Corporations as Philanthrophic Citizens
By Jodie Rykse
Graduate Student, Grand Valley State University
A corporation is an entity with the legal authority granted by a state to act as a single person distinct from the individual shareholders who make up the corporation. A corporation has the right to issue stock and exist in perpetuity (LegalDefinitions.com).
A corporation is a business or organization formed by a group of people, and it has rights and liabilities separate from those of the involved individuals. Private corporations are organized to make a profit and they have many of the same rights and responsibilities as a person. A corporation may buy, sell, and own property; enter into leases and contracts; and bring lawsuits. It pays taxes. It can be prosecuted and punished, often with fines, if it violates the law. The chief advantages are it can exist indefinitely, beyond the lifetime of any one member or founder, and it offers its owners the protection of limited personal liability ( Inc.com 1999).
Corporate philanthropy , sometimes referred to as corporate citizenship or charity, is the act of corporations donating a portion of their profits or resources to various nonprofit organizations. The function of corporate giving can be handled directly by the corporation or through a company foundation. The most common resource that corporations donate is cash; however, corporations also donate the use of their corporate facilities; property such as used computers, buildings or land; gifts of products, services and equipment; advertising support; executive loans; and/or have employee volunteer groups who donate their time. Although not mandated by law to act as corporate philanthropists, many corporations give to a wide variety of nonprofit organizations. Reasons for giving are as varied as the way they give and to whom they give donations.
The concept of corporate giving dates to the turn of the century and the rise of the modern corporation. In its early decades, corporate philanthropy was uneven in practice, limited in scope, and subject to legal and populist dispute. However, since World War II, the debate has shifted from whether or not to give to how much to give; and most major corporations now engage in regularized giving programs (Powell 1987).
An outcome of the Industrial Revolution was the creation of enormous wealth for few individuals. The creation of substantial charitable trusts was a popular response among the affluent to serve public need in the late 1800s and into the early 1900s. Many of those trusts are still in existence today. Wealthy men such as Andrew Carnegie and John D. Rockefeller, accumulated fortunes from investments during the Industrial Revolution and existing approaches to philanthropy were inadequate for dispensing wealth on this scale (lbid.).
In the past few decades, corporate philanthropy has become an extension of corporate marketing plans through various for profit/nonprofit partnerships, often referred to as cause-related marketing campaigns. An early example is the American Express Corporation's campaign nearly twenty years ago to help restore the Statue of Liberty. Due to the success of this partnership, they have implemented several other campaigns with philanthropic themes. Some are specifically designed to help reach micro enterprises such as the Association for Enterprise Opportunity. For example, a Community Business Card is offered with 1% of all cardholder spending allocated towards nonprofits; nonprofits in turn provide small business loans and training for those in need .
Ties to the Philanthropic Sector
Measuring the benefits nonprofit corporations and for profit corporations gain through corporate philanthropy and cause-related marketing campaigns has become a topic of importance in an increasingly competitive marketplace.
The Committee to Encourage Corporate Philanthropy is a national forum of business CEOs and Chairpersons, many from Fortune 500 companies, with an agenda exclusively focused on corporate philanthropy. The committee states:
"Corporate philanthropy is a complex practice that requires its practitioners to serve the interests of various and disparate stakeholders. With the call towards more 'strategic' giving, organizations face significant challenges in defining and demonstrating the intended purpose and corresponding results of their programs. Common challenges include maintaining focus, connecting to business strategy and objectives, designing programs to generate sizable community benefit, and managing giving resources in a cost-effective manner. Corporations and their giving arms face these challenges because they lack a common method and standard to effectively measure their giving efforts and their results. In addition, companies lack the means to communicate to stakeholders a complete and comprehensive picture of their total contributions to society, resulting in consistent and significant under-reporting and public misunderstanding" (Committee to Encourage Corporate Philanthropy).
The Committee was founded upon the following principles:
- Corporate philanthropy is a sound business practice in the best interest of shareholders and should be institutionalized as an integral part of a company's mission and business practices.
- The need for business leaders to play an active role in civic affairs is greater than ever before, especially since the government has reduced its involvement and delegated much of its responsibility to the local level.
Increases in corporate profitability should be matched with commensurate increases in corporate giving programs and stabilized in periods of volatility.
Corporate giving programs should be managed strategically with clear objectives, established metrics and reporting structures to senior management, similar to other key business disciples.
