Image: Corporate giving
Contribute Magazine
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updated 4/11/2008 6:11:06 AM ET 2008-04-11T10:11:06

For years, Philadelphia’s orchestra and opera company could count on the region’s giant pharmaceutical companies to put money into music — lots of it. Behind the stage, SmithKline Beecham was a major player. That is, until top executives of the company realized competitors such as Pfizer and Merck had moved their philanthropy dollars out of high culture and into health care. So the top brass at SmithKline Beecham hired a new “director of community partnership” — Doug Bauer.

Bauer’s mission: Implement a fresh strategic plan, identify more relevant causes — and break the bad news to the orchestra, the opera company and to the other losers in this new order. “They said, ‘we’re a health care company,’’’ Bauer told Contribute. “Our philanthropy should be aligned with what we do — 90 percent of it should be focused on health care.” By 2000, it was — and pleas from previous beneficiaries fell on deaf ears. “We didn’t necessarily zero them out,” says Bauer. “But we ratcheted them down pretty far.” The groups weren’t happy but generally got the message. In desperation, one museum development officer offered to start an immunization program — at the museum. But Bauer knew his bosses sought a more seismic and fundamental shift.

Philadelphia’s loss to the arts was a gain for New York’s homeless. Children’s Health Fund, a nonprofit founded in the city by singer Paul Simon and pediatrician Irwin Redlener, had launched its first “clinic on wheels” barely a decade earlier. The mobile medical units deliver doctors and drugs to children in city shelters who otherwise would probably never see a physician or a prescription. Impressed, Bauer initially directed $3 million over three years to the New York nonprofit for a new referral service — managers who would make sure children could get to specialists for heart conditions, severe ear infections and other ailments. They would provide transportation, education and other help. By 2008, the effort had topped $7 million and expanded to four more cities, making it a marquee cause for the company, now GlaxoSmithKline. Since the referral initiative’s inception, more than 26,000 children have received help the program began, in large part because it became more effective as time wore on. When the program began, only 5 percent of children made it to their appointments; today, 75 percent do.

For Glaxo, its support was about more than doing good; it was doing good for its own business. “A halo created by solid corporate philanthropy that produces meaningful results aligned to a company’s competency and focus—that’s something a corporation can leverage,” observes Bauer, who joined New York-based Rockefeller Philanthropy Advisors in 2002, following a stint at global investment powerhouse Goldman, Sachs & Co. By telling doctors around the country about Glaxo–supported health care services from Los Angeles to Harlem, Glaxo figures it can reinforce branding and boost sales, says Bauer. “If a doctor has a choice about which antibiotic to use for a patient and feels one company is actually doing something with substance, that might reinforce the doctor’s choice. Philanthropy is one selling point.”  Glaxo is hardly unique. The company’s self-interested morphing from major sponsor of traditional hometown causes to mobile clinics serving New York’s homeless is emblematic of a sweeping, historic transformation in corporate philanthropy.

Corporate America’s refashioned way of doing business with nonprofits is shaking up expectations, creating challenges and suggesting new models for nonprofits to achieve goals.

Whether regarded as cause marketing, strategic philanthropy, values-led marketing, good corporate citizenship, accountability to shareholders, or a mix of such objectives, there’s no doubt about the underlying trend: Donors are snubbing some causes in favor of others tied more closely to business objectives — and expecting nonprofits to meet their own objectives, just like businesses. “Corporate philanthropy has grown up. It’s no longer writing checks to everybody in the community because you want everybody to be your friend,” observes Bauer. “Now it demands effectiveness, because of the expectations placed on the private sector to fix or change problems, reinforce its brand with its consumer base and not shortchange its shareholders.”

To be sure, the alignment of philanthropic missions with business goals is hardly a new phenomenon: decades ago, store managers, even in small towns, set out collection boxes by the cash register. And a pioneering 1983 campaign by American Express to raise money for the Statue of Liberty/Ellis Island Foundation—by donating a penny of every charge to a restoration fund — proved then-chairman Louis V. Gerstner Jr.’s suspicion that tying philanthropy directly to marketing could be more than “just an interesting formula for giving money away.” Card numbers grew, usage swelled 28 percent and the Statue gained $1.7 million.

