Mergers, Economic Worries Slow Pace of Business Giving

The year that Carol Taufer arrived at Security Pacific National Bank to run its philanthropic programs, the bank received 401 requests for money and handed out $750,000. That was 1972; last year, Security Pacific Foundation had 4,360 requests and handed out $4.8 million.

This year’s giving will rise to $5 million, but it isn’t expected to get any higher next year. Never mind that requests are rising at a rate of 15% every year. “My board said when you hit $5 million, we’re very comfortable at that level,” says Taufer, the foundation’s president. “But I’m luckier than most people in my position. I’m capped but not cut.”

Given accelerated mergers and acquisitions, not to mention corporate concern with takeovers, interest rates and bottom-line results, nonprofit institutions had been finding corporate dollars harder to get even before the October stock market crash. After more than a dozen boom years nationally, as well as locally, corporate philanthropy has begun growing at a far more moderate rate.

While individuals have been picking up about 90% of the charitable bill each year, corporate dollars have long helped private foundations cover that 10% gap. Last year alone, corporations donated a record $1.7 billion to colleges and universities, the major beneficiaries of business largess. And since the Business Committee for the Arts began in 1967, corporate Medicis have given over $5.4 billion to the nation’s museums, symphonies, theaters and other arts institutions.

In the Southland, corporations have given $56 million to the University of Southern California alone since that institution launched its capital campaign in July, 1984. More than one third of the $72.8 million raised to build the Orange County Performing Arts Center came from corporate coffers, as did about half of the Museum of Contemporary Art’s $25-million capital endowment fund. Nearly half the Los Angeles Music Center’s annual Unified Fund donations and 25% of Orange County facility’s annual support drive have come from businesses.

Yet the situation locally is not entirely positive. Getty Oil, a major contributor to Southern California causes, merged into New York-based Texaco, whose local giving is much less. Such companies as Atlantic Richfield and Fluor hit rough times, and decreased profits were reflected in decreased giving. At the Southern California Assn. for Philanthropy, President Lon Burns says that, based on its survey of corporate members, who represent most of the major corporate givers locally, he estimates a drop-off in charitable contributions last year of 8.5%.

Los Angeles has its own set of problems, says Jeanette McElwee, contributions manager for Carter Hawley Hale Stores. The area is responding to economic changes “several years later than the industrialized cities in the Northeast. When heavy manufacturing faced difficulties three to five years ago, community and nonprofit organizations had difficulty replacing (that money). Los Angeles was not facing that problem then, but with the recent decline in oil prices, and with the energy industry playing such a significant role in Los Angeles’ corporate philanthropy, this community has started to feel a tightening on corporate dollars.”

What does that mean for local nonprofit organizations? “We just have to go out and find new people,” says Robert C. Lewis, executive director of Executive Service Corps of Southern California, which matches retired corporate executives with nonprofit groups needing their accounting, managerial or other skills. “But that’s getting harder both because there are more people asking and not that many new groups giving.”

Even before the turn of the century, railroad companies were donating funds to help develop YMCAs, but the boom years came after 1970. Corporate philanthropy rose from $797 million in 1970 to an estimated $4.5 billion last year, often with double-digit annual increases. But recent increases have been small, explains Anne Klepper, director of contributions at the Conference Board in New York.

According to Craig Smith, editor of the San Francisco-based Corporate Philanthropy Report, oil companies increased giving at the greatest speed during the late 1970s and early ‘80s, then declined at the greatest speed during the past few years. Exxon’s total philanthropic activity in the United States this year, for instance, is expected to be around $40 million, compared to $60 million in 1985 and even $46 million last year.

Locally, Arco cutbacks had substantial reverberations. Arco Foundation giving had grown to $36.8 million at its 1983 peak, and then came the lean years. This year’s budget is just $11.5 million. The cuts were directly tied to economic reality, explains Foundation President Eugene Wilson, citing the fact that Arco’s total worldwide employee count plummeted from 53,000 in 1981 to today’s 26,500.

Minority Grants

The number of grants approved was cut in half, going from 1,400 in 1983 to 700 last year. “A very major grant these days is $50,000 and we make few $50,000 grants,” Wilson says. “We used to make several $500,000 grants a year.”

