A Changing Corporate Landscape Leads to Changes in Corporate Giving

Pillsbury's Rebecca Erdahl remembers well how, a few years ago, she had to meet with Twin Cities arts organizations her company had long supported and tell them that they were no longer in Pillsbury's target strategic giving area. "That was painful and ugly," says Erdahl, vice president of community relations. "People were mad."

Such are the realities of corporate giving in the 1990s. Competition in corporate America is increasingly global; increasingly fierce. As companies restructure to survive in this new environment, they are changing the face of corporate giving.

Based on research by the Minnesota Council on Foundations (MCF) and others, and on interviews with representatives from several corporate foundations and giving programs in the state, Minnesota's corporations seem as committed as ever to their philanthropic endeavors. But just as companies are striving to be more efficient and effective throughout the rest of the organization, so too are they looking to get as much leverage as possible out of every giving dollar. As a result, corporate philanthropy is changing in ways that could have significant implications for the future.

A Long Philanthropic Tradition

Strong corporate philanthropy is a hallmark of Minnesota's "quality of life." According to Louise Thoreson, a longtime consultant on corporate giving and now vice president of the Lutheran Brotherhood Foundation, Minnesota's corporate giving tradition is due in no small part to the visionary qualities of the state's first business leaders. "We have so many corporate headquarters here in the Twin Cities because we had many very entrepreneurial people settle here in the late 1800s and early 1900s," she says. "And we're a mecca for philanthropy because these same people also happened to be forward-thinking in their giving."

No founding family better exemplifies this visionary mix of entrepreneurship and philanthropy than the Daytons. George Dayton, founder of what is now the Dayton Hudson Corp., started Minnesota's first corporate foundation back in 1918. "The idea of giving is something that was part of the Dayton family's living and thinking when they started the store," says Duane Scribner, program director for the Dayton Hudson Foundation. "The Daytons were great advocates for the arts and very committed to helping poor and disadvantaged people."

In Minnesota and the rest of the country, corporate giving experienced a surge after World War II, thanks to two important legal changes. In 1946, the IRS allowed companies to claim a tax deduction for up to 5 percent of their charitable contributions. And in 1953, the Supreme Court overturned laws dating back to the 1800s that had restricted corporate giving to projects of "direct benefit" to a company.

Minnesota's corporate giving has grown steadily ever since, particularly in the past ten to 15 years. According to MCF's latest Giving in Minnesota report, corporate contributions in the state grew by more than 245 percent between 1982 and 1992. In 1994, the Minneapolis Chamber of Commerce listed 184 companies that have committed to contributing between 2 and 5 percent of their pre-tax earnings for charitable purposes, up from 60 organizations in 1979. In just the past few years, companies such as Best Buy, Piper Jaffray Companies, St. Jude Medical and Green Tree Financial Corp. have started new foundations. Overall, corporations account for almost half of all grantmaking activity in Minnesota.

The Rise of Strategic Grantmaking

According to Dick Hanson, vice president of the 3M Foundation, after the 1953 legal changes, many corporate foundations and giving programs were started and developed under the leadership of what he calls "entrepreneurial ambassadors." "There wasn't really a structured approach to giving," he says. "It was based pretty much on the network of the individual."

But as these individuals began retiring in the last five years or so, Hanson says it prompted many corporate executives to focus on their company's philanthropic activity in a new way. "They started raising more strategic questions like, 'What are we really trying to accomplish?' They had never really asked that in a comprehensive way before."

Coincidentally, these questions were being asked at about the same time that corporations were experiencing the first dramatic challenges of growing global competition and new resource constraints. As a result, many companies decided to apply the same management principles and practices to their philanthropy that they were applying to the other areas of their business, leading to a rise in the use of strategic grantmaking.

Instead of funding a broad range of community programs and organizations, many corporations today are now focusing their charitable contributions on those areas that can complement or enhance their overall business. The Jostens Corporation, which manufactures school rings and other school-related products, targets its giving on programs related to education and youth. TCF Bank contributes to economic development and housing, which are its primary business areas.

