Central office: The Think Tank, 2 Bostock Court, Buckingham, MK18 1HH, United Kingdom

THINK Intelligence

Global Corporate Engagement

January 2011

THIS REPORT HAS BEEN COLLATED BY THINK CONSULTING SOLUTIONS TO HELP YOU NAVIGATE THE COMPLEX AREA OF GLOBAL CORPORATE ENGAGEMENT. IT IS INTENDED TO PROVIDE A REVIEW, ANALYSIS AND SIGNPOSTING.

IF YOU WANT MORE INFORMATION PLEASE CONTACT US intelligence@thinkcs.org

Contents Summary .................................................................................................................................... 3

Introduction ............................................................................................................................... 5

The evolution of CSR .................................................................................................................. 5

Corporate philanthropy ............................................................................................................. 6

Corporate Community Investment/Involvement (CCI) ......................................................... 7 Corporate philanthropy in the UK ............................................................................................. 8

Facts & Figures ....................................................................................................................... 9 Changing direction ............................................................................................................... 13 The future of CCI from a UK perspective ............................................................................. 14

Corporate philanthropy in the U.S. .......................................................................................... 15

Giving types .......................................................................................................................... 17 Cash and non-cash giving ..................................................................................................... 17 Pro bono giving .................................................................................................................... 18 Levels of giving ..................................................................................................................... 19

The future of corporate philanthropy in America ................................................................... 21

The Global Economy ............................................................................................................ 21 Societal expectations ........................................................................................................... 22 Leadership role of corporations ........................................................................................... 23 Business and society in 2020 ............................................................................................... 23 Sustainable Value Creation .................................................................................................. 25 Key messages coming from CECP ........................................................................................ 35

Corporate philanthropy around the world .............................................................................. 36

Czech Republic ..................................................................................................................... 36 Russia ................................................................................................................................... 37 The Gulf States ..................................................................................................................... 38 China .................................................................................................................................... 38

Additional comment ................................................................................................................ 40

Case Study ................................................................................................................................ 41

Interview Evidence ................................................................................................................... 45

Dutch charity interviews ...................................................................................................... 45 US not-for-profit interviews ................................................................................................. 46

Further Reading & Research .................................................................................................... 49

Summary For the purposes of this report, THINK has produced the following diagram that aims to capture the complexity of the drivers and thinking behind global corporate engagement.

engagement philanthropy

strategic not tactical

local, national & international

global similarities driven by global players

globalisation

issues

sectors

company and charity

years

stakeholders

legislation

brand

non-financial

£$€

look to developed markets

There is a whole host of conflicting evidence surrounding corporate philanthropy; much of which is included in this toolkit. Although we have provided a review of current literature and thinking and made subsequent judgements, ultimately their application will depend very much on your organisation - your cause, your charity’s share of voice, reputation and brand, what it is you do, whether you campaign or deliver services and where, and perhaps most importantly, your people and mechanisms that determine your organisation’s ability to be flexible. There is conflicting evidence that community investment is increasing on the one hand, while decreasing on the other. The latest research from America suggests that in the next decade companies will enter a new phase of sustainable corporate philanthropy based on long-term integration into business strategy. Yet it is clearly evident that the majority of companies remain more interested in reactive philanthropy that helps to strengthen their reputation and customer loyalty. Look to America and you’ll see great optimism and enthusiasm; look to the UK and you find caution and pragmatism; and look to the rest of the world and you’ll see countries still relatively new to CSR and philanthropy just beginning their own journey of social responsibility. This CSR infancy, together with very region-specific factors, may mean that the corporate philanthropy journey of emerging nations and regions could follow a different trajectory to that of the West. Yet, there is no doubt that multi-national companies entering new global markets (in the Middle East or in Asia for example) will have an influence on the evolution of CSR. Yet the key question is whether attempting to impose their own vision and philosophy for philanthropy on markets where there are key differences in influencing factors, could prove too difficult a task.

It is important in order to gain any kind of real insight into corporate philanthropy, to first to look at what is going on in key countries, rather than globally. When we put our magnifying glass up to the global corporate map, we see that within individual countries and regions there are hugely contrasting views on corporate philanthropy. This is evidenced by significantly varying levels of commitment to community investment. While large multi-nationals are paving the way for a new ‘dawn of corporate philanthropy’ (arguably brought on through necessity), smaller companies are perhaps left wondering why they need to change at all. It is therefore prudent to read this report with the understanding that there are significant differences in attitude and application between large multi-nationals forced to think on their feet, and smaller companies who continue to view traditional corporate philanthropy as a percentage of pre-tax profits. Another way to look at it is to view and understand Corporate Community Investment (CCI) as a conflict of theory vs. practice; rhetoric vs. action. While large multi-nationals in America are busy mapping out the future of CCI into a more strategic and integrated system of support (much like any other department in a company), the rest of the world is still busy catching up with traditional corporate philanthropy practice, implementing what they believe to be most appropriate to their own market place and position within it. There is also the added difficulty of assessing the future of corporate philanthropy, because most countries are still emerging from a global recession. Data prior to the economic crisis generally shows an increasing commitment to community investment by companies, but what has been the impact since? Data shows that for some, community investment is still on the increase, albeit more slowly than before, while others are attempting to hold steady. Inevitably, many smaller companies, less able to weather the economic storm, have decided to reduce their community investment, but ultimately we will have to wait a few more years before the real (overall) impact of the recession can be properly evaluated. Already, many people are predicting CCI to, at some point, return to pre-recession levels across the board. However, this assumption does not adequately take account of the potential effects of the recession, the changing global marketplace and the impact these may have on corporate attitudes to CSR and CCI. Setting aside the long-running debates about differences in definition and implementation, it is very apparent that the practical aspects of corporate philanthropy and even CSR vary hugely across continents, countries and even national business sectors. What does appear to be globally recognised, however, is the belief that moving away from purely financial corporate philanthropy, is and will continue to happen in the future. Businesses recognise that they have a lot of expertise and skills that needs to be shared with others and so deploying non-financial assets in areas that they have knowledge of together with carefully selected partners, makes much more business-sense. This is seen as being much more likely to produce positive impact without creating long-term dependency, which traditional philanthropy ultimately does. If this is true, what this means for not for profits seeking support from companies is that their own expectations will have to alter and adapt to the changing conditions that dictate how companies are run. Will this happen on a global scale in the near future - probably not, but it is becoming increasingly important for not for profits to invest time in understanding both the internal and external factors that influence CCI, and more broadly CSR. After all, it is no longer sufficient for not for profits to select corporate partners based on filling in an application form online. Without this insight, repositioning an organisation to be at the forefront of the profit and not for profit relationship will prove incredibly difficult. This report attempts to provide a brief look at the state of corporate philanthropy around the globe, focusing in on key mature markets like America and the UK. We attempt to look at the emerging

concept of Sustainable Value Creation, which is being spearheaded by the Committee Encouraging Corporate Philanthropy (CECP) in America, and is being touted as the next generation of CSR. We also look at what this means for the not for profit sector in terms of corporate philanthropy and the changing relationship that is envisaged over the next decade.

Introduction Corporate social responsibility (CSR) or ‘corporate citizenship’ has evolved since the 1980s with numerous NGOs and NGO networks, as well as consumer groups and trade unions, mobilising around issues such as child labour, sweatshops, fair trade, the rights of indigenous peoples, toxic chemicals, oil pollution and tropical deforestation for example1

.

The increasing involvement of NGOs in advocacy, economic and regulatory activities came about through numerous developments, including:

• The continued expansion of the NGO sector, which was gaining legitimacy as a development actor and seeking new areas of engagement.

• Criticism of failed attempts by government and international organisations to regulate large corporations, led to a new strategy centred on voluntary approaches, collaboration and partnerships.

• With globalisation and economic liberalisation came increased trade, investment and financial benefit, but without the equivalent adjustments in obligations and responsibilities, particularly noticeable in developing countries.

• Several environmental and social disasters and injustices, linked to large corporations or specific industries, became high-profile international issues around which activists mobilised.

As a result of increased consumer awareness through activism, came the evolution of concepts such as ethical investment, which made companies realise it was beneficial for them to acknowledge their economic, social and environmental responsibilities to society.

The evolution of CSR As CSR began to evolve, big business began to realise that simply reacting to pressure or engaging in defensive posturing simply wasn’t enough. Being seen as a proactive player, shaping and disseminating the CSR agenda, was much more beneficial. The role of CSR in risk management is also a crucial aspect of the business case. Globalisation and the strengthening of civil society implied new risks for global corporations. Instances of malpractice in high-profile brand-name corporations supply chains could be detected and publicised internationally and consumer campaigns and boycotts harm a company’s or product’s image, sales, and competitive advantage. In some countries like the USA and the UK, global corporations became more vulnerable to litigation related to social, environmental and human rights issues. Such risks to profits, market share and reputation could, to some extent, be managed through CSR. Engaging in CSR through voluntary initiatives was also a way of diminishing regulatory threats from government.

1 Corporate responsibility and the movement of business, Peter Utting, Development in Practice, Volume 15, Numbers 3 & 4, June 2005

As a result, a group of high-profile global corporations began rolling out the CSR agenda through sponsorship, PR, advertising, dialogues, networking and participation in partnerships, as well as implementing changes in business policies, management systems and performance. These companies included (among others) ABB, Backus (Peru), BP, Carrefour (France), Dow Chemicals, Dupont, Eskom and Sasol (South Africa), Ford, IKEA, Levi Strauss, Merck, Migros (Switzerland), Novo Nordisk, Rio Tinto, San Miguel (Philippines), Shell, Suzano and Aracruz (Brazil), Tata Iron and Steel (India), Toyota, and Unilever2

.

This agenda became successful because the movement had support from traditional business and industry associations, such as the International Chamber of Commerce (ICC), the International Employers Organisation (IEO), the World Economic Forum and from sectoral associations (i.e. chemical, mining etc.). A relatively new set of business-interest NGOs and foundations with close ties to global corporations and corporate philanthropists also emerged to actively promote the CSR agenda. These included the Bill and Melinda Gates Foundation, Business for Social Responsibility (BSR), Business in the Community, CSR Europe, the Global Business Council on HIV and AIDS, Instituto Ethos in Brazil, the International Business Leaders Forum (IBLF), Peru 2021, Philippines Business for Social Progress and the World Business Council for Sustainable Development (WBCSD).

