Responsibilities to the Community

Philanthropic Contributions

Strategic Philanthropy Defined

Strategic Philanthropy and Social Responsibility

Social Entrepreneurship and Social Responsibility

Benefits of Strategic Philanthropy

Implementation of Strategic Philanthropy

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Although many organizations try to incorporate cause-

related marketing into their business operations, TOMS

Shoes takes the concept of philanthropy one step

further. TOMS blends a for-profit business with social

entrepreneurship in what it terms the one-to-one

model. For every pair of shoes sold, another pair is

provided to a child in need. TOMS has also expanded

into eyewear. For every pair of sunglasses sold, a person

with vision problems in developing countries receives

surgery, prescription glasses, or medical treatment to

help restore his or her sight. Unlike many nonprofits,

TOMS’ for-profit business enables the company to

support its philanthropic component, which keeps the

company from having to solicit donations.

The idea for TOMS Shoes occurred after founder

Blake Mycoskie witnessed the immense poverty in

Argentinean villages—poverty so bad that many fami-

lies could not afford to purchase shoes for their chil-

dren. As a result, Mycoskie decided to create a business

that would consist of two parts: TOMS Shoes, a for-

profit business that would sell the shoes, and Friends of

TOMS, the company’s nonprofit subsidiary that would

distribute shoes to those in need.

For his original product, Mycoskie decided to

adopt the alpargata shoe worn in Argentina. The

alpargata is a slip-on shoe made from canvas or fabric

with rubber soles. After a Los Angeles Times article fea-

tured Mycoskie’s new business, demand for the shoes

exploded. Today TOMS is a thriving business.

After distributing its 1-millionth pair of shoes in

2010, TOMS began to consider other products that

could be used in the one-to-one model. Because

80 percent of vision impairment in developing countries

is preventable or curable, TOMS decided that for every

pair of sunglasses it sold, the company would provide

treatment or prescription glasses for those in need.

TOMS chose Nepal as the first country to apply its one-

to-one model.

TOMS takes its obligations for social responsibility

seriously. The company builds the cost of the extra pair

of shoes and eye care into the price of the products it

sells. TOMS also works closely with local humanitarian

organizations so they can understand the communities

to which they are donating.

Customers who do business with TOMS feel

committed to the company because they know that

their purchases are going toward a good cause, even

if they might pay a bit more in the process. TOMS

goes to great lengths to educate the public about the

importance of its mission. For instance, the company

provides internship opportunities and engages brand

ambassadors at universities to spread the TOMS mes-

sage. Every year the company promotes the One Day

Without Shoes campaign, in which participants spend

one day without shoes to understand what children

in developing countries must undergo daily. These

events have been supported by celebrities such as

Charlize Theron, Kris Ryan, and the Dallas Cowboys

Cheerleaders.

Despite its success, TOMS’ mission is far from com-

plete. As its expansion into eyewear demonstrates, the

company is looking for new opportunities for applying

its one-to-one model to address social issues. TOMS

demonstrates how an innovative concept and the abil-

ity to engage in social entrepreneurship can create a

successful company that can make a difference.1

TOMS Shoes Expands One-to-One Model to Eyewear

Opening Vignette

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TOMS Shoes, like most organizations with operational expertise and other core competencies, can also focus on implementing social responsibility and satisfying stakeholder groups. From a social responsibility perspective, the key challenge is how an organization assesses its stakeholders’ needs, integrates them with company strategy, reconciles differences between stakeholders’ needs, strives for better rela- tionships with stakeholders, achieves mutual understandings with them, and finds solutions for problems. In this chapter, we explore community stakeholders and how organizations deal with stakeholder needs through philanthropic initiatives. We explore the relationship with communities and the economic, legal, ethical, and philanthropic responsibilities that must be addressed by business. We define strategic philanthropy and inte- grate this concept with other elements of social responsibility. Next, we trace the evolution of corporate philanthropy and distinguish the concept from cause-related marketing. We also provide examples of best practices of addressing stakeholders’ interests that meet our definition of strategic philanthropy. From there, we define social entrepreneurship and explain how it relates to strategic philanthropy and social responsibility. Then we consider the benefits of investing in strategic philanthropy to satisfy both stakeholders and corporate objectives. Finally, we examine the pro- cess of implementing strategic philanthropy in business. Our approach in this chapter is to demonstrate how companies can link strategic philan- thropy with economic, legal, and ethical concerns for the benefit of all stakeholders.

