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Corporate Philanthropy: Why and How

Corporate philanthropy is a gift from a company and/or its employees to a charitable organization. Gifts can be in the form of money, goods or time. The rewards are both tangible and intangible.

Entrepreneurs develop philanthropic programs for a variety of reasons. Some want to share their successes with those who are less fortunate. Some give for religious or cultural reasons, while others incorporate giving into their strategic marketing plans.

You don’t have to be a Fortune 500 company or donate millions of dollars to start a philanthropic program. Even small gifts add up, such as food or clothing drives. There are plenty of worthwhile causes that do great good with very little. Getting started is your most important step.

In this Quick-Read you will find:

  • Why your company should give.
  • Types of philanthropic efforts.
  • How to start a philanthropic program.

SOLUTION [top]

There are many benefits to developing a philanthropic program. Philanthropy feels good. It breeds a positive culture within your company, builds good will in your employees and customers, and provides an opportunity to give back to the local community. Employees who work long hours may appreciate the chance to connect with their communities through company-sponsored giving or volunteering programs. You can also motivate your staff by allowing them to work on charitable projects that mean something to them.

There are tangible side benefits to corporate philanthropy as well. The most obvious is that charitable donations are tax deductible. You also create positive public relations when your company name is listed as a supporter on a program, a sign or team athletic shirts. When you contribute to social service agencies within your community, you help stabilize the workforce on which you depend for employees. Many single- or low-income parents, for example, can’t work or can’t work full-time unless they have subsidized childcare. Philanthropy makes sense on many levels, and getting started is easier than you think.

The three major ways in which your company can contribute are:

  1. Outright gifts from the company. Outright gifts can be made in cash, goods or services. Sometimes donating products or services produced by your company can be a double win. The charity gets the benefit of the product, and you can reduce excess inventory or capacity as a tax deduction. One car dealer donated a van to the local, elderly citizen-support center. The car dealer got a tax deduction at retail value, and the support center got a much-needed van that it didn’t have to buy. You may want to establish a foundation with company profits to make it more likely that a charity you care about will receive continued support after you’re gone, but be aware that the nonprofit foundation will not be able to deduct contributions at tax time like the company.
  2. Voluntary payroll deductions for targeted charities. Payroll deductions and volunteer activities invite employee participation and build corporate spirit and teamwork. Hewlett Packard has an enormous internal campaign to support the United Way. Individual departments compete to hold creative fund-raising projects, such as cake auctions and lemonade sales. Money raised at these events goes directly to United Way along with matching funds from Hewlett Packard Corporation.
  3. Company-supported volunteer activities. If your company can’t afford cash or merchandise gifts, donate the gift of time. Some examples of volunteer activities include tutoring children or immigrants, painting a homeless shelter, holding a food drive or building a house with Habitat for Humanity. Look for volunteer opportunities aligned with your business, such as teaching business or computer skills or designing a web site for your favorite charity.

How to Choose a Charity

Charitable activities should reflect the founder’s vision. Reaping the greatest benefits for your business involves getting personally involved in your company’s philanthropic works instead of just writing checks. To avoid the possibility of offending your employees or stakeholders, look for charities that mesh with your company’s mission. For example, an executive search firm specializing in the financial services industry recently volunteered to find a director for a nonprofit group that offers Wall Street internships to top minority students.

With more than 1.2 million nonprofit organizations in existence, choosing which ones to support can be difficult. Employees who volunteer or donate funds usually like to have a choice about where their donations are going. Consider backing a federation, such as United Way, Earth Share or Community Health Charities, which can do the allocating to individual charities for you. United Way will also let you designate which charities you would like to support from a portfolio of candidates. Or, you may prefer a more personal connection to the organization’s goals. If a long-time employee or family member has a serious illness, you might give your support to the organization researching a cure. In any case, giving employees a role in choosing which organizations receive funds from your company will likely increase participation and satisfaction with the program.

Tips on How to Choose

Before you contribute, research the organizations you are considering.