Corporate philanthropy One distinct aspect of CSR is support for the community in which a company operates. Traditionally, the majority of companies tended to donate cash to charities in response to requests for funding or emergencies. This was largely a reactive process, with companies setting aside a figure or percentage of profits to ‘donate’ to charities, in the hope that their reputation as a company would be strengthen in the eyes of consumers. Although for many companies, this still provides the basis for their philanthropy, over the past 10 years many have increasingly been non-financial services (NFS) such as company/employee time, skills and resources in supporting the not for profit sector. A number of factors converged to shift the focus away from traditional reactive financial giving, towards more proactive non-financial support. This support is seen as a long-term ‘investment strategy’ based on what the corporate sector calls ‘proactive generational investment’, as opposed to traditional reactive financial dependence. This is seen as the only real effective response to the current global economic recovery, increasing global competitiveness and an increase in corporate mistrust from society. If implemented properly, it is also regarded as a sound business practice that is in the best interest of shareholders and stakeholders alike. Included as a part of a company's mission and business practices it can provide recognisable benefits to everyone involved, including3

:

Benefits to the business:

• Enhances corporate reputation • Improves relations with government, the community, and key stakeholder groups • Supports a company's strategic business goals • Enhances brand recognition • Attracts better employees and increases retention

2 Corporate responsibility and the movement of business, Peter Utting, Development in Practice, Volume 15, Numbers 3 & 4, June 2005 3 www.creatingloyalty.com

• Helps create healthier communities for business viability • Increases employee and customer loyalty • Strengthens relationships with customer, clients, and vendors • Provides human and capital resources to not for profit organisations that may be helping

employees and their families Benefits to stakeholders (employees, management team, shareholders, etc.):

• Builds employee morale and engagement • Develops future workforce contributing to a sustainable company • Provides employee/management training and skill building (e.g. project and time-

management, leadership opportunities, teamwork activities, etc.) • Increases understanding of co-workers and appreciation for diversity • Enlarges sense of community and social obligation • Encourages appreciation for contributions from all levels within the organisation • Increases pride and responsibility

Benefits to the community (local and global):

• Improves quality of life for community members • Provides human and capital resources to not for profit organisations that may be helping

employees and their families • Assists in alleviating community social issues • Enhances the impact of monetary contributions directed into the community • Creates healthier communities

Corporate Community Investment/Involvement (CCI) Traditional corporate philanthropy has been morphing into ‘Corporate Community Investment/Involvement’ (CCI) in recent years. Seen as a long-term investment, it is increasingly being professionally managed, either in the form of a community relations function within a CSR department for example (this often means there is Board level representation for CSR), or through a company foundation (which institutionalises the function but at the possible risk of reducing alignment with company strategy). In some cases CCI has acquired an intra-firm consultancy status and is therefore built into a wider range of company activities, through the marketing, finance or human resource departments. As stakeholders demand more information on company performance, so CCI has become the subject of more measurement, benchmarking and evaluation. Companies often combine internal measurement tools designed around their own performance indicators with third party tools such as the London Benchmarking Group model. This helps companies to report their own performance and benchmark it against others to identify their effectiveness. Charity partners are also expected to assess CCI impact. In the past, charities would simply take the company cheque, but for the most part traditional corporate philanthropy is disappearing. Now charities are expected to be able to quantify the impact of a company’s support, even though being able to do so is still not commonplace. A charity with the ability to measure and report this impact is seen as having a significant ‘competitive advantage’4

4 ‘

.

An evaluation of Corporate Community Investment in the UK - Current developments, future challenges’, CAF, December 2006

Yet, whilst CCI has come a long way in the past few years and is clearly making all the right ‘noises’, what is clear is that its integration within the corporate sector as a whole, is very sporadic5

. There is increasing evidence that CCI is becoming institutionalised through new management and governance developments and between companies and communities, but this is often only visible within large national and multi-national companies.

Corporate philanthropy in the UK Research on corporate philanthropy in the UK is largely provided by three organisations – the Directory of Social Change (DSC), the London Benchmarking Group (LBG) and Business in the Community (BitC). The LBG is a group of over 100 international businesses who seek to manage, measure and report on their involvement in the community. The group continually monitors and fine tunes its measurement techniques emphasising the need to standardise the way in which companies calculate total community contributions. This enables companies to present a more accurate and comprehensive picture of corporate support. Business in the Community is a membership network of over 830 companies that support and challenge business to improve their performance and benefit society through community, environment, workplace and marketplace. Interestingly, BiTC chose to drop its long-standing Per Cent Club standard (which sought to encourage companies to give at least 1% of pre-tax profits in support of charitable/community initiatives) and no longer makes public any figures for individual companies. Instead, it introduced ‘CommunityMark’ provides companies with a self-assessment method of benchmarking their community investment, with the process being complemented by ‘additional feedback from community partners and relevant employee volunteers, selected by the company’. Twenty-one businesses have apparently met this new national standard, investing £600 million in a range of community projects in the last year. Unfortunately it is not possible to verify this figure as ‘Companies are not required to publicly benchmark’. The DSC looks at corporate giving from a financial perspective, providing information on the actual figures found in companies annual reports. The latest edition of the DSC’s UK Company Giving 2009/10, features 490 companies, which together gave around £808 million in community support (including £500 million in cash donations) in 2007/08. The level of giving by companies varies greatly, from around £20,000 to over £75 million. Perhaps because of this, people tend to equate a ‘big giver’ with the ‘most generous’, but this may not actually be the case. While very large companies may be congratulated for giving £4 million in donations, smaller companies giving a few hundred thousand pounds may actually be contributing a far greater proportion of their profits to charity. While the usefulness of comparisons made in this way is a matter for dispute (profits can go down as well as up), it does show how, taken at face value, figures can be misleading as far as which company is making the greater gift to the community. Here we first look at some financial figures in order to establish any past and current trends in corporate philanthropy in the UK.

5 An evaluation of Corporate Community Investment in the UK, CAF, December 2006

Facts & Figures Although many companies’ level of donations remains fairly constant year on year, others fluctuate significantly, and for no apparent reason, which can make predicting trends in company giving difficult. According to calculations by organisations such as NCVO and the Charities Aid Foundation, just 4–5% of voluntary income is provided by companies. Out of a total voluntary sector income of £31 billion in 2005/06, this equates to around £1.2 billion. In 2007/08, total cash donations by the 490 companies in the DSC research amounted to £500 million, compared to £367 million in 2005/06. With a further £308 million (2005/06: £367 million) declared for in-kind support, this gives a total community contributions figure of £808 million compared to £734 million in 2005/06. Surprisingly, these figures show that the level of cash donations has risen by over 36 per cent, compared to a 26 per cent rise in the last edition, while the in-kind portion has actually fallen by 16 per cent following a 26 per cent increase in 2005/06. While this trend seems to suggest a move in the opposite direction to corporate philanthropy in America, we cannot say for certain that this is indicative of the sector as a whole. This is due to a number of factors, including:

• the latest figures include a number of ‘new’ companies with exceptional or high levels of giving, e.g. HESCO Bastion (£11.5 million) and RAB Capital (£5.3 million);

• the cash donations of a group of ten ‘new’ companies totalling £27 million; • the almost doubling of Barclays’ donations to over £30 million; and • the distinct lack of information regarding the full extent of in-kind support in the UK and its

value. Not only is this not generally available, but in some instances there is a deliberate decision not to release details even when specifically asked for.

Previous years research showed that around 99 per cent of total community contributions made by the companies listed in the DSC research was made by the top 400 companies. In 2007/08 that number dropped dramatically, with the top 300 now accounting for 99 per cent (£799 million), the top 50 companies for 79 per cent (£638 million) and the top 25 companies for 37 per cent (£298 million) of total contributions (see Table 1. below).

N.B. Obtaining a figure for total community contributions (as opposed to purely cash donations) can be difficult, especially as they make the ‘Top 25’ UK-specific. In order to achieve the latter, they had to omit 13 of the largest givers as they chose to provide worldwide contribution figures only. Those companies omitted from the table above contributed £288 million, or nearly 36 per cent of the total, and included the likes of Tesco, Royal Bank of Scotland, BT Group, Cadbury and National Grid. The DSC didn’t make an estimate based, for example, on the figures provided by Barclays plc which gave around 75 per cent of its total support in the UK, because it feels strongly that this is something the companies should be openly providing themselves. We were going to include more figures from the latest DSC Guide to UK Company Giving, but as the figures were essentially for 2006/07, we felt this might give a false impression of the current trend in corporate philanthropy. This is because up to 2007, the economy was in a boom period and the DSC’s figures reflect this with companies showing an increase in community investment and charitable donations. Therefore, in an attempt to see what has been happening in the years since the global economic recession, we chose 4 UK companies from the list of the top 25 givers (Barclays, Marks & Spencer, ITV and Unilever). These were chosen as a representative sample for different industries, but those selected were also chosen based on the available information in their annual reports. We compiled the table below, using figures taken from their annual reports from 2005-2010, and they show some interesting results. As we can see from the table below (Table 2.), Total Community Investment in the UK has clearly fluctuated in the past 5 years, with only Barclays showing a sustained decrease in community

investment for the period. Total UK Charitable Donations have either remained steady or has decreased for each of the four companies, with both Barclays and Unilever showing a continued decrease in cash donations, both in terms of cash amount and as a percentage of total UK community investment. What is also noticeable for two of the companies (Barclays and Marks & Spencer) is that total UK Community Investment as a percentage of total income has also been decreasing year-on-year. For ITV, this is also the case apart from 2009 figures, while Unilever has held donations as a percentage of total income consistently steady at around 0.2%. This shows that there is evidence of a shift away from cash donations, with all five companies showing a decrease in 2009 from the previous year. Interestingly, Barclays has shown a definitive shift in community investment from the UK to more international community investment. In 2005, total UK community investment accounted for 90 per cent of total global community investment, but in 2009 this had dramatically decreased to just 50 per cent, perhaps emphasising the growing visibility and importance of global events and philanthropy.

Table 2. UK Community investment figures for 4 of the UK’s largest corporate givers Company Year Total

Income (£million)

Total global community investment (£million)

Total UK community investment (£million)

Total UK community investment as a % of total global investment

Total UK charitable donations

Charitable donations as a % of Total UK community investment

Total UK community investment as a % of total income

Total international community investment (£)

International community investment as a % of total community investment

Barclays plc

2009 £31,000 £54.9 £27.4 50% £19.3 70% 0.9% £27.5 50% 2008 £23,100 £52.2 £27.7 53% £19.6 71% 1.2% £24.5 46.9% 2007 £23,000 £52.4 £38.9 74% £30.4 78% 1.7% £13.5 25.8% 2006 £21,600 £46.5 £39.6 85% £35.2 89% 1.8% £6.9 14.8% 2005 £17,400 £39.1 £35.3 90% £16.7 47% 2% £3.8 9.7%

Marks & Spencer

2009 £9,300 N/A £13.2 N/A £5.2 39% 0.14% N/A N/A 2008 £8,160 N/A £12.2 N/A £5.2 43% 0.15% N/A N/A 2007 £9,022 N/A £15 N/A £5.4 36% 0.17% N/A N/A 2006 £8,588 N/A £13.9 N/A £3.8 27% 0.16% N/A N/A 2005 £7,797 N/A £9.3 N/A £3.4 37% 0.12% N/A N/A

ITV plc 2009 £1,879 N/A £12 N/A £2 17% 0.60% N/A N/A 2008 £2,029 N/A £7 N/A £2 29% 0.34% N/A N/A 2007 £2,082 N/A £7 N/A £1 14% 0.34% N/A N/A 2006 £2,181 N/A £10 N/A £2 20% 0.46% N/A N/A 2005 £2,196 N/A £19.3 N/A N/S N/A 0.88% N/A N/A

Unilever 2009 £39,823 N/A £7.8 N/A £0.4 5% 0.02% N/A N/A 2008 £40,523 N/A £6 N/A £0.7 12% 0.01% N/A N/A 2007 £40,187 N/A £6.6 N/A £1 15% 0.02% N/A N/A 2006 £39,642 N/A £7.4 N/A £1.6 22% 0.02% N/A N/A 2005 £38,401 N/A £7.4 N/A £1.5 20% 0.02% N/A N/A

What also became clear from this simple exercise is just how little information on corporate community investment is still provided in company reports. From the top 25 givers in the UK, only a handful provided any useful figures in their annual reporting. The DSC make this point in their research; that despite the introduction of the Companies Act 2006, which aimed to strengthen the requirements in the legislation on social and environmental reporting, this has not been seen so far in corporate reports. The Act stipulated that the 1,300 companies quoted on the UK stock market must report on environmental matters, employees, social and community issues and risks down company supply chains where they are necessary to understanding the company’s business. Clearly, many companies don’t believe it is anyone else’s business but their own. Changing direction The question as to whether CCI in the UK is moving away from cash donations in a conscious strategic move, or whether it is merely responding to market forces is difficult to answer. Unlike America, which is showing very clear ideas about the way forward for CCI (as we shall see), companies in the UK do appear to be more reactive. However, as we have said, this is a difficult time to be making definitive assertions given that the UK faced arguably its worst economic downturn in 60 years. The government had to bail out some of the UK’s largest givers including HBOS, Northern Rock and Royal Bank of Scotland. This undoubtedly created uncertainty in the market and figures for this period are likely to obscure the view when it comes to future development. But what does the business community themselves say about CCI? In ‘The Value of Giving’, published by the Ethical Corporation in September 2008, there was a definite attempt to move focus away from purely looking at monetary values and financial gifts, towards an assessment of the effectiveness of corporate giving. This, it was argued, was particularly as companies are increasingly looking at the creation of long-term partnerships and the leverage of additional resources from elsewhere. Companies clearly value Non-Financial Services (NFS) for the experience and personal development opportunities it offers employees, in addition to meeting a need in the community and providing charities with skills-based support. Research in the UK, for example, shows that companies are developing their programmes to offer professional services in long term partnerships6

. The question is will NFS be enough for not for profit organisations in the future. Many smaller organisations may argue that cash is the most important kind of contribution because it gives the most freedom to pursue its goals. Many smaller organisations may also argue that they don’t have the capacity or resources to invest in collaborative partnerships with companies.

