Corporate Giving Gets Focused
from Winter 2000
by Sarah Rose
When Stanley Litow, a former deputy chancellor of the New York City public schools, was recruited in 1993 to help oversee IBM’s corporate giving, Big Blue was contributing to every kind of cause imaginable, from public broadcasting to clean water programs. Before long, the old ad hoc method for doling out charitable dollars became as obsolete as computer punch cards.
Instead, IBM decided to refocus its charitable efforts, zooming in on education as its primary beneficiary. “If the goal was to be generous, then covering as many issue areas as possible was fine,” Litow says. “By identifying an issue underlying a larger set of social needs—in this case, education—and by focusing on making schools more effective, then we could be not just generous, but also effective.”
As a result of IBM’s efforts, parents in North Carolina can now track junior’s progress by looking at an online portfolio of his work. In Texas, children are learning to read with the help of computers equipped with voice-recognition software specifically designed for youngsters. And in Vermont and West Virginia, math teachers go online to see what their peers in other districts think of their lesson plans.
In 1999, IBM gave away about $125 million, some $90 million of it in the form of computer hardware, software, reasearch, and service. “But we aren’t unloading computers off the end of a truck,” says Litow. “We are demonstrating how technology can make a difference in people’s lives.” IBM’s giving might also make a difference in the company’s bottom line. Over an 18-month period, Big Blue has registered 16 patents for processes it discovered in its various philanthropic programs.
Other computer industry companies, including Hewlett-Packard, Intel, and Microsoft, are increasingly focusing their charitable giving on causes that, however worthy, provide a showcase for their products. Drug makers have adopted similar strategies. Says Tom King, head of the Eli Lilly & Co. Foundation: “We are in the health care industry, so it makes sense to support organizations that are an extension of our mission.” In line with that thinking, Lilly, which has thrived off the sales of Prozac, as well as assorted drugs to treat diabetics, supports a number of mental health and diabetes nonprofit groups. In 1999, the company gave away $130 million, of which $96 million took the form of products. (For other examples of corporate giving, see table.)
Public relations is a motivating factor for these companies, particularly if they can enjoy a nonconfrontational moment in the sun. General Motors, a frequent target of environmentalists, includes the Nature Conservancy among its beneficiaries. GM publicized the connection in an ad in which John Sawhill, the conservancy’s president until his death earlier this year, proudly looked out over herds of buffalo roaming in Oklahoma’s Grass Prairie Reserve. Sawhill’s mount, however, was not a horse but a GM truck.
Since cigarette companies are banned from product placement on television, their corporate giving often takes to the streets—about the only place in the U.S. where they can legally advertise. Philip Morris contributes to all kinds of concerts and to dance companies and other performing-arts organizations.
Some companies are content simply to be good neighbors. Sara Lee allocates about half of the $75 million in cash it gives away each year to various organizations in Chicago, its hometown.
According to the American Association of Fund-Raising Counsel, a professional fund-raisers organization based in Indianapolis, U.S. companies gave away about $11 billion in 1999. Individuals donated $144 billion to charities and bequeathed another $16 billion during the year, while foundations handed out some $20 billion.
“Companies have not kept pace with individuals and private foundations,” chides Paul Ostergard, president of the Committee to Encourage Corporate Philanthropy, a group founded last year by actor Paul Newman. Newman hopes to persuade companies to increase their giving to $15 billion annually by 2004 and has enlisted the CEOs of Lucent, Merck, and Goldman Sachs to help that drive. Newman, it should be noted, has put about $100 million where his mouth is. All the after-tax profits from Newman’s Own—his salad dressing, pasta sauce, and popcorn company—go to such causes as the Hole in the Wall Gang Camps for children with cancer and other life-threatening diseases.
Probably no bunch of companies has taken the responsibility of giving more to heart than those based in Minnesota. As long ago as 1946, Dayton-Hudson, a Minneapolis ancestor of Target Corp., got together with its corporate neighbors to form the Five Percent Club, named for the percentage of pretax earnings they pledged to give to charity. Today, that group has morphed into the Minnesota Keynote Program: 157 Minnesota companies that continue to give away 5% and another 97 that have pledged at least 2%.
Most U.S. companies are less generous than the Minnesota consortium, donating an average 1.3% of their pretax income. But even that amount is excessive to those who believe that instead of giving money away, companies should return it to their shareholders.
Warren Buffett, chairman of Berkshire Hathaway, devised his own solution to this conundrum. In 1981 he wrote to his shareholders telling them, “Just as I wouldn’t want you to implement your personal judgments by writing checks on my bank account for charities of your choice, I feel it inappropriate to write checks on your corporate ‘bank account’ for charities of my choice.” With that, he initiated a plan in which shareholders designate the charity of their choice and Berkshire Hathaway makes a donation in their name. The amount of the gift is determined by the amount of stock each shareholder owns. (Last year the company gave away a total of $17 million, about 1% of net earnings.) This way, Berkshire gets the tax deduction and the shareholder gets the thank-you note.
