Eyes moistened as the video was shown in the meeting room at Hasbro Inc. world headquarters in Pawtucket.
Seated around a large table, executives watched as Honduran children, suffering in the aftermath of Hurricane Mitch, played gleefully with their new toy trucks, teapots, and bulldozers. It was the Monday before Christmas, and they seemed to forget that they were shoeless and their playground was a muddy village.
Rhode Island's Market Has Changed. Developers, Builders, Investors and Sellers Must Change With It.
By Emilio DiSpirito IV License Partner | Engel & Völkers Oceanside Leader | The DiSpirito…
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They were preoccupied with their toys – their only Christmas presents.
The video was presented to Hasbro recently as a thank-you from the nonprofit that made the gift of 22,000 toys possible: World Vision, whose Honduran branch distributed them to areas of the country hardest hit.
But while Hasbro’s giving is nothing new, the partnership it is forming with World Vision is representative of a revolution taking shape in corporate philanthropy. In the past, companies simply made donations, wrote them off on their taxes, and reaped the benefit of good community relations.
Today, however, that is changing. Companies now see giving as a powerful marketing tool, forming partnerships to help them boost sales and reach new customers. So eager are companies to align themselves with popular causes, in fact, that many are approaching the nonprofits, instead of the other way around.
The shift is forcing nonprofits to be increasingly business savvy. And it is changing the very nature of corporate philanthropy in the United States, a more than $8 billion industry.
”Philanthropy as a function has gone much more towards using the corporate contribution budget to promote the company,” said Dwight F. Burlingame, associate executive director of the Center on Philanthropy at Indiana University. “It has become much more directly related to the company business than it was.”
Several factors influence giving, but most corporations have a guiding philosophy. Hasbro, for example, funds programs for children. Textron supports training for inner-city youths. CVS Corp. focuses on community health and education, and Fleet Bank finances a variety of development, arts, health care, and educational programs.
The problem is that need far outstrips capacities to give. Many companies report receiving far more requests than they can handle. And there seems to be little help in sight.
HAPPY BOSS Ben Mondor with his ‘team’ of contributing staff members.
“We are overwhelmed (with requests),” said Cate Roberts, vice president, director of community relations for Fleet, adding that with few companies moving to Rhode Island, “there’s a core group of givers that are relied on.”
It wasn’t always that way. It was once illegal, in fact, for a public company to use money for any reason except to make a profit. In 1953, however, the New Jersey Supreme Court ruled in Smith v. Barlow that public companies could lawfully make donations for societal good.
To many, the case marks the start of public corporations’ serious involvement with nonprofits, the event that allowed giving to expand for the next 40-odd years. In 1997 that giving hit $8.2 billion, according to The Conference Board, a New York nonprofit which tracks business trends.
But a new trend has emerged in recent years. Though the total dollar amount given continues to increase, the amount companies are giving as a percentage of their profits has dropped. In a survey of small, medium, and large companies – which included more than two-thirds of all Fortune 1,000 companies – The Conference Board found that the percentage of consolidated pre-tax income given to charities in 1997 was 0.8 percent, down from 1.2 percent in 1993, according to Audris Tillman, a research associate for the board.
Explanations for this vary. Some point to increased pressure on chief executives to concentrate on short-terms profits. Others point to executives’ uneasiness about the economy, despite the relative prosperity.
But most point to an upsurge in a far more calculated form of giving: cause-related marketing. American Express reaped huge successes in the 1980s when it began donating a portion of card purchases to the Statue of Liberty restoration project. Despite that, many companies were slow to recognize its power, experts say.
No more. Today, it is one of the fastest-growing forms of giving. Companies now spend some $7 billion on cause-related marketing, up from barely $1 billion 10 years ago, Burlingame estimates. And he expects that to increase.
”Cause-related marketing budgets have grown several fold,” he said, noting that it is not philanthropy. “You might be able to get away with calling it ‘corporate giving,’ but I would call it corporate sponsorship – it has the indirect effect of doing good.”
Even in companies’ philanthropic efforts, however, they are becoming increasingly strategic. Corporations now target nonprofits which represent their mission and support a popular cause. They do so because research shows that about two-thirds of consumers, all things being equal, favor companies that support a good cause over a competitor that does not.
No one knows that better than Curt Weeden. Weeden is chief executive officer of Business and Nonprofit Strategies Inc., a Palm Coast, Fla. consulting firm, and head of the Corporate Contributions Management Academy, in which executives such as Karen Davis, director of Hasbro’s charitable trust, go to learn how to invest in nonprofits and build the company at the same time.
Weeden said companies should treat their gifts like investments – placing them in areas that will generate the most return.
”If you manage contributions properly it becomes an expenditure that helps grow the business at the top and bottom line,” he said. “It comes down to how you choose to manage the money.”
An example of this is the surge taking place in in-kind donations. Under federal tax law, a cash gift counts the same as any other business expense. But if a company donates a product that it makes to a nonprofit which serves the ill, the needy, or infants, the law permits a stepped-up tax deduction, which at times allows them to write a product off at twice its cost, Weeden said.
”Because of that the fastest form of corporate giving in America today, by far and away, is product giving,” he said.
To some degree, the explosion in the nonprofit sector has prompted these changes. There are roughly 650,000 nonprofits in United States today, which is double what it was 12 years ago. Cutbacks in government spending for social programs is an oft-cited reason. But the expansion has made competition for corporate funds ever more intense. And it has compelled companies to increase their oversight to ensure that their money is being spent properly.
There’s so many people out there that have real good intentions,” said David M. Murray, vice president, marketing for Bank of Newport. “And then they get the money and it doesn’t go where it’s supposed to go. We try not to give to general treasuries and general funds – we want to know what it’s for.”
The changes have obliged nonprofits to change the way they do business. With the increased competition and the reduction in federal spending, many directors now say they spend half their time fundraising. And when they do, they must be more savvy than before, showing companies how their gifts will benefit them.
”Corporations are realizing that a good image of social responsibility is good for business,” said Barbara G. DeCesare, executive director of the Rhode Island chapter of the American Red Cross.
But she added: “Every time we have a conversation with the private sector, accountability is at the forefront of their interest, and that has changed the way many of us in nonprofits (work).”
One change is that nonprofits no longer approach companies with their hands out, said Rosanne Nichols, director of corporate partnerships for World Vision. Now, they are looking to partner with companies that will help cut their operating budgets and deliver services more effectively.
And while companies today are eager to help – some even get angry if their offers are rejected – the nonprofit must be careful not to partner with a company whose business, or a part of its business, would alienate the group’s individual supporters.
Both sides need to be careful about who they partner with,” Nichols said.
Part of the problem for Rhode Island’s 1,000 nonprofits is that some of the state’s most solid corporate donors have closed. Old Stone Bank, Eastland Bank, and Almacs were big supporters of the United Way of Southeastern New England, for example.
Still, directors say they are encouraged by companies’ efforts to get employees involved. Some, like Textron and Bank of Newport, prefer requests for funds that offer workers an opportunity to volunteer. Others, like Fleet, encourage employees to sit on nonprofit boards.
This is good news to people like Jyothi Nagraj, executive director of City Year Rhode Island, who has been the beneficiary of such volunteer support. “Some companies are (giving) paid days off for volunteering,” she noted, “which I love because they’re putting their money where their mouth is.”