However, in the same year, some commentators expressed their concern that companies no longer saw community investment as a priority at all, as they began to focus on the bigger issue of long-term sustainability. The recent SEE (Social, Environmental and Ethical) Potential report, ‘CSR – Pragmatism or Tokenism’, for example, noted that 79 per cent of respondents thought business should be tackling environmental issues in the future, compared to the 59 per cent in favour of tackling social issues7

.

Evidence taken from research for the Ethical Corporation report suggests that many companies are in fact wary of talking publicly about their community investment activity, instead preferring to focus on their core business activities. Google’s director of communications, D.J. Collins, said: “I prefer to spend my time talking to the press about the benefits of search, YouTube, Google maps and the rest.” Other companies continue to use CCI as a basis for communication, but are becoming more focused 6 ‘Developing understanding around non-financial support’, The Smart Company, Summer 2007 7 The Guide to UK Company Giving 2009/10, DSC, 2009

and strategic in the way they do this. Companies surveyed for the Ethical Corporation report agreed that when talking about community work, it is best to focus on specific audiences and do more than simply report what a company is doing. BiTC’s community impact director, Catherine Sermon, said: “Certainly some companies have stagnated in their approach to community investment because they feel they should now move onto bigger things.” Mark Goyder, founder of business think tank Tomorrows Company, believes that the centre of gravity is shifting away from community investment towards the view that a business needs to redefine its whole product and service strategy so that it acts to meet the long-term needs of society. The current climate has prompted businesses to look at their community investment more critically, he says. While this is a positive development, he detects “a pressure in some places to desist from some community investment”. Community investment is in danger of being marginalised as an outmoded form of corporate behaviour8

.

The future of CCI from a UK perspective Whether companies are beginning to marginalise community investment or whether they are simply shifting their focus away from cash donations, the current economic situation in the UK (and globally) will undoubtedly “further sharpen the contrast between those companies committed to investing in the community and those which have merely paid lip service to the idea”9. After all, socially responsible businesses will not to abandon their hard won reputations because of the economic downturn. Indeed, the downturn is seen as an impetus to speed up innovation and find more cost-effective ways of advancing commitment to being responsible businesses. As David Grayson commented in his Guardian article: ‘Doing good in good times takes vision. Sticking with it in the tough times takes vision and determination’10

.

However, there is evidence of an increasing level of sophistication in the way companies are planning and delivering community investment. As companies become better at directing their community investment strategically and implementing it effectively, they not only get more successful at achieving whatever business goals they are seeking to fulfil, but they also start to make a real impact on the issues they have chosen to tackle. In the most forward thinking companies, community investment is strategically planned and delivered as a tool to support a much wider responsible business strategy. Companies clearly understand that community investment cannot replace managing their relationships with suppliers, or their environmental impact.

“Most companies will carry on doing at least as much as before although there will be even more emphasis on demonstrating the business case for community ‘investment’.” Jeremy Moon, Director of the International Centre for Corporate Social Responsibility at Nottingham University Business School

The best companies understand the importance of a clear business case for community investment. The case varies according to the nature of the business and its particular challenges. For an extractive company such as BP, community investment forms a key part of its ability to operate in a given area. Providing training and employment to local people and suppliers are important components of BP’s ability to be successful.

8 ‘The Value of Giving: Engaging Employees and Communities’, Ethical Corporation, September 2008 9 David Grayson, Director of the Doughty Centre for Corporate Responsibility at Cranfield University, commenting in Salter Baxter’s 2008 Directions Report – ‘Sustainability Gets Tough’ 10 ‘Will corporate consciences crack under the credit crunch?’, David Grayson, Guardian article, October 2008

For consumer driven industries, the business case for community investment tends to centre on reputation. For Procter & Gamble, its work on building schools, vaccinations or water purification speaks in very positive ways to its consumers about the values of the company and its brands. For Royal Bank of Scotland, with a strong tradition of looking after employees, the potential for community investment to attract, retain and develop staff is a large part of the business case. A clear business case is essential because it enables a company to justify spending to shareholders. It also ensures all community investment has direction, since it is aimed towards specific business objectives. Given the current economic climate, the likelihood is that some companies will inevitably choose to cut back on their community investment (thus raising questions about their commitment in the first place), while for others it will remain static or increase at a slower rate than has been the case, possibly in line with the economic recovery. According to a BiTC Ipsos MORI poll in October 2008, companies which consistently managed and measure their corporate responsibility outperformed their FTSE 350 peers on total shareholder return (TSR) in seven out of the last eight years. Further, the TSR of these companies recovered more quickly in 2009 compared with that of their FTSE350 and FTSE All-Share peers. This suggests that not only do responsible businesses fare better in strong economic times, but it seems that businesses that incorporate social and environmental factors into their core business are able to respond faster and, in this case, have bounced back from the financial crisis quicker. According to Stephen Howard, CEO of BiTC, this shows that “responsible business is just good business”. What then would appear to be the model for CCI in the UK moving forward is the development of stronger base of responsible companies whose efforts to integrate CCI into their business model will ensure sustainability by offsetting a decline in the number of less committed companies whose focus of CCI is largely superficial. Removing companies who see CCI as “a bolt-on to business operations and not built-in to business purpose and strategy11

” will inevitably help to sharpen the gap between the committed and others.

Yet, as pressure on companies to measure and evaluate CCI increases, there is an inevitable and associated pressure on charity partners to allocate significant resources both to the relationship and to providing feedback on the impact of the company’s support. It can be argued that capacity to find these resources gives larger charities a competitive advantage. If this is true, how can we be sure that CCI is addressing ‘real’ community issues and not just supporting those charities that are able to provide the resources to satisfy their corporate partners? Are there significant numbers of charities missing out on CCI opportunities due to their size or the cause they support? If so, what steps can be taken to avoid excluding them?12

Corporate philanthropy in the U.S.A. America is seen as leading the way in the evolution of CSR and corporate philanthropy due to its mature fundraising market and the emergence of institutions dedicated to advancing corporate philanthropy. Therefore, we start by looking at some key trends in corporate philanthropy over the past few years in America, which not only provide a basis for understanding its progression, but also provide an insight into its future direction. 11 ‘Will corporate consciences crack under the credit crunch?’, David Grayson, Guardian article, October 2008 12 ‘An evaluation of Corporate Community Investment in the UK - Current developments, future challenges’, CAF, December 2006

The Committee Encouraging Corporate Philanthropy (CECP) is the only international forum of business CEOs and chairpersons focused exclusively on corporate philanthropy. Membership includes more than 70 CEOs and Chairpersons representing companies that account for over 40 per cent of reported corporate giving in the United States. While CECP provides its members with essential resources, including a proprietary online benchmarking tool, networking programs, research and opportunities for best practice sharing, it also provides the most in depth research into corporate giving anywhere in the world. Each year, CECP analyses data taken from their Corporate Giving Standard (CGS), an online data collection, reporting and measurement tool containing information on $50 billion in corporate giving from 155 leading companies. Although the data is only available to participants, CECP provides an overview of the results in their ‘Giving in Numbers’ report. Their 2009 Giving in Numbers report offers a comprehensive analysis of 2008 corporate contributions drawn from 137 prominent companies, including 55 of the Fortune 100. Contributions totalled over $11.25 billion in cash and product giving. The table below shows the overall figures involved: Table 3. Total giving in 2008

Median Values All Companies N=137

Fortune 100 Companies N=55

Total Giving13 $25.95 million $50.60 million Total Giving as a % of Revenue 0.13% 0.10% Total Giving as a % of Pre-Tax Profit 1.23% 1.34% Total Cash Giving as a % of Pre-Tax Profit

0.81% 0.83%

Matching Gifts as a % of Total Giving 9.04% 8.97% Total Giving per Employee $752 $642

The key findings of the report include14

:

• 53% of surveyed companies increased giving from 2007 to 2008 (56% from 2006 - 2007). • Of these companies non cash giving increased by a median of 29%. • 27% of companies increased giving from 2007 to 2008 by 10% or more15

• Companies that gave less dropped most in corporate cash grants. .

• Corporate foundation giving levels changed less significantly for both groups. • Improved contributions tracking, beyond-budget disaster-relief giving, and strong profits

through the third quarter were among the reasons cited for increased giving. • Companies that decreased giving cited declining corporate earnings, general economic

uncertainty and foreign exchange fluctuations. • CEOs and giving officers are prioritising the fulfilment of pre-existing commitments to

grantees while working to integrate philanthropic strategy with company-wide business objectives more comprehensively.

13 Corporate giving includes corporate cash grants, corporate foundation cash grants, and non-cash giving such as product or asset donations, loaned facilities, and pro bono service. Volunteer hours, administration costs, and contributions from employees, vendors, or customers are excluded. 14 Interestingly, CECP compared its findings with those published by Giving USA, The Foundation Center and The Chronicle of Philanthropy. While sample sizes vary, the findings are largely consistent across all reporting institutions. 15 This is despite a CECP poll of leading CEOs conducted in February 2009, which showed that 32% of respondents indicated that the economy is “very important” in determining cash contributions.

• 60% of Fortune 100 companies increased giving from 2007 to 2008 (despite sustaining greater profit declines than their non-Fortune 100 peers), while 47% of non-F100 companies also increased giving in the same time period.

• The typical Fortune100 company contributed 18% of total giving to international recipients as compared to an average of 11% allocated internationally by non-Fortune100 companies.