(Committee to Encourage Corporate Philanthropy)
A survey of more than 500 companies conducted by the World Economic Forum sought to measure how companies define good corporate citizenship. Responses indicated both large and small corporations surveyed believed corporate citizenship meant making every effort to enhance the positive impact of their activities and to minimize any negative impacts on the people, the environment, and everywhere corporations invest and operate. Companies further believed corporate citizenship meant:
- Living your values
- Practicing good governance and ethics
- Being involved in communities
- Making philanthropic contributions
- Incorporating into every day business
- Creating value for shareholders and value for "stakeholders"
- Building trust and relationships
- Being transparent and accountable
- Proving safe, reliable products
- Treating employees well
- Having a positive social impact
- Contributing to a sustainable environment
(Center for Corporate Citizenship)
Key findings of the study further illustrate although corporations are not required by law to be philanthropic citizens, philanthropy has become part of their every day business practices.
- Companies see corporate citizenship as an important part of their businesses.
- Investment in corporate citizenship has increased or remained consistent among most businesses.
The scope and scale of corporate citizenship is bigger than expected - small and medium sized businesses are quite active in the corporate citizenship arena.
Corporate citizenship is driven largely by internal corporate values at 75 percent and customer feedback at 53 percent.
The primary obstacle to corporate citizenship is "lack of resources," identified by 46 percent of companies surveyed.
- Twenty percent of businesses include improving conditions in poor communities in their corporate citizenship efforts.
- A majority of businesses, regardless of size, provide cash, volunteer time and/or goods and services to local communities.
(Committee to Encourage Corporate Philanthropy)
A national study shows corporate philanthropy can result in loyal customers, employees and shareholders. The study titled, "Measuring the Business Value of Corporate Philanthropy," found generous companies are more likely to have:
Customers who will continue doing business with them
Employees who will stay and recommend the company as a good place to work
Shareholders who will continue to invest and suggest the firm to other investors
According to a study commissioned by the Council on Foundations in Washington, D.C. in 2002, philanthropy-minded corporations in Birmingham say giving improves the quality of life in their communities. They also acknowledge their generosity benefits the bottom line (lbid).
Walker Information Inc. of Indianapolis conducted the study that surveyed 1,700 employees of for-profit firms with at least 2,500 employees and people who have invested in stocks. The study defines philanthropy as cash contributions, in-kind products and services, employee volunteerism and event sponsorship (lbid).
The study used a measurement called "The Corporate Philanthropy Index" and categorized respondents into two groups, "High CPI" and "Low CPI," based on whether they perceived a company's philanthropy as favorable or unfavorable. Results included:
High CPI customers are three times more likely to be loyal, compared with 15 percent in the Low CPI group.
High CPI employees are four times as likely to be loyal workers, compared with 10 percent of Low CPI employees.
Statements from respondents showed one of every three customers say they choose a company based on its giving record; one-third to two-thirds of employees say a good giving record is a main reason for remaining with an employer; and one-third of shareholders say corporate generosity affects where they invest (lbid).
Additionally, the study states, "These are important when you consider that two of the biggest problems for companies today are customer and employee retention. Clearly, it is to a company's advantage to be viewed favorably in its philanthropy efforts" (lbid).
Key Related Ideas
Cause-related Marketing links a for-profit organization with a nonprofit organization for mutual benefit. Effective cause-related marketing campaigns integrate many departments within the company including product/brand management, public relations, marketing/advertising, human resources, and government relations.
Social Investment Programs are developed by some corporations using loans, guarantees, equity investments and other financial vehicles to support community ventures that do not meet customary investment criteria of private and institutional investors.
Workplace Giving Programs encourage employees to give to charities, often providing a list of local charities offered as choices. The United Way incorporates workplace giving programs into their fundraising.
Corporate Social Responsibility is the voluntary role of businesses in improving society, going beyond its mission to increase stakeholder and company financial success.
Mergers and Acquisitions involves multiple corporations merging into one corporation. An organization receiving donations from a company that later merges with another, may find reductions in philanthropy often result due to cost cutting, shifting values, or the elimination of duplicate resources. Â
There are several historical examples of corporate individuals who have made significant contributions to the philanthropic sector. Their stories illustrate the birth of corporate giving in practice and the benefit to the philanthropic sector.
Important People Related to the Topic
- Howard Baker: Baker was a pioneer in the so-called "everyday philanthropist" style of giving. By living a modest life and consistently saving his extra earnings, Baker was able to accumulate the kind of wealth that allowed him to leave a significant and lasting legacy upon his death. His choice to focus the activities of his foundation on the funding of college scholarships is consistent with many other everyday philanthropists. However, his life and work prove philanthropy extends far beyond monetary contributions. By choosing to give back directly to the community in which he thrived, Baker hoped to encourage the spirit of giving in others. As of 2003, over 200 students were studying for their college degrees through scholarships received from the Howard Baker Foundation (Learning to Give).
