When Philanthropy Becomes Strategic, Something’s Gotta Give

In a recent American Advertising article, there’s a story about a CEO of one of America’s largest corporations. At a meeting of his senior officers, the CEO asked, “Why the hell are we donating millions of dollars to philanthropy each year while we’re still cutting thousands of jobs and our earnings are under pressure?” In other words, philanthropy makes no business sense.

In a recent Working Women article, Westina Matthews, a professional grant maker, wrote that until she was hired by Merrill Lynch in 1985, the firm practiced “checkbook” philanthropy. In other words, philanthropy was reactive. The company wrote checks after being asked to support a cause, assuming it found it worthy of corporate support.

In her book “World Class,” Rosabeth Kanter notes that corporate “market-building goals” shift the interests of larger companies away from their local communities to places where potential customers reside. In other words, philanthropy has become a global marketing tool.

These quotes send a message about the emergence of “strategic philanthropy.” No longer are large companies bestowing gifts in a hit-and-miss manner. Rather they treat corporate giving as an investment, and like other investments, they expect a return. That return comes in many shapes--increased sales, greater visibility, the development of potential employees or making existing employees happier. The corporate question is no longer the reactive, “Is it a good cause?” Today, it’s the proactive, “How does supporting your cause help us?”

The increase in strategic philanthropy has important implications for small, community-based nonprofits that struggle to keep their doors open. Aware that the “era of big government” is over, these nonprofits have become more dependent on corporate funds at the same time that they are being asked to assume new responsibilities. Yet corporations provide only 5.1% of all philanthropic donations in the United States. Most contributions come from individuals (80%), the rest from foundations and bequests. Nonetheless, it’s commonly believed that as government gets smaller, the private sector will supply the funds needed to provide programs in the arts, environment and education, in addition to keeping open the doors of neighborhood social service centers.

Although corporations are being asked to pick up a larger share of financing community activities, their giving has not increased. Furthermore, as companies think more strategically, they tend to sponsor large events (such as the Olympics) rather than providing financial support for community activities where their offices or workers are located. Large, visible national and international events produce more business bang for the buck, and this is not lost on corporate executives. For example, Kraft General Foods, rather than focusing support on small, local anti-hunger organizations, has pushed for national programs such as food stamps as a way of addressing the issue of hunger. McDonald’s, whose major customer base is children, has pumped corporate dollars into Ronald McDonald homes for terminally ill youngsters. This has brought the company national accolades for being a good corporate citizen, and lots of free advertising.

There are many types of strategic philanthropy. One that is gaining attention is the supplying of employees, often on company time, to participate in community activities. This form of contribution has a twofold benefit: It provides much-needed help to nonprofits, and it increases the loyalty of employees who wish to do volunteer work but have little time in which to do it.

Another relatively new type of strategic philanthropy is the use of donations to social causes as an incentive to provide marketing information or increase sales. Fortune magazine recently asked subscribers to fill out a form that would provide editors with personal data. The subscriber was asked to check one of six well-known nonprofits to which Fortune would make a donation as a thank-you for the returned form. (Surprisingly, nothing was said about how much the magazine would contribute.)

Working Assets, a long-distance telephone carrier, used a similar technique when it made a sales pitch to prospective subscribers. It noted that 1% of all its telephone charges is donated to 36 social-cause nonprofits it lists in its sales brochure. These examples illustrate how corporate philanthropy is directly tied to a marketing and sales effort and why it has been said that “as we approach the end of the century, companies will be known as much for the causes they support as the products they sell.”

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Today, the fund-raiser and prospective donor look for a business connection. Nowhere is this more true than in large, state educational institutions such as the University of California, which today receives only 23% of its funds from state coffers. Historically, it was not necessary to make a link between a contribution to the university and a direct benefit to the donor. This is no longer the case. Jerry Mandel, vice president for university advancement at UC Irvine, says that “today in the field of fund-raising, you must demonstrate a direct and positive benefit to donors.” Mandel has put this axiom into practice by convincing prospective corporate contributors that investing in UCI can give them a competitive edge. That edge is access to human capital--the 80% of UCI’s well-educated students who choose to live and work in Orange County once they graduate.

Clearly, corporations are becoming more strategic in their giving. Likewise, nonprofits are becoming more strategic in their asking. The good news is that when corporations see a bottom-line payoff to their contributions, their contributions may increase.

The bad news is that small neighborhood groups such as storefront clinics, community art museums, theaters and libraries that can’t show a bottom-line benefit will find it difficult to compete for limited funds.

These small, community-based organizations may make social sense, but not business sense. This means that social causes that can attract national and international attention will receive the corporate dollars, whereas the small, less visible (but equally important) social causes will receive only the cents.