A common assumption is that increases or decreases in a company’s profitability directly affect its annual giving. Interestingly, the research did not support this assumption, suggesting that while financial performance does play a role in philanthropic budget-setting, the extent of its influence varies considerably across companies. Also, over the past few years, companies have become more proactive and strategic in their giving. For the typical company in 2008, 7% of giving was classified as commercially driven, 42% as purely charitable and 51% as proactive community investment. Giving types Among companies that increased their giving from 2007 to 2008, non-cash contributions soared by a median of 29% (see Graphic 1. below). These donations were supported to a lesser extent by an increase in cash giving. Across companies that gave less in 2008 than in 2007, cash grants from the corporate side dropped substantially, falling by a median of 16%, with non-cash giving dipping by a median of 9%. Foundation cash giving was relatively consistent from 2007 to 2008 across all companies. Companies whose giving subsided did give less from their foundations, but that giving source proved to be the most stable of the three giving types. Graphic 1. Changes by Giving Types, 2007 to 2008, Median Percentages, N=102 Inflation-Adjusted Cash and non-cash giving Graphic 2. below represents the total giving breakdown for a typical company in the 2008 sample. These percentages fluctuate minimally from year to year. For Service companies, such as Financial

and Utility companies, non-cash contributions are minimal and are often one-time donations of land, intellectual property, office equipment, and/or facility space. By contrast, pharmaceutical companies in the Health Care industry typically make sizable donations of the medicines they produce. Graphic 2. Total Giving by Funding Type, 2008, Average Percentages Non-cash contributions are one of the most important ways in which corporate philanthropy is distinct from individual giving and government aid. While cash grants are more versatile, non-cash donations can foster innovative partnerships that leverage resources highly valued by grantees. However, the issue comes when facing a declining economy in ensuring that not for profit recipients of non-cash donations have the capacity to accept and use such donations productively, and that the donated products meet high quality standards. In America organisations such as the not for profit Gifts in Kind International streamline this process for corporations by collecting, storing, and disbursing non-cash donations to community charities. Pro bono giving CECP recognises pro bono service as the equivalent of non-cash giving and values it at Fair Market Value (the value accorded to all non-cash giving in the survey). Pro bono service might include things like not for profit branding, HR consulting or strategic planning. Distinct from skills-based volunteerism, which is not valued as non-cash, pro bono projects must meet the following criteria:

• Commitment: The company is responsible for granting the service, staffing the project, ensuring its completion and quality, and applying the highest professional standards to the engagement.

• Professional Services: Employees must use the core skills of their official job descriptions. Projects that draw on only some of an employee’s basic job knowledge are included as volunteerism, not as pro bono.

• Indirect Services: The company must provide the service through a 501(c)(3) organisation or international equivalent.

In 2008, 36 companies reported having a domestic pro bono program: • 27 in the U.S. only • 9 in the U.S. and internationally

Eleven companies reported having an international pro bono program:

• 2 internationally only • 9 in the U.S. and internationally

Thirteen companies provided their pro bono hours, with a median of approximately 1,080 hours. Sixteen companies provided a dollar valuation for their pro bono hours; the median for this group was $971,500. In February 2008, pro bono service was given support from the President’s Council on Service and Civic Participation who brought together corporate, government and not for profit leaders to launch a three-year campaign called A Billion + Change to generate $1 billion of pro bono service by 2011 and reinvigorate America’s workforce. Levels of giving Research in 200716

suggests that small and large firms give more relative to total income with lower giving ratios among medium size firms. It is believed that this is because small firms are close to the communities they serve, while high visibility creates a need for large firm philanthropy.

The data analyses by CECP showed that changes in giving may be connected to changes in revenue but not to changes in pre-tax profit, as is generally assumed. This is important for not for profit organisations in re-thinking some fundamental assumptions about how corporate giving budgets are created. So, how do companies set their annual giving budget? CECP’s interviews with corporate giving professionals revealed:

• The majority of companies take a multi-year rolling average of profit levels in order to reduce yearly fluctuations. A three-year rolling average is typical.

• For some corporate philanthropists, the company-wide forecast for the upcoming year’s profits drives budgeting.

• Others adjust their giving throughout the year based on incoming updates of the current year’s financial figures.

• Other companies take an array of issues into account: size of the customer base, number of employees, philanthropic activity by industry peers, company’s historical giving levels and multi-year commitments, tangible assets of the company, and recent company-specific issues such as mergers or divestitures.

Given the differences in how philanthropic budgets are shaped, it would appear that a simple mathematical relationship between financial performance and giving is not straightforward. This helps to explain why CECP saw 53% of companies increase their giving despite profit declines for 68% of survey respondents. However, based on the list of budget-setting approaches given above, there is some connection between a company’s financials and its giving.

16 The Effects of Firm Size and Industry on Corporate Giving, Louis H. Amato and Christie H. Amato, Journal of Business Ethics, Volume 72, Number 3, 2007

Reasons for increased giving:

• Strong Profits through Third Quarter - While the downturn was felt by many financial institutions in 2007, companies in other sectors did not experience its effects until the third and fourth quarters of 2008. Consequently, companies had largely disbursed expanded giving budgets before the business itself was affected.

• Improved Contributions Tracking - Typically, companies struggle most in the tracking of international giving, non-cash giving, and donations made by regional business lines. Improved communication with subsidiaries or other departments and investments in company-wide grant-tracking software enabled companies to account for giving that may have previously taken place but was not included in their CECP survey in the past, increasing the year-over-year tally.

• Increased International Giving - Rather than trim domestic giving budgets to fund new international initiatives, companies typically allocate new funds for grant-making programs abroad. The data show international giving rising roughly one percentage point per year over the last several years to 13% in 2008.

• Beyond-Budget Disaster-Relief Gifts - When disaster strikes, companies often authorize assistance funds beyond their allotted giving budget. In 2008, companies supported relief efforts for the Sichuan earthquake in China and the California wildfires.

• New Signature Programs Launched - Several companies inaugurated new signature giving initiatives in 2008. While sometimes funds are simply redirected away from previous programs, often these newly designed programs require an increased philanthropic commitment.

• Merged Giving Programs - Several companies underwent mergers or acquisitions in 2008, leading to combined giving programs. In this sense, the underlying company has fundamentally changed in scale and resources, causing its year-over-year total giving to appear to surge.

• Greater Employee Participation - Due either to a growing workforce, expanded awareness and participation, or increases in program contribution maximums, some companies saw giving rise as larger dollar amounts were dedicated to matching-gift programs.

• More Efficient Administration - Some companies reported achieving operational efficiencies in their grants management administration. Thus, funds that previously had been used to manage the donations process could be redirected to fund grantees instead.

Reasons for decreased giving:

• Weakening Economy - As some companies began to forecast weaker performance, they cut back firm-wide spending, including corporate philanthropy budgets.

• Corporate Spin-offs and Department Closures - Just as mergers and acquisitions can cause a company’s contributions to surge, total giving can decline when a business spins off or terminates part of its operations.

• Completion of Multi-Year Grants - In 2008, several companies experienced a period of decreased giving as new programs or renewed commitments to previous programs were evaluated at the conclusion of multi-year grant commitments.

• Return to “Normal” Giving - For some companies, 2007 was characterized by an atypical spike in giving levels due to a significant one-time gift such as a land or equipment donation or a large signature grant to a not for profit partner. Therefore, in 2008 these companies reported a return to a giving amount consistent with their historical levels.

• Lower Matching Gift Participation - The unemployment rate climbed from 4.9% to 7.2% in 2008. A reduction in workforce was one factor that caused some companies to see drops in participation in employee matching-gift programs, which in turn lowered total giving levels.

• Currency Exchange Fluctuations - 2008 saw drastically widened average trading ranges for currency pairings such as EUR/GBP, GBP/USD, and EUR/USD. The last half of the year in particular saw large daily and weekly fluctuations. For companies with large international grant-making programs or those headquartered outside the United States, volatility in conversion rates caused total.

• Company-Specific Factors - Some companies reduced budgets to account for leadership changes, legal concerns, plant closures, and/or regulatory issues affecting profit.

The future of corporate philanthropy in the USA In the past CCI was driven largely by societal pressures, but for many larger, often multinational companies, increased involvement is now driven partly by a growing realisation that they can take an active role in solving social problems in a way that simultaneously delivers tangible bottom line results. This model goes beyond simply aligning philanthropy with business objectives or creating smart signature programs in relevant funding areas; instead, it requires synthesizing core values and financial goals into a single corporate strategy17

.

Here we take a look at the latest research to come from America on corporate engagement, but coming from a corporate viewpoint instead of an NPO viewpoint. The reason for this is that understanding this model from a corporate perspective is going to be critical for NPOs, enabling them to adapt to the inevitable changing demands of corporate engagement. First, we start with understanding what economic and social factors corporations see as affecting themselves globally in the future, as well as the implications of this on their CCI strategies. Understanding some of these external pressures will not only help us to predict the future face of corporate engagement with NPOs, but NPOs themselves can also begin to adapt and realign their own engagement strategies and expectations to meet those of companies they seek support from. The Global Economy Research by McKinsey on behalf of the CECP produced a list of five trends most likely to shape the business landscape in 2020. Below is a list of these five trends and their possible implications:

1. Emerging BRIC economies (Brazil, Russia, India and China) - where the focus of economic activity will shift from West to East, increasing the possibility of the number of employees and % of total profits earned abroad beginning to exceed figures in home markets. Will CCI focus therefore shift abroad?

2. Shrinking labour force and global talent shortages in developed economies – will have to be offset by a significant increase in productivity of the existing work force. Need to keep employees better motivated and loyal to company and CCI can help to achieve this.

3. Global integration of capital markets, trade and technology - will continue to drive market and societal restructuring. Same as above.

4. Natural resource scarcity - will ultimately constrain business and affect production value. Companies’ profits are under threat, so CCI needs to produce a reciprocal advantage for company.

17 Shaping the Future: Solving Social Problems Through Business Strategy - Pathways to Sustainable Value Creation in 2020, Based on research by McKinsey & Company, CECP http://www.corporatephilanthropy.org/pdfs/resources/Shaping-the-Future.pdf

5. Increased government involvement in regulation and support across industries to foster economic growth and recover trust – will change the playing field for companies at home and abroad.

These trends can be represented by the Graphic 3.18

below:

Graphic 3.

While these five trends have clear economic implications that will influence business decisions and ultimately have implications for CCI activities, two major uncertainties may significantly affect their influence on the interplay between business and society - most notably:

1. Whether society will have higher expectations for business across geographies 2. Whether corporations will take a leadership role in addressing societal problems

Societal expectations Society’s expectations for business are driven by a combination of factors, including government regulation, NPO pressure, consumer demand and the level of mistrust in business (often influenced by news headlines and corporate scandals). Possible expectations range from a belief that companies must simply avoid negative social and environmental impacts to demands that companies address broader societal issues. “Enron and the credit crisis damaged public trust in the private sector - particularly toward large companies. Rebuilding trust is core to collaborating with governments and society.” Andrew Witty, CEO of GlaxoSmithKline

18 Shaping the Future: Solving Social Problems Through Business Strategy - Pathways to Sustainable Value Creation in 2020, Based on research by McKinsey & Company, CECP

A recent global survey19

administered early in 2010 in the wake of the financial crisis, showed that 76 per cent of consumers believed companies should be more involved in addressing public issues, yet a majority worldwide believed companies would return to “business as usual”. Over the next decade, companies can expect to face the harsh glare of societal expectations and the call for greater competitive restrictions that accompany a climate of mistrust toward business.

