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Downsizing has transformed the management of corporate philanthropy in the United States. Forced to explain why businesses should give away money while laying off workers, contributions managers at hundreds of companies, including AT&T, IBM, and Levi Strauss, have come up with an approach that ties corporate giving directly to strategy. In those and other companies, philanthropic and business units have joined forces to develop giving strategies that increase their name recognition among consumers, boost employee productivity, reduce R&D costs, overcome regulatory obstacles, and foster synergy among business units. In short, the strategic use of philanthropy has begun to give companies a powerful competitive edge.
The outcome of this new model is not, as many had feared, an array of programs that benefit only business. True, there is no shortage of self-serving philanthropic initiatives that lend themselves to photo opportunities without effecting real change. But the new paradigm encourages corporations to play a leadership role in social problem solving by funding long-term initiatives, like school reform and AIDS awareness, that incorporate the best thinking of governments and nonprofit institutions. (See the insert “How Corporate Philanthropy Promotes Causes.”) For the first time, businesses are backing philanthropic initiatives with real corporate muscle. In addition to cash, they are providing nonprofits with managerial advice, technological and communications support, and teams of employee volunteers. And they are funding those initiatives not only from philanthropy budgets but also from business units, such as marketing and human resources. In the process, companies are forming strategic alliances with nonprofits and emerging as important partners in movements for social change while advancing their business goals.
How Corporate Philanthropy Promotes Causes
In other words, these companies have become corporate citizens. Like citizens in the classical sense, corporate citizens cultivate a broad view of their own self-interest while instinctively searching for ways to align self-interest with the larger good. That is, they hunt for a reconciliation of their companies’ profit-making strategies with the welfare of society, and they search for ways to steer all parts of the company on a socially engaged course. So far, philanthropy programs have been overhauled along these lines in many large corporations, such as Eastman Kodak, Allstate, Chrysler, Whirlpool, Citicorp, Reebok, Johnson & Johnson, Philip Morris, Merck, DuPont, and Coca-Cola, to name just a few.
Already powerful in the United States, corporate citizenship promises to bring even more success to U.S. companies internationally, particularly in emerging markets like Taiwan, Brazil, and Hungary. In such countries, which are still uncluttered by social initiatives, even small well-conceived grant programs can have a large impact. Given their experience with strategic philanthropy at home, U.S. companies are in the best position to reap the rewards abroad. But they may be sabotaging their own position. Noting that U.S. businesses donate more than their foreign rivals, many CEOs are cutting their philanthropy budgets and downgrading their staffs just as their companies are about to export philanthropy to overseas subsidiaries. Thus, non-U.S. companies may ultimately gain the competitive edge. Japan is already studying the new paradigm of corporate philanthropy, and Korea and Taiwan are taking good notes. U.S. companies must act now or risk missing out on the benefits of the model they developed.
The Evolution of U.S. Corporate Philanthropy
For centuries, philanthropy has been an American preoccupation. Since the seventeenth century, business leaders have been in the top ranks of donors in the United States. But such gifts were made only by prominent individuals, not by their companies, and were never meant to serve business purposes. Throughout most of U.S. history, legal restrictions and unwritten codes prevented companies from meddling in social affairs. It wasn’t until the 1950s that a Supreme Court decision removed the last of these barriers.
By the 1960s, under pressure to demonstrate their social responsibility, most U.S. companies had established their own in-house foundations. Soon, giving away lots of money—up to 5% of pre-tax income for the most progressive companies, like Dayton Hudson, Levi Strauss, and Cummins Engine—had become industry’s way of holding up its end of a social compact.
According to an unspoken ethic, society was well served when each of its three sectors—business, government, and nonprofit—was permitted to do what it did best without intruding in the affairs of the others. In this industrial-era model of philanthropy, each sector held to its own version of the don’t-tread-on-me dictum. The nonprofit sector described itself as “independent,” in a paradoxical assertion of its right to no-strings-attached infusions of cash from business and government. Similarly, government insisted on holding itself at arm’s length from the other two sectors rather than establishing the partnerships common in European social democracies. To keep the sectors separate, U.S. corporations gave nonprofits cash donations rather than packages of products, business advice, and company volunteers, which would have brought those institutions too close to the business process.
When it came to selecting causes, corporate donors chose those least associated with their line of business. Bankers, for example, gave to the arts, and industrialists gave to sick children. But in the end, few companies concentrated their giving in one area. Most companies gave through united funds, of which the United Way was one of many. Business leaders before the information era rarely claimed expertise in matters of social problem solving; they were happy to take a backseat to endowed private foundations, such as the Rockefeller Foundation, which were much admired as “objective” private benefactors, far removed from the day-today world of business.
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