Businesses Give for Bottom-Line Reasons
It's a familiar scene. Big corporation gets acquired. Local charities swallow hard.
They worry that executives heading to new and distant corporate headquarters will forget the city they left behind. The result: less money for charitable causes; fewer executives to sit on nonprofit boards.
Last week's takeover of Denver-based TCI by New York-based AT&T is the latest combination that has charities wondering about future sources of revenue.
But just as mergers and acquisitions are transforming the corporate landscape, so too is corporate giving undergoing a change. Despite the mergers, corporate giving is up. Businesses gave away an estimated $8.2 billion last year, up 7.5 percent from the year before (but far less than the estimated $109 billion that individuals gave away last year).
And how corporations give is changing. Instead of supporting causes around the headquarters city and major operation centers, corporations are making national and even international charitable initiatives.
Companies "are really spreading themselves around the country," says John Riggan, president of The Conservation Company, a corporate consulting firm in Philadelphia. "It's less and less philanthropic. It has ... a strategic business purpose."
He calls the new movement "strategic philanthropy."
For example: One of his clients - Chicago-based Kraft - has deliberately sponsored food-security and feed-the-hungry initiatives in cities across the US. It hopes to do good but also to enhance its own reputation among consumers as a food company that cares.
"I can't get into this hand wringing" among charities, agrees JoAnne LaSala, president of St. Louis 2004. "In the old days, companies tended to be locally focused. [Today] whether ... you have a headquarters is less important than whether you are an attractive place to invest."
ST. LOUIS is an interesting test case of this new approach. It has lost several corporations this decade to mergers and acquisitions, including General Dynamics, Southwestern Bell, Boatmen's Bancshares, McDonnell Douglas, and now Monsanto, which is being acquired by American Home Products. The departure of such big names has rocked local charities.
"It has done a lot to keep our revenues from growing," says Sally Everhardus, vice president for development at the Arts and Education Council of Greater St. Louis. She estimates corporate takeovers this decade have cost the group $650,000 a year - nearly a third of its total budget. And that doesn't count any fallout from the as-yet uncompleted Monsanto acquisition.
After NationsBank, based in Charlotte, N.C., took over last year the city's largest remaining local bank, Boatmen's Bancshares, it pledged to invest $100 million in economic development, small-business development, and affordable housing in the city and reached that goal six months early. The bank has pledged an additional $100 million to revitalize the city's downtown.
It has also become the official bank sponsor for all three of the city's professional sports teams. The story isn't over. NationsBank plans to merge with Bank of America and the two banks have already unveiled a 10-year program to make $350 billion worth of community development loans around the United States.
Such do-goodism has a strategic purpose.
"All these companies are fighting to connect philanthropy to the bottom line," says Peter Frumkin, a public-policy professor at Harvard University's Kennedy School of Government in Cambridge, Mass. Today, within a corporation, managers of philanthropy have to justify their programs by demonstrating how they benefit the company.
Sponsoring a community program can raise awareness of the company's products in that community. Ten years ago, companies talked about such strategic philanthropy, Mr. Riggan says. "Today the majority are practicing it."