Or consider New York clothing retailer Liz Claiborne, Inc. The issue that connected with customers was domestic violence — a connection suggested by market research in 1991. A new chief executive had his doubts and nearly did away with the campaign two years later. Without paid advertising, relying solely on free publicity— for instance, stories in women’s magazines and on the Lifetime cable network — the company managed to spread the word and acquire traction for both cause and company. Liz Claiborne Inc.’s commitment to the issue “has generated tremendous support from our consumers,” reports vice president Jane Randel. The company has since gone on to focus its efforts on public education around teen dating abuse. And while it is not spending money to advertise, it has invested $8 million in public relations work and services like a national dating abuse hotline. “They’re not just doing it as pure philanthropy,” observes cause marketing consultant Carol Cone.

Altruism meets self-interest
But if altruism and self-interest have sometimes converged in striking ways, aligning giving with getting now seems absolutely imperative—even if arts, education or social services become casualties. “For instance, I have no problem with the overwhelming majority of Pfizer’s investment in philanthropy in health care,” says Bauer. “If that means the Met or the Philadelphia Orchestra may not get as big a check, so be it. They’ll find it somewhere else.” He suggests organizations lacking corporate contributions look more to individual supporters. After all, in 2004, three-fourths of the $250 billion in total charitable giving originated with individuals. For corporations, meanwhile, giving to causes that help the bottom line is no longer optional. Says Bauer: “It was a nice thing to do before. Now it’s a need-to-do thing.”

Consider the pace of change. Between 2004 and 2006, “traditional” charitable philanthropy declined from 46 percent to 40 percent, and sponsorship — “commercial” giving — dropped from 16 percent to 12--while “strategic” giving jumped from 38 percent to 48 percent according to the Wall Street–based Committee to Encourage Corporate Philanthropy, whose 100 members— chief executives and corporate chairmen — account for nearly 50 percent of all corporate giving. Among large companies, the balance may have tilted against purely charitable giving, where firms expect no business benefit in return. Of 40 top CEOs surveyed by CECP in 2008, nearly three-quarters — 72 percent — said that the business benefits of their philanthropy was at least as important as any social benefit derived from it.

Engineering companies and military contractors are aligning themselves with causes that promote math and science education, in order to find better engineers. Oil and gas companies are contributing to the quest for sustainable energy sources. Microsoft delivers computers to schools, contributing not just to education but a future client base. Since early 2006 , CECP has been documenting the way that “most companies are targeting business needs” — by identifying causes or groups that are popular with existing or new customers, open new markets, align with their own core competencies, boost recruiting or retention of employees, or enhance competitive positioning in an industry. Indeed, a 2008 McKinsey and Co. survey of corporate executives found that nearly 90 percent believed that corporate philanthropy should achieve both business and social goals.

Mismanagement at the Red Cross, other nonprofit scandals and the diversion of philanthropic dollars to disasters such as the Asian tsunami and Hurricane Katrina have only intensified the scrutiny of charitable spending — and increased the challenge faced by many nonprofits to prove their effectiveness and demonstrate benefits to donors. Starting with the 2001 terrorist attacks, willingness to respond to disasters swelled — but, noted a 2006 CECP report, so did “increased internal interest in how the company conducts its philanthropy.”

Senior managers suddenly recognized just how much money and donations were flowing from giving departments, and many opted to take a fresh look at their strategy. Already, corporations had been grappling with heightened competition, an economic downturn, belt-tightening and the consequences of globalization. Nowadays, companies are more often citizens of the world than mere players in the local Chamber of Commerce.

Brand know-how
Disasters also have provided lessons in leveraging a corporation’s core competencies, reinforcing the message that a brand not only gets involved but knows how to get something done. It doesn’t just write a check or open a booth at a walkathon. Coca Cola, for instance, showed victims of Katrina and the general public that it could bottle and deliver fresh water as quickly as soda. Abbott Labs garnered attention by putting diabetes labs in the Astrodome. And Wal-Mart’s disaster warehousing reinforced its image.

The corporatization of philanthropy benefits nonprofits such as City Harvest, the do-good behemoth that now distributes 20 million pounds of food each year to 600 soup kitchens, senior centers and other places in the five boroughs. Its fleet of trucks is almost always in motion. By 2008, City Harvest’s revenue from sponsorships and cause-related marketing had swelled to $1.1 million, from $400,000 in 2003.