“There is no doubt that consumer tolerance for corporate mis-steps has never been lower and at the same time, regulatory oversight continues to strengthen.” Ken Powell, CEO of General Mills Lower consumer trust creates a difficult dilemma for companies that will need to be addressed in the next decade. Corporations can’t do more if society is antagonistic toward their business-motivated incentives for getting involved. Yet companies also can’t ignore market pressures, so they need to see a direct connection between the bottom line and their involvement to justify expanding their role. Further contributing to the trend of rising societal expectations is the fact that when regional socio-economic conditions do improve, consumer expectations of business will also rise. “As economies advance, there is a greater focus on social issues. For companies to be successful in emerging markets, they will have to be out in front of those issues. China is a big growth market with a growing middle class and a growing focus on sustainability and responsible product development. That trend will only increase.” Mike Duke, CEO, Wal-Mart

Leadership role of corporations Ultimately, the extent to which business takes a leadership role on social issues depends in large part on 3 key considerations:

1. Business leaders’ belief that doing so is critical to their bottom line success (both in terms of creating opportunity and in mitigating risk).

2. The extent to which stakeholders and shareholders support or demand such engagement. 3. The degree to which business expects it can uniquely achieve real impact on these issues.

Point 3 will become increasingly important in looking at future expectations of not for profit organisations by companies. While society will be looking to companies to invest more heavily in the development of society, particularly once the global economy has recovered; it will be companies who will be shifting demands in their relationships with not for profit organisations from one of donor to that of investor and collaborator. “A public company has a fiduciary responsibility to deliver the highest possible return to its investors. If social issues help us do that, then we can engage. If not, it is more difficult.” John Hammergren, Chairman, President and CEO of McKesson Corporation Business and society in 2020 Combining the five key trends we have seen with the two uncertainties, we can identify four distinct visions for what the climate for business will look like in 2020, as shown in the Graphic 4. below.

19 Edelman, “2010 Edelman Trust Barometer: An Annual Global Opinion Leaders Survey,” Executive Summary (survey of informed public ages 25–64).

Graphic 4. If we look at Vision 1 (top right) in the graphic above, this represents the ‘best case scenario’ for businesses and stakeholders. This is where society’s expectations of business rise consistently and become more globally consistent, and consumer trust in business’s motives rises, while at the same time business proactively engages in social issues, creating the ultimate win-win situation. A self-reinforcing cycle of trust in business and trustworthy proactive social corporate behaviour prevails. Collaboration drives positive change as corporations work with NPOs, governments, civil society and other companies to invest strategically in forward looking products, services and social programmes. Scarcities of talent and natural resources are transformed from threats to opportunities, social issues improve and the economy sees robust advances due to a climate of continuous innovation20

.

However, in order to achieve this position, NPOs will need to contribute by offering companies a relationship that provides both societal benefit (which helps employee motivation and satisfaction for example) and competitive advantage (by increasing revenues or reducing costs). For business, this is what is being termed as ‘Sustainable Value Creation’ (SVC) – where Sustainable Value integrates the economic, environmental and social dimension of sustainability. It builds on decades of financial markets research to finally assess, value and manage environmental and social resources similar to economic resources. SVC is seen as the way forward because it resolves the tension between societal and business pressures for companies. Companies already use their expertise and resources for public good but SVC allows them to leverage these assets in a way that is more deeply integrated within corporate strategy. It also allows companies to take an active leadership role in dealing with societal issues. According to CECP21

20 Shaping the Future: Solving Social Problems Through Business Strategy - Pathways to Sustainable Value Creation in 2020, Based on research by McKinsey & Company, CECP

, 77 per cent of CEO’s surveyed in 2010 agreed that embedding social engagement into their

21 CECP Board of Boards CEO Conference, February 2010.

company’s strategy and organisational structure in order to move towards SVC (see Graphic 5. below). Graphic 5. Graphic 6. If we look at the other graphic (Graphic 6.), this shows that 100 per cent of the CECP-member CEOs polled believe they should engage on social problems that are important to their businesses, but most are split between whether to drive the solution or collaborate. While this shows an agreement in moving forwards, it does also show the difficulty in aligning the sector as a whole, as this decision is ultimately dependent on the specific situation of each company. Sustainable Value Creation As we have seen, in order to arrive at Vision 1. and sustainable value creation, companies will have to overcome the tension between delivering shareholder value and engaging in social issues. Companies have historically been able to justify a reasonable amount of CCI without having to work out return on investment. In America and the UK for example, hard to quantify business benefits such as improved employee recruitment and retention, strong corporate reputation and maintaining society’s support to carry out business activities (known as ‘license to operate’) have created an environment in which businesses annually contribute roughly 1 per cent of pre-tax profits to charitable purposes22

22 CECP, Benchmarking Tables, “Giving in Numbers,” Editions 2006-2009

. This is because companies had no other way of working out how much to give

to the not for profit sector. Perhaps this is why BiTC in the UK has dropped its Per Cent Club initiative, as the sector moves forward with finding other ways to determine CCI23

.

However, one of the key issues for companies is the difficulty in reconciling the market’s constant pressure to deliver quarterly earnings with the longer time frame required to achieve social impact (and associated business benefits). “Globalization brings with it intensifying competition, putting more earnings pressure on companies. There is less room for allocating resources to initiatives that do not result in quarterly returns. This has always been an issue, but it becomes more prevalent in a hyper-competitive world.” Ivan Seidenberg, Chairman and CEO of Verizon Communications In the eyes of many business leaders, this tension appears irreconcilable: the more resources dedicated to social issues, the less money there is to put to work in the service of shareholder returns. Yet freezing corporate involvement at its historical levels arguably restrains companies from applying the full scope and scale of their resources to society’s most pressing problems. “Some of the issues we are facing, like rising gas prices, which are already causing geopolitical unrest, take longer to address. I don’t think that many companies think generationally, but increasingly we’re going to have to.” Marilyn Carlson Nelson of Carlson For this reason, judiciously choosing the social issues on which a company will take a leadership role is seen as crucial. In order for a company to achieve SVC, supported social issues have to offer a potential source of real competitive advantage either by increasing revenues or by reducing risks and operating costs. This inevitably narrows the list of relevant social issues considerably for companies, but those issues that remain are ones that a company can take an active leadership role in. Companies that aim beyond traditional philanthropy towards SVC are also able to apply distinctive capabilities and resources to social issues that governments, individuals and independent sector contributors cannot. These include marketing channels, project management skills, in-kind resources (i.e. products, physical assets and intellectual property), finance and legal expertise, negotiating skills, international reach, vendor relationships and logistical infrastructure. While many companies already put these resources in service to the public good, pursuing SVC opens up the opportunity to leverage these assets in a manner that is more deeply integrated with corporate strategy. As Graphic 7. below shows, 60 per cent of surveyed CEOs say it is necessary to take a proactive approach to solving social problems important to their business because of these unique assets.

23 This could be true or it could be because companies no longer want to spend 1% of pre-tax profit on charitable causes due to tough economic conditions. (ed.)

Graphic 7.

One unique asset of business is its ability to takes financial risks that other stakeholders can’t. Small investments in pilot programmes (either directly or through philanthropic foundations) can be useful in uncovering innovative ‘proof of concept’ solutions that government or not for profit organisations can then carry forward. This approach benefits the company because it is playing a crucial role in a social issue important to the business and it does not need to remain involved over an unmanageable time scale. The government and other stakeholders benefit from proven solutions that are more easily communicated to their constituencies and are scalable. “Our belief is that corporate philanthropy expands the business. If you do the right thing over time, you expand the capabilities of your customer base, business and society.” Chairman and CEO of Verizon Communications “Through philanthropy, we can help develop new models and programs that can be brought to scale by the government.” Ron Williams, Chairman and CEO of Aetna It is interesting that this last quote looks to government to scale up these pilot programmes, and this may well be the case in America. If this was also the case in the UK, the emphasis might be slightly different, particularly as the coalition government is moving away from centralised involvement in society towards more localised management and implementation of such projects. This is perhaps where NPOs in the UK can uniquely place themselves to take on the responsibility not just for contributing to corporate led social pilot schemes, but also taking these forward by scaling them up nationally.

In America, 77 per cent of CEOs questioned by CECP agreed that embedding social engagement into their company’s overall business strategy was the best way to achieve SVC and combat the issues likely to arise in the future that we have already mentioned (see Graphic 8. below). Graphic 8. Social issues that deliver explicit business gains are at the heart of SVC. Understanding why and how companies decide on what social issues to invest in is important in understanding the expectations companies may have for NPO engagement moving forward. Under this model it will become less about choosing social issues that may resonate or make sense to a company, and more about selecting issues that drive growth or reduce costs, all while demonstrably helping local communities and broader societies to address their own development priorities. That is not to say that these two methods don’t and won’t overlap, as many businesses will continue to support NPOs working in fields related to their core business and/or locale.

Case Study: Incorporating Social Issues into Business Strategy GlaxoSmithKline, a global pharmaceutical company with an estimated 7 percent of the world’s pharmaceutical market, announced a new strategy to transform the company’s approach to diseases that disproportionately affect the world’s poorest countries. The strategy builds on commitments to decrease the prices of, and improve access to, its medicines in the Least Developed Countries (LDCs). According to CEO Andrew Witty, “We recognized that we have a number of resources that would be helpful to these countries. For me, this was an area of social failure that we could begin to make small inroads on.” As part of this initiative, GSK adopted a range of flexible pricing models for its patented medicines and vaccines so that these essential products are affordable for customers in LDCs yet still profitable for the company. Through innovative cost-cutting measures and a tiered pricing model for countries at different levels of development, GSK has cut the cost of its medicines in LDCs to no higher than 25 percent of the price in the developed world. GSK also took the bold move to be flexible with its intellectual property rights on its patents, medicines and knowledge to stimulate new research into neglected tropical diseases. The company believes these initiatives will not only provide greater access to essential medicines, but also expand the customer base or GSK products into low- and middle-income markets that could not afford them previously. GSK also provides philanthropic support for issues outside the company’s core business that are integral to the success of its global health goals. In 2009, the company committed to reinvest 20 percent of the profits made from medicines sold in LDCs back into projects that widen access to health care and strengthen the health care infrastructure in these countries. So the question is how do companies decide when and where to get involved? One way for companies to identify key issues is to gather trends from internal and external stakeholders, as highlighted by this quote: “Broaden your view of a problem by reaching out to your partners for their input. Then be disciplined, and actually spend the time necessary to plan for the future in all aspects of your business so that you can implement against long-term goals.” Shelly Esque, Intel’s Director of Corporate Affairs and President of the Intel Foundation While many companies may argue that investing in establishing expertise in social trends, many argue that it is comparable to venture capital investments or R&D projects. The CECP research presents a tool that companies can use to determine whether a social issue is truly integral to the success of a business (see Graphic 9. below).

Graphic 9. Companies will need to address many relevant issues where there are stakeholder expectations, but they should take the lead on issues that are integral i.e. where societal expectations are high and there is a significant impact on the business’s profitability. For manufacturing companies using this tool, for example, they might begin with a careful analysis of the supply chain: raw-material acquisition, production, distribution, sales, product use, and recycling/disposal. A company might outsource many of these steps, sometimes to thousands of vendors, but that does not preclude them from consideration. The aim of this exercise is to challenge the tacit assumptions that underpin the functioning of the supply chain. Below are two examples of such assumptions, along with countervailing questions that encourage an SVC approach:

Assumption SVC approach “Local manufacturing facilities are necessary to compete in our business, but our company cannot establish one in rural India, because the high quality inputs we need cannot be sourced locally.”

“Can we partner with the local government and NGOs to develop infrastructure and training programs to foster a local market for the inputs we need?”

“Employee turnover rates in some of our factories cannot be improved, because the malaria epidemic is simply intractable in those areas.”

“Can we work with our competitors, who are similarly affected, to craft a public treatment program that local NGOs can help design and administer locally?”

