Why do corporations—the ultimate symbol of profit maximization—engage in philanthropy? To some people— Reynold Levy calls them “puritans”—the phrase “corporate philanthropy” is an oxymoron. To them, corporations, like frat boys, engage in philanthropy to distract us from all the bad things they do.
There are others—Levy calls them “utilitarians”—who think that corporations have no business being involved in philanthropy. The most concise statement of this position is by Milton Friedman: “The corporation is an instrument of the stockholders who own it. If the corporation makes a contribution, it prevents the individual stockholder from himself deciding how he should dispose of the funds . . . . [Corporate] contributions should be made by the individuals who are the ultimate owners of property in our society.”
Readers looking for an approach to corporate philanthropy that is either less cynical than the puritan position or not so dogmatic as the utilitarian position will want to turn to Reynold Levy’s excellent Give and Take. Levy is currently the president of the International Rescue Committee and spent twelve years at AT&T, first as president of the AT&T Foundation and later as an executive in charge of the company’s global strategy. His book is noteworthy for several reasons. First, it is well written and contains useful advice for donors and grantseekers alike. Second, it is one of a remarkably small number of useful sources on the topic of corporate philanthropy.
Levy’s central contention—that “philanthropy can contribute meaningfully to a business’s success”—is decidedly less than obvious and is not a widely held view even among people who support corporate philanthropy. The key, he says, is to envision corporate philanthropy as “the process of identifying where business interests and social needs intersect.”
Of course, before they do anything else, corporations must earn a profit. But corporations are also expected to obey the law, treat their employees fairly, and not take advantage of their customers. Corporations also have interests such as projecting a positive image to their employees and customers (and even their competitors). By such varied means as advertising, instilling employee pride, and making the extra effort to satisfy customers, a company can create a positive image. It can do the same through a program of philanthropy.
But, according to Levy, corporate giving must not be a mere adjunct to a company’s PR apparatus. For him, the special value of corporate philanthropy is found in the very thing that makes corporations different from other donor institutions. First and foremost, corporate philanthropists have at their disposal a wide range of the very kinds of intellectual resources and expertise that many nonprofits are desperately in need of these days: “Corporations employ millions of people. A company’s charitable dollar can therefore reinforce or stimulate voluntary activity of all kinds—from service on nonprofit boards to matching employee gifts; from provision of pro bono financial, legal, advertising, public relations, and management assistance to leading fundraising campaigns and loaning executives to Third Sector organizations.” There is also the matter of expectations: while corporate executives do not expect nonprofits to act like businesses, they do “expect clarity about the mission, objectives, strategies, tactics, and anticipated outcomes of nonprofit work.”
In exchange for gifts of money, services and expertise, and, of course, goods and equipment, Levy argues that corporations receive a wide range of benefits that ultimately affect the bottom line. Levy writes:
Philanthropy can help minimize potential damage to a firm’s performance and to its reputation. Philanthropy can please customers, strengthen brand recognition, bolster morale, express the values of a business, and provide employees with leadership development opportunities. Philanthropy can also enhance the quality of life in communities where employees live and work and encourage key executive relationships with opinion leaders, customers, and government officials.
Levy’s final chapter discusses several trends that he believes will shape the future of corporate philanthropy. For instance, Levy predicts that small and mid-size firms, in which philanthropic decisions are primarily influenced by the values of the owner, will become the engine of growth in corporate philanthropy. Levy notes that there are now more than 3.5 million millionaires in this country, and about 80 percent of them are self-employed. The future of corporate philanthropy may well be in the hands of small business owners. More good news for fundraisers: this already large cohort of millionaire professionals “is likely to expand from five to seven times faster than the general population.”
Another trend Levy discusses is the rise of employee-driven philanthropy. Because of the reengineering of the corporation over the past decade, authority is now spread more widely in American corporations, giving more employees a greater say in a corporation’s philanthropic decisions. Levy notes, “The employee who, on a given day, can change with a single phone call how his or her 401(k) savings plan is invested or several times a year change health insurance features by tapping on a computer keyboard will find charitable paternalism inexplicable and intolerable. Choice beckons.” This trend toward openness and choice is scaring the pants off of organizations such as the local United Ways, which until now have benefited from a monopoly on employee workplace giving.
One problem with Levy’s book is that his focus on what we might call “traditional” corporate philanthropy has caused him to overlook what may be the most interesting and potentially far-reaching change in corporate philanthropy today. That is the increasing “blurring of the lines” (in the words of nonprofit consultant William P. Ryan) between the for-profit and nonprofit sectors. Amid increasing insistence that nonprofits become more “businesslike” (i.e., focused on efficiency and effectiveness) for-profits have entered into fields that were, until recently, largely the province of nonprofits.
For instance, when Congress passed welfare reform legislation in 1996, a number of shrewd business people saw an opportunity, and began submitting applications to state human-services agencies to administer welfare-to-work programs. While for-profits such as hospitals and daycare centers have been winning government grants for years, this was the first time many of them had stepped into the human services arena.
At first there were cries of protest, and public administrators were reluctant to award contracts to organizations purportedly less pure of motive. A mere three years later, numerous corporations have won dozens of state contracts and are expanding at a rapid rate. According to Ryan, writing in the Harvard Business Review, many nonprofits have responded by worrying about their oncoming rivals, and, as a consequence, have completely missed the real story, which is that the driving force behind these changes is not in fact the for-profit sector but government.
For it seems that the movement toward “reinventing government”—which precedes Vice President Gore by a decade or so—has materially changed the way government does business. First, over the last several decades, the trend has been away from publicly run social-service programs toward outsourcing, through which public agencies provide funds to non-government providers. Until recently, nonprofits have been the recipients of all this largesse, but no longer. Second, the increasing emphasis within agencies on “performance” and “outcomes” has convinced many administrators that for-profits can perform as well as nonprofits. The largely positive track record thus far of the corporations administering state welfare programs has only reinforced this conviction.
According to Ryan, “nonprofits are now forced to reexamine their reasons for existing in light of a market that rewards discipline and performance and emphasizes organizational capacity rather than for-profit or nonprofit status and mission.” Shrewd nonprofit leaders have responded by embracing the emphasis on performance that has become so important today. Many have decided that they must work in collaboration within businesses in order to survive. Some will go down this road kicking and screaming. Others will keep doing what they have been doing, and be quite successful at it, for it is unlikely that the kind of philanthropy Reynold Levy describes so well in Give and Take is going to disappear any time soon.
John W. Barry is a contributing editor to Philanthropy.