Community StakeholderS The concept of community has many varying characteristics that make it a challenge to define. The community does not always receive the same level of acceptance as other stakeholders. Some people even wonder how a company determines who is in the community. Is a community defined by city or county boundaries? What if the firm operates in multiple locations? Or is a community prescribed by the interactions a firm has with various constituents who do not fit neatly into other stakeholder categories? For a small restaurant in a large city, the owner may define the community as the immediate neighborhood where most patrons live. The restaurant may demonstrate social responsibility by hiring people from the neighborhood, participating in the neighborhood crime watch program, donating food to the elementary school’s annual parent-teacher meetings, or sponsoring a neighborhood Little League team. For example, J.P. Morgan Chase & Co. has instituted a program called Corporate Challenge, a global initiative that invites employees to participate in running events for charity. One of the latest events, which took place in Syracuse, New York, hosted over 8,500 runners and walkers from more than 300 companies. The proceeds supported local nonprofit Hillside Work-Scholarship Connection. Each year, this series of events brings in over $500,000 for causes around the

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world.2 For a corporation with facilities in North and South America, Europe, and Africa, the community may be viewed as virtually the entire world. To focus its social responsibility efforts, the multinational corpo- ration might employ a community relations officer in each facility who reports to and coordinates with the company’s head office.

Under our social responsibility philosophy, the term community should be viewed from a global perspective, beyond the immediate town, city, or state where a business is located. Thus, we define community as those members of society who are aware of, concerned with, or in some way affected by the operations and output of an organization. With information technology, high-speed travel, and the emergence of global business interests, the community as a constituency can be geographically, culturally, and attitudinally quite diverse. Issues that could become impor- tant include pollution of the environment, land use, economic advantages to the region, and discrimination within the community, as well as exploi- tation of workers or consumers.

From a positive perspective, an organization can significantly improve the quality of life through employment opportunities, economic development, and financial contributions for educational, health, artistic, and recreational activities. Through such efforts, a firm may become a neighbor of choice, an organization that builds and sustains trust with the community.3 To become a neighbor of choice, a company should strive for positive and sustainable relationships with key individuals, groups, and organizations; demonstrate sensitivity to community con- cerns and issues; and design and implement programs that improve the quality of community life while promoting the company’s long-term busi- ness strategies and goals.4 Merck’s Neighbor of Choice program interacts with organizations and initiatives that are in line with the company’s mission on well-being. Finding solutions to health and social issues where the company is located and bringing results to stakeholders or neighbors is the top goal of each initiative. The company made contributions total- ing $2.7 million in grants awarded to local nonprofit organizations in health, education, social services, environment, the arts, and civic and international issues.5

Similar to other areas of life, the relationship between a business and the community should be symbiotic. A business may support educational opportunities in the community because the owners feel it is the right thing to do, but it also helps develop the human resources and consumer skills necessary to operate the business. Customers and employees are also com- munity members who benefit from contributions supporting recreational activities, environmental initiatives, safety, and education. Many firms rely on universities and community colleges to provide support for ongoing education of their employees. The Dow Chemical Company, for example, committed to an annual investment of $25 million over the course of ten years to universities for research purposes. Beyond that, they have working relationships with faculty, students, and other academicians to apply the research and create useful solutions to pressing issues.6

community Members of society who are aware of, concerned with, or in some way affected by the operations and output of an organization.

neighbor of choice An organization that builds and sustains trust with the community through employment opportunities, economic development, and financial contribu- tion to education, health, artistic, and recreational activities of the community.

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To build and support these initiatives, companies may invest in community relations, the organizational function dedicated to building and maintaining relationships and trust with the community. In the past, most businesses have not viewed community relations as strategically important or associated them with the firm’s ultimate performance. Although the community relations department interacted with the community and often doled out large sums of money to charities, it essentially served as a buffer between the organization and its immediate community. Today, commu- nity relations activities have achieved greater prominence and responsibil- ity within most companies, especially due to the rise of stakeholder power and global business interests. The function has gained strategic importance through linking to overall business goals, professionalizing its staff and their knowledge of business and community issues, assessing its perfor- mance in quantitative and qualitative terms, and recognizing the breadth of stakeholders to which the organization is accountable.7 Community relations also assist in short-term crisis situations, such as disaster relief. Humanitarian aid organization Direct Relief was given an Excellence Award by the Committee Encouraging Corporate Philanthropy (CECP) for its collaboration with FedEx to bring health services to people and places stricken by disaster. When the typhoon hit the Philippines, more than 250,000 people received needed medical supplies. Additionally, the partnership has provided over 10 million Americans with approximately $400 million in necessary medications.8 Progressive companies manage community relations with partnership in mind. They seek out community partners for a range of interests and activities—philanthropy, volun- teerism, quality educational system and qualified workforce, appropriate roads and infrastructure, quality housing, and other community assets.