As dollars decreased, restraints on grants increased. Arco stopped funding in some areas and began adding restrictions in others. Many grants today focus on minorities: Nearly 50% of grant-making in education specifically addresses attrition rates of high school minority students, and the foundation’s only grants to colleges and universities involve retention of minorities in engineering and business.

Hospital grants have been replaced by grants to assure access to health care in underserved neighborhoods. Instead of grants to mount art exhibitions and underwrite operas, Arco is similarly shifting to getting the arts out to underserved population groups.

Arco earnings have increased as a result of stabilized world oil prices and the Atlantic Richfield Foundation budget is expected to increase to $17 million in 1988, Wilson said at press time. But the new total should be put in perspective, he cautions. Much of the increase will be committed to matching personal contributions by Arco employees and retirees, a program which had been cut back substantially since 1986.

Arts Backing

Wilson also cautions against what he calls “unrealistic expectations” on the part of the nonprofit groups, “because one of the things that we have done in the decline is to greatly narrow our priorities and we expect to stay with those narrowed priorities even as things slightly improve. Every favorable quarterly earnings report doesn’t immediately transfer into increased funds for foundation giving.”

Consider Arco’s support of the Museum of Contemporary Art. In contrast to its earlier $4-million capital gift backing the museum’s Temporary Contemporary endowment, Arco this year gave MOCA $10,000 for an outreach program. “I expect that the day of receiving major gifts for the arts from Arco is over now, and we will expect instead to see smaller program grants from time to time,” says Kerry Buckley, MOCA’s director of development. She adds that MOCA’s current capital campaign has cast a wide net to individuals, corporations and foundations, in part “so that we’re protected from the bottom falling out of any segment of the economy.”

Arco, after all, is hardly the only local company whose hard times have resulted in decreased giving. According to J. Robert Fluor II, vice president of corporate relations and president of the Fluor Foundation, corporate giving in 1982 surpassed $5 million. But with huge corporate losses--$633 million in 1985 and $60 million last year--the engineering and construction firm couldn’t maintain such largess. This year’s giving is about $800,000, he says, including $100,000 being distributed by regional offices.

What happens to recipients? In Fluor’s case, the company has stretched out three-year commitments whenever possible to five or six years. It still matches employee gifts to colleges and culture, but no longer to secondary education. And the maximum amount the company will match per employee per year has dropped to $1,000 from $5,000.

Hit Harder

Acquisitions also have an impact. Before its merger with Texaco in February, 1984, Getty Oil had pledged about $2 million for 1984 contributions in the Los Angeles area, according to a Texaco spokeswoman; she says Texaco has pledged about $800,000 here this year.

“We’re trying to get money out of Texaco now, but it’s a hell of a lot harder,” says one fund-raiser, requesting anonymity. “They have other problems because they’re in bankruptcy. But they’re also East Coast-based, and major corporations tend to favor locations where they have their headquarters and the most employees.”

As a result, corporations who give are hit harder and harder. Carter Hawley Hale’s McElwee says she gets 250 to 300 requests a month, and can fund 10% of those at best. Says John Grundhofer, vice chairman of Wells Fargo Bank, who figures five letters a day reach his desk asking for support: “If you indicate an interest, the phone rings off the hook.”

Music Center Executive Vice President Esther Wachtell recalls being in Grundhofer’s office within a month of his move to Los Angeles last fall, for instance, and it wasn’t long before the executive had been elected to the Music Center board. Now also on several other boards, Grundhofer says candidly that “most organizations are looking for leadership, and you could spend (all) your time if you allowed it to happen. So you have to match your interests, the needs of the organization and your own time. It’s a balancing act.”

Bram Goldsmith, chairman and chief executive of Beverly Hills-based City National Bank, estimates that there are about 50 to 75 corporate leaders in greater Los Angeles who seem to be very heavily involved in philanthropy. Most prominently led by Arco--whose 1979 gift of $3.65 million was the lead gift on the County Museum of Art’s new Robert O. Anderson building, for instance--the same corporate names appear again and again on donor walls and charity letterheads. (Robert O. Anderson is the retired chairman of Arco.)

