The Merging of Corporate Philanthropy
How Company Restructurings Are Changing Minnesota Grantmaking

As corporate merger and acquisition activity has heated up recently in Minnesota, reflecting a national trend, it has prompted considerable discussion in the nonprofit sector about what it means for the state's traditionally strong corporate giving culture.

There were 318 corporate mergers and acquisitions in Minnesota in 1999, up from 256 the previous year, according to Corporate Report magazine. Nationwide there were 9,218 deals last year about 1,500 more than in 1998. Corporate Report cites several factors driving this rising M&A activity, including family businesses with intergenerational turnover; companies growing through acquisition to gain their customers' attention; and an increased use of stock, as opposed to cash, to fund transactions, fueled by the bull market of the late '90s.

For Minnesota's nonprofit sector, this high cycle of mergers and acquisitions has been made particularly painful by the loss of the headquarters of one of the community's most valued and trusted corporate partners: Honeywell, which merged with New Jersey-based AlliedSignal in 1999 to form Honeywell International, Inc. On top of that has come the restructuring of another Twin Cities corporate giving veteran, the Dayton Hudson Foundation, now called the Target Foundation. The restructuring is not the result of a merger or acquisition, but rather a recognition that Target Stores today comprise more than 75 percent of the company's sales and profits.

What does all this change mean? Looking at the numbers, corporate giving in Minnesota remains strong. The state's 12 largest corporate givers increased their grants by 20 percent between 1997 and 1999, according to the Minnesota Council on Foundations, and the portion of grants from Minnesota companies going to Minnesota nonprofits has remained steady at 48 percent since 1990.

Still, corporate restructurings can impact nonprofits who rely on corporate support in several important ways, as well as impacting the companies themselves as they determine how to best maintain their community involvement in a post-M&A environment.

Merging Programs

When you talk to anyone involved in merging the philanthropic activities of two companies, he or she is likely to point out how difficult the effort is. Not only must the companies combine two distinct sets of giving programs and priorities, but they are also faced with the daunting task of combining two sets of legal, financial and accounting structures and two different giving cultures.

"It's very time-consuming," says Andre Lewis, executive director of the Honeywell Foundation. Lewis will relocate to Honeywell's new headquarters in New Jersey this spring to assume leadership of the new Honeywell International Foundation, and is leading an effort to combine the past giving programs of Honeywell and AlliedSignal. Community affairs staffs from both companies have begun reviewing each of their grantmaking programs, determining which ones to keep, which ones to discontinue, and which ones to combine.

"It's a slow process," Lewis says. "You spend a lot of time explaining a program to somebody who isn't familiar with its history or its impact on the community, and that happens from both sides. Yet it's very important that we finish quickly, because you want communities to see as much stability as possible as quickly as possible. You don't want a lot of question marks hanging out there for too long."

The company has already identified some old AlliedSignal programs that will be discontinued, such as a program on aging, as well as some highly regarded Honeywell programs that will stay, including Minnesota HEALS, the neighborhood Block Club grants program and the Phillips Partnership. But the future of some other pre-merger Honeywell programs is still in doubt, Lewis says.

The company will be discontinuing Honeywell's old employee matching gift program, and replacing it with AlliedSignal's program, which has a larger cap on gifts and a broader scope. Honeywell's Teacher Mini-Grant program, which provides teachers with funds for innovative projects not in their budgets, may be replaced by AlliedSignal's K-12 grant program, which has similar goals.

One major focus of the merged company's grantmaking will be education, according to Lewis, since both companies have had a tradition of education funding. AlliedSignal has focused more on higher education, while Honeywell has concentrated on K-12 education issues, "but we still match up well in that area," Lewis says.

The Target Corporation is undergoing a similar review of its foundation's grantmaking programs, following its name change from Dayton Hudson Corporation at the end of January. The company has decided that with its recent restructuring, the timing is right to better integrate the giving programs of the old Dayton Hudson Foundation with the current giving programs of Target Stores.

"We felt that the name change provided a great opportunity to create a new era for a new foundation," says Laysha Ward, the recently appointed director of the Target Foundation, who will also continue in her role as community relations director for Dayton's, Marshall Field's and Hudson's department stores. (As part of the company's restructuring, all Dayton Hudson Foundation staff positions have been eliminated.)