Over the past two decades, corporate support for philanthropy has been steadily growing. According to Giving USA Foundation, corporate giving totaled $18.15 billion in 2013. This number is down by 1.9 percent from the year before as a result of slow profit growth. The sluggish recovery of the economy since the Great Recession has had an effect on corporate giving. Instead, many companies are donating goods, services, and volunteer hours to make up for the lack of available cash donations. Pfizer was one of the largest contributors, with over $3 billion in product and cash donations combined.9 Even before the economic downtown, corporate giving was becoming more effective and strategic. Companies are working to align their stakeholder interests and develop partnerships that are more closely aligned to business goals, community interests, and sustainable activities.10

In a diverse society, however, there is no general agreement as to what constitutes the ideal model of business responsibility to the community. Businesses are likely to experience conflicts among stakeholders as to what constitutes a real commitment to the community. Therefore, the community relations function should cooperate with various internal and external constituents to develop community mission statements and assess opportunities and develop priorities for the types of contributions it will

community relations The organizational function dedicated to building and maintaining relationships and trust with the com- munity.

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make to the community. Table 9.1 provides several examples of company missions and programs with respect to community involvement. As you can see, these missions are specific to the needs of the people and areas in which the companies operate and are usually aligned with the competen- cies of the organizations involved and their employees.

taBle 9.1 Community Mission Statements Organization Community Mission

The Advisory Board Company With an EVP mission to serve hospitals, health systems, and universities by helping them tackle their most pressing chal- lenges, The Advisory Board Company helps them achieve their highest calling: improving health and educational out- comes for their partners, and in turn, for their communities. The gift of empowering an organization to achieve efficient protocols enables them to reach and serve more individuals they set out to help. As with many non-profits, resources and capital are not abundant. The Advisory Board Company realizes this and has taken on the challenge to empower their community partners with the tools needed to meet their service goals.

Capital One At Capital One, we have always believed that as business leaders we have a unique opportunity to create value in the communities where we live and work. One of the most impactful ways Capital One serves the community is through the volunteer efforts of its thousands of talented associates.

Eli Lilly and Company Lilly’s commitment to corporate responsibility is not new—it’s a fundamental part of the corporate culture. Through its Lilly Hands and Hearts Employee Volunteer Program, employees have committed to building healthier communities where they live and work, looking beyond operations to address significant societal challenges. Lilly and its employees are creating communities that are healthier in the traditional sense—as well as cleaner, more vibrant and prosperous, and with citizens who are better educated.

Pinnacol Assurance Pinnacol’s community involvement program, Pinnacol in Action, is an integral part of the company’s culture. Employees receive paid time off to participate in volunteer activities such as youth mentoring and education, human services programs, community beautification and promoting health awareness.

Salesforce.com Salesforce.com established the Salesforce.com Foundation soon after the company was founded in 1999 to ensure that community service was a central part of the corporate culture. To formalize this vision, salesforce.com implemented “1/1/1 Model” to harnesses the power of Salesforce.com’s people, resources and technology through 1 percent Time, 1 percent Equity and 1 percent Product to improve its com- munities, inspire youth to be more successful, support the world during times of extreme need, and promote compas- sionate capitalism.

(Continued )

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Community mission statements are likely to change as needs are met and new issues emerge. For example, as Japan-based Takeda Pharmaceutical Company Limited continues to expand operations throughout the world, their community involvement also expands to meet the needs of each com- munity. In Brazil, the company focuses on renovating orphanages, while in South Africa, they have initiatives teaching children to make blankets. When global communities experience unexpected disasters, such as flood- ing in Australia, Takeda has been there to assist with the recovery.11 Thus, as stakeholder needs and concerns change, the organization will need to adapt its community relations efforts. To determine key areas that require support and to refine the mission statement, a company should periodically conduct a community needs assessment like the one presented in Table 9.2.12

