According to the Committee Encouraging Corporate Philanthropy (a group of top business executives advocating greater giving by corporations) less than 1 percent of corporate profits, on average, go to charity and philanthropy — even amid stepped-up talk by business groups, from The Conference Board to the U.S. Chamber of Commerce, that companies ought to do more. But there is no consensus: roughly one-third of the 34 CEOs surveyed in 2007 by the CECP and Reuters News Service said corporate boards already spend enough time on the subject of corporate giving — about 5 percent of their time, on average.
There have been signs of change since 9/11. Corporate giving, overall, has been on the rise in some quarters: the nation's 81 largest companies increased their giving by an average 6 percent in 2006, according to a survey by The Chronicle of Philanthropy. Meanwhile, corporate giving has become more strategic, more focused on the win-win for the business bottom line than ever before. Indeed, more companies—from drug firms to consumer products corporations—are paying for some of their philanthropic initiatives out of their marketing budgets. But is it enough?
To discuss the latest trends in corporate giving, CONTRIBUTE Editor-in-Chief Marcia Stepanek convened a roundtable of six chairmen and CEOs in midtown Manhattan. The participants—all members of CECP's board—included: Jean-Paul Garnier, CEO of GlaxoSmithKline; Alan G. Hassenfeld, chairman of Hasbro, Inc.; Arthur F. Ryan, chairman and CEO of Prudential Financial, Inc.; Michael I. Roth, CEO of The Interpublic Group of Companies, Inc.; Peter L. Malkin, chairman of Wien & Malkin LLC; and Robert H. Forrester, who is both chairman and CEO of Payne, Forrester & Associates, LLC, and the vice chairman and chief operating officer of Newman's Own Foundation.
What follows is an edited transcript of that conversation.
The survey numbers are in and once more, Corporate America is getting slapped for spending too few dollars as a share of its profits on philanthropy. Your own group, the Committee Encouraging Corporate Philanthropy, says that share comes to less than 1 percent of profits, on average. What's up here? Isn't philanthropy good for business?
ROTH:In the past, there was always the question in the corporate environment of whether the duty to the shareholder to make profits was consistent with the philanthropic notion. You know, you'd always run into shareholders who said, "I'll decide where the contributions go, I don't need the company to do that. Just distribute the dividends and I'll make the contribution." We're now seeing a lot more inquiries, including from people we're trying to recruit, asking us, "Does your company stand for something other than [profits] and how could I, as an individual working for your company, participate in that perspective?" So I think the old viewpoint is starting to evolve to a point where being a good corporate citizen is not necessarily inconsistent with being a well-run business.
GARNIER: I agree. In our case, the issue of employee recruitment is particularly important. We try to recruit the best scientists in the world. Many of them are idealistic. They want to join a company that does much more than just meet financial guidelines every quarter. They want a company that has a human face, and philanthropy is that face. Shareholders get it. We invested last close to $600 million of our profits in philanthropy [in 2006], and I haven't had any criticism from them. They understand that philanthropy and reputation go together, and companies with good reputations make their shareholders rich.
HASSENFELD: The late economist Milton Friedman always said that the business of a company is the bottom line. But I think he'd agree that people really are looking at the softer side of a company now if they're going to invest in it.
Is there a Top Ten list of causes that are of particular interest to those you wish to recruit?
RYAN: No, I think it's pretty diversified. We use philanthropy to both encourage employees but also to get them committed back to us by supporting causes they back. But I'd like to add that I think more of us in business now believe that we can help solve some of these social problems. I, for example, have spent a lot of time in education, especially K-12, and for years, it was, well, You guys just want to recruit people who are automatons to go in and do what your company wants them to do. Virtually every survey we look at now says that the skills to be successful in higher education and the skills needed to be successful in business are identical. You need analytical skills and you need to understand technology—whether you work on the factory floor or whether you work in the marketing department. Business can do a lot more than simply give money or educate teachers and so forth. We can work to see results, and use those results to do even more.
