What gives in corporate philanthropy?

Corporate giving hasn't fallen off the proverbial cliff - partly because its benefits have become more evident.

by James Taylor
Last Updated: 09 Oct 2013

Is corporate philanthropy a luxury that UK plc can no longer afford? Shareholders might be forgiven for thinking so. With the recession slashing corporate profits and forcing companies to cut costs to the bone, some of the much-vaunted CSR programmes of recent years could be quietly shelved. Whether or not they agree with Milton Friedman - that the business of business should be maximising shareholder profits, to the exclusion of all else - CEOs recognise that it's hard to be signing donation cheques with one hand and doling out P45s with the other.

Some of the predictions have been grim. Earlier this year, a poll by The Social Investment Consultancy (TSIC) and YouGovStone Research found that 60% of business leaders expected their firms' charitable giving to drop. On average, the decline would be about a third - which, according to TSIC, would leave UK charities £500m or so worse off. At a time when Government is relying increasingly on the third sector to take some weight off the public sector, that's a shortfall it could do without.

Industry observers believe that cash donations are down this year, although solid data is hard to come by. But the decline doesn't seem to have been as bad as many feared. The NSPCC, for example, says its corporate giving was actually up last year, and development director Kath Abrahams says it's holding up well this year too, despite the climate.

The children's charity recently sealed a tie-up with online bank First Direct, which has promised to raise £2m for its Childline helpline over the next two years. Other high-profile givers include supermarket Lidl, which has signed up the British Heart Foundation as its first official charity partner (it hopes to raise £100,000 in the next year), and Standard Chartered, whose global 'Seeing is Believing' initiative aims to raise $20m to tackle avoidable blindness over the next three years.

Nor is it just companies doing well in the recession that are keeping up the good works. BA forecast a £100m loss for the first quarter; it has already cut 2,500 jobs in the past year, and plans to cut 3,700 more. But, says Mary Barry, the airline's community investment manager, it has continued its major philanthropic programmes (although it has put some of the smaller ones on hold). 'Our employees want to be associated with a company where they can feel pride that we are still doing these things, even through challenging times,' she explains.

Few seem to be arguing - even trade unions. 'Successful organisations should be good corporate citizens,' says a GMB spokesman. 'Even though BA has hit turbulence, we believe there are other ways of solving the problem than by taking money away from charities.'

Others are going further. Beaverbrooks, the privately owned high street jeweller, has committed to donating 20% of its post-tax profits to charity, as well as giving staff two days of paid leave annually for volunteering. And, according to MD Mark Addlestone, it didn't even think of abandoning this just because times were tough and profits were down. 'Our view is that if the principle's right, it's right in the bad times as well as the good times,' he says.

Of course, Addlestone doesn't have a posse of institutional shareholders breathing down his neck, but it shows that good corporate citizens are still out there.

So is philanthropy in decline or not? Well, part of the problem is that you'd be hard-pressed to find a company that admits to scaling back its charitable giving. It would be a PR disaster - and most are desperate for all the positive coverage they can get at the moment. Still, this shows how times have changed. 'The issue is now much higher up the corporate agenda,' says Jeremy Bliss, head of corporate relationships at the Charities Aid Foundation. 'If companies try to push it down now, that's a difficult message to put out.'

There's also a moral imperative, argue others. In a recession, charities (and those they support) have an even greater need; so if anything, now is the time to redouble efforts.

And for City firms in particular there's a trust issue. After the role they played in bringing the economy to its knees, philanthropy is one way for them to persuade us that they're not so evil after all. 'We have to re-establish confidence and trust in banks, and one of the ways we can do that is by addressing the long-term challenges the world faces,' says Jacqui Brabazon of Standard Chartered Private Bank (whose firm admittedly emerged from the crunch with more credit than most). Cash-rich banks tend to be generous donors, but it has never been more important for them to shout about it.

Perhaps the most significant upside for any business is improving engagement - not only with the local community but also with its own staff. The recent Government-sponsored MacLeod Review on employee engagment argued that the failure of British firms to engage their staff was costing them billions in lost productivity, and CSR programmes have proved one of the cheapest and easiest ways for firms to boost engagement levels. If staff are proud of the company they work for and enjoy what they do, they'll be better representatives of the brand and work a lot harder for it - both of which will benefit a company's performance.

First Direct found that staff were more engaged if they were involved with community fundraising; Beaverbrooks' policy has gone down so well that this year it was named by the Sunday Times as the Best Company to Work For in the UK, based on a poll of its staff. Perhaps continuing with philanthropic activity is just enlightened self-interest; it can be as much about HR and marketing as benevolence.