reSponSiBilitieS to the Community It is important for a company to view community stakeholders in a trust- ing manner, recognizing the potential mutual benefit to each party. In a networked world, much about a company can be learned with a few clicks of a mouse. Activists and disgruntled individuals have used websites to publicize the questionable activities of some companies. Target and Ryanair have been the focus of “hate” websites that broadcast concerns about the company’s treatment of employees, pricing strategies, and mar- keting and advertising tactics.13 Because of the visibility of business activi- ties and the desire for strategic social responsibility, successful companies strive to build long-term mutually beneficial relationships with relevant communities. Achieving these relationships may involve some trial and error. Table 9.3 illustrates some of the common mistakes organizations make in planning for and implementing community responsibilities. A positive example, on the other hand, is Eli Lilly Pharmaceuticals’ strong support for the Indianapolis Symphony Orchestra. In return, the orchestra stages private concerts for Eli Lilly employees. Dell Computer has a similar

taBle 9.1 (Continued ) UnitedHealth Group UnitedHealth Group’s comprehensive approach to employee

volunteering begins with an analysis of skills-based volunteer needs, followed by the creation of strategic programs that offer rich and rewarding opportunities for UnitedHealth Group employees. This holistic approach has provided valu- able insight on volunteering and health and contributed to UnitedHealth Group’s leadership in corporate service as a resource and advocate for the benefits of employee volun- teer programs.

Sources: Eli Lilly, “Points of Light Institute Honors Corporate America’s Renewed Call to Service,” Lilly, June 24, 2009, https://investor.lilly.com/releasedetail.cfm?releaseid=391819 (accessed July 30, 2014); “2014 Corporate Engagement Award of Excellence Honorees,” Hands On Network, http:// www.handsonnetwork.org/corporateawards (accessed July 30, 2014).

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taBle 9.2 Community Needs Assessment For each of the questions in the survey, circle the number that corresponds to your assessment:

Community Issues Exceptional Adequate Inadequate Don’t Know

Parks 3 2 1 0

Culinary water system 3 2 1 0

Street maintenance 3 2 1 0

Garbage collection 3 2 1 0

Snow removal 3 2 1 0

Fire protection 3 2 1 0

Police protection 3 2 1 0

Ambulance service 3 2 1 0

Building inspection 3 2 1 0

Animal control 3 2 1 0

Other code enforce- ment (weeds, junk cars, etc.)

3 2 1 0

Arts 3 2 1 0

Street lighting 3 2 1 0

Other issues that can be evaluated: grocery stores, pharmacies, clothing stores, fast-food restaurants, entertainment, hardware/lumber stores, auto services, banking/financial services, affordable housing, business offices, warehouses, convenience stores, community colleges, higher education satellite campuses.

Source: Utah State University Extension, “Community Needs Assessment Survey Guide,” http://exten- sion.usu.edu/files/uploads/surveyguide.pdf (accessed July 3, 2014).

taBle 9.3 Common Myths About Community Relations 1. Support of political and regulatory officials is not needed

2. We will cause a problem for our company if we engage in community relations

3. The community has no expertise on our decisions and actions

4. Engaging the community will delay us in finding the right solution

5. Community officials have no concern for the cost of solutions to issues

6. We serve the community simply through employment opportunities and paying taxes

7. Our only focus is national and global relationships

8. Community relationships involve only public relations

9. The local community does not impact our success

10. Spending time with the community distracts from the economic success of the firm

relationship with the Round Rock Express, a minor league (Texas League) baseball team. A community focus can be integrated with concerns for employees and consumers. Chapter 1 provided evidence that satisfied customers and employees are correlated with improved organizational performance.

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Economic Issues From an economic perspective, business is absolutely vital to a commu- nity. Companies play a major role in community economic development by bringing jobs to the community and allowing employees to support themselves and their families. These companies also buy supplies, raw materials, utilities, advertising services, and other goods and services from area firms; this in turn produces more economic effects. In communities with few employers, an organization that expands in or moves to the area can reduce some of the burden on community services and other subsi- dized support. Even in large cities with many employers, some companies choose to address social problems that tax the community. In countries with developing economies, a business or industry can also provide many benefits. A new company brings not only jobs but also new technology, related businesses, improvements to infrastructure, and other positive fac- tors. Conversely, globalization has incited criticism regarding the effects of U.S. businesses on other parts of the world, namely developing countries. For example, Nestlé has been criticized for marketing baby formula to nursing mothers in Turkey, claiming that their offspring will receive more nutrition from the formula than from their mothers; aggressive selling of bottled water in developing parts of the world, which is said to be expen- sive for consumers and works as a deterrent to governments to solve water sanitation issues; and for child labor accusations in African cocoa farms. The company has committed to “The Nestlé Cocoa Plan” which involves building schools and providing cocoa trees to farmers with the aim of contributing to the betterment of the local community.14