A modern nonprofit’s partnership with a business often helps both partners, occasionally in surprising ways. City Harvest figures it gets more donations by having its logo in each Pret A Manger eatery and getting a cut of every “Holiday Sandwich” sold. After entering New York City in 2003 with a strange name, preservative-free prawns and baguette sandwiches, Pret A Manger has since established itself at 14 New York locations. Key to this success was leveraging City Harvest’s brand to acquire local familiarity and a following — a twist on the more common use of a company’s brand to enhance a nonprofit’s prospects.

Early on, both organizations saw the relationship as symbiotic. In 2006, then-City Harvest senior manager for sponsorship Julie Epstein characterized the Pret A Manger relationship as having a dual benefit. “Their business is food, as is ours,” said Epstein. “It helps them — and us. It’s a perfect fit. They were new in the market. We had an established brand. We gave them credibility.”

Likewise, when luxury hotel group Mandarin Oriental opened in Manhattan in December 2003 with a lavish gala attended by royal earls, Nicole Kidman, Mayor Michael Bloomberg and some of the city’s wealthiest denizens, Mandarin made City Harvest a beneficiary, as a way to introduce itself to the high-end New York crowd that tends to donate to City Harvest.

But even City Harvest recognizes the potential of losing longstanding donors, such as Credit Suisse, and has come up with creative responses, such as heightening volunteer opportunities for Credit Suisse employees. “If we weren’t able to do that,” acknowledged Epstein, “we simply might not be able to receive their funding anymore.”

The downside of Change
But change hasn't come easily. Many nonprofits are having trouble adapting to the new philanthropic order. Corporations savvy about publicity and sexy, business-related causes “are leaving out groups that are doing critical work,” laments Steven A. Rochlin, head of the international nonprofit, AccountAbility North America. He says it's important for companies to remember that they have a broader responsibility to society. “Many corporate foundations have had a free pass sorting through what is in society’s interests and what is self-dealing. It’s time to involve external stakeholders in helping corporate foundations assure that their strategy delivers social outcomes while supporting corporate responsibility priorities.”

Not all social causes, however, are necessarily aligned with business interests, nor are all nonprofits equipped to make the business-oriented case for themselves. In the quest for efficiency and results, some things necessarily get left behind—like Mahler, Mozart or Matisse. “Arts used to be a high-profile beneficiary,” says Doug Guthrie, a specialist in corporate giving and professor at New York University’s Stern School of Business, to Contribute in 2006. “At the Met or the opera you’d see philanthropic organizations on the wall. It was just a PR impact. Now there’s such an aggressive focus on the bottom-line impact that you see a lot of organizations being left out. There’s something lost when everything is assessed based on its performance in a market, efficiency or relevance to a company.”

The businesslike narrowing of focus also has limited the reach of groups such as community development corporations, the neighborhood-based organizations in the metropolitan area that once catered to a wide range of community and labor organizing, and provided initiatives to help people start neighborhood gardens and other endeavors to improve conditions where the poor dwell.

Now, big financial institutions such as the Bank of America are interested in these communities — “as long as those organizations are focused fundamentally on housing,” noted Guthrie.

In 1999, Bank of America began boosting donations and mortgages to low-and middle-income borrowers, particularly in urban areas, aiming to distribute $750 billion by 2009. In 2006 alone, the bank spent $94.8 billion, with $41.5 billion going to affordable housing. It is a sum expected to have a significant impact in many places, fostering gentrification–and generating more business. Observed Guthrie:  “They’re creating a market.”

But beneficiaries may not be better off. From defense contractors such as Raytheon—which has diverted philanthropic dollars from health, social services, cultural and Native American causes to education in math and science — to car makers such as Hyundai, the signs of change are hard to miss. Consider the case of the American Society of Radiologic Technologists, a 129,000-member organization that depends on corporate giving for 80 percent of its annual budget. While revenue has continued to come in from makers of radiologic equipment like GE, Phillips and Siemens, other donors have dropped off. In 2006, Hyundai ended three years of support to the group — in the form of donating a car to a raffle, giving money for minority scholarships and helping with the annual conference — compelling development staff to begin looking elsewhere for funding, like private foundations and member gifts. It was a worrying omen for Maureen Simmons, then-director of development for the group’s foundation arm. “What ever happened to simply doing good for the sake of doing good?” says Simmons. “I think that’s gone.”

