The Latest Views on Corporate Social Responsibility and Philanthropy

Stephen DeAngelis

November 24, 2009

In a recent special report, the Wall Street Journal discussed the changing face of philanthropy, including corporate social responsibility. The report noted that many charities have fallen on hard times as demands on their resources increase and donations to their causes decrease. Then, of course, there were the dozens of charities that entrusted their funds to scoundrels like Bernie Madoff and lost them all. Corporations, too, are struggling in many cases and, as a result, “to augment—or in some cases to replace—cash donations to charitable causes, corporate philanthropists have increased their focus on skills-based volunteering, pro-bono services, policy advocacy and, perhaps most notably, making business decisions that accomplish a public good” [“Tough Times, New Tactics,” by Shelly Banjo, Wall Street Journal, 9 November 2009]. These tactics are in line with those recommended by Jack and Suzy Welch in BusinessWeek. For more about what the Welches wrote, read my blog entitled Corporate Social Responsibility in Financially-Troubled Times. Banjo asked four business executives, Jim Rogers, John Chambers, Peter Sands and Sophie Gasperment, “How do you do good at a time when cash is tight?” Their answers are included below:

Jim Rogers, chief executive of Duke Energy Corporation

“‘It’s about profit, [the] planet and people,’ he says. The Charlotte, N.C., company is committed to putting people to work, reducing environmental impact and increasing energy security, he says. This year it built wind farms, put more solar on rooftops, and earmarked $600 million with Florida Power & Light to transform their combined car-and-truck fleet to plug-in-hybrid or all-electric by 2020. It also hired more than 3,000 people whose jobs are related to construction work that will reduce the company’s carbon footprint and pollution. … The company hasn’t pulled back on direct philanthropy in the meantime. Last year it donated $4 million for cooling and heating assistance, and an emergency grant of $800,000 for heating. Support for all causes rose slightly to $30 million last year from $29 million in 2006. But the recession has led Duke to find new ways to leverage its contributions. Budget shortfalls at local United Way agencies, for example, led the company to encourage agencies with similar missions to work together and share resources.”

Sophie Gasperment, chief executive of the Body Shop International PLC

“[Gasperment] continues to run the cosmetics company on the founding belief ‘that business can be a force for good in society,’ she says. Her company recently launched a world-wide campaign to stop sex trafficking of children and young people. With more than 2,500 stores in 65 countries to help spread its message, the campaign urges decision makers to give children greater protection. The global recession has heightened the vulnerability of young people, Ms. Gasperment says. Poverty has increased in the children’s countries of origin. This can mean that some children may be forced to quit school in order to work and contribute to the family income, thus making them more exposed to sexual exploitation. And in so-called destination countries, meanwhile, the clients of prostitution have less disposable income, which may drive the exploiters to look for cheaper labor, namely children, to maintain their criminal operations. The role for the Body Shop is to team up with experts who are working directly on the problem, and to raise awareness of the issue with Body Shop customers. The company, a unit of France’s L’Oréal SA, created a hand cream, the proceeds from which go to organizations that work to stop sex trafficking. Says Ms. Gasperment, ‘This is what we stand for, and why our customers come to our stores.”

John Chambers, chief executive of Cisco Systems Inc.

“The recession has forced Cisco to expand its approach to philanthropy, Mr. Chambers says. In addition to making straightforward donations, the company focuses on how to increase the multiplier effects of giving—through partnering with governments, non-governmental organizations and other companies ‘to leverage our dollars tenfold,’ Mr. Chambers says. Last month Cisco announced a $10 million contribution in cash, services and equipment over the next two years to support rehabilitation and reconstruction in the western Indian state of Karnataka, where recent flooding caused widespread loss of life and heavy damage to local infrastructure. Just as it did after Hurricane Katrina in 2005 and the Sichuan, China, earthquake last year, the company plans to work with the state government in a private-public partnership not only to rebuild but to improve the infrastructure, especially for education and health care, with 21st-century information-technology and communications equipment. … The goal, he says, is not just to rebuild schools, but to ‘skip a generation and build 21st-century schools for the future,’ and to modernize how hospitals operate. … The company says it has boosted support in its own backyard through $1.26 million in Silicon Valley Impact Grants to support community-service nonprofit groups within 50 miles of Cisco’s headquarters in San Jose, Calif. The company also encourages employees to get personally involved. Cisco has created 35 employee-led civic councils around the world to plan volunteering projects, forge nonprofit partnerships and coordinate charitable donations. Last year, personal philanthropy efforts became a part of every employee’s performance review.”