Interactions with suppliers and other vendors also stimulate the economy. Some companies are even dedicated to finding local or regional business partners in an effort to enhance their economic responsibility. For example, Starbucks, in an unprecedented move for the company, began fran- chising locations in Europe. By having locals run the coffee chains’ stores, the company hopes to further its influence in the region.15 Furthermore, there is often a contagion effect when one business moves into an area: by virtue of its prestige or business relationships, such a move can signal to other firms that the area is a viable and attractive place for others to locate. There are parts of the United States that are highly concentrated with auto- motive manufacturing, financial services, or technology. Local chambers of commerce and economic development organizations often entice new firms to a region because of the positive reputation and economic contagion it brings. Finally, business contributions to local health, education, and recre- ation projects not only benefit local residents and employees but also may bring additional revenue into the community from tourism and other busi- nesses that appreciate the region’s quality of life. AT&T, for example, hosts the Pebble Beach National Pro-Am golf tournament. The annual event has raised more than $110 million for local charities and honors different influ- ential groups each year. The last tournament honored veterans of the U.S. armed forces with a Military Pin Flag Ceremony.16

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Just as a business brings positive economic effects by expanding in or relocating to an area, it can also cause financial repercussions when it exits a particular market or geographical location. Thus, workforce reduction, or downsizing—a topic discussed in Chapter 7—is a key issue with respect to economic responsibility. The impact of layoffs due to plant closings and corporate restructuring often extends well beyond the financial well-being of affected employees. Laid-off employees typically limit their spending to basic necessities while they look for new employment, and many may ultimately leave the area altogether. Even employees who retain their jobs in such a downsizing may suffer from poor morale, distrust, guilt, and continued anxiety over their own job security, further stifling spending in a community.

Because companies have such a profound impact on the economic viability of the communities in which they operate, firms that value social responsibility consider both the short- and long-term effects on the community of changes in their workforce. Today, many companies that must reduce their workforce—regardless of the reasons—strive to give both employees and the community advance notice and offer placement services to help the community absorb employees who lose their jobs. Quad/Graphics, the second largest printer in the United States, closed plants in Illinois and Minnesota. The company offered to transfer affected employees to other plants in the nation. However, for those who did not want to transfer, Quad/Graphics agreed to offer a severance package including pay, career placement assistance, and exten- sion of benefits.17 Depending on economic circumstances and business profitability, companies may choose to offer extra compensation com- mensurate with an employee’s length of employment that gives laid-off employees a financial cushion while they find new work. However, the realities of economic turmoil mean that many employees receive little compensation.

Legal Issues To conduct business, a company must be granted a “license to operate.” For many firms, a series of legal and regulatory matters must be resolved before the first employee is hired or the first customer is served. If you open a restaurant, for example, most states require a business license and sales tax number. These documents require basic information, such as business type, ownership structure, owner information, number of expected employees, and other data.

On a fundamental level, society has the ability to dictate what types of organizations are allowed to operate. In exchange for the license to operate, organizations are expected to uphold all legal obligations and standards. We have discussed many of these laws throughout this book, although individual cities, counties, and municipalities will have additional laws and regulations that firms must obey. For example, a construction company in Destin, Florida, was charged with repeated safety violations

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that have endangered employees. The leading cause of fatality in construc- tion work is falling, and the company has been found liable for neglecting to provide employees with protections against this danger.18

Other communities have concerns about whether and how businesses fit into existing communities, especially those threatened by urban sprawl and small towns working to preserve a traditional way of life. Some states, cities, and counties have enacted legislation that limits the square foot- age of stores in an effort to deter “big-box stores,” such as Walmart and Home Depot, unless local voters specifically approve their being allowed to build. In most cases, these communities have called for such legislation to combat the noise and traffic congestion that may be associated with such stores, to protect neighborhoods, and to preserve the viability of local small businesses.19 Thus, although living wages and store location may be ethical issues for business, some local governments have chosen to move them into the legal realm.

Ethical Issues As more companies view themselves as responsible to the community, they will contemplate their role and the impact of their decisions on com- munities as they make managerial ethical decisions. Many companies have opted to be proactive on important issues, such as minimum wages and benefits for employees. While legislative bills have been proposed on rais- ing the minimum wage, it may take time before any changes to the law are made in this respect. Ikea, however, raised the minimum wage for employees in all U.S. locations to $10.76 per hour because they believe it is the right thing to do. Other companies such as Gap and Costco have followed suit, raising their minimum wages to $9 and $11.50 per hour, respectively.20 Walmart also claimed it would not oppose a federal mini- mum wage increase.21