  • Create a committee that makes the decisions on which charities to support. This lets employees get involved and also removes the pressure from a single individual when some charities are chosen over others.
  • Learn the monetary and nonmonetary needs of your targeted charity. Obtain financial information, such as their annual reports and IRS Form 990. If this information is unavailable, find out the number of individuals who were served and what the organization’s major accomplishments were for the previous year. Get all information in writing.
  • Require that at least 60% of donations should go to program services rather than administration or fund-raising costs. Some well-known charities use more than 95% of the money they are given for administrators’ salaries, endowment building and fund raising. GuideStar, the American Institute of Philanthropy and the National Charities Information Bureau provide balance sheets for many national and international charities. Request annual reports and IRS Form 990s directly from any charities you want to consider that are not listed by Guidestar, NCIB and AIP, and compare the operations-to-administration expenditure ratios of the charities before making your selection.
  • Talk to your peer organizations to find what experiences (good or bad) they have had with individual charities.
  • Don’t respond to pressure. If you are not familiar with a charity, request additional information in writing. No legitimate organization will pressure you to give immediately.
  • Keep records of your donations. Use a check or money order — not cash. The IRS requires that you obtain a receipt from the charity (a canceled check will not suffice) for all tax-deductible contributions of $250 or more.
  • "Tax exempt" is not the same as "tax deductible." If a charity does not provide you with a tax-exempt letter indicating its status with the IRS, you cannot legitimately claim your contribution as a tax deduction.
  • Be wary of emotional appeals, a favorite approach of some organizations. Demand facts, and don’t accept vague explanations about the use of donors’ dollars.
  • Ask if the charity is registered by federal, state and/or local authorities. This may provide a starting point to inquiring about the legitimacy of the charity.

    Nearly all non-church charities with more than $25,000 income per year must file annually with the IRS; so if it is a small charity, it may not be registered. At least 36 states require that charities register annually. However, registration is not a stamp of government approval or endorsement of the charity.

Whatever program you adopt, remember that CEO involvement is imperative. You set the pace for others to follow. If you aren’t enthusiastic, your employees won’t be either.

REAL-LIFE EXAMPLE [top]

Five years ago after launching the Community Bank of Oak Park River Forest in the basement of his home, Marty Noll projected deposits to exceed $75 million in 2000. The bank’s philanthropy has grown along with its customer base.

As soon as the bank reached profitability, but before recovering its original capital, its board began to support community causes. The bank gives an annual gift to the Community Chest, provides nonprofit organizations with free checking accounts, sponsors athletic teams, buys space in ad books and more. Employees contribute to the Community Chest through payroll deductions.

"What makes our community special is all of the organizations that provide extra services to the residents," said Noll, president of the privately held bank in Oak Park, Ill. "Our bank will prosper in proportion to how our community prospers. Frankly, we win a lot of customers and friends because of our gifts."

The bank receives many requests for donations, and not all of them can be granted. So that Noll can avoid being perceived as the bad guy, an anonymous committee makes the funding decisions.

"By getting ourselves organized, we have the opportunity to say yes and no with some measured thought," said Noll.

DO IT [top]

  1. Form a committee to help identify worthy causes, run philanthropic events and generate excitement.
  2. Compile a list of agencies you might like to help. Cull through solicitations you have received, and ask your Chamber of Commerce, municipal officials and employees for ideas.
  3. Check out charity ratings offered by services such as the American Institute of Philanthropy and the National Charities Information Bureau.
  4. Choose one or more charities whose objectives are compatible with your corporate mission, and determine how you can support them.
  5. Distribute brochures, payroll deduction forms, sign-up sheets and other information among your employees. Post signs throughout the building.
  6. Plan a kickoff ceremony or work project to gain employee support. Invite charity representatives to speak or show a video about their programs. Serve food.
  7. Send press releases to announce kickoff ceremonies and work projects. Activities, such as planting trees, coaching kids or awarding checks, make good photo ops. For tips, see our Quick-Read "Writing and Distributing a Press Release."
  8. Include family members in volunteer projects during nonworking hours so employees don’t feel they are taking time away from them.

    Additional steps to take as a business:

  9. Create a policy to provide paid leave while an employee engages in approved charitable activities. If that’s too expensive, credit employees with compensatory time for a fraction of the time they volunteer, so the employee and company are contributing together. Some companies contribute x dollars to the charity for each hour of volunteer time an employee contributes.
  10. Another way the company can join employees in a team effort is to match employee contributions to charities they select, typically up to a preset maximum.
  11. If you have an employer-sponsored volunteer day, provide day care for your employees’ children.
  12. Assign a person in your company to look for opportunities to make donations of supplies, equipment or other in-kind services to needy organizations.

RESOURCES [top]

Books

Corporate Social Investing: The Breakthrough Strategy for Giving and Getting Corporate Contributions by Curt Weeden (Berrett-Koehler, 1998). A guide for deciding how much to donate and where it is most in the company’s interests to contribute.

Internet Sites

The Chronicle of Philanthropy offers rankings and articles on corporate giving.

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