"In today's competitive environment, my function has to be to integrate with the business," says Pillsbury's Erdahl. "We look at giving as an investment, and we want to measure its return in terms of the company and the community. I have to make the whole greater than the sum of the parts."
For Pillsbury, the impetus to narrow its grantmaking focus came in 1989, when the company was acquired by Grand Met. Prior to the acquisition, Pillsbury was a fairly general grantmaker. But Grand Met executives instructed the company to better define its giving strategy; Pillsbury responded by focusing on programs that help economically disadvantaged youth-it now devotes at least 70 percent of its giving to that area. From a strategic standpoint, the company reasons that economically viable communities ensure continued strong markets for its products and an educated work force. "And healthy kids are vital to a healthy community," Erdahl says.

3M increased the strategic focus of its giving policies about three years ago. Since 3M's business strengths are based on innovation and science & technology, the company began to expand its emphasis on education into the K-12 area. 3M's funding of the public television production of "Newton's Apple" became the flagship for a strategic K-12 science education initiative.

3M has leveraged its "Newton's Apple" investment by building other programs around the show. It worked with the National Science Teachers Association to develop and distribute 55,000 teacher's guides to use with the show. And the company is now developing new partnerships with KTCA, the show's producer, providing CD-ROM technology and technical assistance to develop educational tools that provide in-depth, interactive coverage of "Newton's Apple" topics. Royalties from 3M sales provide the producer with revenue that can make them less reliant on grant money. "It's good for KTCA, its good for 3M, and it's good for the kids," Hanson says. "Everybody wins."

But the transition to more strategic grantmaking isn't always an easy one. As companies begin refocusing their giving efforts, some areas inevitably lose out. Once 3M began looking at its giving more strategically, it became clear that some areas in which it had been giving for years were not connected to its new priorities. "Every organization in town had a 3Mer who wanted us to buy a table for an awards dinner or golf tournament," Hanson says. "We realized that this wasn't accomplishing anything except making a few people feel good, and we had to get beyond the 'feel good' stuff."

3M cut its funding of fundraiser events by 75 percent, causing some hard feelings in the process. "That was a really tough thing to do," says Hanson. "It involved a lot of personal relationships. But now that we've gone through this strategic process, we can at least provide people with a better rationale for our decisions and be more consistent and fair about it."

There's sometimes a fine line in strategic grantmaking. TCF, for example, will not provide grants to any housing deals that would result in loans coming their way. "That's an ethical issue that we have to be particularly sensitive to," says Peter Bell, executive vice president for TCF. "There are all kinds of minefields."

3M's Hanson is sometimes uncomfortable even using the term "strategic giving." "A lot of people interpret 'strategic giving' as meaning more closely tied to our self interests," he says. "I don't see it that way. To me, it simply means to fulfill our corporate citizenship responsibility with more purpose, with more focus, with more impact in the community."

In fact, some corporate grantmakers point out that companies not funding in accordance with their business strategies may not be fulfilling their fiduciary responsibility to maximize shareholder value. "That doesn't get discussed much," says Bell, "But it's the other side of the argument."

The Move to Decentralize

One significant result of the rise in strategic giving has been a move in many corporations to decentralize their giving programs-moving some or all of the company's decision-making and operational philanthropic tasks out of the headquarters and down to the employees in its plants, branches and stores. Decentralized giving can help a company deal with a declining number of middle managers, get more employees involved in the giving process, and achieve more local visibility.

At Norwest Banks, giving recommendations for the Norwest Foundation are determined by each of Norwest's more than 600 individual community bank stores throughout the nation. Each bank store decides who to give to, and how much to give, to organizations in its area, developing its own targets and guidelines. Foundation staff provide bankers with a process and structure for their giving. "We tell them how to give, not who to give to," says Diane Lilly, president of the Norwest Foundation. "We really believe that our employees in the community know what's best for that community."

As little as ten years ago, Norwest's giving was much more centralized, with major grant requests funneled through the Minneapolis headquarters. Sometimes a bank would even forward a grant request to the foundation and ask that it be denied-making headquarters the heavies.

