According to Credit Suisse’s latest Global Wealth report, Americans’ median net worth is just $44,900 per adult, placing the U.S. in 19th place behind Japan, Canada, Australia and much of Western Europe. An interesting statistic when you consider the level of individual philanthropy in the U.S. as compared with other countries. While individual giving is king in most funding mixes, it still pays to keep an eye on the donations coming in from businesses to your organization—especially in light of recent developments.
As corporate social responsibility evolves, businesses are questioning if traditional philanthropic giving is an antiquated expense line. Today, stakeholders and investors expect more integrated methods for tying social impact to core business activities. While this Executives have started to ask how their companies can stop giving money away and getting nothing in return is a worthwhile endeavor, many companies are finding the reality of cutting ties with charitable giving easier said than done.
According to Paul Klein, founder and president of Impakt, “Executives have started to ask how their companies can stop giving money away and getting nothing in return, but putting an end to corporate philanthropy isn’t easy. The reputational risk of leaving worthy charitable organizations out in the cold is considerable, making leaders reluctant to take decisive action. However, new approaches are possible, since the end of giving for nothing may not be far away.”
It’s also worth noting the latest data from The National Philanthropic Trust: giving among U.S. corporations accounted for only five percent of total giving to charities in 2011. This underwhelming statistic seems to support the lack of enthusiasm Klein has observed in his work with corporations.
In contrast, what continues to capture the hearts, minds and bottom lines of companies are partnerships that directly connect to the business’s existing business model. What’s more, according to the 2010 Cone Cause Evolution Study, 90 percent of consumers want companies to tell them the ways they are supporting causes. Eighty-three percent of Americans wish more of the products, services and retailers they use would support causes. While the end of philanthropy may be coming, businesses recognize consumer opinion and the need to do a better job of blending profit with purpose.
Klein has developed seven strategies at Impakt to help businesses phase out philanthropy and begin to embed social impact in their core business strategies. I’ve listed Klein’s recommendations here:
1. Develop a five-year exit strategy. Almost every large corporation supports at least one large charity in a significant way. In these cases, it’s important to identify a social objective that can be achieved over five years and allocate financial and other resources towards that objective on a diminishing basis. When the social objective has been achieved, the charity will no longer require support.
2. Begin investing in social change in other ways. “Charitable organizations don’t have a monopoly on social change, and sometimes social enterprises and other businesses can achieve better results.” If social change is important to your business, you should understand the strengths and weaknesses of all the players and start to reallocate charitable dollars toward organizations that deliver the most value, regardless of their sectors.
3. Focus on opportunities that can deliver return on investment. Pure philanthropy has virtually no business value. It’s altruistic and intended to help charities in ways that can’t be measured. Corporations can start shifting philanthropic spending toward social investments that have the potential of creating ROI. That might mean, for example, making a loan to someone with little or no credit to help start a business.
4. Stop funding charitable initiatives that don’t get results. Even without conducting a formal evaluation, you likely already know which organizations aren’t performing. Stop supporting those groups in 2015. Then take a year to reduce or eliminate funding for other organizations that may be of more value but aren’t the right partners for your business. During the transition, provide funding for capacity building to help organizations become more sustainable without your support.
5. Move CSR to finance or operations. Doing so is anathema to CSR managers (most of whom report to marketing or H.R.), but it will increase accountability, ensure business programs that have social value are resourced properly, and support the strategy for exiting out of donations. The transition will be difficult but the results will be better.
6. Focus on value. Start asking how you can give or invest less while bringing about greater social change. This is a standard question for businesses but it’s rarely posed to charities. Organizations that can help you answer it will be worthy of continued support.
7. Embed social change in your business. Financial institutions should find new ways to give vulnerable people access to capital. Companies in extractive industries such as mining or oil and gas should put a high priority on adding more indigenous suppliers and employees. Car companies should focus on sustainable transportation. Pharmaceutical companies need to create new revenue models that focus on preventing illness.
Klein’s recommendations may be alarming if you’re a nonprofit that has a large focus on traditional corporate giving; however, his thoughts are a sound warning that your strategies must attain new levels of ROI. Joe Waters, author of Fundraising with Businesses, says asking companies to simply write a check is tired. Nonprofits need to get creative and look for ways to engage employees and customers while impacting the business’s bottom line. These partnerships will always be easy to justify and renew in the finance department where Klein recommends they be managed.
At Execute Now!, we advise clients on a myriad of financial areas relating to corporate social responsibility. We create financial scenarios for nonprofit clients interested in weighing their options among potential partnerships. We also provide forecasting for various types of funding based on their dependability. Finally, we shed light on what a business partner will be looking for in the finance/operations departments to optimize reporting.
Personally, I found Klein’s use of the phrase, “giving for nothing,” a disappointing representation of the corporate perspective he’s working with today. On the other hand, nonprofits looking for the positive note in his seven strategies should focus on how each tactic informs how charities must aspire to work with companies if they choose to keep them in the funding mix.
Image credits: gooddaysfromcdf.org, thegiftofgiving.com, volunteerhub.com