The Shape of Corporate Philanthropy Yesterday and Today

During the 2002 Council on Foundations annual conference, Kent (Oz) C. Nelson, the former chairman and CEO of United Parcel Service, said that he believed that all giving, even corporate giving, should come "from the heart." Several people cheered; some groaned. But, Reatha Clark King, then president of the General Mills Foundation, remarked that finding a corporation's heart is the real problem.

Now, Reatha didn't mean to say that corporations don't have a heart. Rather, the real trick for corporate philanthropy professionals, including corporate grantmakers in the arts, is identifying exactly what constitutes that heart. Is a corporation's heart in its CEO? Other senior executives? The corporate foundation's trustees and staff? The employees? The corporate values? Finding a corporation's heart, and then articulating it in a way that makes business sense for the company, is at the core of understanding and managing corporate philanthropy.

Nonetheless, for many corporate philanthropy managers, the heart is a necessary, but not sufficient, element of corporate philanthropy and social responsibility. For them (and I counted myself among the "them" while I was with the AT&T Foundation for sixteen years), the heart's emotional impulses must be coupled with the brain's logic to have a truly great corporate philanthropy program, especially in our highly competitive and unforgiving world.

In this article, I trace the history of corporate philanthropy and offer an assessment of its current state. I'll do this by focusing on four phases of that history, which are not strictly chronological, but may offer some insight into where corporate philanthropy has been and where it's going.

The first phase, which could be characterized as "pre-corporate philanthropy," consists of men and women who created companies and invented products, and held strong beliefs about helping certain aspects of society in the United States. The second phase focuses on chief executive officers and formalized programs designed to "give back" to communities, often manifested in the creation of corporate foundations. The third phase, often referred to as "strategic philanthropy," involves the marriage of business interests and the needs of communities through these institutionalized programs. And, the fourth, and newest phase, centers on the concept of "corporate social responsibility," a holistic view of how companies operate and whom they serve, and how corporate philanthropy fits within a company's overall structure and philosophy.

Corporate founders and their human interests

Henry Ford, who founded the Ford Motor Company in 1903, collected Americana—inventions and machinery that he thought helped build the bridges between earlier inventions to the advances of his time. He founded the Edison Institute—now called the Henry Ford Museum & Greenfield Village—in order to share with the public his idea of "how far and how fast we have come."

Alexander Graham Bell, who founded the Bell Telephone Company (which later became AT&T) in 1877, began his career by teaching the hearing impaired (including his own wife), which grew into a lifelong campaign to teach the deaf lip-reading and speech through experiments with sound waves and their transmission, leading directly to the invention of the telephone.

John Pierpont Morgan, who founded J.P. Morgan & Co. (now JPMorganChase) in 1895, was an avid collector of art and books (his collections would end up in the Metropolitan Museum of Art and the Morgan Library), and he valued character above all else. Trust and integrity—not wealth and power—were the standards by which he measured his colleagues and friends and conducted his business.

So important are these values to the culture from which corporate philanthropy springs that trust and integrity form the foundation of many companies' mission and vision statements today.

The companies that these men built combined their founder's values together with their business acumen to create long-lasting corporate cultures that facilitated the advance of corporate philanthropy in the twentieth century. But, these men were not alone; there were businesswomen who were "giving back" to their communities during the late 1800s and early 1900s as well.

Myra Bradwell began publishing the Chicago Legal News, the first major legal journal in the western United States, in 1868 after being denied entry into the Illinois Bar Association. She included articles on women's issues that specifically promoted legal reforms for women, including the right to vote, and equal access for women to all occupations based on merit.¹

Maggie Lena Walker founded the St. Luke Penny Savings Bank in Richmond, Virginia in 1905 and became the first woman bank president in the United States. She held the belief that African Americans should put their money back into their own communities, and the bank's slogan was "Bring it all back home."²

Lane Bryant designed the first maternity clothing for women to wear in public. She was a generous woman who took good care of her employees and offered free clothes to any woman whose wardrobe was destroyed in a disaster. Once a poor Jewish immigrant in a lingerie factory, she used her success to contribute actively to Jewish philanthropies.³

In many ways, the idea of corporate citizenship and philanthropy in this country was born with these and many other corporate founders and inventors. But, that's not to say that every great corporate leader, and the business that he or she created, considered social responsibility and "giving back" as part of its corporate culture.