As a nation, we've just entered what many say will become a protracted recession. Over the past year, how has the economic climate clouded corporate philanthropy? Will companies now give even less?
ROTH: Certainly given the concerns about the economy, everyone is looking very closely at various corporate programs. I don’t think you’ll see major cutbacks in the normal sustainable programs that corporations have been involved in, such as in our own industry's pro bono public service announcements, for example. But the spot contributions—the cash contributions—are the ones that I think companies might take a closer look at now, given the issues surrounding the economy.
Do you think companies will give more to global causes than to domestic ones?
ROTH: I think some of the big global companies are more likely to put global programs in place or expand the ones they've got. A big trend now is for larger global companies to expand their global footprint, and the whole notion of philanthropy is expanding to a more global perspective. Will more corporate money go to global efforts versus domestic ones? Certainly volunteerism and in-kind giving are part of the existing programs that many global companies currently have and will be likely to sustain. Cash has always been an important component of corporate giving, of course. But when the economy is tight, it might be easier to do a volunteer program or an in-kind program.
When corporate philanthropy is discussed, there is often a reference to the "post-Enron world." In surveys, Corporate America still isn't getting a lot of points for public trust. Can philanthropy have an impact on turning that around?
HASSENFELD:First of all, there is a real difference between philanthropy and corporate responsibility. And I think some people are confusing the two. Philanthropy is just one of the legs of this idea of corporate social responsibility. Assets, human rights, environment, codes of conduct—all of those things go into the stew that makes up CSR. And I think that many times (and it's beginning to get me angry), people are giving a lot of money and hoping it will give them a good name. Was Enron philanthropic? Yes. Were they corporately socially responsible? No.
Now, believe me, I'm neither a socialist nor a lunatic, but some of the greed in the CEO area we have seen in recent years—some of these pay packages—have not struck me as being corporately socially responsible. The companies giving out these big pay packages, in many cases, are very philanthropic, but I'm wondering about their corporate social responsibility when I see these types of packages allowed by a board. I’m causing trouble right now, aren’t I? [laughter]
HASSENFELD: I guess what I’m saying is that I'm passionate about philanthropy but not for some of the same reasons that maybe other people are.
HASSENFELD: First of all, I firmly believe that if you want to be part of the 21st century, you must be socially responsible or you won't exist. Because being corporately responsible, and giving, does a lot of incredible things for your company, but most importantly, it's also the right thing to do. All over the world, even in China, all the people are talking about corporate social responsibility. It's not so much philanthropy, but the overall package of CSR. And the reason for it has been the corruption, the greed, and corporations saying they care when, in fact, they can do a lot more to make a difference—like a company that can be very philanthropic but which can also be a terrible environmental polluter. Okay, are those kinds of companies good companies, or not?
FORRESTER: My company is Payne, Forrester, and were privately held and we have an advantage in that regard. We don't have to get up in front of shareholders and other people and explain ourselves. I've been in the philanthropic business for 37 years, and I actually started as a director of corporate relations in Hartford, Conn. The company had, at that time, close to 30 corporate headquarters, and they were enormously philanthropic because the chief executive took the leadership. But back in those days, the notion of one's community was different. Back then, you could actually see your community, you could walk down the streets of your community, and if you weren't participating in the community, then you were supporting somebody who did, someone you probably knew personally. Today, though, when you have 130,000, 200,000 employees spread around the world, it's much more difficult to know the impact of your philanthropic programs. Who are your shareholders? How do you really understand the impact of what you're doing? What I've seen more recently are companies applying philanthropic principles in much broader ways. They're doing it because of their employees, or because of their market positioning, or maybe to solve a problem specific to company interests. The companies that give, in other words, are being more strategic about it.
ROTH: My company, Interpublic, is in the business of branding and communications, and certainly we have clients who are looking to establish and enhance their brand. Clearly, the reputational aspects of a brand are critical in the market place. But philanthropic initiatives have to start from the top. If they don't come from the top, they're not going to permeate throughout the organization.
