Corporate Generosity Is Greatly DepreciatedLois Therrien
Battered by sour real estate investments, Aetna Life & Casualty Co. is experiencing a very public, very painful retrenching: dropping money-losing subsidiaries, slicing its work force by 10%. No less drastic, but far less visible, is the effect on its philanthropic foundation. With the annual budget down 21% since 1990, to $11.2 million this year, Executive Director Sanford Cloud Jr. and his staff have had toreassess radically howand why they donate tocharities.
Once a smorgasbord of worthy causes, the foundation's agenda has narrowed to two: health-care programs for disadvantaged kids and projects to help minority kids succeed in college. Gone are contributions promoting youth employment, civil-justice reform, social services for AIDS patients, and neighborhood renewal. Nevertheless, Cloud asserts: "By reducing the number of areas, we have a greater chance of impacting some important societal issues."
FEWER CAUSES. Many of America's biggest corporate donors are following Aetna's example. As companies restructure, downsize, and otherwise change how they do business, so too are they overhauling how they give. Some companies still simply write checks to the United Way and the local art museum. But a growing number of givers are abandoning their traditional passive, scattershot approaches and consolidating a hefty portion of their donations in a few causes. A recent study of the 100 largest corporate donation programs by Vienna (Va.) philanthropy consultant John Coy found more than half have developed such strategic plans, 38 of which have been in place for less than two years. Says Jane J. Prancan, executive director of US West Foundation, which recast its giving in 1988: "Spreading money around like the good fairy didn't seem like a wise use."
At Prudential, Honeywell, and American Express, foundation executives are acting a lot more like portfolio managers than pin-striped fairy godmothers these days. Describing their donations as "social investments" that they expect will deliver "strong returns," they are demanding greater accountability, measurable results, and higher visibility for their bucks. This shift into "strategic giving" affects not only the givers but the recipients--and not always for the better. Still, it's crucial in these lean times, observes Eugene R. Wilson, president of the Arco Foundation. "If we're perceived as people who just give away shareholders' money, we're not going to last very long."
Wilson has seen his budget plummet from $37 million in 1983 to $11 million in 1987, then bounce back to $19.6 million this year--the result of huge fluctuations in the oil company's profits. That has forced a new discipline into its foundation's giving. These days, much of the funds are geared to education: programs to provide better teachers in the inner cities or link social services for low-income families to school systems.
To justify their giving, many companies now also target areas more directly related to their operations. Kraft General Foods Inc., which knows something about distributing food, donates about $10 million in foodstuffs annually to food banks. It has also devoted much of its foundation's $16.4 million budget to eradicating childhood hunger: It funds advocacy programs to increase their food-bank use and runs its own bank in Westchester County, N.Y., where its General Foods unit is based. Kraft figures its scientists and executives can bring some expertise to bear on the issues of health and hunger. Of course, it does not hurt to have Kraft's name associated with good nutrition, either--"enlightened self-interest," as Vice-President Michael Mudd calls it.
PUNCHED BOWLS. In some cases, corporate donors may cross the line from self-interest to self-serving. In recent years, many college football bowls have accepted gifts from corporate sponsors, often in exchange for renaming the tournaments ("the Mobil Cotton Bowl"). Now, the Internal Revenue Service has hit 18 bowls with $52 million over five years, saying the nonprofit tournaments are really selling advertising, which makes the gifts taxable. The bowls have refused to pay.
Because they want donations to make a greater splash, companies now prefer to contribute to local groups directly. That hurts umbrella groups such as the National Community AIDS Partnership, which has had donations from Prudential, Kraft, and Gannett dwindle or disappear. As a result, fund-raising is lagging $1 million behind its pace last year, says Senior Development Officer Peter Scherer.
The new approach to giving has in part been thrust on companies by the nonprofits, which have deluged firms with demands as government funding shrinks. But the sad truth is, companies can't begin to fill the gap. Corporate donations, usually 1% to 2% of pretax domestic income, have been hurt by weak financial performance. Total corporate giving has stayed flat at $6.1 billion since 1990 (chart). "There's tremendous pressure on nonprofits," says John E. Riggan, partner of Conservation Co., a Philadelphia philanthropy consultant. "A shakeout is under way."
DUE CREDIT. Some charities have had to cut staff and programs (box). Others are running short of unrestricted funds to cover basic operating expenses, with donors earmarking contributions to projects bearing their names. "Paying to keep the lights on is not glitzy," says Francine Friedman, director of development for The Lambs Inc. As a result, the Libertyville (Ill.) nonprofit, which runs nine businesses staffed by the mentally retarded, is trying to build overhead costs into projects.
Some changes have improved nonprofits, however. Megan Cooper, executive director of Executive Service Corps of Southern California, actually appreciates her donors' emphasis on quantifying results: "We have tightened our evaluation procedures. We're really the better for it." But demands for documentation can be a burden, too: "At some nonprofits, a Xerox machine is a luxury," notes consultant James N. Alexander.
Many strategic givers have become enamored with developing a model that will provoke systemic change in, say, public education. Trouble is, everybody wants the glory of creating a model, but no one wishes to reproduce one: "Company A will die before it picks up the model Company B develops," says Valerie Lies, president of Donors Forum, which represents Chicago companies. " `Not invented here' is surely an issue," concedes Arco's Wilson. "You get into the sticky business of coalition-building and power-sharing."
Companies insist strategic giving will ultimately result in greater social gains. But some charities are skeptical. "They want special projects, they're asking for more paperwork, they're tying my hands," laments Deborah Strauss, executive director of Chicago's Information Technology Resource Center. Still, with their own budgets shrinking, corporate foundations see strategic giving as the best--if not the only--way to get more bang for the donated buck.