Business leaders are increasingly recognizing the significance of the role their firms play in the community and the need for their leadership in tackling community problems. Bill Daniels, founder of Cablevision, was an extremely successful entrepreneur. His approach to ethical decision- making in Cablevision had a positive impact on the communities. He established The Daniels Fund, which has a significant impact on busi- ness ethics education and other social concerns in the states of Wyoming, Colorado, New Mexico, and Utah. Millions of dollars have been donated to causes such as ethics and integrity, education, youth development, and amateur sports.22

These examples demonstrate that the ethical dimension of community responsibility can be multifaceted. This dimension and related programs are not legally mandated but emanate from the particular philosophy of a company and its top managers. Since many cities have not mandated a living wage, the actions of Ikea, Gap, and Costco are based on an ethical obligation felt toward employees and the community. There are many ways that a company can demonstrate its ethical commitment to the

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community. As Bill Daniels’s commitment to business ethics illustrates, a common extension of “doing the right thing” ethically provides a role model for all political and civic leaders.

Philanthropic Issues The community relations function has always been associated with phi- lanthropy, as one of the main historical roles of community relations was to provide gifts, grants, and other resources to worthy causes. Today, that thinking has shifted. Although businesses have the potential to help solve social issues, the success of a business can be enhanced from the publicity generated by and through stakeholder acceptance of community activities. For example, Colorado-based New Belgium Brewing Company donates $1 for every barrel of beer brewed the prior year to charities within the mar- kets it serves. The brewery tries to divide the funds among states in pro- portion to interests and needs, considering environmental, social, drug and alcohol awareness, and cultural issues. Donation decisions are made by the firm’s philanthropy committee, which is a volunteer group of diverse employees; employees are encouraged to bring philanthropy suggestions to the committee.23 However, New Belgium belongs to an industry that some members of society believe contributes to social problems. Thus, regardless of the positive contributions such a firm makes to the community, some members will always have a negative view of the business.

One of the most significant ways that organizations are exercising their philanthropic responsibilities is through volunteer programs. Volunteerism in the workplace, when employees spend company-supported time in sup- port of social causes, has been increasing among companies of all sizes. Approximately 64.5 million Americans spend nearly 8 billion hours sup- porting formal volunteer activities. The four main activities that volunteers perform are fundraising, collecting and distributing food, helping with general labor needs, and tutoring or teaching. These activities are per- formed for a variety of organizations, with religious, education, and social service agencies topping the list.24 Figure 9.1 shows the states, large cities, and mid-sized cities with the highest rates of volunteerism.

People who volunteer feel more connected to other people and society and ultimately have lower mortality rates, greater functional ability, and lower rates of depression later in life than those who do not volunteer. When volunteering is a result of employment, benefits of volunteering accrue to both the individual, in terms of greater motivation, enjoyment, and satisfaction, and to the organization through employee retention and productivity increases.25 Communities benefit from the application of new skills and initiatives toward problems, better relations with business, a greater supply of volunteers, assistance to stretch limited resources, and social and economic regeneration.26 Philanthropic issues are just another dimension of voluntary social responsibility and relate to business’s con- tributions to stakeholders.

volunteerism When employees spend company-supported time in support of social causes.

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Chicago-based Exelon Energy, for example, instituted their Energy for the Community volunteer engagement program that offers incentives to encourage employees to volunteer. One of the incentives is the Dollars for Doers program in which an employee can volunteer either 10, 20, or 40 hours per year at an organization of his or her choice, and Exelon awards a corresponding grant to the organization. Employees who vol- unteer more than 50 hours per year are nominated for the Energy for the Community Employee Volunteer Award, who are recognized during National Volunteer Week. In the most recent year, nearly 4,000 employ- ees volunteered for over 105,000 hours, Exelon contributed $140,000 in grants, and employees contributed over $6.5 million dollars to the annual United Way.27

There are several considerations in deciding how to structure a vol- unteer program. Attention must be paid to employee values and beliefs; therefore, political or religious organizations should be supported on the basis of individual employee initiative and interest. Some companies will partner with nonprofit organizations as a means to give their employees more options for volunteerism. For example, WorldVision humanitarian organization partners with corporations for financial, volunteer hour, and product donations as well as opportunities for cause-related marketing. Volunteer opportunities exist in education, sanitation, economic develop- ment, etc. all over the globe.28

Another issue is what to do when some employees do not wish to volunteer. If the company is not paying for the employees’ time to vol- unteer and volunteering is not a condition of employment or an aspect of the job description, it may be difficult to convince a certain percentage of the workforce to participate. If the organization is paying for one day a month, on the other hand, to allow the employee exposure to volun- teerism, then individual compliance is usually expected.