Center Caught the Mood

The problem, muses Bruce Corwin, president of Metropolitan Theatres Corp., is that “CEOs are giving to those charities they’re personally affected by, or where their peers are intimately involved. The groups that suffer in that kind of equation are the ones where there isn’t that business or personal tie.”

Yet new givers do emerge. The 6-year-old Orange County Business Committee for the Arts has 110 members--compared with the national organization’s 120 members--and 83% of them just responded in a survey that they were giving more money now to the arts than ever before. Tom Pascoe, director of development at the Orange County Performing Arts Center, thinks that the center’s status as a privately funded institution caught the mood of both entrepreneurial Orange County and the nation as well.

“I sense that the private sector is becoming more responsive to its responsibilities,” says Roger W. Johnson, chairman of Western Digital Corp. and chairman of the Orange County Performing Arts Center’s Corporate Council. “There isn’t a question anymore whether or not there is a responsibility to support things, but rather what and the degree to which they will support them.”

Companies usually give money through contributions programs or corporate foundations--about 40% of giving by large corporations is through corporate foundations, according to the Conference Board--and do so in their headquarters city and, generally, where they have regional bases or major subsidiaries. Some companies, in fact, make donations through all of these outlets; Los Angeles-based Times Mirror and its subsidiaries--including the Los Angeles Times--made charitable contributions last year alone that totalled $3.5 million above the $4.9 million handed out by the Times Mirror Foundation.

They also provide considerable non-cash assistance, ranging from loaned auditoriums, equipment or executives to teams of employee volunteers swooping into a hospital or other nonprofit institution on a weekend or evening. Corporate art collections often blanket lobby walls as well as executive suites. And computers or other products that might have failed in the marketplace could be big hits in a low-budget nonprofit office.

First Interstate Bank of California Foundation last year gave $100,000 to Alliance of Businesses for Child Care Development--”not a large gift, actually,” says a spokesman--then arranged a press conference and made its company auditorium available to the organization. Says Fluor, whose employees hold parties for seniors and for deaf children, “You can always provide something more than just dollars.”

Employee Contributions

Not that companies don’t also prod employees to give cash gifts. Since General Electric started urging employee philanthropy back in the 1950s, more than 1,000 companies have begun matching gift programs for employees. Westinghouse even surveys its employees every few years to assess employee volunteerism.

At City National, for instance, “one thing we do very aggressively is United Way,” says Goldsmith, who has gone so far as to make a video preceding a United Way film, “expressing my own concern and encouragement for our people to go a little deeper and help the person who needs it.” The result: More than 90% of their employees are contributing through their paychecks to United Way, he says.

There are, of course, giving cycles. “Last year it was abused children, and this year it’s the homeless,” says Security Pacific’s Taufer. “We do capital grants on a once-a-year basis, and this year we had five proposals dealing with shelter for the homeless and I don’t think I ever had one before.”

Many corporate executives cite community support as simple good business. Asked why he thinks that corporations and other businesses contributed about half of the Museum of Contemporary Art’s capital endowment fund of about $25 million, MOCA Chairman William F. Kieschnick replies, “MOCA is perceived as one of those institutions that adds to the ambiance and well-being of this city that they have a stake in.”

Earmarked Funds

Companies clearly want visibility, as Peter Ueberroth proved beyond a doubt during the 1984 Olympics. (His original goal was reportedly $116 million in corporate sponsorship, but he wound up with more than $126 million.)

The same philosophy apparently applies to philanthropy. At Cedars-Sinai Medical Center, for instance, board member Bram Goldsmith says corporations will not give money to operating funds, but rather to building funds for specific recognition or to specialized programs such as ambulatory care or genetic research. “Corporations are then identified with that program and in that department, and there (can) be some recognition in the way of a plaque or something,” Goldsmith says.

Grants underwriting museum exhibitions, public television shows or operas also offer major opportunities to publicize both donor and recipient. Wells Fargo, for instance, underwrote the opening night dinner event for the Los Angeles Music Center Opera’s “La Boheme” at a cost said to be in “six figures.” The company did so, explains Grundhofer, because “we’re good corporate citizens and it was something I had an interest in. And it was a very visible thing and it represented the kind of cultural effort that Wells Fargo wanted to be associated with.”