In scoping the issues, companies will have to begin with an appraisal of its ability to succeed, which will influence how prepared a business is to get involved. Research into what is happening at present and who is working in this area, current research into the issue and future trends, the likely costs to the company and the root causes or interconnected social issues at work are all likely to be looked at. Similarly, using tools such as scenario and contingency planning, flexible decision making structures and preapproved budgetary and resource authorisation are seen as just as important when dealing with social investment as they are in other business departments. “Use your talent development and management programs to give people the experiences they need to prepare for future trends. Also, educate your board of directors so they appreciate the importance of social issues in the context of business strategy.” Ron Williams, Chairman and CEO of Aetna Graphic 10. below presents a diagnostic tool for assessing how well prepared a company is to meet the challenge of SVC.

Graphic 10. Of course, all this is rather obsolete if SVC is not adopted throughout the corporate structure. There are a number of things that need to happen in order for SVC to become truly embedded in a company, including:

• Adapting the corporate structure - Those given responsibility for SVC have to gain knowledge and insight across the company from their peers as HR, customer support, sales, R&D all have a unique insight into the business that may well provide information highly relevant for the SVC team.

• Credibility and empowerment - Those given responsibility for SVC must have clear credibility in the corporate hierarchy with sufficient authority to enact real change. Currently these positions are usually filled by lower-level executives.

• Measuring results - Results have to be measured and monitored otherwise social investment will lose its importance. Currently, there is a split between whether the social impact (55%) or the business impact (45%) is most important to measure.

• Communication – Open and transparent communication is paramount to the success of SVC, built on transparency and action, not spin. Companies also need to improve communicating the financial value creation of social activities. While CSR reporting has increased in recent years, McKinsey24

found that 62 per cent of companies do not communicate their sustainability activities to investors.

“Done right, social engagement is incorporated into the mission of the company, which means that the CEO must be the person who shapes the agenda and communicates the message around it”. Ken Powell, CEO of General Mills In preparing for the decade ahead, many large multi-national companies have to think about the best way to prepare given that social issues are overwhelmingly complex. Companies know that most social issues are too big for them to tackle alone, but they also know that establishing and managing successful partnerships can be extremely difficult. Research suggests that companies ought to minimise the number of partners they engage with when they:

• Derive a competitive advantage from being the first among their peers to get involved; • Have an opportunity to play a unique catalytic role; or • Must respond immediately to protect the company from an impending threat.

Similarly, it makes more sense to collaborate broadly when:

• Doing so creates gains that no single player could achieve individually; • The complexity of the targeted social issue require broad skills and experience; or • A large constituency (of which the company is a member) benefits from unified action.

Many companies have found that targeted partnerships are the most effective means through which they can address social issues that affect their business, as is the case with many multi-nationals at present. However, the future suggests that companies will need to broaden their interaction and collaboration with a wider variety of stakeholders. At present, CEOs believe the most important collaborators in solving social problems important to their business are evenly divided between not for profits and companies in their industry or supply chain. This is shown by the Graphic 11. below.

24 ‘Rebuilding Corporate Reputations’, McKinsey Quarterly (June 2009)

Graphic 11. While this perhaps accurately represents the current picture for companies, achieving SVC is likely to present a much more diverse group of potential partners for companies, enabling companies to widen activities for collaboration in the future. Graphic 12. below shows what this diverse group may actually look like. Graphic 12.

While there will always be a place for not for profits in this equation, it should remind NPOs that the landscape may well be changing and competition outside the third sector will increase the competitive element of collaboration. Companies will inevitably begin to ask of partner organisations whether they are credible, what their motivations are, whether their goals are truly aligned with those of the company or the initiative, whether an organisation can contribute unique assets to the equation and whether an organisation is empowered to make decisions and contribute suitable resources to a programme. These are all points that NPOs need to have answers to if they are to maintain their position as being important partners in solving social problems. These points are represented in Graphic 13. below. Graphic 13. If this synthesizing core values and financial goals into a single corporate strategy is the way forward for companies to respond to their societal responsibilities, then this would suggest that corporate philanthropy will move away from corporate foundations, back in to a more integrated and internal process. This suggests a switching of roles for NPOs and companies. Where NPOS have largely been proactive in their seeking company support, they will in the future find themselves having to respond to a company’s proactively identified areas of business-aligned interests. Apart from global disasters and emergencies, companies will permanently move from reactive philanthropy, to a position of dictating social investment. While NPOs will undoubtedly still have an important role to play in delivering social programmes, this shift will place them in a position of weakness, unless they can themselves realign their position and their expectations of corporate engagement. Key messages coming from CECP

• Alignment with Business Strategy - Corporate giving is no longer considered a stand-alone issue. To maximize both the business and societal benefits of corporate giving, companies should develop initiatives that are part of larger business objectives.

• CEO Leadership - Several interviewees emphasized the importance of leading by example in order to communicate the value of corporate giving to employees on every level.

• Investing in the Next Generation of Leaders - Younger generations expect strong CSR and corporate philanthropy practices from their employers. Therefore, CEOs recognize that corporate giving is an important HR tool for recruiting, retaining, and developing talent.

• Employee Engagement - CEOs are tapping into their companies’ human capital to maximize community investment. Many interviewees cited matching-gift programs and volunteer initiatives as means for involving employees in philanthropic endeavours.

• Shift in Shareholder Expectations - Whereas shareholders previously may have been resistant to corporate giving due to pressure for immediate returns, many now recognise that philanthropy can be a sustainable means for building the business.

• Public Perception - Roughly half of the CEOs noted that public perception of corporate philanthropy remains negative while the other half remarked that this perception is changing to become more favourable.

• Measurement - CEOs are holding their giving officers accountable for strategic corporate philanthropy programs. Measuring the scope and scale of global giving allows companies to understand the business and societal outcomes of corporate initiatives and ensure programmatic effectiveness.

• Partnerships - CEOs agree that corporations have the broadest impact on their communities through strong cross-sector partnerships that involve other funding partners, well-matched not for profit organisations and government agencies.

• Education - While some CEOs listed various priorities for their corporate philanthropy initiatives including environmental causes, health care, and domestic violence, nearly all agreed that education is a primary focus for their company.

Corporate philanthropy around the world While it is clear that corporate philanthropy is evolving in western countries like America and the UK as we have seen, in order to put this into perspective, we need to gain some understanding of what is happening in some countries and emerging economies. What we do see, is a multitude of positions, where the focus isn’t necessarily on how CCI is or isn’t being realised, but often on whether even the broader concept of CSR is being understood, adopted and developed. What we inevitably see is largely traditional philanthropy which, although recognises the emerging trend of community investment in the most developed fundraising economies to a degree, is often influenced by a whole different set of factors such as religion and politics. Here we briefly look at corporate philanthropy in the Czech Republic, Russia, Gulf States and China. Czech Republic In 2008, the Czech Republic began emerging as one of Central Europe’s leaders in corporate philanthropy as programmes rapidly expanded through partnerships with the not for profit sector. This was due to a number of factors, including the infiltration of trends from abroad, encouraging companies to actively be involved in their communities; the stabilisation of the economy in the first five years of the 21st Century and the emergence of the not for profit sector in the country. Traditional attitudes focused primarily on donating, supporting or being involved with charities only if the business would profit from the relationship. Now that way of thinking is quickly changing to a

more balanced and considered approach with the support of the International Business Leaders Forum25

.

In 2008, companies earmarked around US$38 million to support charities and CSR programmes, maintaining the amount spent in 2007. Awareness and recognition of developments in corporate philanthropy came from the Czech Donors Forum, who developed the ‘Top Corporate Philanthropist Awards’ in 2003. The survey ranks companies according to the London Benchmarking Group model, taking into account what each company is capable of giving based on its size. This largely qualitative survey involves 50 companies, both large and small, and is the only one of its kind in the country. The shift in focus from traditional philanthropy to a more integrated approach was highlighted in 2008, by the introduction of the ‘Involving Employees’ category, won by bank Ceska Sporitelna for its ‘Day for Charity’, which allowed bank employees to dedicate two days annually to community service. If we compare that with the two weeks often given to American employees, we can see that although companies are moving away from simply cheque writing, they still have a long way to go before catching up with their American counterparts. Russia Corporate philanthropy in Russia has changed significantly since the break-up of the Soviet Union. This is because of the transition from a state governed economy to a market one, which is still evolving. Yet, while new wealth was willing to contribute part of its money to the social issues of the country, people still viewed (and often still do now) charity with suspicion considering it a ‘manipulative practice of the capitalists’. From 1992 to 1993 corporate giving rose from around US$1 million US$10 million. Between 1993 and 1995 corporate giving rose tenfold, to approximately $100 million, so that by 1998, 75 per cent of Russian companies were involved in charity. From 2000, since Vladimir Putin came to power, philanthropy took a completely new turn of development. Between 2000 and 2003, corporate giving is estimated to have jumped from $200 million to around $1.5 billion. In this Soviet style command economy companies became responsible for the provision of an entire range of social services – known in Russia as the ‘social responsibility of business’26

.

Corporate giving is unique in that in a matter of a decade Russian companies began creating their own foundations, gave grants and even talked about transparency. However, there is a fundamental issue surrounding corporate philanthropy that sets it aside from other emerging corporate philanthropy markets. Russian businesses say that government pressure is the main reason for their involvement in social projects, according to a recent survey by the UNDP, the Russian Managers Association and the Expertiza think tank27

.

Around 75 per cent of business people identified "administrative pressure from the authorities" as the main incentive for supporting charitable causes, according to the poll of 210 business people, government representatives and researchers. "Good will of top managers" came in second in the survey, at 55 per cent and a company's business development strategy was third at 42 per cent. However, the government clearly has a more ‘idealistic view’ of the situation, with as many as 83 per cent of polled officials saying social responsibility was just part of each company's business development strategy. In 2003 President Vladimir Putin urged business people to "fully recognize their social duties" and develop "a system of new social guarantees for the population."

25 ‘Charity now starts at the office’, Prague Post, November 2008 26 CAF Russia 27 http://www.undp.ru/index.php?iso=RU&lid=1&pid=1&cmd=text&id=143

It is this dichotomy of opinion that makes Russia so unique. It is therefore hard to see corporate philanthropy in Russia evolving in the same way as many other countries as it is not driven by market forces, but by a historical legacy and social structure. Even the tax system does not provide incentives for companies to become more ‘naturally generous’. The absence of a clear policy for evaluating the contribution of business to social development was named the top hindrance for business' involvement in social causes, according to the majority of participants. There are no official statistics on corporate giving in Russia, even though businesses channel large funds toward social causes. There are efforts to highlight corporate philanthropy in Russia, despite not addressing the motivating factors behind it. The Corporate Philanthropy Survey conducted by Vedomosti business newspaper, PricewaterhouseCoopers and the Russian Donors Forum has been running for 3 years and is supported by the Russian Union of Industrialists and Entrepreneurs, the Russian Ministry of Economic Development and the Russian Public Chamber Commission for Civil Society Development. The Gulf States Saudi Arabia, Kuwait, Bahrain, Qatar, United Arab Emirates and Oman make up the Gulf States and are all members of the Gulf Cooperative Council (GCC). Currently, the majority of CCI activities in the Gulf States centre on more traditional methods of philanthropy i.e. donations to local charities. As with many other countries, it may seem natural that companies in the GCC will eventually catch up with their western counterparts in terms of moving towards a more integrated approach to corporate philanthropy given time. However, there are important local characteristics that will inevitably influence the development of CSR/CCI activities in the region. Companies believe that their governments should be involved in guiding corporations with regards to CCI activities and which areas they should be focusing on, through the provision of incentives. While this shows a strong reactive mentality, perhaps the most influencing factor is the religious values that permeate the societies of the GCC countries, much more than in the West. In the non secularised societies of the GCC region, religious values are seen in all facets of life, including business. The tradition of giving is well-known in Islamic countries and this is such an important factor that it will inevitably shape the development of CSR and CCI in the region. Indeed, CCI is often seen as the corporate form of Zakat (the charitable percentage of wealth that Muslims of means are expected to give), which is probably why corporate philanthropy is increasingly being discussed. However, culture, religion and a lack of recognition and understanding about what constitutes CSR/CCI, means that for the time being at least, it is likely to maintain its focus on purely financial gifts28

.