But as Lilly and her staff began an effort to tie Norwest's giving more closely to its business, they quickly realized things had to change. "We started calling around to our bank stores to find out what issues were important to them, and they were so different in each community."

Lilly says that Norwest's new decentralized giving model fits perfectly with the company's strategy to be the premier bank in each community that it serves. If an organization seeking a grant had to approach Minneapolis rather than its local bank store in Butte, for example, the connection would be lost. "When people think of Norwest, we want them to think about that bank that they're dealing with in their community," says Lilly. "Not the Norwest Tower."

Decentralized giving can be a bit trickier for a business without banks or retail stores to provide direct access to customers, but companies are developing creative solutions to get around that problem. Pillsbury, for example, offers grocery stores an optional promotional program where it gives a donation to a local chapter of one three national charities for disadvantaged youth. The store provides advertising to announce the donation, perhaps in conjunction with a product promotion, and the local chapter provides any necessary support.

For Minnesota's nonprofit organizations, the sober reality of decentralized giving is that a smaller percentage of funds from Minnesota companies may be coming their way in the future. According to MCF's Giving in Minnesota surveys, the percentage of total Minnesota corporate contributions going outside of the state has increased from 37.3 percent to 48.1 percent between 1988 and 1992-although total corporate giving dollars remaining in the state still increased more than 40 percent. 1992 marked the first year since MCF began surveying giving trends that the percentage of Minnesota's corporate contributions going outside the state was greater than the percentage staying within its borders.

"We think our charitable activities should line up with where our employees are, where our customers are, where our emerging markets are, and that's not in Minnesota," says Erdahl. "And in many of our plants, the needs in their communities are greater than those in the Twin Cities. So it's a matter of fairness and equity as well."

But decentralization can cut both ways. Companies headquartered in other states could in turn give more in Minnesota through their plants, branches and stores in the state. This could be one reason why out-of-state foundations have increased their giving to Minnesota organizations by 65 percent between 1989 and 1992, according to The Foundation Center.

And decentralized giving at times might actually increase a grantseekers' options, as individual business units in a company become more independent in their giving activity and focus on new areas. Starting in 1995, for example, each of Dayton Hudson's operating companies took over the full review and governance of their own giving programs, which in previous years had been done by the Dayton Hudson Foundation. Community agencies in Minnesota, and throughout the nation, will increasingly have access to the operating companies' charitable funds and in-kind assistance directly through local stores, emphasizing even more the shared local commitment of Dayton Hudson giving.

Philanthropy and Marketing

Another outgrowth of the rise in strategic corporate giving has been a growing tendency by corporations to more closely connect their philanthropy and marketing efforts, sometimes blurring the lines between the two. Corporations are increasingly promoting their philanthropic activities through advertising and public relations campaigns, and are using a wide variety of different marketing initiatives that include a giving component.

One such initiative that has received much attention is cause-related marketing, where a company ties its charitable contributions directly to its marketing or promotional efforts. In a typical cause-related marketing program, a company will advertise its product by saying it will donate a certain percentage of each product sale to a specific cause-making the cause the reason to make the purchase. St. Paul-based Deluxe Corporation, for example, recently developed a new consumer check line that honors five popular public television shows, and a portion of the checks' proceeds provide funding for public television stations Thirteen/WNET in New York and WGBH Boston. In the process, the checks help remind consumers of the company's longtime sponsorship of public television programming.

Cause-related marketing is perhaps the most strategic form of philanthropy, since it can be tied directly to a company's business objectives of selling product. And in a time of increasing competition, it's another way for a company to differentiate its products.

But cause-related marketing can raise a few eyebrows, both in the general public as well as in the philanthropic community itself. Some critics have called it "phony philanthropy," saying it uses the facade of philanthropy simply to sell more product. "The debate between cause-related marketing and philanthropy is ongoing," says Lutheran Brotherhood's Thoreson. "Philanthropy for philanthropy's sake is one thing. But promoting philanthropy through marketing efforts is another thing altogether. It's very important that people distinguish between a company's philanthropic giving, which comes out of its philanthropy dollars, and a company's cause-related marketing initiatives, which come out of its marketing dollars."

