed in the right direction.
And perhaps a development that will usher in a new era of corporate giving, one in which businesses integrate their community support fully into their core business strategies, as advised in a new report from the Committee Encouraging Corporate Philanthropy, based on research by McKinsey & Company, titled “Shaping the Future: Solving Social Problems through Business Strategy.”
To look at the future of corporate giving, PJ’s Ret Boney talked with Margaret Coady, Director of the Committee.
Question: What is the state of corporate giving in the wake of the recession?
Answer: There’s still broad uncertainty regarding the country’s economic prospects, and philanthropy isn’t immune from that.
In this wait-and-see environment, companies have focused their support on nonprofit relationships they’ve had for several years and haven’t invested as heavily in new programs or relationships.
As the economic climate thaws, companies might warm to new initiatives and expand their pool of grantees.
Two interesting implications of the downturn evident in CECP’s data are that companies are increasingly concentrating their giving into fewer programmatic focus areas, and that they are heavily using their non-cash resources to supplement cash grant-making.
Manufacturing companies have always led in non-cash giving, simply because they have tangible products to donate, but service companies have bolstered their pro-bono programs.
Some have lent office space, used their in-house printing to do projects for nonprofits, helped nonprofit renegotiate vendor contracts, or invited nonprofit employees to fill empty seats in professional development classes.
The downturn really allowed companies to express what’s unique for them as givers — which is their access to so many resources beyond check-writing.
Q: Where is corporate giving heading?
A: The growing interconnectedness of global economic markets and the rising severity of social problems that threaten the long-term success of business point to the need for companies to set a new course for solving social problems that extends beyond the traditional grantmaker/beneficiary paradigm toward true integration of corporate and social goals.
We think the genesis point for a lot of programs will begin with an assessment of the larger corporate strategy.
When crafting programs, companies will increasingly ask themselves: What is the overall direction of my company and how does philanthropy play into that? What about my company is unique and how can we bring that to bear on solving relevant social problems?
During a recent roundtable for corporate CEOs, most said they believe companies should take a proactive stance on solving social problems because they are in a unique position to make a difference.
And ultimately, they know that the future health of their businesses depends on a healthy society, so they want to step up and participate in being part of the solution.
It’s a shift from “short-termism” to “long-termism.” If the purpose of a corporation is to create value, then that has to be done in a sustainable way.
The only sustainable answer is taking a more long-term view of how resources are allocated and used.
This “sustainable value creation” model can be described as a self-reinforcing state of trustworthy, pro-social corporate behavior that simultaneously delivers bottom-line results and community benefits.
In other words, corporations should look for the societal problems, like natural-resource shortages or diseases that affect their workforce, that stand in the way of their business goals, then find solutions to those problems that benefit both society and the company.
Companies have been involved in solving social problems in traditional ways for decades and now are looking back to see how that worked and if they’re satisfied with those results.
When the stock market was going up and up, there was pressure on minute-to-minute performance that created short-term decision-making pressure on businesses.
That pressure still exists, but companies are seeing the limitations of that tunnel vision for themselves and their communities.
They increasingly appreciate the need to remove the problems that will get in the way of societal success, and business success, in the future.
Q: So what will sustainable value creation look like, say, 10 years from now?
A: The core components of traditional community involvement will still be in place: Matching-gift programs, cash grants, disaster relief, and volunteering will all still be robust. But there will be a layer on top of that that will be sustainable value creation.
We talked to many CEOs during the course of our research, and it’s clear they understand the importance of moving toward sustainable value creation.
We see a sense of urgency in making sure businesses are sustainable over the long term, and CEOs see that as their fiduciary mandate.
Sustainable value creation resolves the long-standing tension between profits and community support. Having those two goals work together is the only way to guarantee businesses will be healthy over the next couple of decades.
Q: What are the biggest challenges to reaching “sustainable value creation?”
A: We believe CEO leadership and measurement both will be crucial in getting to sustainable value creation.
One thing that comes out of this process is awareness of what role you should be playing, what are you good at and what you should leave to others.
That type of candid self-audit will lead to a division of responsibility between government, business and the nonprofit sector.
For example, while government can’t absorb a lot of risk right now, corporations are in a position to fund pilot projects and then show those results to government to expand.
It’s important to look at what each party can bring to the equation and to make collaboration productive. But collaboration is difficult. The government, nonprofit and business worlds each have different languages.
Bridging those differences will take some time and experimentation. Part of it is balancing that timeframe mismatch – business can afford to take risks but doesn’t have a lot of time to wait for results.
Stepping back, one major uncertainty is society’s expectations. If companies do what CECP’s research recommends, will society give companies credit and be supportive, or not?
If society’s expectations rise and companies step up, I believe we will get to sustainable value creation.
To date, some companies have stepped up, but many haven’t. And there’s been a lot of skepticism on the part of society.
There have been certain corporate headlines that have legitimized that – such as Enron and WorldCom – that have fostered a general feeling of mistrust.
Naturally, it’s frustrating for CEOs who are making good decisions to have their reputations bundled with companies that are making bad decisions at huge societal costs.
What we can hope for is an upward spiral where positive corporate behavior changes people’s mindset a bit, and a more open public mindset fosters a climate in which companies do more and more.
But it all starts with good management. Companies can’t do something destructive with one hand while the other is trying to do something constructive.
There has to be a lot of internal consistency for sustainable value creation to work. Fortunately, businesses with ambitions to be successful over the long-term appreciate that acutely.