Cause Marketing
Not all corporate philanthropists are following the trend. Some, like Goldman Sachs and eBay, still make varied donations to groups, unrelated to their objectives. Yet the many quiet contributions of the past  have given way to the well-publicized marathon, the lavish charity ball, the star-studded golf tournament and events and reality programming on TV that promote products and brands while also steering attention and money to causes. Some company executives say they are bothered that good causes may get left behind. “There are some incredible needs out there,” acknowledges Anita Wheeler, the former chief of the ConAgra Foods foundation: “Physical suffering, disease, social services, domestic violence, research — so much.”

Today, donations by the $12 billion-a-year company, one of North America’s largest packaged foods manufacturers, are aimed at a single cause: combating childhood hunger. Schoolbased “cafes” in 39 states serve after-school meals to thousands of boys and girls, while Second Harvest, the nation’s largest hunger relief organization, delivers hundreds of thousands of pounds of food to more than 200 regional food banks. “What do we hope? That over time consumers will think, ‘Oh! ConAgra Foods! I really like their products and they are doing some good things and that makes me feel good about their company and want to buy their products,’ ” explained Wheeler. “It’s about reputation.”

Many practitioners of strategic philanthropy say they have no qualms about the changing relationship between corporate donors and nonprofit organizations. “I do not think there is anything shameful about a corporation thinking about business objectives,” says David Hessekiel, whose Cause Marketing Forum in Rye, N.Y., develops what he terms “mutually beneficial commercial relationships” between companies and causes. What’s more, he says, the recent economic woes facing the country are likely to force both sides to be more tactical. “Corporations will accelerate their movement toward even more strategic philanthropy and nonprofits will realize even more than before that they must bring something more than just an important mission to their corporate alliances,” says Hessekiel.

Advocates of cause marketing argue that the new order has given society and the Third Sector a big boost just when most needed, when nonprofits are feeling squeezed for dollars and government-funded human services have been scaled back. Moreover, having a clear set of strategic objectives enables donors to make better decisions about which causes to back and which to weed out.

These days, some donors are so focused on strategy that they are examining risk, prospects and long-term objectives. The Institute for One World Health, a nonprofit pharmaceutical company backed by the Gates Foundation and corporate contributions, aims to tackle diseases of the developing world with new medicines. The payoff could be big — perhaps millions of lives saved. But the drugs can take years to test and get approved--and they may not even work. “Like the stock market, this is an investment,” Michael MacHarg, then-associate director of development, told prospective donors in 2006. “There are donors out there who are asking the question, ‘am I really part of a long-term solution?’ That’s where you capture peoples’ attention,” says MacHarg. So far, so good: One World Health is on track to produce a synthetic substitute for the active substance in wormwood, a seasonal plant whose chemical  composition is a key ingredient in anti-malarial medicines. The bad news? Begun in 2004, the project isn’t slated to result in a product until 2010.

Well-known venture capitalists like Mario Morino and Harry Edelson, who made fortunes in picking high-tech companies, imposing tough standards on them and monitoring them like a watchdog, also have gotten into the act of trying to convince “investors” and nonprofits to adopt rigorous oversight, transparency and financial reporting. They champion and focus on results rather than sustainability. Edelson, whose VC firm in Woodcliff Lake, N.J., has invested in numerous technology companies, urges do-gooders to “harness the profit motive” so they can “solve rather than cope” with society’s problems. Better to develop a vaccine for AIDS, for example, than merely help victims, he says.

“Nonprofits are going to have to be more strategic,” warns strategic philanthropy guru Carol Cone, a specialist in “cause branding” who crafted Avon’s famous breast cancer crusade — and who now strives to replicate such success for other companies. Even smaller nonprofits “have to be more sophisticated about what they deliver, if they want to partner with someone," Cone says. "The whole game has changed.”

For those who master the rules of the new philanthropic order, says Jessica Stannard-Friel, an associate with New York consulting firm Changing Our World, “it’s a win-win both for the company and its partners.”

Additional reporting by Tracie McMillan and Cristina Maldonado in New York.

Keith C. Epstein is a Washington, D.C.-based journalist who is a regular contributor for Contribute. Epstein's work has appeared in a variety of publications, including The Washington Post and BusinessWeek magazine.

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