The Coming End of Corporate Charity, and How Companies Should Prepare

The Coming End of Corporate Charity, and How Companies Should Prepare

The end of corporations giving money to charities and getting nothing in return is close at hand.

As the pressure to quantify all results intensifies, businesses are finding that the most meaningful social change happens when they stick to the business of business. This is evident in the way corporate social responsibility has evolved. Once primarily a vehicle for corporate philanthropy, CSR as it is practiced today usually consists of measurable business activities that are also good for society. In this context, traditional corporate philanthropy is considered an inappropriate use of capital, a distraction of time and resources from business activities that will accomplish more.

The fact is that corporations have no imperative to support the work of nonprofits, and they actually give very little away as a portion of all charitable giving.  In Britain the NCVO and Charity Commission found corporate contributions to amount to only about 6% of total donations and gifts to voluntary organizations in 2011-12. According to the National Philanthropic Trust, U.S. corporations accounted for only approximately 5% of total giving to charities in 2011.

Executives have started to ask how their companies can stop giving money away and getting nothing in return, but putting an end to corporate philanthropy isn’t easy. The reputational risk of leaving worthy charitable organizations out in the cold is considerable, making leaders reluctant to take decisive action. However, new approaches are possible, since the end of giving for nothing may not be far away.

What executives are missing is a viable approach to ending traditional philanthropy in their organizations. The following seven strategies are based on what we’ve learned at Impakt in helping businesses to stop giving their money away.

1. Develop a five-year exit strategy. Almost every large corporation supports at least one large charity in a significant way. In these cases, it’s important to identify a social objective that can be achieved over five years and to allocate financial and other resources towards that objective on a diminishing basis. When the social objective has been achieved, the charity will no longer require support.

2.  Begin investing in social change in other ways. Charitable organizations don’t have a monopoly on social change, and sometimes social enterprises and other businesses can achieve better results. If social change is important to your business, you should understand the strengths and weaknesses of all the players and start to reallocate charitable dollars towards organizations that deliver the most value, regardless of their sectors.

3. Focus on opportunities that can deliver return on investment. Pure philanthropy has virtually no business value. It’s altruistic and intended to help charities in ways that can’t be measured. Corporations can start shifting philanthropic spending toward social investments that have the potential of creating ROI. That might mean, for example, making a loan to someone with little or no credit to help start a business.

4. Stop funding charitable initiatives that don’t get results. Even without conducting a formal evaluation, you likely already know which organizations aren’t performing. Stop supporting those groups in 2015. Then take a year to reduce or eliminate funding for other organizations that may be of more value but aren’t the right partners for your business. During the transition, provide funding for capacity building to help organizations become more sustainable without your support.

5. Move CSR to Finance or Operations. Doing so is anathema to CSR managers (most of whom report in to marketing or H.R.), but it will increase accountability, ensure that business programs that have social value are resourced properly, and support the strategy for exiting out of donations. The transition will be difficult, but the results will be better.

6. Focus on value. Start asking how you can give or invest less while bringing about greater social change. This is a standard question for businesses, but it’s rarely posed to charities. Organizations that can help you answer it will be worthy of continued support.

7. Embed social change in your business. Financial institutions should find new ways to get vulnerable people access to capital. Companies in extractive industries such as mining or oil and gas should put a high priority on adding more indigenous suppliers and employees. Car companies should focus on sustainable transportation. Pharmaceutical companies need to create new revenue models around preventing illness.

Talking this way about eliminating corporate philanthropy won’t make me very popular with charitable organizations. However, charities can address the loss of 5% of their revenue by reducing costs, improving efficiency, and getting better at demonstrating their social value to individual donors and foundations. Businesses face challenges like this all the time, and charities shouldn’t be treated any differently.

Corporations have the opportunity and, increasingly, the obligation to make social change a priority. The business and social rewards for putting the brakes on donation programs that don’t produce results will, more and more, outweigh the risks.

I am the Founder of Impakt, a firm I launched in 2001 to help large corporations increase business value through positive social change. I've had the great pleasure to have helped Fortune 500 corporations including McKesson, Home Depot, Starbucks, Nestle-Purina, McDonalds/Ronald McDonald House Charities, and 3M to better understand their social purpose and to measure and improve the performance of their CSR programs. It's a joy to work with my team at Impakt and a privilege to help our clients improve what they do in an area which I believe is re-defining what it means to be successful in business.
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