19%

23%

20%

19%

19%

Utah Minnesota Idaho Kansas Iowa

FiGure 9.1 States with Highest Volunteerism

Source: Corporation for National and Community Service, “Volunteer Rates—States,” http://www. volunteeringinamerica.gov/rankings.cfm (accessed July 5, 2014).

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philanthropiC ContriButionS Philanthropy provides four major benefits to society. First, it improves the quality of life and helps make communities places where people want to do business, raise families, and enjoy life. Thus, improving the quality of life in a community makes it easier to attract and retain employees and customers. Second, philanthropy reduces government involvement by pro- viding assistance to stakeholders. Third, philanthropy develops employee leadership skills. Many firms, for example, use campaigns by the United Way and other community service organizations as leadership- and skill- building exercises for their employees. Philanthropy helps create an ethical culture and the values that can act as a buffer to organizational miscon- duct.29 In the United States, charitable giving has stagnated at 2 percent of gross domestic product annually.30

The most common way that businesses demonstrate philanthropy is through donations to local and national charitable organizations. Corporations gave more than $103 billion to environmental, educational, and social causes in a recent year. Individual giving, which is always the largest component of charitable contributions, was an estimated $240.6 billion, or 72 percent of the total. Figure 9.2 displays the sources of charitable giving. Figure 9.3 dis- plays the major recipients of the $335.17 billion in philanthropic donations made. Religious organizations received 31 percent of all contributions, with educational causes collecting 16 percent of the funds.31

philanthropy Acts such as donations to charitable organizations to improve the quality of life, reduce government involve- ment, develop employee leadership skills, and create an ethical culture to act as buffer to organizational misconduct.

$0.0

$50.0

$100.0

$150.0

$200.0

$250.0

$300.0

Individuals Corporations Foundations Bequests

$240.6

$27.73

$48.96

$17.88

$billions

Source: “Giving Statistics,” Charity Navigator, 2013, http://www.charitynavigator.org/index. cfm?bay=content.view&cpid=42#.U7q_BhZX9g0 (accessed July 7, 2014).

FiGure 9.2 Sources of Charitable Giving ($ in billions)

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In a general sense, philanthropy involves any acts of benevolence and goodwill, such as making gifts to charities, volunteering for community projects, and taking action to benefit others. For example, your parents may have spent time on non-work projects that directly benefited the com- munity or a special population. Perhaps you have participated in similar activities through work, school groups, or associations. Have you ever served Thanksgiving dinner at a homeless shelter? Have you ever raised money for a neighborhood school? Have you ever joined a social club that volunteered member services to local charities?

Most religious organizations, educational institutions, and arts pro- grams rely heavily on philanthropic donations from both individuals and organizations. Philanthropy is a major driver of the nonprofit sector of the economy, as these organizations rely on the time, money, and talents of both individuals and organizations to operate and fund their programs. Consider the partnership between Pampers and UNICEF. These two organizations have had a successful decade-long partnership in which Pampers donates a portion of its proceeds to UNICEF to provide tetanus shots for babies around the world. This partnership fits well with Pampers’ core product.32

StrateGiC philanthropy deFined Our concept of corporate philanthropy extends beyond financial contri- butions and explicitly links company missions, organizational competen- cies, and various stakeholders. Thus, we define strategic philanthropy as

strategic philanthropy The synergistic use of an organization’s core com- petencies and resources to address key stakeholders’ interests and to achieve both organizational and social benefits.

$billions

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Source: “Giving Statistics,” Charity Navigator, 2013, http://www.charitynavigator.org/index. cfm?bay=content.view&cpid=42#.U7q_BhZX9g0 (accessed July 7, 2014).

FiGure 9.3 Recipients of Charitable Giving ($ in billions)

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the synergistic use of an organization’s core competencies and resources to address key stakeholders’ interests and to achieve both organizational and social benefits. Strategic philanthropy goes well beyond the tradi- tional benevolent philanthropy of donating a percentage of sales to social causes by involving employees (utilizing their core skills), organizational resources and expertise (equipment, knowledge, and money), and the abil- ity to link employees, customers, suppliers, and social needs with these key assets. Strategic philanthropy involves both financial and nonfinancial contributions to stakeholders (employee time, goods and services, and company technology and equipment as well as facilities), but it also ben- efits the company.

