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Corporate Social Irresponsibility

Despite PR posturing, corporate philanthropy is down from 25 years ago. To be taken seriously, companies should pledge 1% of pretax earnings, say Leo Hindery Jr. and Curt Weeden

When companies forsake their broadly defined social responsibilities or use spin to construct a deliberately overinflated image of their corporate citizenship, the end result is a private sector and a civil society out of balance.

Too prevalent today are heavily promoted, self-generated snippets designed to show how businesses are meeting their obligations to society. Paid advertisements that wave banners about how companies address global warming, curb health-care costs, or improve public education often are smoke screens to hide a troubling trend: the significant falloff in corporate charitable contributions.

Anemic Generosity

Twenty-five years ago, businesses allocated about 2%, on average, of their pretax profits for gifts and grants, according to a report by the Giving USA Foundation and Indiana University Center on Philanthropy. Today, companies are only about one-third as generous. Based on a recent analysis of IRS tax returns—which are, of course, devoid of hype—business charitable deductions now average only about 0.7% of pretax earnings. (These figures don't take into account employee volunteer hours, as the IRS does not allow deductions for employee volunteer time, even if it is time off with pay.)

Granted, measuring overall corporate responsibility requires more than just analyzing a company's philanthropic donations. Fair treatment of employees, making or selling safe products, paying taxes, and complying with environmental standards are all ingredients that should be in the social responsibility stew. However important these things are, though, they are not more important than a corporate-wide commitment to use an appropriate percentage of a company's pretax resources to address critical issues that affect employees, communities, the nation, and the planet.

Badly needed is a meaningful voluntary commitment by the business community to "ante up" a minimum budget for corporate philanthropy. A reasonable requirement for any company that wants to call itself "a good corporate citizen" ought to be to spend at least 1% of its previous year's pretax profit for philanthropic purposes.

Nonfinancial Returns

Convincing senior management to increase rather than cut back a company's philanthropy budget may seem a daunting, if not impossible, task, particularly at a time when the overall corporate profit picture has become so fuzzy. But if executives understand that an effectively managed contribution program can deliver strong returns to a corporation, then 1% of pretax earnings should take on the look and feel of an investment, not a handout.

Rather than a self-imposed "tax," a contribution can actually be managed in a way that makes it a powerful business tool. That happens when, to the extent practicable, company donations are directed to nonprofit groups closely aligned with the interests of the corporation's employees, communities, and business objectives. At the same time, a corporate contribution shouldn't be solely about advancing the interests of the company. If contributions are designed only to bolster the bottom line, if they are used to support pet projects of senior managers or board members, or if they are purely selfish in their intent, we believe they fall short of the definition of what it takes to be considered the proper conduct of a good corporate citizen.

This ante-up proposal is intended to be the bottom rung of the corporate citizenship ladder. Businesses that are "best in class" in the corporate philanthropy field also need to manage contributions strategically that go well beyond the recommended pretax minimum of 1%. Some companies are already clearing this higher bar. In Minneapolis-St. Paul, for example, more than 150 companies—including such large corporations as Target (TGT) and General Mills (GIS)—are every year donating at least 5% of their pretax earnings. (Disclosure: In 1998, the year before Tele-Communications (TCI), where I was then CEO, merged into AT&T, TCI contributed a bit more than 1% of its operating cash flow to charity. Like our counterparts in the cable industry, TCI in those years had substantial pretax losses because of significant depreciation and amortization.)

To reverse the downward trend in corporate giving, we need a cadre of self-motivated and sensitive CEOs to lead the way. We need men and women who will match actions with words by carrying out combined corporate contributions and community-relations initiatives that are supported by adequate resources and time, rather than by more chest-beating ad campaigns and press releases.

Leo Hindery Jr. chairs the Smart Globalization Initiative at the New America Foundation and is managing partner of a New York media industry private equity fund. Previously, he was CEO of ATT Broadband and its predecessor, Tele-Communications (TCI). He is the author of It Takes a CEO: It's Time to Lead With Integrity (Free Press, 2005). Curt Weeden is president of the consulting firm, Business Nonprofit Strategies and author of Corporate Social Investing (Berrett-Koehler) and How Women Can Beat Terrorism (Quadrafoil Press).

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