China China is a country trying to resolve the conflict between its communist roots and its role in the world as the emerging economic superpower. Unsurprisingly then perhaps, that corporate philanthropy in China is a somewhat confused concept that is very difficult to evaluate with any real insight. What is clear is that China, despite its size and wealth, is a long way behind its Western counterparts when it comes to proactively investing in its community. Here we briefly look at some of the issues facing corporate philanthropy in China at the present time. 28 Corporate Philanthropy vs. Strategic Philanthropy in the GCC, Dr. David Ronnegard, The Abu Dhabi Centre, 2010

According to ‘China’s Corporate Social Responsibility Report 2009’ produced by the Chinese Academy of Sciences (CAS), the overall level of China’s CSR is still quite low. Around 20 per cent of China’s top 100 corporations are in the early stages of developing CSR policies, while around 40 per cent have little awareness of CSR and are largely bystanders. It is China’s central state owned companies who have been shown to perform the best, even better than many Foreign Investment Enterprises (FIE) in China. This is despite the recognition that many FIEs have substantially contributed to Chinese society through charitable giving programs, poverty alleviation and research, in an attempt to achieve their philanthropic goals. One of the problems is that essentially CSR in China is still widely perceived as philanthropy. The concept of community investment is largely unknown and for many people, CSR is comparable to a donation rather than actively engaging communities and developing partnerships29. Similarly, laws and regulations on philanthropic donations are not yet ‘complete’ in China. In 2009 for example, the government had only granted seven charitable organisations with the right to issue certificates of donation for corporate tax exemptions, and many grassroots NGOs have been refused corporate funding because they are unable to issue receipts30

. The lack of proper laws and regulations, together with a limitation in the current number of recognised organisations, has resulted in what many see as ‘stagnant’ Chinese corporate philanthropy.

Evaluating CSR and philanthropy in China is also difficult because the concept itself is voluntary, not to mention issues surrounding transparency and reporting. There is no uniform or standard method for companies to report their CSR activities and CSR has many interchangeable components that may or may not include charitable giving. This is despite the Assets Supervision and Administration Commission in 2008 issuing a directive that encourages state-owned companies to report on corporate social responsibility31

.

While Multi-National Companies and Chinese companies do make charitable donations, the donations are mostly based on external drivers, which include governmental mobilisation, competition with other companies, as well as media and public pressure. In 2008, the Sichuan Earthquake provided an opportunity to evaluate corporate philanthropy as many companies chose to publically share their financial and in-kind donations following the disaster. A report subsequently analysed 136 Chinese companies and found that despite private companies responding much more quickly and more generously than government-owned companies, the market’s response (in terms of share price etc.) was indifferent. Therefore in China, not all charitable giving increases a company’s ‘value’, and only giving that is perceived to be “a genuine manifestation of the underlying firm’s social responsiveness” can generate strategic value32

.

Contributions are also made in relation to the ‘return’ value; hence education is seen as a viable investment and a popular choice for philanthropic contributions. The mentality of giving money to something that has no obvious future value is a concept uncommon in China. However, there is beginning to merge an increasing focus on the not for profit sector thanks to China’s Xiao Kang Society goals - a set of objectives similar to the Millennium Development Goals. The focus of these goals is to raise the standard of living for 1.3 billion Chinese citizens, increasing the per capita income to $3,000 by 2020. The Xiao Kang Society addresses issues like the

29 ‘Challenges of Chinese Philanthropy’, Elyse Chen, CSR Asia, February 2009 30 ‘Challenges of Chinese Philanthropy’, Elyse Chen, CSR Asia, February 2009 31 Shaping the Future: Solving Social Problems Through Business Strategy - Pathways to Sustainable Value Creation in 2020, Based on research by McKinsey & Company, CECP 32 Does the Chinese Market Respond to Corporate Philanthropy?, Social Venture Group, May 2010

environment, developing rural provinces in the Midwest and Northeast of China and improving education. Showcasing how corporate giving supports the Xiao Kang Society goals communicates an alignment with the Chinese government, facilitating philanthropic opportunities in the country. While not always stated as such, many existing corporate philanthropy programs, such as Pepsi’s projects supporting health and clean water access, contribute to these goals. Working with Government Organized NGOs (GONGOs), is another way for companies to build important relationships. Leaders of these organisations usually hold or have held government positions and are in regular contact with local officials. For example, the China Children and Teenager Foundation has close ties with the Ministry of Education and builds schools, creates libraries and supports other programs helping school-aged children. GONGOs are some of the most established charities in China. For example, China Women’s Development Foundation, supported by Starbucks, offers clean water education and has branches in virtually every town in the country. Due to their close government ties, GONGO projects are considered to run smoothly, although government goals often limit the scope of the projects they address and this can be a big problem for the country moving forwards33

.

Additional comment In attempting to understand Western corporate philanthropy, assumptions have emerged which can be refuted based on recent evidence. For example, while there is clearly a connection between financial performance and giving, there is no rule of thumb for predicting how a recession will impact on corporate philanthropy. Much like individual giving trends, it would appear that companies remain resolute in their commitment to CSR and philanthropy, albeit with some slight financial adjustments. These adjustments tend to be in the form of a reduction in cash gifts, replaced by non cash donations. So, while the commitment to philanthropy cannot be questioned, it is the vehicle for giving that ultimately changes. This data reveals that the way not for profits view corporate philanthropy may have an effect on how the sector is perceived. Many people’s perceptions of corporate giving are that in a recession, giving will decrease, and while this is true in monetary terms, it is not necessarily true for the overall outputs of corporate philanthropy, which is made up of more than just cash gifts. Corporate foundation cash grants as well as non-cash giving such as product or asset donations, loaned facilities and pro bono service, all provide valuable ‘income’ to not for profits. So there is an issue of ‘perception’ which not for profits will have to address. There is also a question about whether corporate philanthropy is affected by economies of scale. Large global companies appear to be able to remain engaged with the not for profit sector by changing the rules of engagement (and thus the means of giving), but can smaller national companies do likewise? Companies tend to work on financial planning cycles of only two or three years, and so predicting trends in corporate philanthropy is only ever going to be accurate on a short-term basis. What is far more important is that the growing commitment shown by companies towards CSR, regardless of motivation, has proven to be solid in the face of economic pressures. This is because, for the larger

33 The Corporate Philanthropist: Corporate Philanthropy in China, CECP, 2007

companies at least, there is a synthesis between core values and financial goals into a single corporate strategy. Therefore, if income increases, corporate giving increases; if income decreases, corporate giving reduces ever so slightly, instead being buoyed up by a shift in giving type to more non-cash donations.

Case Study Below is a case study of an Australian charity that has proven very successful in engaging corporate support in recent years, showing how they do it. CanTeen CanTeen - The Australian Organisation for Young People Living with Cancer - is a national support organisation for 12 - 24 year olds who are living with cancer, and is the only organisation of its kind in Australia. The charity runs a ‘Side-by-Side’ corporate partner scheme which encourages companies to partner with the charity through recognising ‘mutual benefit’. The charity promotes itself by highlighting both the potential corporate benefits as well as the organisations USP’s. These include: Company benefits:

• Demonstrate a measurable commitment to corporate social responsibility • Improve your public profile and differentiate your brand • Increase customer loyalty and sales • Achieve high staff morale, motivation and pride in your company • Make a real difference to young Australians living with cancer

USPs:

• Nationally recognised charity with a great media profile, public image and community participation record built over 25 years - we can add value to your brand and profile and differentiate you from your competitors

• We are where you are! We have members, offices and services in every state - A partnership with CanTeen gives you an opportunity for community investment with both a local and national focus

• CanTeen's vision is to bring together all young people living with cancer - you can help us to achieve this goal by partnering with us

• Our Members (the young people we support) drive our organisation and take on leadership roles within the organisation - you will be partnering with a truly unique organisation

So even at this early stage, CanTeen recognises the importance of seeing corporate partnerships though for-profit eyes in order to engage. Services offered to companies include the usual things such as staff fundraising, cause-related marketing and joint promotions, donations, sponsorship, events, payroll giving, employee volunteering and gifts-in-kind. They also run a ‘Side-by-Side scheme which allows companies to choose one of three levels of committed support. These are Diamond, Emerald and Opal. Both Industrie (one of their Diamond

partners) and CanTeen won the NSW Government Partnerships Award for Excellence in Community and Business Partnerships; and the charity was also one of three partnerships nominated for the National Finalists Awards.

CanTeen’s Diamond Partners are strategic, long-term partners that provide crucial support to CanTeen, typically on a National level - either in cash or in-kind, or a combination of both. All of CanTeen's Diamond Partners receive:

• Logo placement on the front page of the Canteen website; • Partnership write-up and priority positioning on the CanTeen website; • Acknowledgement in key CanTeen publications (such as their twice-yearly LINK magazine

that is mailed to their database); • CanTeen in-house PR & Media Relations support; • Discounted & Priority involvement in key events throughout the year; and • Direct management from CanTeen

Current Diamond partners are:

• Industrie Clothing • Toyota • Tripoint • Woolworths

Although there is little sign of significant direct cash donations, CanTeen chooses to work with all its corporate partners to provide indirect ways of generating income.

CanTeen’s Emerald Partners are companies who typically support CanTeen over a period of 3 years or more. These supporters traditionally support a CanTeen event, a program or a specific identified need. There are no ‘up front’ identified benefits associated with this level of support, unlike Diamond partners. Current Emerald partners are:

• Sony Foundation • Pure Logistics • Freehills • PriceWaterhouseCoopers • Myer stores • Ord Minnett Stockbrokers • MyShare

Opal partners support CanTeen through workplace giving schemes, volunteering programs, by donating their products, by supporting a specific event or by getting involved with one of CanTeen’s Divisions. Canteen’s Divisional Opal Partners tend to be grassroots supporters – usually smaller businesses in the local community who provide essential support to CanTeen all around the country. Current Opal partners are:

• Stayz.com.au • Clarius Group • Hilti • NewsLink • ANZ • Coca-Cola • AGL • Integral Energy • Standard & Poor’s • Playbill Venues • Callaway Golf • Jen-Weld • Phoenix Trading • De Bortoli Wines • Kennards Hire • Christmas Warehouse • Teacher’s Professional Diary • KCI Medical Australia

Companies partners, types of support and engagement values for CanTeen 2008/09 Company Partnership

type Type of support Income generated/Value of

contribution Industrie Clothing Diamond Design and supply of 1 million bandannas for the charity’s National

Bandanna Day N/A

Design of CanTeen’s Member, Camp and Volunteer T-shirts, backpacks and bum-bags.