In fact, many corporate excesses of the late 1800s and early 1900s led directly to the creation and proliferation of labor unions, child labor laws, the minimum wage and public health systems, as well as the establishment of the Securities and Exchange Commission (SEC) in 1934.

The rise of the CEO and corporate giving programs

Today, many venerable, blue chip companies trace their formal corporate philanthropic programs to the mid-twentieth century, as the financial strain of two world wars and the Great Depression prevented much forward movement in the field of corporate citizenship from the early to mid-1900s.

The post-WWII economic resurgence in the United States saw the establishment of the Ford Motor Company Fund in 1949, AT&T's Western Electric Fund (later the AT&T Foundation) in 1953, and Philip Morris's (later Altria's) initial grantmaking to not-for-profit organizations in 1956.

For some, this was the golden age of corporate philanthropy. CEOs such as David Rockefeller at Chase Manhattan Bank, Reg Jones at General Electric, and Henry Schacht at Cummins Engine established corporate giving programs and foundations that institutionalized corporate philanthropy in their companies. For these CEOs and their like-minded colleagues, this was simply the "right thing to do," as for them, corporate philanthropy was an article of faith rather than a pragmatic business tool.⁴

Grants were often made to not-for-profit organizations that had close ties to the CEO and other senior executives or they were spread among many organizations in small amounts, often for unrestricted operating support. For the most part, these companies didn't want publicity or recognition; they simply wanted to give something back to their communities and to enhance life in the communities where their employees and customers lived and worked.

This early form of corporate altruism contradicted the views of the Nobel Prize-winning economist Milton Friedman, who thought that corporate philanthropy was the wrong thing for companies to do. In his classic 1962 work, Capitalism and Freedom, Friedman wrote:

Today, Friedman believes that for the most part corporations have followed his advice. According to Friedman, companies might give money, products and other help to local organizations, but he contends that most of them are not doing this for purely altruistic reasons. "Many enterprises are in a local community, and it's in their self-interest to have the good will of the community," he says.⁶

Strategic philanthropy

The idea of linking a corporation's philanthropy with its business interests—often referred to as strategic philanthropy—began to take hold in companies during the 1980s. Business was booming, but the growing competitive threat of globalization (particularly from Japanese companies), caused many U.S. businesses to adopt more stringent quality and cost controls. It was only a matter of time before corporate philanthropic programs would come under this kind of scrutiny as well.

Reynold Levy, the first president of the AT&T Foundation, and one of the early proponents of strategic philanthropy, writes in his book, Give & Take: A Candid Account of Corporate Philanthropy:

However, this nascent philosophy of marrying business interests with community needs raised a number of fundamental questions: How do corporate grantmakers define strategic philanthropy? How does a corporation link its business interests with the interests of its communities without appearing too self-serving? Do community needs necessarily take a back seat to business needs in strategic giving programs? Is there a danger that corporate giving programs will not be sustainable over the long term if they are not strategically designed and managed? Is there a danger that certain kinds of not-for-profit organizations will fail to fit most corporate strategies? If so, what should be done about that? And, how do corporations adapt and change their philosophies and programs to keep pace with the ever-changing marketplace?

The ability of corporate philanthropy professionals to steer through this maze of questions is a major challenge—and opportunity—for those corporations who are engaged in strategic philanthropy, which is the predominant form of corporate philanthropy being practiced today.