According to Ward, the Target Foundation remains committed to the same major funding categories as the former Dayton Hudson Foundation — arts and social action — although there will be some changes within these categories to more closely match the current giving programs at Target, Dayton's and Mervyn's California.

From an arts perspective, the Target Foundation will provide support to arts organizations and promote visibility and accessibility for the arts at the community level. "This will mirror our department stores' Project Imagine giving program," Ward says.

The bigger changes will come in the foundation's social action area. The foundation's social action giving was previously focused on adult job readiness, but in the future the Target Foundation will concentrate on providing assistance for the immediate needs of the community — food, shelter and clothing. As an example of this new focus, Ward points to the Target Foundation's recent $1 million grant to Sharing and Caring Hands, Mary Jo Copeland's Minneapolis shelter for the poor, to help pay for a major addition to the shelter's transitional housing building.

"Our goal in the next few months is to identify which grant recipients we will continue to partner with and which we can no longer fund given our focus within the social action and arts categories," Ward says.

Merging the "Backroom"

Perhaps just as time-consuming as merging two companies' grantmaking programs is all the work required to merge the related financial, accounting and legal systems and other "backroom" functions. "It's really, really hard work," says Carolyn Roby, vice president of the Norwest Foundation, who is busy preparing for a July 2000 merger with the San Francisco-based Wells Fargo Foundation. "But everybody is working very hard to make sure it goes well, and to ensure that the only thing that's different to nonprofits is the Wells Fargo Foundation name on the checks."

Norwest and Wells Fargo merged in late 1998, and the new company, which has taken the Wells Fargo name, is rolling out the name change state by state. In Minnesota, all Norwest banks, offices and buildings will be changed officially to Wells Fargo in late July.

Combining separate grantmaking structures is also a key focus at U.S. Bancorp today. When the financial services company acquired Piper Jaffray in 1998, the two companies agreed that their giving programs would remain separate for three years. As a result, nonprofits must now apply to U.S. Bancorp for funds in at least four different ways — through the U.S. Bancorp Foundation and its related giving programs and through the U.S. Bancorp Piper Jaffray Companies Foundation and its related giving programs.

"We plan to look at how we can better coordinate our giving programs and not engage in a lot of duplicative activity," says Teresa Bonner, vice president and regional Community Development manager for U.S. Bancorp's Midwestern states. "We want to make it easier for the nonprofit organizations, and quite frankly for us, to manage and relate to our partnerships with the community."

U.S. Bancorp has just begun a process to determine how it will structure its giving programs starting in 2001, when the three-year transition period with U.S. Bancorp Piper Jaffray ends. Bonner predicts that the outcome of the process will include some tighter integration of the company's various giving programs. She stresses that nonprofits should not be concerned: "We really want people to feel comfortable that the level of commitment is not changing."

Merging Giving Cultures

A less tangible but nonetheless important aspect of merging two company's giving programs is the combining of two distinct giving cultures. No two companies approach their philanthropy in quite the same way, and the differences can create additional challenges following a merger or acquisition.

In the case of Honeywell and AlliedSignal, the differences are noticeable. In numbers alone, Honeywell had higher annual charitable contributions than AlliedSignal at the time of the merger ($13.2 million vs. $9.3 million in 1998), even though AlliedSignal had about 13,400 more employees than Honeywell and about 80 percent higher revenues. But the numbers tell only part of the story.

"The Honeywell contributions program has been more proactive and more willing to be involved in community issues and in helping communities solve some of their difficult issues," Lewis says. "AlliedSignal has tended to be more reactive, with a culture of responding to problems."

But rather than focusing on the difficult challenges of blending such distinct giving cultures, Lewis prefers to focus on the positive. "This is an opportunity to instill the Honeywell contributions culture into the old AlliedSignal culture," he says, "and I think the AlliedSignal employees are ready, willing and able to do that."

After U.S. Bancorp's acquisition of Piper Jaffray Companies, one challenge for the company has been that the differences in their giving cultures are not as great as the community may have perceived them to be. Piper's commitment to the community was perhaps more highly visible than U.S. Bancorp's, yet both companies have extensive giving programs, according to Bonner. "At the time of the acquisition I think there was a lot of concern in the community about whether Piper's giving would diminish or change," she says. "But U.S. Bancorp has a very long history in the Twin Cities, and has made significant contributions back to the community. I don't think that many people are aware that its actual cash contributions were just under $19 million last year." Over the past decade, U.S. Bancorp has contributed more than $150 million in cash grants.