Peter Sands, chief executive of Standard Chartered PLC

“If any good is to come out of the crisis, it is that banks and bankers reflect more on their role in the broad economy to make sure their impact on society is positive, says … Sands. … ‘This is not the time to turn away from the issues’ pressing the global economy and ‘the communities in which we operate,’ he says. Microfinance, for instance, or making small loans to the poor, can help promote economic growth and lift people out of poverty in developing nations, Mr. Sands says. The company hopes to provide $500 million to microfinance organizations by 2011, working with such groups as the World Bank, Accion International and the U.S. Agency for International Development. ‘There is a real opportunity to make microfinance much, much bigger than it is at the moment,’ says Mr. Sands, who adds that his intention is to turn the practice into a commercially viable business. The company is offering free technical assistance workshops, conferences and training in governance, risk management and investment readiness to support microfinance institutions across Asia and Africa. Standard Chartered is active in purely philanthropic campaigns as well, particularly in Asia, Africa and the Middle East. It tries to focus on projects that resonate with its world-wide staff of 70,000 and their local communities. For instance, it recently pledged $20 million to bring eye-care services to 20 million people in 20 cities by 2015. Company officials say their Seeing Is Believing initiative has helped more than two million people so far. Other core initiatives include Living with HIV, a program that aims to reduce the number of new HIV infections through the education of one million people about HIV and AIDS by 2010. Nets for Life, an anti-malaria program, has distributed more than one million mosquito nets since 2006. The company gives its employees a few days of paid leave for volunteer work each year and gives awards to those in the countries with the highest volunteering rates. In 2008, the winners got additional days of paid-volunteering leave, and trips to visit community projects in India. Says Mr. Sands, ‘We want our employees to own the various projects we’ve committed to.'”

One side note on what Sands said. Although I’m a supporter of microfinance, his plans to turn Standard’s microfinance “practice into a commercially viable business” could do as much harm as it does good. For more on that topic, see my post entitled The Ups and Downs of Microfinance. For the most part, however, I believe that the efforts described above are positive ways for businesses to do good in the world. As the Welches pointed out, however, the best good that businesses accomplish is providing jobs. Jobs support individuals, families, and communities. For those jobs to be sustainable, companies must be profitable. John Chambers of Cisco Systems noted in his response that Cisco likes to work in public-private partnerships. In most developing countries, public-private partnerships are critical for success. In another article in the Wall Street Journal series on philanthropy, Ms. Banjo reports that public-private partnerships are also proving beneficial in the developed world [“Is It Public, or Is It Private?”]. She writes:

“Traditionally, when it comes to philanthropy, there has been private philanthropy, and there has been government philanthropy, and rarely did the two meet. But that division is now changing, as a growing number of philanthropists are looking at new opportunities in so-called public-private partnerships. … ‘Government and philanthropists have been on parallel tracks for decades trying to solve bigger problems, and now the tracks are coming together,’ says Eric Kessler, founder of Arabella Philanthropic Investment Advisors in Washington, D.C. Mr. Kessler says he is working with a number of wealthy families and foundations on establishing public-private partnerships.” Both sides stand to gain: Donors leverage their dollars, and the government gets additional capital, plus the expertise and credibility that high-profile philanthropists often bestow on the causes they support.”

One of the benefits of public/private partnerships is flexibility. Often money from one source or the other comes with restrictions that can unintentionally impede progress. When such roadblocks are encountered, funds from the other source can often been used to get through it so that progress can continue.

“In the past 15 years, nonprofits and private foundations have assumed larger roles in providing social services. Government often contracts with such groups to provide social services, including homeless shelters, food pantries and senior care. So, philanthropic cooperation between government and private sector has existed for a while. But the past couple of years saw two other developments: a severe recession causing budget constraints at the local, state and federal levels and, as a result, even greater willingness of various governments to team with nonprofits and philanthropists to address major social problems. That means bringing new money and human resources to the table. A variety of local, state and federal initiatives have sprung up to provide incentives for nonprofits and philanthropists to donate to a particular cause, largely through government grant programs that match private donations. Public authorities have also created offices of social entrepreneurship to promote innovative programs, work with private donors and fund those programs that become successful.”

Of course, there are also some challenges that private philanthropies can encounter when teaming up with government agencies.

“Any use of public funds invites debate over whether the money is being spent properly. Philanthropists thus can become targets for public criticism when they help fund initiatives that are controversial. … Politics aside, working with government agencies also can take longer and be more bureaucratic than making direct, individual grants.”

Despite the potential drawbacks, Banjo reports that “government bodies continue to warm to such opportunities.”

