What is the difference between corporate philanthropy and corporate social responsibility?

The two phrases most commonly used to describe the social activities of businesses are corporate philanthropy and corporate social responsibility.

Corporate Philanthropy:

• Those activities that companies voluntarily undertake to have a positive impact on society, including cash contributions, contributions of products and services, volunteerism, and other business transactions to advance a cause, issue or nonprofit organization. (Walker Information)
• Donating money and other corporate resources to social causes.
• Corporate philanthropy refers to the practice of companies of all sizes and sectors making charitable contributions to address a variety of social, economic and other issues as part of their overall corporate citizenship strategy. (Business for Social Responsibility)
• Corporate philanthropy is a key component of a corporation’s broader social responsibility and includes cash gifts, product donations and employee volunteerism. It serves as a major link between the corporation and its communities. (Committee to Encourage Corporate Philanthropy)

Corporate Social Responsibility:

• Obeying the letter and spirit of the law; mitigating or remedying operational harm; and sustainable development of natural resources.
• Achieving commercial success in ways that honor ethical values and respect people, communities, and the natural environment. Addressing the legal, ethical, commercial and other expectations society has for business, and making decisions that fairly balance the claims of all key stakeholders. (Business for Social Responsibility)
• Companies that consciously integrate strategies that seek to maximize the creation of environmental and social value within their core business models, operations and supply chains. (Jed Emerson, Sheila Bonini and Kim Brehm. The Blended Value Map: Tracking the Intersects and Opportunities of Economic, Social and Environmental Value Creation)

 Why should companies engage in philanthropy?

Rationale for Giving:
Enlightened Self-Interest

Philanthropic programs are an investment in both the longevity of the business and in the communities in which they operate. This concept is often referred to as “enlightened self-interest” – without healthy communities healthy companies cannot exist. Community involvement is especially critical in today’s competitive business environment, where no company can afford to be insular.

Stakeholder Expectation

With more than 2000 corporate foundations and innumerable, direct giving programs donating more than $12 billion annually in cash and products to non-profit organizations, philanthropy has become a customary part of doing business.

• 95 percent of Americans agree that US companies should have more than one purpose (profit), and that they also owe something to the communities in which they operate. ( Business Week/Harris Poll, Business Week, September 2000 )
• 89 percent of Americans say that in light of the Enron collapse and WorldCom financial situation, it is more important than ever for companies to be socially responsible. (2002 Cone Corporate Citizenship Study)

Bottom Line Benefits

A number of studies have shown that community involvement – grants, in-kind donations and employee volunteerism – helps companies achieve business objectives and may contribute to the bottom line. Community involvement has been shown to impact:

Consumer Preferences and Loyalty

• Customers with a favorable impression of a company’s philanthropy are three times more likely to be loyal customers than those who have less favorable perceptions about a company’s philanthropic efforts. (National Benchmark Study-Measuring the Business Value of Corporate Philanthropy)
• 91 percent of respondents to the 2002 Cone Corporate Citizenship Study said if they were to find out about a company’s negative corporate citizenship practices, they would consider switching to another company’s products or services.
• 91 percent of respondents to a Wirthlin survey on corporate citizenship said that being a good corporate citizen will be paid back with a better reputation and more customers. (The Wirthlin Report, January 2003)

Employee Recruitment and Retention

• Employees who have a favorable impression of their company's philanthropic program are four times more likely to be truly loyal employees than those who do not. (National Benchmark Study-Measuring the Business Value of Corporate Philanthropy)
• All things being equal, employees who have a favorable impression of their company's philanthropy are five times more likely to remain with their employer. (National Benchmark Study-Measuring the Business Value of Corporate Philanthropy)
• 77 percent of respondents to the 2002 Cone Corporate Citizenship Study said a company's commitment is important to social issues when they decide where to work.

Shareholder Investment

• A 2002 Walker Information/Council on Foundations’ study found that shareholders with a positive view of a company’s philanthropy are more likely to continue as investors in the company. (National Benchmark Study-Measuring the Business Value of Corporate Philanthropy)
• Respondents to the 2002 Cone Corporate Citizenship Study  said if they were to find out about a company's negative corporate citizenship practices they would refuse to invest in that company’s stock.
• 82 percent of respondents to the Wirthlin Study said that a company's reputation for being a good corporate citizen would have at least some influence on whether or not they would buy or hold stock in a particular company.
• 42 percent of respondents to a survey of international opinion leaders agree strongly, and 34 percent agree slightly, that the degree to which an organization is seen as socially responsible will have an increasing impact on share prices. (Summary of International Opinion Leader Survey on CSR, Burson-Marsteller and The Prince of Wales Business Leaders Forum)

Additional Resources

• Corporate Giving:A Strategic Business Investment
• Corporate Giving Helps A Company Recruit and Retain Employees
• For more information about the Council on Foundations' and Walker Information's groundbreaking work in developing a do-it-yourself measurement tool kit, go to Research Report: Executive Summary
• The Council published the do-it-yourself measurement tool kit in January 2001. Read about how one organization, The Bon Ton Stores Foundation, used the tool kit to improve its philanthropic program.
• For more about the Council’s measurement work with Walker Information, visit Measuring Philanthropy.com
• Order the 2003 Corporate Grantmakers Summit Proceedings: Doing Well by Doing Good: Rhetoric or Reality?
• For a complete analysis of 95 empirical studies on the social/financial link: People and Profits? The Search for a Link Between a Company's Social and Financial Performance by Joshua D. Margolis and James Patrick Walsh

 How much money is needed to start a corporate foundation?

