Philanthropy: business with a heart

The debate about corporate giving often surfaces in the opinion-editorial pages of The Wall Street Journal. The naysayers protest that "business is business is business", while advocates say that philanthropy has a direct impact on the bottom line and therefore, it is good business.

According to the Committee Encouraging Corporate Philanthropy (CECP), its member companies, 95% of which are American, typically devote an average of 1% of their pre-tax profits to philanthropic work.

Change of heart

There was a time when businesses were leery of giving money to anything other than 'nice-to-do' causes like the arts, the homeless or local charities. To make charitable investments in areas associated with their business was seen, for various reasons, as tacky and publicly unacceptable; however, in recent years, there has been a complete turnaround.

The corporate social responsibility (CSR) agenda has impelled companies towards philanthropy, not out of the goodness of their corporate hearts, but out of sheer commercial self-interest.

"If you're going to be market-driven, you have to be responsive to the markets" says Shelly Lazarus, chairman of Ogilvy & Mather Worldwide and a CECP board member. "The market has spoken and [companies] care. It's vital that these things are important to them. I think it took a while for companies to realise that it wasn't just because they were good-hearted that they should do these things, but also because it actually drove the bottom line.

"Where you put your societal effort and focus should come right out of your brand. It should be almost inseparable from who you are as a company and what your principles are. In fact, it is a demonstration of what your principles and values are."

This is a sentiment echoed by Accenture chairman Bill Green.

"What matters is the character of a company," he says. "Good companies want to do business with good companies. People look at our company not only for the service that we provide, the product that we deliver and the results we achieve, but also for who we are as people and our character. Are we people of integrity? Are we people of honesty, and are we people who get it?

"More companies are becoming more socially aware of an obligation to the communities in which they work and operate. As a result, they look at other companies in that dimension."

Businesses such as Nestlé and Unilever, which are reliant on raw material supplies from developing countries, have been funding local projects to improve agricultural practices, boost education and health, and upgrade infrastructure. Each effort is designed to secure a continuing and affordable flow of ingredients to their plants globally. Coca-Cola has developed a programme to give fruit farmers from developing countries market access, to the benefit of both sides.

People focus

It's not just the supply of goods; it's also about the supply of people. Lazarus cites a college in a poor district of New York, US, devoted to training programmers, that was funded and built by IBM. Graduates are promised the chance of good jobs with 'Big Blue'.

"On the one hand that's philanthropy, because IBM is writing a big cheque to get this school founded in a poor neighbourhood of New York," says Lazarus. "But on the other hand, look what it does for IBM. All of a sudden it's going to have thousands of young people who are trained in computer programming, who now see a job at IBM as the true prize for having done extremely well in school."

And the people implications go further. Both Lazarus and Green aver that the highly talented young people that every company seeks to recruit almost invariably want to know about a potential employer's CSR agenda.

"Our ability to attract and retain talent is very much related to the character of our company, which is defined by our social consciousness," says Green, "This benefits clients because they know talented people want to come and be part of Accenture."

There is clear evidence that employees value involvement in their company's philanthropic efforts, according to Margaret Coady, director at CECP. Beyond merely providing extra hands for local social projects such as a beach clean-ups, people may be asked to deploy their core work skills for a charity, which their employer has taken on as a pro bono client.

Some businesses have core projects such as Accenture's $100m, three-year drive to improve the lives of 250,000 people around the world by making them 'job ready' or equipped to start their own business. Green, who thinks this target may now have been exceeded, maintains the programme has been hugely energising and motivating for his staff.

Long-term view

There is an argument that businesses get more bangs for their philanthropic bucks than governments and non-governmental organisations because they bring entrepreneurial rigour to their projects. Thus, the implementation of a project may be robust, but calculating profit and loss on a charitable endeavour is not a simple matter.

What seems to characterise much current corporate philanthropy is that it's aimed at long-term projects; however, the CECP admits that measuring their impact is a challenge, especially if the payback is only on completion.

What does not appear to be a problem is disruption of such strategies by the revolving-door nature of CEO tenures, which in the US averages 3.5 years. Philanthropy has now become embedded in corporate strategies and is therefore not seen as a low-hanging expense for a new boss to cut.

Coady argues that any measurement of a project's success has to be flexible so that it can be changed according to experience. To apply a rigid measurement would not be helpful. Yet business itself is used to working with standard key performance indicators. The CECP continues to work on a methodology for impact assessment.

Yet Lazarus wonders if measuring is nugatory. As long as philanthropy is brand-driven and planted in the middle of the total business drive, she asks if it is really possible to tease out the societal or philanthropic components.

Philanthropic outcomes

Accenture's Green is not so sure. For a start he dislikes the term 'corporate philanthropy'.

"The ring it has is more to do with a point of time, with just giving, and it doesn't have an outcome," he says. "If you look at the investments that companies make, I think we need more evidence-based philanthropy: we need to have an outcome. The thing starts with what you give - time or money - but it ends with an improvement in somebody's life.

"So, the philanthropy thing just sounds like a transaction. But I believe the corporate obligation is to define the outcome and to be part of the process that is making the outcome happen. If you are just the initiator or the funder, you don't get the spirit; you sub-optimise the role that you can have. You sub-optimise the impact if you do not stick with the agendas all the way through to the outcome and ultimately measure results."

Much US corporate effort is being put into improving US education, which is seen to be failing. This is a no-brainer: without well-educated and motivated young people coming into the workforce, the challenges from rising BRIC economies will be tougher for US businesses to face.

Green is not sure this investment is really paying off.

"About $3.5bn is given by companies each year to the education ecosystem," he says. "We do not give that money evidence-based, we do not necessarily give it to the things that are proven to work and we do not probe to create outcomes.

"If we took just 50% of that giving and made sure that where we gave it there was evidence that it worked, and then followed it up and saw improved economic outcomes, we could have a multiplier effect on that giving, which would be profound."