Companies are recognizing and looking for ways of tying corporate contributions programs to overall corporate goals, explains Linda Cardillo Platzer, senior research associate at the Conference Board, “and many times that does mean higher visibility for the corporation in whatever area it has chosen to focus on in its corporate giving program. There is also more sophistication on the part of nonprofit organizations in terms of presenting themselves to corporations in ways that demonstrate those links.”

Some Go Begging

And that has led to “cause-related marketing,” such as American Express’ highly publicized campaign to donate funds to renovate the Statue of Liberty. Locally, First Interstate Bank of California Foundation agreed to donate a minimum of $100,000 this year to the anti-drug Just Say No Foundation, promising to donate one dollar for each new account opened. A spokesman says the bank’s TV and radio ad campaign promoting the donations cost more than the actual donation of $100,000.

Some philanthropists watch such developments with concern, worrying aloud about the less popular or less socially prestigious organizations. “The cautionary side of all this is that some nonprofit causes are not going to be able to make such clear relationships to corporations, and those causes are not going to be picked up as quickly as others,” says Cardillo Platzer.

On the other hand, increased attention to overall corporate goals can also provoke increased attention to community needs. “Philanthropy serves as sort of a modem to link the world outside the company with the world inside the company,” says Corporate Philanthropy Report editor Smith. In child care, for instance, companies might previously have made grants. “Nowadays, a company might study the situation in the community and discover different ways it could make an impact, such as flexible benefits in compensation packages or in-house day care.”

Smith attributes much of the giving slowdown to changing corporate and executive priorities. “There was a breed of CEO epitomized by Robert Anderson in Los Angeles and Kenneth Dayton in Minneapolis, who were ‘the enlightened CEOs,’ ” Smith says. “They espoused a doctrine of enlightened self-interest of the company, in which community relations, corporate contributions, and volunteerism played a major role. These were people who largely helped to overcome the negative images of companies that existed in America up through the mid-’70s. They conveyed the notion that a big company was a rock for all to lean on.”

Today, he continues, “there is a preoccupation of top management, not with good community relations, but adopting a defensive strategy against takeovers. That mentality has brought in a new breed of manager who is less community-oriented and more oriented to financial issues.”

Untapped Businesses

Is the Los Angeles business community more or less charitable than those of other cities? Arco’s Wilson guesses that Los Angeles “is probably above average but (I) have nothing but speculation to go on. One of the sad realities is that most communities can’t tell you any benchmark numbers that are completely conclusive.”

Individual corporations, on the other hand, can provide such numbers. At Times Mirror, for example, the 25-year-old Times Mirror Foundation gave $4.9 million last year and expects to exceed $5.5 million this year. Foundation Secretary Stephen Meier says that this year’s increase is keeping pace with a compounded growth rate of about 15% a year since 1982.

Moreover, many people remain hopeful, given both the number of maturing large corporations here and Los Angeles’ many still-untapped small and medium-size businesses. Smith, for one, expects corporate giving to grow only 2% or 3% in general over the next couple of years but figures that number could run 5% in Los Angeles “because there are a significant number of companies at the stage of development where they are getting into corporate social policy and philanthropy.”

Still unknown, however, is the impact of current market conditions, particularly in the longer term. “Clearly, a corporation’s ability to make charitable contributions is based on its financial condition--and particularly its profit picture--in addition to the vision of its leaders,” says Burns at the Southern California Assn. for Philanthropy. “If we end up with a down economy or particularly a volatile one where no one can really predict what’s going to be happening, it would be difficult for corporations to make the longer term philanthropic and other business plans they been able to make in the past.”

Earnings, after all, determine giving. Wilson points out that, unlike private foundations whose payout provisions require them to contribute an annual percentage of the value of their assets, most corporate foundations are “pass through” and receive corporate monies each year based on earnings. The averaging of several years helps stabilize them, he adds, “and protects us from wide swings.”

Nonprofit organizations aren’t standing idly by, either. “As companies are restructuring and tightening their belts, so are nonprofits becoming more sophisticated and efficient about their operations,” says Carter Hawley Hale’s McElwee, a board member of the Aman Dance International. “They are learning to do more with less.”