There is no minimum amount of money needed to start a corporate foundation. In the context of private foundations in general, where the day-to-day operating expenses are typically covered by income from an endowment, the issue of how much is enough can be a critical one. In such cases, if the endowment is not sufficient to cover expenses or leaves little left for grantmaking, it simply may make more sense to pursue different giving vehicles.

In the corporate context, however, foundations are not always endowed. Instead, it is common for the parent company to provide annual funding based on the foundation's budget, and administrative expenses are paid by the parent company.In such cases,it doesn't make much sense to talk about how much is enough.

Even when a corporate foundation is endowed, the break-even point where income covers expenses can be quite different than in other types of foundations. This is because endowed corporate foundations are often set up so that the investment income from the endowment is used exclusively for grants, and the administrative expenses are covered directly by the parent company.

For these reasons, it is virtually impossible to say how much money is needed to start a corporate foundation. Rather, grantmakers should carefully consider the costs they expect the foundation to be able to cover, the sources of funds to cover those costs, and how much will remain for grantmaking in the community once expenses are paid. If the expenses leave little left for community programs, other giving vehicles may be more appropriate.

 What is the role of a corporate foundation board?

According to the Council publication, Making the Most of Corporate Foundation Boards: Strategies and Practices, the primary roles for foundation boards include:

• Setting policy for funding and administration
• Ensuring adherence to all relevant federal and state requirements
• Upholding the bylaws and policies of the foundation itself
• Overseeing grant approvals beyond staff discretionary level
• Supervising staff in executing the foundation's work

 •What is the most common legal problem a company should be aware of when starting (and managing) a corporate foundation?

According to the Council's Legal and Ethical Services staff, the legal issue most often encountered by corporations with foundations is self-dealing. Under the private foundation rules, a corporate foundation is prohibited (with very few exceptions) to enter into any financial transactions with the parent company and other disqualified persons. Disqualified persons include:

• Major funders (substantial contributors, including the parent company)
• Officers, executives or directors/trustees of both the foundation and the parent company
• Companies, subsidiaries or partnerships substantially owned or controlled by any disqualified person
• The spouses and families of all the above

Self-dealing activities include:

• Furnishing goods, services or activities
• Selling, exchanging or leasing property
• Lending money or extending credit

The most important exception to the rules against self-dealing is that a foundation may pay a disqualified person reasonable compensation for personal services such as legal, accounting or investment management.

 What percentage of a corporate foundation's budget should be allocated for administrative expenses?

Administrative costs typically include salaries and benefits, legal and professional fees, interest, taxes, depreciation, occupancy, travel, printing and other expenses. Because the measurement of administrative expenses for foundations can vary widely by geography, staff size, assets size and program activity, the Council's Foundation Management Series  provides three ratios of administrative expenses:

• As a percent of assets: Charitable administrative expenses as a percentage of net noncharitable use assets are calculated by dividing total charitable operating and administrative expenses by the net value of noncharitable use assets.
• As a percent of grants: Charitable administrative expenses as a percentage of grants are calculated by dividing total charitable operating and administrative expenses by the difference between total charitable expenses and disbursements and total charitable operating and administrative expenses.
• As a percent of payout: The term payout broadly refers to the amount a foundation expends for grants. Charitable administrative expenses as a percentage of payout show the charitable operating costs of the foundation compared with the total charitable expenditures--grants, grant administrative expenses, direct charitable expenses and other qualifying distributions, including program-related investments, program set-asides and other disbursements. This ratio is calculated by dividing total charitable operating and administrative expenses by the sum of the total taxes paid, total qualifying distributions and excess distributions carryover.

According to Administering Corporate Giving 2002, corporate foundations and giving programs spent an average of 5.7 percent on administrative expenses as a percentage of grants in a year.

 How much are corporate grantmakers paid?

The Council on Foundations publishes an annual Grantmakers Salary and Benefits Report, which provides staffing, employee benefits and salary information for 15 positions.  The Report's Executive Summary  is available to the public; corporate members may login to view the details of the Report [pdf]. The survey is also available for purchase through the Council's online store.

 What types of support do corporations provide to non profit organizations?

Corporations provide support to non profit organizations with profits, people, product, premises, power, purchasing and promotion.(Everybody's Business: Managing Risks and Opportunities in Today's Global Society by David Grayson and Adrian Hodges). The most common types of support are profits (cash), product/premises (or in kind donations) and people (employee volunteerism).

Cash contributions:

• Include direct grants, such as awards, capital, challenge and matching grants
• Matching gifts, which are company matches to employee donations to designated non profits
• Grants to organization where employees volunteer, often known as Dollars for Doers

Non cash or in-kind contributions:

• Product or service donations
• Loaned equipment and facilities

Employee Involvement:

• Paid release time for employees to volunteer
• Corporate executives serving on non profit boards

 Who should I contact if I have additional questions?

Members of the Council on Foundations can email Corporate Services  or Legal Services and Ethical Standards staff with governance, management or grantmaking questions.