“President Barack Obama created the White House Office of Social Innovation and Civic Participation to funnel government resources to nonprofit and private programs involved in charitable work. When private philanthropists find an approach that works, the government allot funds to those programs. The White House office started with a $50 million budget. Similar government efforts are cropping up in Louisiana, Ohio, Texas and other states, and in such cities as New York, Boston and Chicago.”

In the developing world, public/private partnerships are needed to construct critical infrastructure that helps businesses become more efficient (like reliable electrical power, transportation systems, etc.) but at the same time serve a larger public good. By partnering together in such situations, companies and governments both win. If you (or your company) are looking to donate to causes in developing countries, Anjali Cordeiro wrote an article in the report that can help you find the cause for which you might are looking [“Expanding Your Horizons”]. She writes:

“Americans have shown a growing interest in philanthropic causes overseas in recent years. But giving abroad can be complicated for those who want their money to go to a specific cause in a particular region—say, education in Southeast Asia or health care in sub-Saharan Africa. Ensuring that such donations reach their intended target and are used effectively, are tax-deductible and don’t violate antiterrorism laws or any other U.S. government restrictions can be a daunting task. Well-known organizations like the American Red Cross provide a convenient way for many people to make contributions. But they aren’t set up to target donations the way some contributors would like. Those are some of the reasons many donors opt to work with U.S.-based intermediary charities created for international giving. These organizations act as a channel for donations, ensuring that the money goes to reputable recipients and has the desired effect, and that contributions meet all legal requirements. Because they are U.S.-based, donations made through them are tax-deductible.”

No organization that I’m aware of can actually direct your money to specific individuals. They send the money to organizations that help a particular cause or a particular clientele in a particular region or country. Take, for example, Kiva, which helps provide microfiancing in the developing world. Even though it allows donors to apparently click and donate to specific individuals or groups, what the donor is really doing is providing funds to the microfinance institution that will provides the funds to the individual. Kiva has recently received some flak for making it appear that donors are actually lending money directly to the selected individuals [see “Confusion on Where Money Lent via Kiva Goes,” by Stephanie Strom, New York Times, 9 November 2009]. Personally, it makes little difference to me. Cordeiro continues:

“A list of intermediaries and nonprofits involved in international philanthropy can be found on the Web site of U.S. International Grantmaking, usig.org, a project of the Council on Foundations and the International Center for Not-for-Profit Law.”

Cordeiro provides a few examples of how and why people use intermediaries.

“When Dale Van Aken, founder of a Pennsylvania technology company, and five of his friends heard of water shortages in Zambian villages from an acquaintance who was born in that country, they decided to donate and raise money to drill wells there. They chose not to funnel the money through church groups or send it directly to nonprofits in Zambia, for a number of reasons. To draw from the broadest pool of potential donors, they decided to work with secular organizations. And they didn’t want to send money directly to Zambia because they didn’t know how to ensure that they didn’t violate any laws on money transfers overseas, or that the donations would be tax-deductible, another key to attracting as many donors as possible. … He and his friends ultimately settled on using a New York-based intermediary charity, the King Baudouin Foundation U.S., as a conduit for their donations. The foundation set up a so-called donor-advised fund for the group. Contributors donate money to the fund, and the foundation then distributes money from the fund to water projects in Zambia recommended by Mr. Van Aken and his friends.”

An accompanying article in the Wall Street Journal report indicates that donor-directed funds are growing in popularity with philanthropists because they significantly reduce overhead costs when compared to establishing a private foundation. “It takes a minimum of $15,000 to set up a donor-advised fund at the King Baudouin Foundation U.S., but there is no minimum for subsequent gifts.” Cordeiro continues:

“Pandju Merali, an 80-year-old retired businessman in Seal Beach, Calif., says he turned to intermediary groups after he wrote to education departments in developing countries about his interest in funding women’s education and received no response. … Now, he works with a handful of intermediary charities to identify and donate to universities and young women in need of funding. He established a foundation named for his wife, the Shirin Pandju Merali Foundation, that has funded more than 700 students in India, Afghanistan and elsewhere by making donations through GlobalGiving, a nonprofit in Washington, D.C. GlobalGiving works with hundreds of grass-roots groups around the world, which it vets to ensure they meet U.S. tax and antiterrorism rules. Some local partners help identify the universities and students who meet Mr. Merali’s requirements. GlobalGiving provides Mr. Merali progress reports on the performance of the students he supports. GlobalGiving usually charges 15% of the size of each grant, though on rare occasions fees may be negotiated on large grants. Mr. Merali, for instance, pays a 10% fee.”

