The McKinsey Report: State of Corporate Philanthropy

A new McKinsey Global report suggests that companies aren’t using corporate philanthropy tools as well as they could.

The report says executives doubt that their philanthropy programs fully meet their social goals or stakeholders’ expectation of them.

Only about a fifth of the respondents say their corporate philanthropy programs are very or extremely effective at meeting social goals and stakeholder expectations.

According to the McKinsey report their companies take a somewhat different approach than others do: their programs are more likely to address social and political trends relevant to the business and to be influenced by community and business needs.

Executives at these companies expect their programs to become more global and say that efforts are already more likely to involve collaboration with other companies.

Finally, these companies are much likelier than others to say they are achieving any business goals they have set for their philanthropy programs in addition to social goals.

A small group of respondents say their companies are reaching beyond traditional corporate goals for philanthropy programs—such as enhancing the company’s reputation or brand—to pursue more concrete business goals, such as gaining information on potential markets.

Executives overall say their companies are much likelier to address a broad mix of local issues with their corporate philanthropy programs than to address the social and political issues that they expect will affect shareholder value the most.

The mix of issues addressed varies across industries and regions, but the overall difference remains.

One explanation may involve the interests of employees. Respondents most often cite this stakeholder group as important in the way their companies think about their roles in society and as the group respondents most often address with corporate philanthropy programs.

Further, companies may be meeting other business needs with the programs they fund. The business goals most often cited—enhancing the company’s reputation or brand, building employee capabilities, and improving employee recruitment and retention—are the ones most related to employees and to local communities (ranked second among the stakeholder groups addressed most often).

In addition, interviews conducted as part of the research into philanthropy suggest that companies see addressing local community needs as an indirect way to highlight a company’s good intentions to groups such as board members, shareholders, and regulators.

Similarly, addressing social and political trends and other business needs is not notably important when companies consider which programs to fund.

Respondents are far less likely to cite factors such as alignment with business needs, stakeholder interests, and even the ability to leverage the companies’ existing capabilities or assets than they are to say they base choices on employee interests and the personal interests of CEOs and board members.

The McKinsey report says that given the importance of branding as a business goal, that only 22 percent of respondents say that visibility leading to brand strength plays a role in determining the focus of their programs.

Respondents at companies whose philanthropy programs include concrete business goals, in contrast, are nearly twice as likely as the full group of respondents to say they consider alignment with business needs when focusing their programs.

Interviews were conducted with 21 CEOs from around the world between December 2007 and February 2008. The interviews and the survey are both parts of a research collaboration between McKinsey and the Committee Encouraging Corporate Philanthropy.

Whatever the business goals of their philanthropy programs, more than 80 percent of respondents say they are at best only somewhat successful at meeting them.

Respondents are slightly more positive about how well their philanthropy efforts meet social goals or stakeholder expectations

Further, while just over half of the respondents say their stakeholders give their companies the credit they deserve for their philanthropic programs, one out of four don’t know the answer to that question.

Still, roughly one-fifth of respondents say their companies are very or extremely effective at meeting social goals, addressing stakeholder interests, or both.

These executives are also much likelier to say stakeholders are giving their companies the credit they deserve (some three-quarters say so).

Yet these companies aren’t addressing a different mix of issues than others, and they, too, are much likelier to address the local community with their philanthropic efforts than the community’s importance as a stakeholder would seem to warrant.

Where these companies differ is in how much more they align their philanthropic programs with the social and political trends that are most relevant to their businesses: 71 percent say their companies are addressing some or all of the relevant trends, compared with 54 percent of respondents who rate their programs as less effective.

These effective companies are also likelier to consider local community needs (47 percent compared with 38 percent) and alignment with business objectives (31 percent compared with 23 percent) when they decide how to focus their corporate philanthropy programs. And they are much more likely to collaborate with other companies on philanthropic programs and to believe that their programs will become increasingly global.

To download the report go to: http://www.mckinseyquarterly.com/Strategy/Strategic_Thinking/The_state_of_corporate_philanthropy_A_McKinsey_Global_Survey_2106