How tough of a sell is corporate philanthropy outside this circle? You all, by virtue of being on the CECP Board, are already enrolled in the view that business needs to do more. Why aren't more of your peers coming to the table on this?
GARNIER:Sometimes I talk to CEOs who say they want to do philanthropy, but they don't know what to do. The difficulty sometimes is to find a program that is really exciting; at the end of the day, philanthropy is no longer sporting a few dollars at the local theaters or the local library or the Boy Scouts. It's not that at all. It has changed enormously. I think people like Bill Gates and others have reinvented philanthropy. It's become positioned for some, perhaps, as being this kind of totally can-do adventure where you can solve a major problem. We're in health care, so we can create the possibility of making disease disappear from the face of the Earth. I mean, it doesn't get much better than that, right? So companies stuck around the vision of philanthropy have to see it as something exciting, visible, and key to creating new communities for business along the way. When I go to Egypt and I meet the Minister of Health or the Prime Minister, for example, he knows that we're doing in the south of his country a program to eliminate a serious disease free of charge. Well, that helps in the discussions we have on other topics.
There are companies which aren't involved much at all. Why not?
GARNIER: There's no question that if every company could find a big (philanthropic) idea that they could own, I think they would be even more committed to do philanthropy and publicize it and get some kind of a feedback from the public. I also believe strongly that corporate philanthropy is much more important today than it was in the past. It used to be that the public inherently trusted business. They trusted their government. And then Watergate happened and a few other things, and Enron and a few other things. And then the trust of the public in large institutions—I don't care if they are business institutions, international organizations, or governments—that trust has gone down, and in a way philanthropy gets us on the right side of the ledger.
Philanthropy does help restore some of that trust. It's not going to help you if you misbehave in other ways, but it does bring you back to the public attention in a favorable light. It does create an opportunity for the public to say, Okay, well, I don't trust these people here doing business, but they are doing something good. So it's a matter of doing more.
The number of nonprofits has nearly doubled since 9/11. Can corporations help charities better manage donor dollars so they have more impact?
MALKIN:There is expertise that comes from the corporate environment that is necessary in order for the mission of the nonprofit to be successful. With some of the nonprofit boards that I'm sitting on, they look at you and they say, Let's not forget the mission. Okay, got it. But if the mission is not economically viable, it doesn't go anywhere. Bringing a corporate discipline to a nonprofit, I think, is important for sustainability.
FORRESTER: One of the things we have to be careful about is how vulnerable nonprofits are today [to funding pressures]. A nonprofit will change right before your eyes if you're not careful, to be what you want it to be rather than what it should be.
ROTH: Many of them don't have funds to invest in strategy or technology, people, and so forth. The result is that a lot of people, wonderful people, end up chasing money to put into a mission that is not very effective. That's why some nonprofits are going out of business. Some companies are now becoming more involved in capacity-building. Bank of America, for one, is a good example. For every dollar it invests in a nonprofit, there is also some money invested into capacity-building. Nonprofits won't be as effective if they don't have capacity.
FORRESTER: One of the worries I have is that some people are really doing stuff for a business return and calling it philanthropy and it's getting in the way of real philanthropy. The nonprofit community really needs business know-how. And the business community has to understand why nonprofits can't operate exactly like a business after a certain point. There's a point where you don't want to have all your theaters in America making a profit. If that happened, you'd no longer have new plays and experimental theater and research and other things. So there has to be a tolerance for something less efficient, but at the same time that's not an excuse for nonprofits being as inefficient as they are. And, by the way, nonprofits tend to die a very slow death. They don't tend to merge as often; they don't sell themselves, and they leave when the last penny's spent.
Should there be more public-private partnerships? Is it time to change the tax code to encourage more corporate giving? What about the idea of venture philanthropy, or the idea of creating global business coalitions to help tackle social problems in new markets overseas?
