Philanthropy: Companies Seek Greater Returns in Tough Times

Amid soft economic times, companies' gifts are increasingly freighted with self-interestwhether it's image-polishing or engendering worker loyalty

The Great Recession exacted a harsh toll on the U.S. economy, from record home foreclosures to double-digit unemployment. Among the downturn's many casualties was corporate philanthropy. The demand for help surged as the economy spiraled lower, but corporate giving decreased by 4.5%, or –8% in inflation-adjusted dollars, according to the Giving USA Foundation. (The latest data available are from 2008.)

Company foundations also struggled to keep up their grantmaking following sharp declines in the market value of their portfolios. A number of companies with solid reputations for generous giving went out of business, such as Lehman Brothers, or were acquired, like Wachovia.

Yet just as the economy and corporate profits bottomed out in 2009, so should the slump in corporate philanthropy. To be sure, the good news mostly seems to be that the worst is over. "I don't expect 2010 to be much better than last year," says Dwight F. Burlingame, associate executive director at the Center on Philanthropy at Indiana University. "There is a lag after a recession before giving picks up."

The bottom line: Many beneficiaries reliant on corporate giving and foundation grants will continue to struggle for funding. The list of pressing social needs and everyday ills is long and disturbing. Still, it's striking that corporate giving didn't decline even further considering that companies spent much of 2008 and 2009 slashing payrolls, marketing budgets, and capital spending plans. "When laying off 15% of employees, how do you keep up all the good work you're doing in the community?" asks Charles Moore, head of the New York-based advocacy group Center Encouraging Corporate Philanthropy.

"Strategic Giving"

The answer is that companies wouldn't, except that it's good for business. For one thing, the downturn has further tightened the link between corporate giving and the products and services companies sell. Take the medical device behemoth Boston Scientific (BSX), a big player in the cardiovascular market. Its stated mission is to "improve patients' lives through innovation," and its giving is focused on health care. For instance, the company's foundation works with nonprofit groups to address health disparities in underserved communities, including efforts targeting the health of the homeless and migrant farm workers. The two major beneficiaries of Boston Scientific's corporate giving are the American Heart Assn. and the International Diabetes Federation. Notice a pattern here?

"Companies are becoming even more focused on strategic giving," says Burlingame.

Another trend worth noting: An era of scarce resources is encouraging companies to embrace alternatives to cash to support their charitable activities. Corporate product and service donations, as well as employee volunteer efforts, are increasingly popular. So is forming partnerships with nonprofits and governments to pursue social goals. "They all have to collaborate more closely—government, nonprofits, and companies—to allocate resources more successfully," says Moore.

What's more, in the never-ending competition for talent, companies have learned that employees highly value philanthropy—and such efforts may help to attract and retain valued workers. It's a major reason why company giving held up as much as it did during the recession. "There is a view held by many that the better employees are happier the more their employer is seen as a force in the community," says Diana Aviv, head of the Independent Sector, a Washington (D.C.)-based trade organization for nonprofits and charitable giving.

Cisco's Giving Strategy

Cisco Systems (CSCO) illustrates many of these trends. The global networking company hiked its total corporatewide giving, including foundation money, from $65 million in fiscal year 2005 to $128.6 million in 2009. Contributions from corporate products and people accounted for 44% of total giving in 2005, a share that jumped to 65% in 2009. Not surprisingly, its social investment strategy has a major focus on online education in information communications technology. Among its activities, Cisco has worked with public, private, and nongovernmental organizations in 168 countries to create online learning academies that have graduated some 3 million students with another 800,000-plus currently enrolled.

During tough times it has given talented employees the option of working at a nonprofit until better times return—and covered their salary. Similarly, since 2003 it has had a program where executives can apply to use their expertise at a nonprofit typically for a year and stay on Cisco's payroll. More broadly, the company learned through surveys that "people would stay at a job with less money if they believed the company was responsible and people would give the company the benefit of the doubt if [it faced] negative news," says Tae Yoo, senior vice-president for corporate affairs at Cisco. "It's an employee recruiting and retention strategy."

A hard-nosed sensibility that combines corporate profit making and social responsibility has long defined company charitable giving. The late historian Daniel Boorstin called Benjamin Franklin the patron saint of American philanthropy. "For Franklin, doing good was not a private act between a bountiful giver and grateful receiver; it was a prudent social act," he wrote. "A wise act of philanthropy would sooner or later benefit the giver along with all other members of the community."

The trauma of the Great Recession has had an impact on giving that will reverberate for years. Ben Franklin might not approve of the overall cutbacks in philanthropic spending at a time of increased need. But he'd approve of the vision behind companies' contributions—whether cash, goods, or the sweat of their employees—in these tough times.