How Much Should a Company Give? : Business: Done right, philanthropy can be an asset.
The re-engineering of American business is taking its toll on corporate giving. While companies are continuing to make respectable profits, many are reducing the percentage of earnings set aside for philanthropy. One reason is that it simply does not look right to pump up contributions at a time when employees and other resources are being squeezed.
This trend clearly has ramifications for nonprofit organizations that rely on corporate generosity.
The current state of corporate giving underscores a shift in attitude among business leaders. In the late 1970s and early ‘80s, several prominent CEO’s touted corporate giving as an important “point of difference” that distinguished U.S. companies in the world marketplace. Today, among senior executives, the silence surrounding corporate giving is deafening.
Making decisions about how much to spend on philanthropy has always been a juggling act. A company can claim up to 10% of its pretax net income in charitable tax deductions. Few corporations have ever come close to that mark. From 1982 to 1989, business contributions averaged between 1.4% and 2.4%.
Corporate contributions were $5.9 billion in 1993--a small portion of the $126 billion that was donated by all sources that year.
While corporate donations have never represented a large percentage of giving in America, they fill an important niche. Businesses are inclined to couple in-kind services and volunteer time with their cash contributions, which adds important value to their philanthropy.
Corporations are in need of an acceptable standard to determine how much they should contribute. In fact, many corporate leaders are looking for a specific target, and would apply such a standard if they could be sure that most other corporations would go along with it.
A case can be made that businesses should allot 1.5% of their pretax net income for cash contributions. For companies with the capacity to give away their products as well as cash, 2% should be a reasonable minimum target (cash and product donations combined). This yardstick allows a company to commit donations based on its profitability.
Investing in a viable contributions program makes sense if business perceives philanthropy as an asset and not a “social tax.” That can occur only if the program follows some basic guidelines:
* It is essential that corporate giving is linked to business goals. An effective philanthropy program should be clearly connected to the high-priority concerns of the company.
* The contributions program has to be competently managed. Too frequently, businesses do not apply the kind of creative and effective management muscle to corporate giving that is needed to maximize its potential.
* The financial advantages to the company must be understood. Certain aspects of corporate giving--product donations, for example--can yield important tax benefits.
* A business should allow for some gifts that may not advance the company’s principal bottom-line interests. There must be room for donations that have a general impact on the quality of life for employees, communities and customers.
* Every donation must have an acceptable explanation. With literally tens of thousands of choices, a business must be able to explain why it singles out a specific nonprofit organization.
* The main points of the program must be openly communicated. The more a business shies away from talking about its corporate giving, the more such expenditures are likely to be viewed with skepticism.
Against the backdrop of rising pretax profits (between 9% and 14% in recent years) there should be a comparable increase in corporate contributions. But that will happen only if a few leaders of large corporations establish a precedent for the business community at large.
