Remember Shamrock Shakes? McDonald’s sells hundreds of thousands of the frosty mint-green drinks each year around St. Patrick’s Day. When, in 1974, the company’s Philadelphia-area restaurants decided to team up with the Philadelphia Eagles to raise money to help child cancer victims, McDonald’s regional manager Ed Rensi agreed to fuel the effort with the proceeds of the shake promotion.
But how best to help childhood cancer patients? The head of pediatric oncology at Children’s Hospital of Philadelphia, Audrey Evans, explained that the hospital’s excellent reputation was drawing in an especially large number of out-of-town families. Evans proposed creating a sort of “home away from home” for those families with seriously ill children. The program received strong support from the Eagles organization, particularly after tight end Fred Hill’s three-year-old daughter was diagnosed with leukemia. The first Ronald McDonald House was completed in 1974.
Twenty-four years later, there are 190 Ronald McDonald Houses in the United States and 13 other countries. The man behind McDonald’s charity is Ken Barun, an intense baritone-voiced New Yorker who joined the corporation in 1987. Under Barun’s tenure, Ronald McDonald House Charities (assets $113.6 million, with $19.6 million in grants and program services in the first ten months of 1997) has established an unusual revenue sharing arrangement that allows 130 local “affiliates” to operate with a great degree of autonomy while receiving substantial support from the home office (which gave $5.3 million in cash grants to affiliates in the first ten months of 1997).
Barun has also overseen the organization’s development beyond the Ronald McDonald House concept to the creation of Ronald McDonald House Family Rooms, which primarily serve local families who are at the hospital for hours at a time while their child receives medical treatment. Barun was also behind a push into medical research geared toward pediatric illnesses, preventing child abuse, and reducing youth suicide. Philanthropy spoke with him by phone, in his office at McDonald’s corporate headquarters in Oak Brook, Illinois.
PHILANTHROPY: Corporations engage in philanthropy for a variety of reasons, but do corporations have a moral responsibility to help charity, regardless of the potential public relations or business benefits?
MR. BARUN: Ray Kroc, the founder of McDonald’s, always felt that it was the right thing to give back to the community where you do business. He felt that it was just good common sense, good business sense, and good personal behavior to do that, and it’s become part of our business culture. All business deals are people deals, and you’ve got to take care of your people. You’ve got to take care of your customers, and provide them with good, hot hamburgers fast and so on-but people have other needs, and you’ve got to take care of those as well.
PHILANTHROPY: Should all businesses that are solvent do what you are describing, or is it acceptable for a Fortune 500 CEO to say: “We’re going to give more back to the shareholders. Let them spend the money”?
MR. BARUN: The question boils down to whether charity should be handled exclusively by the shareholders, or should it be handled by people in the corporation? Well, the corporation hires people like me to make decisions about philanthropy, and I think that the shareholders have to have trust in the people the corporation hires, just like they have trust in the corporation to hire the right people in other areas, or they wouldn’t be shareholders.
PHILANTHROPY: Describe the rather involved relationship that exists between Ronald McDonald House Charities, McDonald’s franchisees, and the individual Ronald McDonald Houses.
MR. BARUN: First of all, McDonald’s corporation provides all the administrative expenses and support for Ronald McDonald House Charities. All of my staff who work within Ronald McDonald House Charities are actually McDonald’s employees.
On the local level, each of our 190 Ronald McDonald Houses is organized as a freestanding 501(c)(3), but we have licensing agreements with them under which they agree to comply with certain standards to use our name. We have sort of franchised the charity business.
This is where it gets complicated. Each Ronald McDonald House, and in some cases more than one, falls under one of our local affiliates, of which there are 130. The affiliates are sort of mini-foundations. Each affiliate has its own board of directors, made up of a combination of local Ronald McDonald House board members, our McDonald’s franchisees, and other people in the community whether they be doctors, lawyers, or other business people.
It is the affiliates, on the local level, who make grants in their community whether it be to a Ronald McDonald House or to some other children’s organization. They are also responsible on the local level for raising a considerable amount of the money that is used locally. Essentially, they administer their own mini-foundations within those local communities.
We set guidelines for them at the national headquarters, and provide them with matching dollars to the grants they make. The match can be up to two-to-one, up to a certain ceiling that is determined based on the number of restaurants we have in that market, because that is directly proportional to the number of people in that area.
Interestingly, about 30 of our affiliates come under our 501(c)(3) organization. They do incorporate in that state separately, and they do file their own tax returns, but they use our Federal Tax ID and the IRS has granted us permission to allow them all the ability to become affiliates of ours, instead of requiring them all to have to file as individual 501(c)(3)s.
PHILANTHROPY: Is it true that you use local McDonald’s franchisees as your eyes and ears when you are vetting a grant proposal? Can you give an example of how that might work?
MR. BARUN: Yes. If there is a Boys and Girls club in Topeka, Kansas that is working on an outreach project in, say, substance abuse, we will ask our licensees in that market to go out and take a look at the project and make a recommendation back to us. Things have evolved since a few years ago when we didn’t have the matching grant program. Now, our operators can tell us what is really worthwhile in the community by contributing their own money to it, and we provide the match. If they are willing to devote the money they raise, we feel that testifies to the value of the project.
