Philanthropy & Co.: the benevolent bottom line

The downside of Change
But change hasn't come easily. Many nonprofits are having trouble adapting to the new philanthropic order. Corporations savvy about publicity and sexy, business-related causes “are leaving out groups that are doing critical work,” laments Steven A. Rochlin, head of the international nonprofit, AccountAbility North America. He says it's important for companies to remember that they have a broader responsibility to society. “Many corporate foundations have had a free pass sorting through what is in society’s interests and what is self-dealing. It’s time to involve external stakeholders in helping corporate foundations assure that their strategy delivers social outcomes while supporting corporate responsibility priorities.”

Not all social causes, however, are necessarily aligned with business interests, nor are all nonprofits equipped to make the business-oriented case for themselves. In the quest for efficiency and results, some things necessarily get left behind—like Mahler, Mozart or Matisse. “Arts used to be a high-profile beneficiary,” says Doug Guthrie, a specialist in corporate giving and professor at New York University’s Stern School of Business, to Contribute in 2006. “At the Met or the opera you’d see philanthropic organizations on the wall. It was just a PR impact. Now there’s such an aggressive focus on the bottom-line impact that you see a lot of organizations being left out. There’s something lost when everything is assessed based on its performance in a market, efficiency or relevance to a company.”

The businesslike narrowing of focus also has limited the reach of groups such as community development corporations, the neighborhood-based organizations in the metropolitan area that once catered to a wide range of community and labor organizing, and provided initiatives to help people start neighborhood gardens and other endeavors to improve conditions where the poor dwell.

Now, big financial institutions such as the Bank of America are interested in these communities — “as long as those organizations are focused fundamentally on housing,” noted Guthrie.

In 1999, Bank of America began boosting donations and mortgages to low-and middle-income borrowers, particularly in urban areas, aiming to distribute $750 billion by 2009. In 2006 alone, the bank spent $94.8 billion, with $41.5 billion going to affordable housing. It is a sum expected to have a significant impact in many places, fostering gentrification–and generating more business. Observed Guthrie:  “They’re creating a market.”

But beneficiaries may not be better off. From defense contractors such as Raytheon—which has diverted philanthropic dollars from health, social services, cultural and Native American causes to education in math and science — to car makers such as Hyundai, the signs of change are hard to miss. Consider the case of the American Society of Radiologic Technologists, a 129,000-member organization that depends on corporate giving for 80 percent of its annual budget. While revenue has continued to come in from makers of radiologic equipment like GE, Phillips and Siemens, other donors have dropped off. In 2006, Hyundai ended three years of support to the group — in the form of donating a car to a raffle, giving money for minority scholarships and helping with the annual conference — compelling development staff to begin looking elsewhere for funding, like private foundations and member gifts. It was a worrying omen for Maureen Simmons, then-director of development for the group’s foundation arm. “What ever happened to simply doing good for the sake of doing good?” says Simmons. “I think that’s gone.”

Cause Marketing
Not all corporate philanthropists are following the trend. Some, like Goldman Sachs and eBay, still make varied donations to groups, unrelated to their objectives. Yet the many quiet contributions of the past  have given way to the well-publicized marathon, the lavish charity ball, the star-studded golf tournament and events and reality programming on TV that promote products and brands while also steering attention and money to causes. Some company executives say they are bothered that good causes may get left behind. “There are some incredible needs out there,” acknowledges Anita Wheeler, the former chief of the ConAgra Foods foundation: “Physical suffering, disease, social services, domestic violence, research — so much.”

Today, donations by the $12 billion-a-year company, one of North America’s largest packaged foods manufacturers, are aimed at a single cause: combating childhood hunger. Schoolbased “cafes” in 39 states serve after-school meals to thousands of boys and girls, while Second Harvest, the nation’s largest hunger relief organization, delivers hundreds of thousands of pounds of food to more than 200 regional food banks. “What do we hope? That over time consumers will think, ‘Oh! ConAgra Foods! I really like their products and they are doing some good things and that makes me feel good about their company and want to buy their products,’ ” explained Wheeler. “It’s about reputation.”

Many practitioners of strategic philanthropy say they have no qualms about the changing relationship between corporate donors and nonprofit organizations. “I do not think there is anything shameful about a corporation thinking about business objectives,” says David Hessekiel, whose Cause Marketing Forum in Rye, N.Y., develops what he terms “mutually beneficial commercial relationships” between companies and causes. What’s more, he says, the recent economic woes facing the country are likely to force both sides to be more tactical. “Corporations will accelerate their movement toward even more strategic philanthropy and nonprofits will realize even more than before that they must bring something more than just an important mission to their corporate alliances,” says Hessekiel.

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Advocates of cause marketing argue that the new order has given society and the Third Sector a big boost just when most needed, when nonprofits are feeling squeezed for dollars and government-funded human services have been scaled back. Moreover, having a clear set of strategic objectives enables donors to make better decisions about which causes to back and which to weed out.

These days, some donors are so focused on strategy that they are examining risk, prospects and long-term objectives. The Institute for One World Health, a nonprofit pharmaceutical company backed by the Gates Foundation and corporate contributions, aims to tackle diseases of the developing world with new medicines. The payoff could be big — perhaps millions of lives saved. But the drugs can take years to test and get approved--and they may not even work. “Like the stock market, this is an investment,” Michael MacHarg, then-associate director of development, told prospective donors in 2006. “There are donors out there who are asking the question, ‘am I really part of a long-term solution?’ That’s where you capture peoples’ attention,” says MacHarg. So far, so good: One World Health is on track to produce a synthetic substitute for the active substance in wormwood, a seasonal plant whose chemical  composition is a key ingredient in anti-malarial medicines. The bad news? Begun in 2004, the project isn’t slated to result in a product until 2010.

Well-known venture capitalists like Mario Morino and Harry Edelson, who made fortunes in picking high-tech companies, imposing tough standards on them and monitoring them like a watchdog, also have gotten into the act of trying to convince “investors” and nonprofits to adopt rigorous oversight, transparency and financial reporting. They champion and focus on results rather than sustainability. Edelson, whose VC firm in Woodcliff Lake, N.J., has invested in numerous technology companies, urges do-gooders to “harness the profit motive” so they can “solve rather than cope” with society’s problems. Better to develop a vaccine for AIDS, for example, than merely help victims, he says.

“Nonprofits are going to have to be more strategic,” warns strategic philanthropy guru Carol Cone, a specialist in “cause branding” who crafted Avon’s famous breast cancer crusade — and who now strives to replicate such success for other companies. Even smaller nonprofits “have to be more sophisticated about what they deliver, if they want to partner with someone," Cone says. "The whole game has changed.”

For those who master the rules of the new philanthropic order, says Jessica Stannard-Friel, an associate with New York consulting firm Changing Our World, “it’s a win-win both for the company and its partners.”

Additional reporting by Tracie McMillan and Cristina Maldonado in New York.

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