Nonetheless, the way that corporates are interacting with charities is changing. And although the recession may not have been entirely responsible for these trends (some of which have been coming for a while), it seems to be accelerating the process. Says Louise Richards, a director at the Institute of Fundraising (IoF): 'Some charities are reporting a reduction in cash donations, but corporate donors seem to be looking at other ways of giving support. Fundraisers have to look at alternative ways of engaging supporters.'

For instance, there has been a big rise in non-financial donations. Rather than just handing over a giant-sized cheque and smiling for the camera, companies are increasingly keen to give time rather than (just) money - by encouraging staff to take part in volunteering and pro bono schemes. This works for two reasons: it is cheaper and easier to justify, and it also tends to make those involved more engaged with their employer and the cause. And because they become more committed supporters, it's good for charities too. 'If you find a smart way of engaging corporates with pro bono activity that actually adds value, you get into a virtuous circle,' says Shaks Ghosh, an ex-Crisis boss who now runs the Private Equity Foundation. Gifts-in-kind are also growing in popularity: a big part of BA's philanthropic effort is donating flight tickets to the charities in its portfolio, for instance.

Corporates are also now placing much more emphasis on measuring impact - or 'return on social investment', as it's known in the trade. This is driven by two forces. First, donors have become much more interested in how their money is being spent and the impact it's having - partly because modern-day philanthropists are generally younger than their predecessors, and are keen to see change in their lifetime. 'Donors want to be able to understand the measurable impact of their donation; to understand what difference their support has made,' says the NSPCC's Abrahams.

But there's also a more immediate impetus: like every department of a business, CSR is having to justify its existence. When money is tight, you want to get the maximum bang for your buck from spending decisions, and corporate philanthropy is not immune.

There are drawbacks to this. With charities under greater pressure to quantify the impact that a donor's money has had, their cost of fundraising has perhaps gone up. When corporates start allocating money very specifically, it gives charities less freedom and independence. And since this reporting will be easier for large and relatively well-resourced charities, some worry that corporates looking to cut down on their relationships will lean towards the bigger organisations.

All these factors are changing the way corporates engage with their charitable partners. In the past, the relationship has often been largely transactional. Now charities talk in terms of 'long-term strategic relationships' - which means signing up corporates for a number of years, encouraging both financial and non-financial contributions, and finding out innovative ways to work together. 'The trick is to be more strategic in your approach, and demonstrate how you can add real value to their business,' says Abrahams. 'So we need to understand the company we're working with very clearly, to see where the benefits are.'

For corporates, there's a greater focus on choosing causes that resonate with their business. For instance, First Direct tied up with the NSPCC because it could bring its call-centre experience to bear, as well as its cheque book. Standard Chartered's campaign is funding eye clinics in India and Africa, in keeping with its geographic focus. The key is for a company to establish a close link between its charitable programmes and its core activities and values - not least because it makes it easier to get staff involved. 'It helps the internal rallying of people behind the cause,' says Brabazon.

This focus on corporate buzzwords like 'value' and 'ROI' (or 'ROSI') might not seem in keeping with the philanthropic ideal, but in practice it makes life easier for charities. They'll be forced to increase the efficiency and professionalism of their management. 'Some charities haven't been as good at this as they might have been,' says Richards at the IoF. 'But it's good that they're starting to think this way.'

And if they're looking to establish corporate tie-ups over an extended period so that both sides can get to know each other's strengths, these relationships are likely to be longer, richer and more fruitful - all good for fundraising.

Nonetheless, we shouldn't underestimate the scale of the problem facing the UK's 170,000 charities. Rising unemployment and stagnant wages are likely to affect individual donations, while those reliant on public funding are under special threat as the Government tries to balances the books - just when the shrinking public sector requires charities to play a bigger role in delivering public services. And although some firms remain enthusiastic philanthropists, the recession will have discouraged others from giving. Charities will have to work hard to get them back, and even harder to keep them in the long term.

There's a long way to go. A study of company giving by the Directory of Social Change (DSC) in March found that although cash donations jumped 36% to £500m in 2007/8 among the 490 firms surveyed, this total amounted to just 0.24% of pre-tax profits - down from 0.25% in 2005/6. That's pretty measly, particularly in comparison to, say, US companies. Even more alarmingly, the DSC reckons the situation hasn't improved for 10 years, despite all these high-profile CSR campaigns. Those who care about the third sector shouldn't let companies use the recession as an excuse to drag this bar even lower.

Find this article useful?

Get more great articles like this in your inbox every lunchtime

Upcoming Events

Subscribe

Get your essential reading delivered. Subscribe to Management Today