There are many fine examples of corporations who are engaged in strategic philanthropy. Some of these companies have chosen to focus their support on one type of organization or in one issue area. Others have focused on a small number of communities where they have a major business presence or large numbers of employees. Others have expanded their philanthropy to other countries as their business has expanded globally:

• IBM claims education as its top priority in its philanthropy. Through its Reinventing Education program, IBM has worked to develop and implement innovative technology solutions to solve tough problems in elementary and secondary education.
• Citigroup Foundation focuses its philanthropic efforts on both education and community development, including institutions that fund affordable housing, small business loans and retail initiatives.
• Altria, one of the largest food companies in the country, identifies alleviating hunger and supporting humanitarian aid as two of its largest giving programs (the arts being another).
• Microsoft contributes to projects that broaden access to technology.
• ChevronTexaco focuses much of its support on environmental protection.
• American Express gives grants to preserve and manage major tourism sites, including cultural institutions, around the world.
• Merck supports biomedical science training and education.
• Sara Lee Foundation believes that arts and culture are essential ingredients in fostering a vibrant and vital community, and celebrating the creativity and boundless potential of the human spirit.
• The Coca-Cola Company's philanthropy has earned it a reputation for being a "local citizen" in nearly 200 countries.

Corporate social responsibility

Today, a growing number of companies view their corporate philanthropy as only one piece of their overall corporate social responsibility. This approach recognizes that in an era of increasingly complex corporate relationships and operations, no company's philanthropy can overcome other highly visible irregularities in the company's business. Corporate philanthropy can enhance a company's reputation, but it can't substitute for good old-fashioned trustworthiness and integrity.

Corporate social responsibility means operating a company in a manner that meets or exceeds the ethical, legal, commercial, and public expectations that society has of business. In other words, corporate social responsibility goes well beyond the specifics of any law or regulations; it goes to the expectations of its various stakeholders: shareholders, customers, employees, and communities.

Leadership companies see corporate social responsibility as more than a collection of discrete practices or occasional gestures, or initiatives that are motivated by marketing or public relations benefits. Rather, good corporate social responsibility is viewed as 1) a comprehensive set of policies, practices, and programs that are integrated throughout business operations; and 2) decision-making processes supported and rewarded by top management.

Amy Domini, managing partner of Domini Social Investments, lists six practices that she looks for in socially responsible companies:

• Good corporate citizenship demonstrated through innovative and generous giving, with emphasis on economic and social justice.
• Good diversity practices with respect to women and minorities in management positions or on the board; generous employee benefit programs; and, progressiveness on gays, lesbians, and the disabled.
• Employee investment through profit sharing and strong retirement programs.
• Environmentally friendly policies that recycle, prevent pollution, give to conservation groups, and generally respect the natural environment.
• Concern for human rights and fair treatment of employees in less-developed countries.
• Concern about producing safe and useful products, and leading in research and development.⁸

Today, many companies have chosen to summarize their corporate social responsibility practices into policy statements. One of the earliest statements was written by Robert Wood Johnson in 1943 as the first Johnson & Johnson Credo. In this statement, one of the first attempts to include communities as an important stakeholder group, Johnson pledged that the company would be responsible to "customers, employees, the community and shareholders."⁹

The AT&T Corporate Social Responsibility Policy, which was developed and adopted in 2001, reads:

In practical terms, these statements mean nothing if they aren't backed up by values and operating styles that consider how a company's activities affect stakeholders other than its customers, employees and shareholders. It remains to be seen how successful companies will be with this more holistic approach, but many European corporations have taken corporate social responsibility seriously enough to engage external auditors to report on how they're doing. The jury is still out on whether many companies in the United States will go that far, but compa-nies like Ford, Nike, and McDonald's are leading the way.

However, U.S. companies are increasingly interested in quantifying the business benefits generated by being socially responsible, including: enhanced brand image and reputation; increased sales and customer loyalty; increased ability to attract and retain employees; improved financial performance; access to capital; reduced operating costs; increased productivity and quality; and reduced regulatory oversight. Numerous studies have attested to the proposition that being socially responsible, indeed, does result in financial gains, particularly through an impact on customer loyalty, employee recruitment and retention, and a positive regulatory environment.