- Andrew Carnegie: Carnegie was one of the most successful businessmen and most recognized philanthropists in history. His entrepreneurial ventures in America's steel industry earned him millions and he, in turn, made great contributions to social causes such as public libraries, education and international peace. In his later life, he began to shift from a focus on industrialism to a more philanthropic view on life. Carnegie became the world's benefactor to education, as he is responsible for the construction and donation of approximately 2,509 public libraries in the United States, Europe and around the world (Learning to Give).
- George Eastman: Eastman was a self-motivated inventor, entrepreneur and philanthropist who revolutionized the photography and film industries. Eastman participated in the philanthropic sector for most of his life, becoming one of the largest American donors of his time. Eastman's philanthropy focused on causes that had a direct impact on his life. He did not make donations to a large number of organizations, as compared to his contemporaries. He did not set up a perpetually endowed foundation, as did others. Nor did he publicize his philanthropy. Primarily for these reasons, he is relatively unknown as a philanthropist, despite his enormous donations (Learning to Give).
- Henry Ford: Ford is best known for founding the Ford Motor Company. Ford left his legacy not only in the automobile industry, but through his still-thriving philanthropic institution, the Ford Foundation. The foundation was one of the first in the world and has remained one of the largest. To date, it has provided over $12 million in grants and loans (Learning to Give).
- Reverend Edgar James Helms: Helms founded settlement houses in Boston to help residents of its poorest and most crime-ridden neighborhood. He began a system of collecting used items from the wealthy and repairing them for resale to the poor at Morgan Hill Chapel, later called Morgan Memorial Co-operative Industries and Stores. It was incorporated in 1905 and became Goodwill Industries. Goodwill was part of the Industrial Revolution and was able to gain opportunities for those it served from its onset. The organization continued to provide jobs through the Great Depression. Since donations were in the form of goods rather than cash, many nonprofits folded while Goodwill continued to operate with strength. Today, the international organization provides resale stores, employment training and other services for the poor, immigrants and the disabled (Learning to Give).
- Juliette Gordon Low: Low is best known as the founder of Girl Scouts of the USA, outgrew the trappings of an upper-class society life to create an organization for young women that integrated leadership, equality for all, self-confidence, responsibility, integrity, decision-making, teamwork, outdoor skills, and philanthropy. Low put much of her energy and personal wealth into making the Girl Scouts a success. Her hard work fundraising and increasing public awareness of her organization succeeded as the movement grew throughout and beyond her lifetime. Today, the philanthropic success of Girl Scouts lies in the hands of the young female members who participate in fundraising and product sales such as Girl Scout cookie sales to support their organization (Learning to Give).
- John D. Rockefeller : Rockefeller proposed trusts as a more effective method of organizing what Rockefeller called "this business of benevolence." Trusts and foundations, with professional managers, could distribute private wealth "with greater intelligence and vision than the donors themselves could hope to possess." Unlike smaller trusts established earlier, the very large trusts founded at this time were dedicated to advancing knowledge and human welfare. They were not meant to provide relief for individuals, but rather to research the root causes of need. Carnegie believed in helping the poor by extending opportunities to rise out of poverty rather than giving out food and clothing directly to the poor. He also thought it disgraceful to die wealthy. He promoted libraries, universities, hospitals and public parks as "ladders upon which aspiring people can rise." These public facilities would help balance the "temporary unequal distribution of wealth" (Learning to Give).
- Julius Rosenwald: Rosenwald utilized his fame and fortune for the benefit of humankind through his practice of philanthropy. His fortune was amassed during his career which culminated in his presidency of Sears, Roebuck and Company. It was used to create programs targeting the inequality and education of Jewish and African-American populations. He is credited with donating more than $65 million to various causes. Rosenwald's personal philosophy caused his creation of a self-expiring foundation. After spending a total of $22,244,174 since 1917, the Julius Rosenwald Fund ceased existence in 1948, fulfilling the wishes of its founder (Learning to Give).
- Cornelius Vanderbilt : Vanderbilt gave $1 million to found Vanderbilt University in 1873. Vanderbilt was uneducated, but he built the largest fortune in America at the time of his death in 1877 (Learning to Give).
Related Nonprofit Organizations
- The Eli Lilly and Company Foundation , organized in 1968, is made possible by the profits of Eli Lilly and Company. It is the major source of the company's financial support for nonprofit organizations. The foundation is funded annually by the company based upon an average of consolidated income before taxes over the previous three years. The formula is designed to annually place Lilly among the top 10 most generous companies in the world. The majority of the foundation contributions program is employee directed through the Matching Gifts Program and a United Way initiative ( http://www.lilly.com ).