U.S. Bancorp's objective now is to ensure that the best practices of both giving cultures are retained, according to Bonner. She recently moved into her U.S. Bancorp position from U.S. Bancorp Piper Jaffray, where she had managed community affairs.

One aspect of Piper Jaffray's extensive giving culture that Bonner knows will continue to play a major role in U.S. Bancorp's giving program is in the area of employee volunteerism. "We want to maintain the broad level of involvement and support that U.S. Bank and U.S. Bancorp Piper Jaffray employees have had in our community involvement programs," she says. "We want to help strengthen and grow the infrastructure for community involvement and volunteerism across the whole company."

The Headquarters Question

Minnesota's recent round of mergers and acquisitions once again raises a common question around M&A activity: just how important is a community's loss of a corporate headquarters in terms of the charitable contributions it receives from that company? The answer is definitely unclear. The two Fortune 500 companies whose headquarters left Minnesota between 1997 and 1999 -- Norwest and Honeywell — tell different stories.

In the case of Norwest and Wells Fargo, the merged company's grants to Minnesota nonprofits grew from $7.0 million in 1998 to $7.9 million in 1999. The reason, according to Roby, is that Norwest's model of decentralized grantmaking has been maintained in the post-merger Wells Fargo. Under this model, local employees and bank managers in each of the company's communities make their own decisions on local contributions. "The executives here have the authority to make grantmaking decisions and to be involved as community leaders," says Roby, "so the money is going to stay here." Roby adds that the merged company's total giving is around $60 million in the communities where it does business.

Grantmaking at the pre-merger Wells Fargo company was very centralized in San Francisco, almost the exact opposite of Norwest's decentralized model, and over the past year and a half that part of the company has been working to make the switch to the decentralized Norwest model. "I've had Wells Fargo managers tell me how pleasantly surprised they've been at how wonderful and powerful local decision-making can be," Roby says.

The story is different with Honeywell, a company that has had an extraordinary level of commitment to Minnesota, and particularly the Twin Cities, which was its headquarters for 114 years. In 1999, almost half of Honeywell's charitable contributions — $7.2 million — went to the Twin Cities, and the company has committed the same amount in 2000. But starting in 2001, Lewis doubts the company will be able to maintain the same amount of local giving.

Lewis stresses, however, that the Twin Cities will continue to be a priority funding area for Honeywell International. The Twin Cities has the second-largest concentration of employees after Phoenix, and active employee volunteers, which are two key funding criteria for the company. He points out that Honeywell has two employees in the Twin Cities dedicated totally to community affairs, which is unusual for a non-headquarters community, and Lewis himself plans to spend at least one week every month in Minneapolis for the foreseeable future.

The recent changes at Target also highlight the importance that headquarters can play in a company's giving. Although Target Corporation decentralizes much of its charitable giving through its retail stores, the Target Foundation continues to be dedicated to supporting the company's Twin Cities headquarters community. The foundation will award $7.5 million in grants in Minnesota in 2000, up from $7 million in 1999. In addition, the Target Corporation will award $9 million in grants to Minnesota nonprofits this year through Target Stores, Dayton's and Mervyn's California, bringing its total giving in the state to $16.5 million. "I'd like to reinforce our commitment to giving in Minnesota," says Ward. "We value our partnerships and look forward to continuing to build on our reputation as a leader in giving."

Change Is Constant

Although there appears to be a particularly high level of change in Minnesota's corporate grantmaking community right now, corporate grantmakers point out that this is really nothing new. "There has always been a tremendous amount of change," says Roby, "but it goes in cycles, and you forget how much change there's been in the past. There used to be some very prominent local givers with names like Control Data and Cray Research."

Roby also reminds nonprofits not to forget that there are many Minnesota companies growing by "leaps and bounds all around us." Medtronic, for example, has increased its grants by nearly 60 percent between 1997 and 1999, and companies like ADC Telecommunications and Best Buy have grown their giving programs significantly in the past few years. "Every nonprofit should get the CityBusiness 'Book of Lists,'" Roby says in all seriousness, "and read it thoroughly."

Copyright 2000 Minnesota Council on Foundations
Reproduction in any form without the written permission of the publisher is prohibited.

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