Our decentralized structure gives us an opportunity to see the needs of people in local communities and around the world, rather than us making all the decisions from headquarters about where the aid should flow. Those folks in the field are telling us what the needs are in their communities, and they are helping us to have much more of an impact on the lives of children than we ever could sitting here trying to determine what is right in Topeka or Los Angeles or Paris.
PHILANTHROPY: What about the customer? Are the coin boxes in individual restaurants an important source of revenue?
MR. BARUN: They are an important source of revenue, but we are always trying to improve their visibility. When you only have one box and you have a lunch rush, only the people in that aisle can see it. We have a new one called the “Counter Cop,” which sits out in front of each register. Seventy-five percent of the money raised through the collection canisters stays in the local market; 25 percent of it comes back to us at the national level. The canister program was developed here at the national office, and we pay for 50 percent of the program’s cost.
PHILANTHROPY: RMHC made a pledge at the time of the President’s Summit on Volunteerism to devote $100 million over five years. Where does the $100 million come from, how are you progressing toward your goal, and what are you going to spend the money on?
MR. BARUN: The $100 million comes from money we raise, from our customers, from our suppliers, from the corporation, from our franchisees, and from our friends. Part of the money — $30 million over five years — will go to our matching grant program. The rest is being used to fund programs of national and international scope.
As to what we are doing with the money, we are really trying to focus on access to health care for children, teen suicide prevention programs, and child abuse and neglect issues, as well as cancer research.
We funded our first children’s hospital — Ronald McDonald Children’s Hospital — here in the Chicago area, with 103 beds. We funded a project here in Chicago with over 200 public schools open from 3:30 p.m. to 5:30 p.m. The program also provides the kids with another meal, and with safe passage home at night from the school. We are hoping to expand that program to all of Chicago’s 300 public schools over the next couple of years.
We also have a program called Ronald McDonald Communities of Hope, which we just established, that is a community where foster parents live with foster children, and senior citizens live on the same complex — actually an old Air Force base-to provide services to those children, so they live in a big community. The kids are mostly ones who are not going to be placed back with their families but are up for permanent adoption. We are eventually going to have five or six programs of this type across the country.
PHILANTHROPY: When you started with Ronald McDonald House Charities, your office reported to the public relations department. Now you report to the chairman of the board. Is it a common predicament for individuals in corporate philanthropy to be treated as an adjunct of the marketing or PR division?
MR. BARUN: I think in many cases problems follow from the fact that corporations will tend to hire people who have a foundation or charitable background, but who may not be as entrepreneurial as their corporate colleagues. What we have done is mix the two types.
I also think we’re fortunate to have the chairman take an interest in the charity-our board is comprised of a lot of top executives including [Coca Cola Chairman] Doug Ivester, [McDonald’s Chairman & CEO] Mike Quinlan, and [McDonald’s International CEO] Jim Cantalupo. I think my counterparts in many other companies would like to have that kind of attention, because, frankly, it makes it easier to get the job done.
PHILANTHROPY: How do your board meetings typically function?
MR. BARUN: We have two main committees, one for health care and education, and one for civic and social programs. The committees each receive copies of the grant proposals 30 days before the meeting, with staff recommendations. The committees then come in the night before the board meeting and review the grant proposals together. Each committee has a chairman, and the chairman rotates each meeting in alphabetical order. The committee chairman-not a staff person-is then responsible for presenting the grants to the full board. It’s a real hands-on activity for the board members.
The board used to approve every grant — even grants for $500. Now we have a grant review committee that can approve grants up to a certain amount, but we still bring those to the board for ratification.
PHILANTHROPY: How do you invest Ronald McDonald House Charities’ foundation assets-and do you work with the Houses with respect to investments?
MR. BARUN: This is really an area where it has been an advantage to be part of a large corporation. We have a tremendous treasury department at McDonald’s corporate, which has voluntarily organized something called the McDonald’s Charitable Investment Program, or McCip, which all our entities across the country are eligible to join.
It’s very similar to a profit-sharing program, where the entities have their own choice of investments, including mutual funds, equity funds, high-cap stock funds, and so on. We think it’s a way to maximize the investments — you get tremendous investment fund managers to invest that money wisely, and the fund picks up all the fees. McCip is wholly separate from Ronald McDonald House Charities, and has its own board.
PHILANTHROPY: How have you found charity abroad to be different from giving in the United States?
MR. BARUN: Ronald McDonald House Charities is active in 24 countries, and we have Ronald McDonald Houses in 14 countries. We engage in some form of charitable activity in every country where we operate. What is different? The cultures are different. For instance, there’s not a lot of volunteerism in Europe, so we’re kind of breaking the mold there. Many of those countries have socialized medicine and education is socialized also, so people tend not to give to charitable organizations. The laws are also different. Charitable contributions in the United Kingdom are not tax-deductible. In France, all charitable activities must be sanctioned by the Foundation of France. Ronald McDonald House Charities of France was actually the first organization they ever approved with a commercial name.