Who’s Making the Money Here?
By Don Lipper
The room got suddenly tense. It wasn’t the sort of scenario where people expected to hear the deepest secrets of an assault victim.
In the break room of a Sacramento Wal-Mart, 25 blue-vested employees gathered to hear Nancy Olson’s pitch for United Way. As she described how contributions from their paychecks could help 90 area charities, one worker raised her hand and divulged that she had been a victim of domestic violence and explained how a United Way charity helped her find a safe haven to escape her situation and rebuild her life.
For Olson, such revelations are commonplace. Potential contributors at her meetings still have good associations with United Way, despite being royally knocked by a scandal a few years ago at the national office and saber-rattling by 77 Sacramento-area charities about how the local office was using the money raised.
“United Ways across the country have shifted gears about how they’re raising and allocating funds,” says Olson, senior director of private-sector campaigns. “The transition process — a new approach to delivering services directly to the needy — caused a lot of angst among charities because it was not translated as members in the local community would’ve liked.” Now, most of the charities are back on board.
Despite Wal-Mart’s offer to match employees’ United Way contributions dollar for dollar, Olson faces hard questions from skeptics. What’s the measurable impact of my contribution? She replies, “Your dollar helped X number of kids get after-school programs or helped X number of homeless.”
Then she gets the BIG question that’s rocking the entire charitable world: “What percent of my dollars is going to the charity?”
According to Olson, if you designate a specific charity on an employee deduction form, the administration fee is 15 percent; if it goes into the community-impact fund, the administration fee is 20 percent. “We’re hoping to get that down to 17 percent,” says Olson. “The industry average is anywhere from 25-40 percent.”
Headlines continually scream about charity scandals by organizations that are so mismanaged that only pennies on the dollar end up helping the needy. Other charities have been hit with outright fraud.
For example, in the spring of 2004, California Attorney General Bill Lockyer filed suit against famous Hollywood fundraiser Aaron Tonken, alleging he defrauded charities and their donors, diverted donations to bank accounts he controlled and refused to account for more than $1.5 million in contributions to six charitable events he agreed to produce.
The reportedly defrauded charitable organizations include the Michael J. Fox Foundation, the Betty Ford Center, City of Hope, Inner-City Games Foundation and others. Celebrities duped include Whoopi Goldberg, singer Rod Stewart, the pop music group *NSYNC and the cast of the TV show “Ally McBeal.”
But if those people can be snookered, what chance do you or your business have?
The good news is that California ranks commercial professional fundraisers (“hired guns”) by how much of the money they raise goes to charity. Some fundraisers give 100 percent to the charity, others give zero. You can find the rankings for 2002 (the most current year available) at http://caag.state.ca.us/charities/.
The other issue is how much the charity itself charges as an administrative fee. (To discover how your charity ranks, see: To Check Out a Charity, page 38.) To help clean up this industry, as of January 1, 2005, all charities in California with revenues of more than $2 million must be independently audited and adhere to a host of reforms.
If fraud and mismanagement are such a problem, why should your business even get involved with a charity? Because corporate giving is a great way to grow your business.
Grow Your Business With Next-Generation Philanthropy
We’ve all heard the “‘tis better to give” line from those with their hand out, but it turns out that companies, as well as individuals, that give to charities get real economic returns down the line.
Even the bottom-line zealot with the soul of a Scrooge must admit the business landscape has changed. Now four stakeholder groups (consumers, employees, equity markets, and CEOs) care so much about a company’s charitable giving that not participating can be a high-stakes deal breaker. The new model seems to be if you don’t give, you won’t gain.
Gone are the days when people bought solely based on price. Every sweet tooth knows that Ben & Jerry’s gives a portion of its proceeds to charity, so fans will pay extra cold cash for Cherry Garcia instead of store brand ice cream. The Body Shop has leveraged its contributions to progressive causes into a major brand identity that has put the notion to buy lotion in mall shoppers across the United States.
On the local level, people will patronize businesses that sponsor their kid’s little league team or an organization they care about. The charity partner’s promotion of the local business in its marketing materials will help the local business reach new audiences.
Employees Need a Meaning in Life
Because employees are spending more hours in the office, they’re looking to their employers to give their work lives meaning. “More than half of MBA students would seek another job if they found that their values conflicted with the business where they work,” according to the Aspen Institute, a Colorado think-tank. That means that charitable giving can also be about getting and retaining top talent.
In a non-scientific survey of its “business partners,” the Sacramento-based Women Escaping A Violent Environment (WEAVE) found that partners believe that being a WEAVE contributor has tangible benefits:
• 100 percent believe that such contributions lead to having more satisfied employees.
• 85 percent believe that it helps “differentiate us from the competition.”
• 20 percent believe that it helps “make our clients/customers more loyal.”
In other words, a company like Altria (formerly Phillip Morris) that may want to shake the “merchant of death” moniker, promotes how much good it does for local communities and national causes.
“Public relations is both offensive and defensive,” says Rebekah Donaldson, president, and CEO of Business Communication Group, which advises charities on how to increase their donations through business partnerships. “Offensive in the sense that they make you front-of-mind for folks who don’t know about you. Defensive when you’re in the hot seat and you can point to these donations as a good-faith effort.”