Some grantmakers prefer to view corporate giving as a continuum, with pure philanthropy on one end and cause-related marketing on the other. They point out that it's unfair to compare private and corporate philanthropy, since they exist in very different environments. While private foundations can rely on relatively secure investment income from year to year, corporate giving exists in a competitive environment that must rely on annual earnings for its giving dollars.

Many companies also view cause-related marketing and other marketing-related philanthropic initiatives as valid and effective ways to let people know about their good work. A recent survey of 1,500 households, conducted by Boston College's Center for Corporate Community Relations, showed that more than 75 percent of respondents felt that a company's philanthropic activities made a difference to them when deciding whether or not to do business with the company. But corporations often feel that regular news outlets don't like to report about their philanthropic deeds.
"I think that in the '80s, corporations were painted as big bad profit-mongers and were very frustrated by that," says Thoreson. "Whenever they did something good you never heard about it. So now they're using their advertising dollars to help make their philanthropic efforts more visible."

Nonmonetary Leverage

In corporate America's continuing search for innovative ways to leverage every giving dollar, many companies are also turning to nonmonetary means. By more tightly integrating their in-kind contributions and employee volunteer efforts with their grantmaking activities, companies believe they can add more value to every grant they make.

According to a report by The Conference Board, 1993 noncash corporate giving increased more that 87 percent from 1992 levels, comprising 15 percent of total U.S. corporate contributions. And in a 1993 survey by Minnesota's Corporate Volunteerism Council, 86 percent of nonprofit agencies reported having some type of volunteer partnership with a Twin Cities corporation; 39 percent reported having more corporate volunteer partnerships than five years ago.

Lutheran Brotherhood, whose primary business is financial services, will organize large employee volunteer efforts for federal disaster areas. The company coordinates more than 30,000 community volunteers, who gave an estimated 7.5 million volunteer hours in 1994. 3M enhances its science-related grantmaking by sponsoring two major science encouragement volunteer programs for young people. Target Stores estimates that the value of its 1994 in-kind donations, technical assistance and dollars raised through cause-related marketing initiatives far exceeded its 1994 grantmaking dollars.Pillsbury enhances its monetary investment in youth by donating food products to Second Harvest Kids Cafes, and by sponsoring several employee volunteer programs in youth education and employment. The proportion of Pillsbury's Twin Cities employees involved in volunteer projects has jumped from 33 to 50 percent since the company began narrowing its giving focus five years ago. "If we donate to an orchestra, our employees can't help make that orchestra better, most likely," says Erdahl. "But they can definitely help improve the lives of youth."

Implications for the Future

Corporate giving isn't going away, corporate grantmakers say. If anything, many firmly believe that it will continue growing. In an increasingly tough business environment, it's a way for a company to distinguish itself from the competition. And in a society with growing needs and shrinking government dollars, corporations say they can't in good conscience back away.

But for grantseekers, today's changes in corporate giving have many important implications. From a procedural grantseeking aspect, grantmakers may be looking more at how a program can be tied in to its business goals and objectives. And grants in which a company can add an in-kind or volunteer component could take on added appeal.

On a broader level, many corporate givers are quick to point out that just as they've been required to change with the times, so too should the nonprofit community. "It seems to me that corporations have been re-engineering and downsizing for several years, and I don't think we've seen the same level of restructuring in the third sector," says Erdahl. "I suspect that it's still coming. If doesn't, grantmakers will start to demand it."

Side Story
Corporate Restructuring: An Unpredictable Factor in Corporate Giving

One key difference between philanthropy on the private and corporate levels is the relative instability of corporate giving. While private foundations rely on a stable source of income from year to year, corporate philanthropy is much more tied to the ups and downs of a company's annual profits. In addition, mergers, acquisitions and top management changes can lead to significant-sometimes sudden-changes in a corporation's giving that are difficult, if not impossible, to predict very far in advance.