Even if you’re not super-wealthy, Cordeiro reports that you “can still direct [your modest] contributions to specific causes abroad.”

“The King Baudouin Foundation U.S. allows donors to make what it calls an advised gift of $5,000 or more to support a nonprofit of the giver’s choice overseas. As it does for advised funds, the foundation vets recipients of advised gifts and ensures that the money is put to good use. It charges a fee that starts at 5% of the first $100,000 of each gift and drops to 1% of any amount over $400,000. Donations are tax-deductible. The Fidelity Charitable Gift Fund allows a donor to set up what it calls a giving account of $5,000 or more and then distribute that money to any of the U.S.-based charities vetted by the fund that do international work, or to domestic charities. Contributions are tax-deductible. An administrative fee starts at 0.6% for the first $500,000 in an account and declines for amounts above that level. Much smaller donations can be targeted to specific causes through intermediaries including GlobalGiving. Donors can go to the GlobalGiving site, choose among projects posted by charities the organization has vetted and make tax-deductible donations of as little as $10. One recent post, for example, sought donations for learning centers for rural Afghan women. A $25 donation would help 15 women learn to read, it said; $75 would pay for a month of a teacher’s salary for 30 literacy students.”

The final article in the report that I would like to discuss, also written by Ms. Banjo, talks about philanthropists who set out to make money with their ventures so that they can continue to grow the amount of money that can be used to do good [“Consider It an Investment”]. She reports:

“With fewer resources to go around, philanthropists are using a host of methods to stretch their charitable dollars. Instead of simply giving money away to a cause, groups and individuals are plowing their funds into financial vehicles—known as program-related investments—that let their money grow while it does good. So, rather than make a one-time gift of $1,000, they might invest in a project that generates revenue, such as a loan to an entrepreneur in the developing world or real estate that rents to nonprofits. The returns can then go to other causes. … To be sure, these charitable options aren’t new, but for a long time only big institutions like the Ford Foundation pursued them. Given the lingering economic slump, though, program-related investments are getting attention from a wider array of potential donors—including smaller family foundations, investors with donor-advised funds and everyday individual givers. And lots of options are springing up to help donors along, from specialized donor-advised funds to opportunities to invest in microfinance and community development.”

If this sounds like something you might be interested in, Banjo provides some avenues you might pursue, including Kiva, which I mentioned above:

“In the past few years, a number of Web sites have sprung up to give individuals access to the growing industry of microlending—making small loans to entrepreneurs, mostly in developing countries. At Kiva.org, for instance, donors choose an individual to help, such as a Ghanaian entrepreneur starting a clothing business or livestock farm. [This is not exactly correct as noted above.] Individuals decide how much they’re willing to donate—$25 and up—and within six to 12 months, they get the money back. (Loans made through Kiva don’t earn interest, however.) From there, donors can funnel the money into another loan, donate it to Kiva for operational expenses or return it to their bank account. The site says it has handled more than $100 million in loans since its founding in 2005, and almost 98% of loans have been paid back. Another microfinance site, eBay Inc. subsidiary MicroPlace.com, takes a different approach. Lenders pick a microfinance institution to invest in—such as the Habitat for Humanity investment program or international microfinance organization Accion—and can choose when they get repaid, from three months to five years. MicroPlace is a registered brokerage firm—unlike Kiva, which is a nonprofit organization—so investors can earn returns on the money that can be reinvested, ranging from 1% to 6%. What’s more, MicroPlace offers individuals low-dollar access to microfinance groups that typically require larger contributions. For instance, Oikocredit USA, an arm of the large Netherlands-based microfinance group, usually requires a minimum $1,000 contribution. But if you go through MicroPlace, you can start with just $20. … There are other ways to get into microfinance, such as specialized funds. Accion’s Global Bridge Fund offers what the group calls a private-placement investment, similar to a CD, pooling investor assets to support microfinance institutions. The minimum investment is $2,000 for at least 18 months; interest rates vary from 0% to 3% for new investments. Finally, if you’d like to support lending closer to home, there are U.S. community-development banks—institutions that make loans to low-income individuals and business owners, nonprofits, environmental and faith-based groups. The simplest way to get funds to these banks is to open an account there; your money will be insured by the FDIC, just as in regular banks. You can also invest in funds run by the banks.”

The good news in all this is that even though charities and charitable giving has fallen on hard times, help for worthy causes hasn’t dried up altogether. Even small contributions, if provided by enough people, can do a great deal of good. During this Thanksgiving season, you will find it a little brighter and filled with greater joy if you reach out and help someone else.