The Future of Corporate Philanthropy

In the downturn, corporate chiefs like GE's Immelt say social responsibility will remain vital, but it must be cost-effective and fit corporate needs

How will the downturn affect the nascent field of corporate social responsibility? Jeffrey Immelt, the chairman and chief executive of General Electric (GE), provided a hint at the recent Business for Social Responsibility (BSR) conference in New York. "The most important part of corporate social responsibility is 'corporate,'" Immelt said. "You have to make money. The economic crisis doesn't represent a cycle; it represents a fundamental reset."

Tough talk, but Immelt isn't predicting the end of social responsibility. He's arguing instead that in some ways it will become more important than ever—but must be cost-effective and aligned with the needs of businesses. Transparency, accountability, and strategic engagement with government will become increasingly essential, Immelt says, and only companies that understand these new rules of engagement will prosper.

It's amazing to contemplate how different the mood and tone were at the BSR event compared with just two months earlier at the Clinton Global Initiative (CGI) annual meeting, also in New York. The financial earthquake already was starting to be felt then, but the business philanthropists, civil society activists, and celebrity ambassadors there carried on almost as if on autopilot. Even as Wall Street trembled a few miles away, participants at the CGI rolled out impressive new philanthropic commitments, many of which had been months or years in the making.

"Value-Added" Generosity

Will we see an end to the sort of involvement on display at the Clinton meeting? Alas, maybe so. As evidenced by the BSR event, the face of philanthropy is changing. As budgets tighten and the generosity of the boom era gives way to more limited and "strategic" engagement, corporate giving is becoming unapologetically value-added. Gone for now are the days when companies could give money just to be beneficent: Instead, we will see investments targeted to help companies manage their risks, responsibilities, and reputation—what I call R³.

The implications aren't necessarily negative. Companies likely will focus more than they used to on assessing and managing global risks such as energy security, climate change, and geopolitical conflicts. In a brutal retail market, some will try to differentiate themselves by developing ethical supply chains to boost consumer confidence, or support micro-entrepreneurship to lift purchasing power in emerging economies. To protect their local communities and retain key talent, they'll reexamine their responsibilities toward employees. And to guard their share prices, they'll seek more than ever to manage their public image.

These aren't half-bad objectives, and they're pretty much what corporate social responsibility promoters long have pressed for. They may be carried out in a budget-constrained environment, but if the goals are achieved, it won't be an exercise in cynicism: The results will be positive for investors, communities, and international development.

More Pragmatism

Despite a seeming disconnect from the Wall Street turmoil at the CGI, the shift in thinking about corporate social responsibility actually began to appear there. Every year, former President Bill Clinton encourages business, nongovernmental organizations (NGOs), and philanthropists to make financial commitments in support of development initiatives in the areas of education, health, environment, and poverty alleviation. These pledges are worth millions of dollars and sometimes involve multiple partners across different geographies—like the "Hunger Partnership" initiated at the start of the meeting and the Haiti emergency relief commitment agreed to in the final minutes. According to Clinton, over the last few years CGI members have made nearly 1,200 commitments to action valued at $46 billion that have already improved more than 200 million lives in 150 countries.

From the very beginning, the programs announced at the CGI had an exceptionally savvy and pragmatic quality. Take, for instance, one of the first commitments of the meeting, involving the Nike (NKE) Foundation and the NoVo Foundation, a philanthropic vehicle controlled by Warren Buffett's son and daughter-in-law, Peter and Jennifer. They jointly contributed $5 million to improve economic opportunities for marginalized adolescent girls in post-conflict Liberia—part of a larger commitment of $100 million to address girls' needs. It's a program with an obvious payoff: Girls have suffered a lack of support in the past, and development organizations admit that only 0.5% of every aid dollar is invested in their well-being, even though research now shows that a woman will invest 90% of her income in her family while a man will invest just 30% to 40%. What's more, studies show, every extra year at primary school raises a girl's lifetime wages by 10% to 20%. "To speak from an investment standpoint, it's just a very efficient way to change the world," said NoVo's Peter Buffett, in a perfect reflection of the new sensibility spreading through philanthropy.

Efforts such as these are sophisticated and well-designed. Some programs announced at the conference were clearly years in the making, such as a $20 million commitment from Standard Chartered (STAN.L) bank, called Seeing is Believing, which aims to reduce the number of people living with avoidable blindness so they can participate more fully in economic life. The program will establish sustainable and scalable primary eye-care services across 20 cities in Africa, Asia, the Middle East, and Latin America.

Other commitments at the event were more spontaneous. A number of CGI members, for instance, heeded a call to help the victims of Haiti's recent natural disasters "build back better." Pledges reached $130 million. As Lisa Hamilton of shipping giant UPS (UPS) explained to me: "Only the CGI could bring together the right partners in less than an hour, in this case UPS and Procter & Gamble (PG), to develop a solution to help the people of Haiti." UPS committed to provide in-kind transportation of 500,000 water purification tablets to Haiti from Panama, providing safe drinking water to 50,000 people for two months.

Savvy Partnerships

NGOs also made explicitly business-focused commitments. One example: Berlin-based anti-corruption group Transparency International is going to develop "anti-corruption service windows" for entrepreneurs in high-risk countries, where data suggest as much as half of the startup costs of small enterprises are wasted on bribes.

What has typically distinguished CGI commitments is their focus on practical solutions and partnerships among multiple contributors. The PepsiCo (PEP) Foundation, for instance, is using microfinance to promote access to clean water through a grant of $4.1 million. But even an outfit as large as Pepsi isn't going it alone. "Our relationships with WaterPartners and the Safe Water Network…will help create and maintain long-term, secure water supplies," explained PepsiCo Chairman and CEO Indra Nooyi.

Two months later, at the BSR meeting in November, the emphasis was less on shows of generosity and more about the bottom-line rationale for socially responsible activities. There was plenty of evidence presented to demonstrate the business case. The discussion focused on topics such as the impact of corporate reputation on sales of branded products in contracting markets, ethical supply-chain management, and avoidance of complicity in human rights violations.

Accountability and transparency were high on the agenda. Attendees mulled the role that trust and integrity play in determining shareholder value, discussed how to attract and retain the best talent, and debated the challenges and opportunities created by the rise of so-called "conscience consumers."

Are Some Winding Down?

The ultimate takeaway from the meeting, as well as from the CGI and other events such as a seminar held Dec. 3-5 in Paris by the Business Leaders Initiative on Human Rights (BLIHR): In the current economic climate, philanthropy unrelated to the core business is contracting and investment to address global risks is growing. Indeed, there have been reports that some philanthropists have appointed "interim managers" to wind down their activities. This unfortunate turn of events adds fuel to the argument made by some philanthropy doubters that donations are fine when times are good, but that the tendency to withdraw support when things get tough is unacceptably devastating for recipients.

The solution, of course, is that projects must be designed to be sustainable, via both long-term commitments tied to core business objectives and an emphasis on creating local solutions, not dependency. I don't think we'll see a return to Milton Friedman-style thinking, à la "the business of business is business." But we will see a reduction of budgets for good works and a growing emphasis on R³—risk, responsibility, and reputation—the bottom line "must-haves" for businesses in the reset economy.

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