FORRESTER: The last thing that I'd want anybody to try to reinvent is the tax code. Please, stay away from that. Efforts to change the tax code, particularly when those efforts get near philanthropy, tend to make matters worse. I've been around this subject of philanthropy for so long, that I think I've become even boring to myself (laughter) but I believe issues like venture philanthropy have been around for a long time. Our great university hospital was built by business people, people who were venture philanthropists who were not only putting their money out but were putting their wisdom out, too. And, by the way, wisdom takes a long time to accumulate. It's not just that you get very wealthy. You also get wise.
Having said that, though, I'm all for new models, and I think we have to keep trying. The system is not broken. But the system needs people helping it, using their wisdom, using their resources. One of the wonderful things about corporations now that I see and I agree with Jean-Paul Garnier here is how they can look at a larger issue and bring both money and capacity to bear on a problem—their human resources, their expertise, their reach, and so forth. I'm not sure I even understand this new model of mixing philanthropy with the core business as part of a company's for-profit activity. I do know that in my experience, when philanthropy and business get too close, it doesn't work. When you're going out to raise venture money, the investor wants 25 percent. That's not philanthropy. There are, of course, program-related investments to which you can apply the sample principles of venture capital. But with philanthropy, you're investing at a different rate of return. The return may never actually be there.
MALKIN: I have a taxation background, so let me just comment on the tax code: I don't see anything wrong with it as is. Our Internal Revenue Code, as it's currently structured, helps nonprofit organizations, and in certain areas, it's necessary. Tax credits that are available for low-income housing, for example, are a very important aspect of creating housing for the poor. That's an example of how we can use the tax code to help a whole bunch of people as well as provide a return to those investors who utilize it. It's a lower return, but it's still a return.
How can businesses become more involved globally?
HASSENFELD: We have to begin to learn that our views on the rest of the world are not necessarily the right ones. We have a tendency to put our values and our culture, and our religious viewpoints, on other societies. That's where businesses can do a better job globally. We all have to learn to partner up. Who are the best people in each country to partner with in the discipline that we want to affect?
I think business has got to be proactive and not reactive in areas of their expertise. If we do things right in, let's say India or China, we're seeding our name for the future, and therefore, for the shareholder down the road. Business should, once in a while, get its hands dirty.
After Hurricane Katrina, there was a water company that went in and provided bottled water, and an express delivery firm that went in to help distribute it. Is there a need to formalize this, perhaps to create a kind of corporate SWAT team that could be deployed at a moment's notice to help victims of disasters?
HASSENFELD: Let me cite some interesting numbers. One year after the tsunami, we sent a team over to the areas that were ravaged and funded a study. And as of January 2006, a full 79 percent of the $13 billion raised to help victims hadn't been spent yet. Government, non-governmental organizations, and corporations all must work together. Each does something really well. Corporate tends to do well in logistics; NGOs know local needs really well, and so on. It's like if you're sending things to Pakistan because of the earthquake, you don't send ham. (laughter) Business groups should develop rapid deployment logistics teams and they should be formal and should be housed somewhere. And they should be made up of people who are able to interconnect on a global basis knowing, first of all, that there most certainly is going to be another natural disaster somewhere in the next six months. We live in a world now where there is going to be another disaster somewhere, ongoing, so let's mobilize now.
GARNIER: It's true that one thing that business should be considering is forming more coalitions. Instead of GSK doing one thing and Prudential doing something else, for example, there could be some very important opportunities here for collaboration. This isn't being done now, and I think that's the next chapter of effective philanthropy.
ROTH: What J.P. [Garnier] just said reminds me of your early meetings, Bob [Forrester], when Paul Newman was sitting in the room with Newman's Own, and he would look around and say, "Well, you business leaders are very efficient, you're very bright, you have a lot of resources. Why can't we put our resources together without having a hidden agenda of our own, in order to solve common problems in the world?"