But, it's equally possible to be socially responsible and see no financial gains, or worse, suffer financial losses as a result of "taking one's eye off the ball." In plain language, many feel that the key to good corporate social responsibility depends on a company's success in integrating good corporate citizenship into its core business strategy, rather than treating it as an "ad hoc window dressing."¹¹

Conclusion

So, what shape is corporate philanthropy in today?

With the appearance of headlines like "Restoring Trust in Corporate America"¹² and "Healthy Corporate Culture Steers Companies Away from Missteps"¹³ confronting readers more and more since the corporate scandals of the early part of this decade, and with many companies re-ducing or even abandoning their philanthropic programs altogether, it is tempting to say that corporate philanthropy is in terrible shape and the ship is listing badly.

Further, with several CEOs under investigation or indict-ment for all kinds of possible wrongdoing (including using corporate contributions to name classroom buildings at schools and universities under the CEO's family name rather than the corporate name¹⁴), it's tempting to say that CEOs are the main culprits for this lack of trustworthiness.

The real answer, I believe, lies somewhere else. While there are some companies whose activities reveal questionable corporate values, and there are some CEOs whose behavior may be unethical or illegal, I believe that most companies—particularly publicly traded ones—are serious, committed, intelligent, and responsible members of their communities. They have decided that as citizens, they must not only follow the rules, but they must set an example by being socially responsible. To do well as a company, they must also do well for their employees, their customers, their shareholders, and their communities.

It's not an easy task. Corporate philanthropy managers can and do play a major role in keeping companies on track as good corporate citizens. But, this requires constant vigilance and the courage to stand up and raise constructive criticism when a company, especially their own, veers off that track.

The double helix of contrasted, yet complementary, pairs—the heart coupled with the brain, and business value coupled with societal good—that defines corporate philanthropy today makes for a challenging and lively profession. It's a modern truism that the ability to adapt to an ever-changing environment is the hallmark of a good manager. However, the values that ground corporate responsibility remain true in every era.

Those who are lucky enough to be managing corporate philanthropic programs, particularly in the arts, must continually reinvent themselves to fit into this new environment. It is unlikely that the days of pure corporate altruism are going to return. It is also unlikely that the trend toward more and more focused giving, and more integration of corporate philanthropy into holistic social responsibility efforts, is going to abate anytime soon.

How do we preserve and strengthen support for the arts in this environment?

Suggestions might include: working together to create and develop new ways of quantifying and reporting the results that we achieve in the arts; finding ways of relating to our partners in real time rather than through annual reports and periodic proposal reviews; and proving the value of the arts as important local activities even as we grapple with more national and global competition.

Charles Darwin once wrote, "It is not the strongest of the species that survive, nor the most intelligent, but the ones most responsive to change." It's a challenge worth heeding.

Notes

1. Virginia G. Drachman, Enterprising Women—250 Years of American Business (Chapel Hill, NC: The University of North Carolina Press, 2002), pp. 61-64.
2. Ibid, pp. 130-136.
3. Ibid, pp. 101-103.
4. Reynold Levy, Give and Take—A Candid Account of Corporate Philanthropy (Boston, MA: Harvard Business School Press, 1999), p. 109.
5. Milton Friedman, Capitalism and Freedom (Chicago, IL: University of Chicago Press, 1962) cited in Reynold Levy, Give and Take, p. 113.
6. Peter Key, "Philanthropy or Necessity?" Pittsburgh Business Journal, May 3, 2002.
7. Reynold Levy, Give and Take.
8. Shareholder Value, March/April, 2001, p. 37.
9. http://www.jnj.com/who_is_jnj/cr_index.html (6/20/2002).
10. AT&T 2001-2002 Corporate Citizenship Report, (AT&T, 2002), p. 3.
11. Corporate Citizenship in the New Century: Executive Summary (Washington, DC: The Conference Board, 2002), p. 3.
12. Business Week, June 24, 2002, p. 31.
13. The Economist, July 27, 2002, cover page.
14. Mark Maremont and Laurie P. Cohen, The Wall Street Journal, August 7, 2002, p. 1.