Social Compact and Corporate Philanthropy

A new report by the Committee Encouraging Corporate Philanthropy (CECP) in the US focuses on the role philanthropy can play in fulfilling a company’s contract with society.

The report explores such topics as how philanthropy is changing and why corporate leaders are assigning greater importance to it; the challenges companies face in making their programs successful; and the methods that those highly innovative companies—the efficient philanthropists—are using to achieve business and social success.

The findings are drawn from the CECP’s Board of Boards CEO conference, a McKinsey Quarterly global survey of more than 700 executives, and 24 in-depth interviews with CEOs and top executives.

The CECP research found that the main changes in corporate philanthropy lie in understanding social expectations from a broader range of sources; how companies assess their programs; and the types of philanthropy companies engage in, in terms of what, where, and with whom companies give. It says a small number of companies have begun to address all of these shifts successfully and build truly strategic philanthropy programs that meet social and business goals.

It says the new complexity facing many companies today is that they are facing formal expectations in more geographies than ever.

If companies are to meet stakeholder expectations, they must ensure that their philanthropy truly makes a difference, and they must be more transparent about what they are doing and why. Thus, companies are beginning to measure the results of their philanthropic programs more rigorously than in the past to ensure they are spending assets wisely and improving their ability to communicate program results to stakeholders.

Monitoring resources deployed on philanthropic programs is complex; CECP data suggests that cash contributions tend to be under-reported, often due to the fragmentation and geographic dispersion of programs within companies.

The challenges of reporting are further magnified for in-kind donations. Yet companies are engaging. One example of their growing dedication to monitoring is that the number of participants in CECP’s "Giving in Numbers", one of the most comprehensive measurement reports on philanthropic activity, grew by nearly one-third in just one year (2007)3.
The report says companies are also realizing that they cannot address many of the most urgent global social issues – such as chronic poverty, climate change, or the HIV/AIDS epidemic – on their own. As a result, just as many companies form networks, alliances, or joint ventures for business purposes, more and more are doing so for philanthropic purposes.

Not surprisingly it says, more than half of respondents to the McKinsey Quarterly survey were concerned about the risks of collaborating with other businesses, but CEOs of organizations that collaborate have found that its challenges can be overcome with patience and sophistication and that the social rewards are inspiring.

Companies face a range of challenges to building a successful philanthropy program.
CECP research highlighted three balancing acts companies must manage as they develop their philanthropic programs: defining the focus on their efforts (whether in terms of stakeholders or business goals), gaining credit for their programs, and allocating an appropriate amount of their CEO’s time to them.

It says these questions are made all the more challenging by the absence of a clear cut "right" answer. Despite the uncertainty, companies must address these topics explicitly and thoughtfully or they will not be able to achieve their philanthropic goals.

The research shows that most companies try to address multiple stakeholders simultaneously, most commonly employees, communities, and consumers; this leads to dilemmas over how to set priorities among competing concerns. Some executives who responded to the survey said they also factor in the views of the media, civic opinion leaders, NGOs, shareholders, boards of directors, or government officials.

It says this fragmentation makes it difficult for companies to identify whether a narrowly- or broadly-scoped effort would serve their goals more effectively. Several CEOs outlined the benefits of a narrow-cast program (such as early childhood programs in tightly defined geographies).

Such programs offer benefits such as more clear social impact, lower complexity, and better potential for gaining public credit. However, other companies, especially those whose philanthropic programs are focused on employees’ interests, have a much wider scope. These can include employee matching programs, dollars-for-doers initiatives, or other opportunities for employees to influence corporate grant recipients, making programs more reactive and less strategic for the company.

Another contributor to companies’ difficulty in defining focus is a need to determine how much their philanthropic program should be geared toward social benefits and how much, if at all, explicitly toward business benefits. This is increasingly difficult at a time when both public expectations for companies to do good and financial performance pressures have increased and, again, there is no "right" answer.

Finally, the report says companies use a broad range of considerations to determine the initial focus of their philanthropic programs, and not always, apparently, the most relevant. Respondents to the survey indicated that they consider a mix of factors, with the personal interests of the CEO or board members the most common, followed by employee interests and community needs.

The research suggests a better way: efficient philanthropists, though they also report having a mix of considerations, rely on community needs more—indeed, half of the time—and almost 40 percent view social impact as a factor.

The report can be downloaded at http://www.corporatephilanthropy.org/research/pubs/SocialContract.pdf