Here in the Twin Cities, for example, SCIMED Life Systems recently learned that the future direction for its corporate giving program will now come from Boston as a result of the company's recent merger with Massachusetts-based Boston Scientific Corp. This decision brings sudden uncertainty to the foundation's future, particularly regarding its commitment to Minnesota.

The decision was particularly painful for the people at SCIMED who have worked hard in the past two years to get the company's giving program off the ground in Minnesota. SCIMED is particularly proud of its new PULSE program, a collaboration with the local Osseo/Maple Grove school district to help at-risk students. The district selected six schools with particularly large numbers of at-risk youth, and teachers and administrators from those schools could apply to SCIMED for grants to fund reading, mentoring and similar programs. "It's difficult for me to see several years of work take on such an uncertain future almost overnight," says Patty Kovacs, SCIMED's community relations coordinator.

"We are hopeful that Boston Scientific will recognize the importance of the SCIMED corporate giving program and continue to support it," says Karen Kelsey, SCIMED's director of investor and public relations.

Corporate mergers and acquisitions don't always result in a company pulling out of a community. Such fears existed in the Twin Cities in 1989 when Pillsbury was acquired by Grand Met, but Pillsbury's cash contributions have actually increased 37 percent in the Twin Cities between 1988 and 1994. Some would argue that the Grand Met acquisition actually improved Pillsbury's giving program by providing it with more focus and direction.

Perhaps because of its experience with Grand Met, Pillsbury has been careful in how it handles its recent acquisition of St. Louis-based Pet, Inc. Although Pillsbury has decided to close down all of Pet's foundation operations in St. Louis, it has taken great pains to ease the withdrawal. Pillsbury is paying up front for all of Pet's future philanthropic commitments, making some special grants in the area, and starting up new giving programs at the company's St. Louis-area plants. "Corporations need to be sensitive to the role they play in the community," says Rebecca Erdahl, Pillsbury's vice president of community relations, "and need to manage that with integrity."

Side Story
Corporations' Giving Structures As Varied As They Are

There are almost as many different ways for a corporation to give as there are corporations. As this issue's cover story indicates, companies are increasingly giving in ways that reflect their own specific strategies, business areas, cultures and structures.

Certain aspects of corporate giving apply to all companies. They all receive the money that they give from their profits, for example. And all companies can receive a tax deduction from the federal government for charitable donations of up to 10 percent of their pre-tax earnings.

After that, the similarities start to fade. While some corporations give through a separate foundation, others choose to make their charitable contributions through a corporate giving program. Still others give through both a corporate giving program and a foundation.

And there are different types of corporate foundations. Some corporate foundations have an endowment, just as a private foundation does, and give the earnings from these assets. But most corporate foundations operate as a flow-through vehicle, where the full contribution from a corporation to its foundation is passed on to nonprofits each year. Some flow-through corporate foundations may also have a reserve fund, to be used if the company has a particularly poor year.

One of the main reasons companies choose to give through a foundation is that it can provide a more stable source of funding from year to year than a giving program, and provide a more concentrated grantmaking focus. A foundation can also give more visibility to a company's giving, and make a strong statement both inside and outside the company about its long-term commitment to philanthropy.

On the other hand, some corporations prefer to distribute their contributions through a corporate giving program instead of a foundation because foundations must follow stricter IRS regulations. A foundation can only give money to tax-exempt, charitable 501(c)(3) organizations, for example, and must follow a separate set of tax reporting requirements. A corporate giving program also gives a company more flexibility for such activities as employee matching gift programs.

The giving decisions at corporate foundations are usually made by a board of trustees comprised of representatives from the company's senior management. Giving decisions for some corporate foundations and giving programs are made by the company's board of directors. Still other corporations assign some or all of their giving decisions to various employee committees.

Some larger corporate foundations have staff assigned just to the foundation. In other corporations, the foundation or giving program may be operated by staff who also have responsibilities in the corporate communications department, the human resources department, the community relations department, or the chief executive officer's office.

Copyright 1995 Minnesota Council on Foundations
Reproduction in any form without the written permission of the publisher is prohibited.

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