The majority of investors look at a company’s social outreach as a bellwether indicator of the company’s strength. According to Harris Interactive, a leading Internet marketing research firm:
• 71 percent of investors agree that companies that operate with higher levels of integrity carry less investment risk.
• 67 percent believe that these companies deliver better investment returns.
• 73 percent of investors agree that socially responsible mutual funds are more likely than other mutual funds to invest in companies that engage in ethical business practices.
• 55 percent of investors have become more interested in socially responsible investments over the last two years.
A Harvard University study reports: “stakeholder-balanced companies [those that aren’t just focused on the bottom line] grow four times faster than shareholder-only focused firms.”
Business Ethics Magazine’s 100 Best Corporate Citizens outperformed the S&P 500 index.
Social investing is valued at $3.5 trillion and growing, despite the recent long market downturn. Portfolios screened for socially concerned investors are up 36 percent and climbing, according to a 2001 Social Investment Forum report.
Top U.S. and Sacramento CEOs
Company heads want bragging rights to announce to their peers — and the equity markets and the community that may have given the company tax breaks to locate the business there — that they really care about their community. That this public-relations blitz helps their image as a courageous and community-minded captain of industry to other potential employers is allegedly purely coincidental.
In the 11 counties surrounding Intel’s Folsom facility, the processor behemoth donated $1.9 million last year to local charities. That cash-and-equipment figure doesn’t include the value of hours donated by Intel employees and employee matching funds that adds another $600,000 to the total.
But corporations are not just signing big checks. As an example of “venture philanthropy,” many technology firms are getting involved with how their target charities operate.
“We don’t write checks until we look at accountability within the organization,” says Mark Pettinger, communications manager for Intel. “We won’t grant money unless the charity does a performance review about how they are going to use the money.”
Hewlett-Packard also gives each charity a thorough examination. “How are they going to maintain this program after we’re gone? How are they spending their money? Spending 40 cents to get a dollar is a little suspect,” says Ken Larson, HP’s director of corporate social responsibility.
“For HP, this is not altruism,” says Larson. “It is about creating strong healthy communities engaged in their own economic development. Producing value for the community is good news for HP because folks moving way up later become our employees or customers. We all benefit from that.”
Although companies will tout some of their charitable work on their websites, most are circumspect about enumerating every donation in detail for fear of offending some and opening the floodgates of donation seekers.
In Sacramento, members of a secret society of philanthropists called the “No-name Marketing Group,” include the executives from the area’s largest givers (both businesses and foundations). They meet informally once a month to exchange war stories and strategies and work cooperatively. There is no published membership list, website, or newsletter for this 10-year-old group, but those in it have noticed a change in the way the capital region does philanthropy. On both sides of the giving table, the companies and the charities are more mercenary.
Both local businesses and local charities are facing crises. “Local Sacramento companies face increasing competition. To survive and thrive, they need to stand out as different and better,” says Donaldson.
“Nonprofits have had their legs taken out from under them with the state government’s budget cuts. They need to generate the support they are losing from government sources,” she says. “Soon we’re going to see an attrition rate of nonprofits that can’t adapt.”
Choosing a Charity
“One criterion is whether the charity fits with your company’s identity,” says Donaldson. “For an automotive-parts company, it makes sense to support automotive safety to reduce highway fatalities. It won’t resonate if you choose something out of left field.”
Then you need to ask the charity what kind of impact your donation will have. “What is the commitment level of the nonprofit to helping you succeed as a business,” says Donaldson. “Some nonprofits are clueless at devising a program to get donors the recognition they deserve. For many businesses, finding such an attitude is a nonstarter.”
A charity can help its donors get recognition in countless ways, including self-published platforms, such as newsletters, websites and materials or signage at events. These cost the charity virtually nothing.
Entitlement and Expectations
“I think that in the past, nonprofits have looked at the receipt of donations from corporate and foundation partners with an attitude of entitlement and expectation,” says Nicolette Bautista, CEO and executive director of WEAVE. “From an economic standpoint, it’s important for nonprofits to know that we will prosper if our partners are doing well. We’ve taken this (business partnership) approach and tested the market with our current donors. The response has been quite positive. Over the course of a year, our philanthropic income has doubled.”
But some businesses are looking for specific tangible results. “Corporations are becoming more transactional in their philanthropy,” says David Hosley, president and general manager of KVIE, Sacramento’s public television station. “I have seen more cases where the marketing and philanthropy are working hand in glove to recruit new business. For example, when a bank contributes, the new business officer of the bank says, ‘We’d like you to bank with us now.’ There is absolutely a business goal to the contribution.”
Every charity is feeling the pressure. “They want their marketing dollars to deliver something measurable,” says Lynn Upchurch, director of development at the Crocker Art Museum in Sacramento. “How many new checking accounts will be opened? There is quid pro quo. You help us, we’ll help you.”
So are charities becoming ad agencies? Are donations simply becoming a civic-minded ad buy? “To look at a quid pro quo is missing the point,” says Bautista. “It’s about realizing on a larger level that together we stand, divided we fall.”