HASSENFELD: I know we could do more. Too often, you know, especially in disasters, we tend to overreact too quickly. So we in business have to try to find a home for a rapid deployment crisis group that basically can say, okay, in Bangladesh, these are the goods, this is how we’re going to distribute them, this is how we’re going to work with the government and these are the companies, whether they're multinational or local, that have the following resources which can be utilized in an emergency. One of the things I don't like to see is when company A gives $100 million to this crisis, but what's company B and C going to do? And then once the money is given, how is it being deployed? There's often plenty of money on Day One, but not enough six months, a year, two years, and three years out. There is a lot of trauma that children go through that people don't hear about after the aid workers leave, the cameras leave, the newspaper reporters leave. How do you support the kids after everybody has left?
Brand America is taking more of a beating now globally than in the past. Can corporate philanthropy help to mitigate America's image problem overseas?
RYAN:I think, you know, a little bit of brand America is the United States government, not necessarily America or American companies. We do business in a lot of countries, and we've not felt any direct effect from any of it. So there is a separation up to a point. But many countries have not had the same backing in philanthropy, certainly from the corporate side—especially in Asia. We have found that it has been very beneficial to share our understanding of problem-solving on a local level. We can take ideas that have worked in Newark or in Jacksonville or Minneapolis and make them work in Tokyo. Of course, we have to adapt them to specific markets, as we have many people in our Tokyo office, and all but three of them are Japanese citizens. So you have to work with your own employees, wherever they are, and ask them, okay, how do we make this work? The response can be extraordinarily positive. We have a program that we started a few years ago to recognize kids in middle schools and high schools who do volunteer work in their communities. We also now do that program throughout our communities in Asia, and we've gotten the Prime Minister of Japan to come to it, as well as the President of Taiwan. Their recognition wasn't our principal purpose for doing this volunteer recognition program. But your point is a good one.
MALKIN: I do have a comment. About a decade ago, I was brought to Japan to lecture in about ten cities on corporate philanthropy. The impetus was that the then-CEO of Mitsubishi was a year ahead of me at Harvard, and he felt very strongly that Japanese companies which were becoming very important to the United States would have to adapt to what was being done in the United States—and be socially responsible, and this led to several Japanese companies setting up corporate foundations. Back then, it was all about bringing this idea back to Japan. And so I'd go from city to city in Japan, preaching the gospel of corporate philanthropy. It was interesting. I was advised, I recall, not to get upset because Japanese executives sit with their eyes closed; it means they're listening. They're not sleeping when you talk. (laughter) But the response was very good. Since then, they have recognized the value of corporate philanthropy and I think the Japanese are making a very conscious effort in the United States to have a positive image through things that they're doing that are socially responsible.
What about China, obviously a huge market? How well can this uniquely American notion of philanthropy translate to places where the concept isn't always shared by authorities nor fully understood?
FORRESTER: I don't think nonprofits are legal in China. But if a country is going to be competitive in the global market, ultimately, it's going to have to have a third sector in it.
RYAN: In China, it's a very small group of very wealthy individuals who are doing things, some of them who've come back from being schooled in the United States and who are, perhaps, ingratiating themselves with the government to create things for the public good. But I think corporate philanthropy, as we know it, will take many, many, years to develop in a place like China because of its history and culture—but that doesn't mean it can't happen, or won't.
One last question. It's about governance. Some nonprofit boards more resemble social groups than tough watchdogs over a charity's finances and strategies. Can the for-profit world help charities become better stewards of donor dollars?
FORRESTER: There are certain nonprofits that were started as advocacy groups that took a position that business people (give bad advice), so that's a hard one.
GARNIER: I want my director boards to be active in some nonprofit capacity because it opens their world a little bit. I was touring with someone from the Children's Health Fund here in New York. They provide medical services to runaways in bad parts of the city. I can tell you, a day like this changes you. It's good. People who have enormous responsibilities for thousands of people in a corporation also should have a humanistic dimension to them. They should be open to the world, and they shouldn't live in their ivory towers. Getting out there with a nonprofit is as good as it gets in terms of getting managers to see the realities of the world in which we live. So I think it's a win-win.
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