N/A

Design, supply and sale of wash packs (Sharing the Spirit campaign) $1.5 million to date

Toyota Diamond Donated a Toyota Tarago MPV to transport members to camp. Between $50,000 - $75,000 Tripoint Diamond Outsourced IT services

Employee fundraising Woolworths Diamond Sells Industrie designed Bandannas for National Bandanna Day $3.5 million to date

Sony Foundation Emerald Funds the establishment of youth cancer centres throughout the country

$50,000 (2008)

Pure Logistics Emerald Responsible for transporting CanTeen goods all around Australia (particularly Bandannas)

Unknown

Advertising through CanTeen logo on Pure Logistics vehicles N/A Freehills Emerald Provides free legal advice

PriceWaterhouseCoopers Emerald Provides free auditing Myers Emerald Myer stores sell CanTeen products and donate proceeds to the charity Jointly with Industrie,

responsible for raising $428,000 in 2009

Ord Minnett Emerald Primary sponsor of CanTeen’s Golf Day Raised $138,000 in total Qantas N/A Donations Unknown, but have been

funding CanTeen for 15 years. ALM N/A Donations $30,000 (2009)

In-kind beverages for events Unknown Clarius Group Opal Volunteering; Employee fundraising $22,000

Interview Evidence While the report thus far has largely been an appraisal of current literature, often presenting theory rather than fact, we conducted a number of interviews with corporate fundraisers in The USA and The Netherlands34

, in an attempt to corroborate (or indeed refute) suggestions made in this report regarding the current and future direction of corporate philanthropy and get the viewpoint of those engaged with companies on a day to day basis.

Here we present summary highlights from those interviews: Dutch charity interviews Interviews were undertaken with domestic organisations. The key highlights are as follows: Charity perspective

• When deciding which companies to pursue, charities focus on the type of products they sell and the image of the company. There has to be logic in the partnership for the company, the charity and their respective stakeholders.

• Charities in the Netherlands are transparent about who they work with and choose very carefully. For example, the Dutch Cancer Society will not work with pharmaceutical companies or companies who are seen to be unhealthy, such as tobacco companies. They look for partnerships which are obvious and logical to the public and should not need explaining.

• Most partnerships sign up for 3 years, however it is normal to have an additional one year probation period. This is because companies are no longer looking for ‘quick wins’ but are in these partnerships for the long term.

• Companies are much more careful before they decide to come on board as a charity partner. The process of getting them on board is taking more time and work. This includes the use of contracts and licensing agreements where appropriate.

• Overall charities are not yet experiencing a decrease in income, although this is expected. • Charities in general do not using any frameworks, models or matrices. This is because it is very

difficult to do, it takes up a lot of time and is currently not a high priority, although many wish they had a way of doing it.

• One significant challenge is that there are a lot of changes in partnering companies. This includes lots of internal reorganisation, people leaving, new people taking on new jobs etc. This is difficult for continuity, building relationships to deliver the partnership but also when new partnerships are trying to be established.

• Charities speak with their partners frequently. Once or twice a year partner meetings are held to give them an insight into the charity, what they have achieved and where the money has been spent.

• Benefits to companies include use of the charity logo, mention on the charity website and invitations key events, although charities try to leverage additional funds for these benefits.

Corporate perspective

• Companies expect contracts/agreements to be in place. • Budgets for corporate community investment are decreasing and so companies are trying to be

more strategic and tactical with their partnerships.

34 As an alternative mature fundraising market to the UK.

46

• Large companies have moved beyond simply looking at outcomes, and now want to understand and measure the impact of a partnership on their business and the charity. In this respect, they want to align with charities that can have an impact on their business.

• Priority outcomes for companies in their partnership with charities are all about the companies goals. For example, one charity is working with a transport company who has a poor safety record and are looking for a charity partnership to help improve this record and measure its impact.

• Companies want charities to look and understand things from their perspective when considering and going into a partnership. Charities cannot just give a list of things they want and what they will give back, it has moved on from this.

• CSR has now become a priority focus for companies and they are now looking at how they deliver their CSR strategy and how this will contribute to the business.

• CSR departments are becoming more professional and also closer to the boards in the company and this is having an impact on how companies engage.

• Companies still like to focus their support around one of the key areas or projects of a charity. • Employee engagement has become key to charity partnerships as companies look to reduce the

amount of money (donations and/or sponsorship) they give to charities due to tough financial conditions.

• Employee fundraising for the company’s charity partner is very popular for such things as staff morale and attracting the right employees, however measuring the impact is hard.

• Companies are very focused on how they can measure outputs and impacts. • Outputs are slightly easier however measuring impact is very difficult. • Some companies are using charity partnerships to enter new markets.

US not for profit interviews Interviews were undertaken with representatives of global NGOs, as well as domestic organisations. The key highlights are as follows: Charity perspective

• Traditionally, corporate partnerships have primarily been a source of fundraising, but this is changing. It is widely known that companies are reducing budgets, so organisations are adapting by changing what they offer to companies.

• However, companies are still engaging through one-off or smaller donations which require little or no interaction.

• Companies will often be pursued if they are thought to have a strategic ‘fit’ to an organisation, while similarly, companies approach organisations in the same way, particularly if they have a solid ‘brand’ which can be of benefit to the company.

• All respondents have strict ethical screening policies and procedures in place, which concentrate on due diligence and pass through numerous boards. All work with companies is totally transparent.

• Long-term partnerships or those with a higher ‘value’ tend to be at least 3 years, although in the US, organisations seek much more long-term relationships that will justify their own investment in them. Often, these have a set value and are categorized as ‘strategic partnerships’. Levels vary, but it is not uncommon for companies to be contributing $300,000+. These relationships in America can last for 20 years or more.

• Interestingly, one respondent said that they were looking to increase the number of higher level corporate partners, while the other two were looking to keep the status quo, focusing instead on managing and developing existing relationships. Even if companies reduced their support levels,

47

the organisations would continue to provide the same level of ‘service’ and opportunities. None said that they felt they could not attract more corporate partners if they wished.

• In terms of using frameworks, models or matrices to measure corporate engagement, this was varied. One organisation uses their own modified version of the LBG model, which looks at the inputs the organisation provides to the relationship. Although this is not mandated, it helps them to put their thinking into a framework. Its use as an evaluation tool was, however, questionable. One is aware of the LBG model and they are looking at it with interest with a view to possible use in the near future and the other hadn’t heard of it.

• Organisations do not tend to endorse products or services and where a company requests ‘exclusivity’ in a partnership, this is almost always rejected.

• As with the Dutch charities, organisations often find it hard to liaise with companies due to internal structures and a lack of dedicated CCI staff.

• Organisations offer a wide range of options for engagement depending on the company, the level of interest and the level of ‘investment’ a company is willing to make. These include PR, use of the charity logo, mention on the charity website and invitations key events, volunteering for company employees and acknowledgements in annual reports etc. These are all written down in contracts and agreements signed by both parties at the start of any relationship. It is not the case however, that not-for-profits are being forced into giving everything for nothing.

• Corporate engagement offers more than just money. It offers collaborative opportunities in terms of research for example. It also offers opportunities through the exchange of each partners relative skills and expertise. Not for profits are getting better at utilising corporate skills and networks in this way and this is seen as an obvious exchange that could offer up significant advantages if pursued properly.

• Many US organisations have developed Business Leadership Councils that give companies opportunities to be a part of the work they are investing in and help direct programmes which helps them when it comes to leveraging their own contacts and networks.

Corporate perspective

• The biggest change agreed upon by all respondents was that companies are definitely demanding more for less in not-for-profit relationships. However, some felt this ‘strategic philanthropy’ is sometimes a response to economic pressures and not necessarily a leap forward. Having said that, they also feel that this shift will become the norm in the future.

• Companies expect contracts/agreements to be in place and will not engage without them, although most organisations do this anyway to protect their integrity.

• Companies now need not-for-profit relationships to differentiate themselves in the market place and not just add value to the brand. Not for profit organisations therefore need to understand the challenges facing companies at this time.

• Despite the recession, no companies have reneged on their philanthropic commitments and organisations are working hard with partners to ensure relationships continue to thrive given the changing circumstances.

• While companies are focusing on core business and CSR, one person felt companies need to move away from what their needs are, towards investing where needs are greatest. This was termed the ‘quantum leap’ needed. An example was given of IKEA, which has reached this ‘sustainable’ level and is now 10 years ahead of most other companies in terms of community investment practices.

• Companies still like to focus their support around specific projects, programmes or indeed more ‘tangible’ items. Therefore ‘packaging’ up products and services is key to building corporate relationships.

48

• Companies are beginning to talk of collaboration and leveraging funds between other companies and this is happening more and more, which will make it more difficult to access support in the future.

Do you agree or disagree with any of these statements? Use our comment section on our website to post your views or contact us at intelligence@thinkcs.org

49

Further Reading & Research Sources

• Global Corporate Engagement: Benchmarking Models (THINK Intelligence) - this review of benchmarking models is a supporting document to this report.

• THINK Consulting Solutions Corporate Research Presentation Slides Websites

• Corporate Citizenship website – Worth looking at their publications archive Publications/Reports

• Giving in Numbers 2010, CECP • Measuring the Value of Corporate Philanthropy: Social impact, business benefits, and investor

returns, CECP, 2010 • Shaping the Future: Solving Social Problems Through Business Strategy, CECP • Businesses Social Contract: Capturing the Corporate Philanthropy Opportunity, CECP • Stakeholders Expectations of Business, CECP Newsletter, 2010 • Exploring Corporate Philanthropy – A Member Survey, CECP 2006 • The Future of Corporate Philanthropy: A Framework for Understanding Your Options, Monitor

Institute, 2006 • Corporate Community Investment Practices, Motivations and Challenges: Findings from the Canada

Survey of Business Contributions to Community, Imagine Canada (from CAN$250) • Business Contributions to Canadian Communities: Findings from a qualitative study of current

practices, Imagine Canada 2007, Free • Corporate Community Investment: Trends, Developments and Attitudes, Nottingham University

Business School, 2008 • Global CSR Reports List, Global Reporting Initiative – Excel spreadsheet listing over 1,300 global

company CSR reports, Free, Updated weekly • An evaluation of Corporate Community Investment in the UK - Current developments, future

challenges, CAF, 2006 • The Role of Stakeholder Engagement in Corporate Community Investment, CAF, 2007 • Business Investment in Culture Trends 2008 – Will the credit crunch affect this?, Arts & Business,

September 2008 • Partnership evaluation - a best practice guide, Arts & Business • Partnership Evaluation Tool – How to make a powerful case for support, Arts & Business • Market Trends 2009, Arts & Business • Charity Brand Index 2010, PR Week/Third Sector, 2010 • Readers Digest European Trusted Brands Survey 2010, Readers Digest • The Cone Nonprofit Power Brand 100 - public ranking in the United States to value not for profit

organisations by more than financial standing alone. • Cone Corporate Responsibility Report 2010; Cone CSR Update 2009 • The changing nature of corporate responsibility – what role for corporate foundations?, CAF, 2007 • Sustainability Reporting Guidelines, Global Reporting Initiative – Guidelines by which many

companies use as the basis for their sustainability reporting. • Helping companies helping charities, CAF, 2009 • The Partnering Toolbook, UNDP, 2009

50

• Corporate Philanthropy In Ho Chi Minh City: An Update on the Status of Corporate Giving in Vietnam, LIN Center for Community Development, 2009

• SROI for Funders, New Philanthropy Capital, 2010 • Corporate responsibility and the movement of business, Peter Utting, Development in Practice,

Volume 15, Numbers 3 & 4, June 2005