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CONTRIBUTE BLOGS
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by Marcia Stepanek
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Does giving pay?
Six chief executives debate why
companies don't give more—but should
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. Im causing trouble right now,
arent I? [laughter]
Please continue. [laughter]
HASSENFELD: I guess what Im saying is that I'm passionate about philanthropy but not for some of the same reasons that maybe other people are.
How so?
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, philathropy 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 were going to distribute them, this is how were 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.
FORRESTER: First of all, Peter, I
hope that the reason for people having their eyes shut in Japan is the
same for people in Europe, because I just came back from making a
presentation in Milan, and a lot of people seemed to have their eyes
shut in the audience. (laughter) I was invited over there to make a
presentation to the Cariplo Foundation for Scientific Research. There
is a lot of philanthropy in Europe and outside of America, it's very
different. Cariplo is a $7 billion asset-based foundation which is one
of the many spinouts of the Italian banking sector, and it's the third
largest foundation in Italy. So it's a pretty good- sized charitable
foundation. They're certainly not nearly as well organized (as in the
U.S.) and philanthropy is still not part of the culture: they have to
do some serious renovation of the existing corporation and taxation
infrastructure and policies. But what's very, very encouraging to me is
how this concept is moving to places outside of the United States. I
think American businesses are the envy of the world in this area, as
are big global companies like GSK. There's actually a group now in Italy that is
trying to replicate CECP. We're talking to very serious top executives
there who are saying they've got to do this and make it part of the way
they do business. As you go abroad, particularly at a time when America
is in disfavor because of some of the things that are happening in
Washington, in the area of philanthropy and the area of our nonprofits,
we're increasingly the envy of the world.
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.
Do Companies Give Enough?
Giving by companies as a percentage of revenue,
according to a survey of 136 U.S. and international corporations by the
New York-based Committee Encouraging Corporate Philanthropy
click to enlarge
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