- The Ford Foundation , founded in 1936, operated as a local philanthropy in the state of Michigan until 1950, when it expanded to become a national and international foundation. It has provided more than $12 billion for grants, projects and loans. The foundation was started from gifts and bequests of the Ford Motor Company by Henry and Edsel Ford, but is now separate from the Ford Motor Company ( http://www.fordfound.org ).
- The Packard Foundation , established by David and Lucile Packard, it is one of the largest foundations in the world. David Packard is best recognized as the original co-founder of the electronics and technology company Hewlett-Packard. Lucile Packard is most widely known for her work with the Stanford Convalescent Home, called today the Lucile Packard Children's Hospital. During his time with Hewlett-Packard, David helped bring the company from its garage beginnings to a Silicon Valley pioneer and a multinational enterprise with more than 100,000 workers and fiscal revenues greater than $30 billion at the time of his retirement. With the personal wealth he developed and the encouragement of his wife, Lucile, David devoted a good deal of time to philanthropy, funding many foundations, fellowships, and community projects ( http://www.packard.org/ ) (Learning to Give).
- The United Way of America works to make a measurable impact in every community in America. The United Way system includes approximately 1,400 community-based United Way organizations. Each is independent, individually incorporated and locally governed. The United Way raises much of its funds through workplace giving programs ( http://national.unitedway.org ).
- The W.K. Kellogg Foundation was established by Will Keith Kellogg , a poorly paid, hardworking employee of the world-renowned Battle Creek Sanitarium in Battle Creek, Michigan. After inventing wheat flakes, Kellogg spent his last forty-five years as the captain of a global cereal industry and as one of the world's largest philanthropists. The W.K. Kellogg Foundation is dedicated to helping people solve the problems of society. In 1930, President Herbert Hoover invited Mr. Kellogg to be a delegate at the White House Conference on Child Health and Protection. As a result, the W.K. Kellogg Child Welfare Foundation was formed. Within four years, he donated over $66 million in Kellogg Company stock to the renamed W.K. Kellogg Foundation. Mr. Kellogg believed the most good came from helping people to help themselves; giving them the opportunity to do what is important to them. With regard to instituting a foundation mission, Kellogg said, "Use the money as you please, so long as it promotes the health, happiness, and well-being of children" ( http://www.wkkf.org ) (Learning to Give).
Business Ethics Social Responsibility Report Web Site , at http://www.business-ethics.com , is the online version of the publication featuring current and archived editions, online business code of ethics compiled by The Center for the Study of Ethics in the Professions at the Illinois Institute of Technology http://www.iit.edu/departments/csep/PublicWWW/codes/index.html .
Business for Social Responsibility Web site , at www.bsr.org , contains articles and examples of cause related marketing.
The Center for Corporate Citizenship at Boston College Web site , at http://www.bcccc.net/, offers information on the center's executive education opportunities and research on corporate citizenship. Other programs such as round tables and executive forums are restricted to members only.
The Committee to Encourage Corporate Philanthropy Web site , at http://www.corphilanthropy.org , is a national forum of business CEO's and Chairpersons, many from Fortune 500 companies.
Community Wealth Ventures, Inc. Web site, at http://www.communitywealth.com , provides information on the mission and services of this social enterprise consulting firm. Through collaborative market-based approaches, CWV guides nonprofits, foundations and corporations to think differently about their social sector activities.
The Corporate Social Responsibility Newswire Service Web Site , at http://www.csrwire.com , is an online listing of pertinent articles, press releases, research, reports and events focused on corporate citizenship.
The Promoting Public Causes, Inc. Web site , at http://www.publiccauses.com , provides links, articles and other resources for nonprofits, government organizations and businesses in cause-related marketing.
Bibliography and Internet Sources
Center for Corporate Citizenship . "The state of corporate citizenship in the United States: 2003." (2003). Boston College.
Committee to Encourage Corporate Philanthropy. "About the Program." Accessed 8 December 2003. http://www.givingstandard.com .
Inc.com. " Corporation: Definition, Types, Formation, Maintenance." Cited Ocotber (1999). Gruner and Jahr USA Publishing. Accessed 5 December 2003. http://www.inc.com/articles/1999/10/14108.html .
Learning to Give. "Important People Related to this Topic." http://www.learningtogive.org.
LegalDefinitions.com. Accessed 3 December 2003. http://www.legal-definitions.com .
Powell, Walter. The Nonprofit Sector: A Research Handbook . Yale University Press, 1987. "Corporate Philanthropy." ISBN 0-3000-4497-6.
Zganjar, L . "Measuring the Business Value of Corporate Philanthropy." ePhilanthropy eZine. 29 June 29 ( 2002). http://www.imakenews.com/ephilanthropy/e_article000079540.cfm .
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