Organizations are best suited to deal with social or stakeholder issues in areas with which they have some experience, knowledge, or expertise. From a business perspective, companies want to refine their intellectual capital, reinforce their core competencies, and develop synergies between business and philanthropic activities. The process of addressing stake- holder concerns through philanthropy should be strategic to a company’s ongoing development and improvement. For example, SAP, a global soft- ware company, has made financial and product investments in developing economies such as Mexico and Swaziland. These investments are beneficial to both parties as the technology aids economic, educational, and health advancements for the communities. However, it also allows the company to identify emerging talent and become established in these economies for their own growth.33 Some critics would argue that this is not true philan- thropy because SAP will receive business benefits. However, social respon- sibility takes place on many levels, and effective philanthropy depends on the synergy between stakeholder needs and business competencies and goals. Thus, the fact that each partner receives unique benefits does not diminish the overall good that results from a project. As global competi- tion escalates, companies are increasingly responsible to stakeholders in justifying their philanthropic endeavors. This ultimately requires greater planning and alignment of philanthropic efforts with overall strategic goals. Table 9.4 provides additional examples of philanthropic activities.

taBle 9.4 Examples of Strategic Philanthropy

• The Target Corporation donates 5 percent of its pretax income to charities.

• Patagonia donates 1 percent of profits to 1 Percent for the Planet, a global movement that donates the proceeds to environmental organizations.

• Salesforce.com donates 1 percent of its technology, 1 percent of its resources, and 1 percent of its people (employees can take off six days a year to volunteer) to nonprofits and to their communities.

• Home Depot has a strong partnership with the nonprofit Habitat for Humanity, spending significant time and resources in its mission to build homes for those in need.

• New Belgium Brewing engages in extensive philanthropy grants, product donations, and sponsorships to support the community.

• Whole Foods holds a number of community giving days in which 5 percent of the day’s net revenue goes toward nonprofits or education.

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StrateGiC philanthropy and SoCial reSponSiBility It is important to place strategic philanthropy in the context of organi- zational responsibilities at the economic, legal, ethical, and philanthropic levels. Most companies understand the need to be economically successful for the benefit of all stakeholders and to comply with the laws required within our society and others in which they do business. Additionally, through the establishment of core values and ethical cultures, most firms are recognizing the many benefits of good ethics. As we saw in Chapter 1, evidence is accumulating that there is a positive relationship between social responsibility and performance, especially with regard to customer satisfaction, investor loyalty, and employee commitment. Strategic social responsibility can reduce the cost of business transactions, establish trust among stakeholders, improve teamwork, and preserve the social capital necessary for an infrastructure for doing business. In sum, these efforts improve the context and environment for corporate operations and performance.34

When Daniel Lubetzky founded Kind Healthy Snacks, he had trans- parency and kindness in mind. Transparency is demonstrated in the fact that the company’s bars and snacks contain ingredients that are easily pro- nounced (meaning they are natural), and come in clear packaging where those ingredients can be seen. The company practices kindness by donating $10,000 per month to a different charity through a program called “Do the Kind Thing.” Each charity is crowdsourced, meaning that people can visit the company’s website to vote for the charity they think should get that month’s donation. The self-described “not-only-for-profit” company has grown in sales to $120 million, which is up from $15 million within a five-year period.35 In this way, Kind Healthy Snacks has linked philan- thropic contributions to revenue generation.

Many companies consider philanthropy only after they have met their financial, legal, and ethical obligations. As companies strive for social responsibility, their ability to meet each obligation lays the foundation for success with other responsibilities. In addition, there is synergy in corpo- rate efforts directed at the four levels of responsibility. As one of the most voluntary dimensions of social responsibility, philanthropy has not always been linked to profits or business ethics. In fact, the traditional approach to philanthropy disconnects giving from business performance and its impact on stakeholders. Before the evolution of strategic philanthropy, most corporate gift programs separated the company from the organiza- tions, causes, and individuals that its donations most benefited.36

Research has begun to highlight organizations’ formalization of phil- anthropic activities and their efforts to integrate philanthropic goals with other business strategies and implementation. U.S. companies are adopt- ing a more businesslike approach to philanthropy and experiencing a

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better image, increased employee loyalty, and improved customer ties.37 Philanthropy involves using organizational resources, and specific methods are used to measure its impact on key stakeholders. In this case, philan- thropy is an investment from which a company can gain some type of value. For instance, J.P. Morgan and other wealthy entities and individuals engage in impact investing. Impact investing is the investment of a significant amount of money toward finding solutions for a social problem, with the promise of financial return that depends upon the achievement of a stated goal. This measured activity is becoming increasingly popular because not only is it drawing in millions of dollars to be invested, but many hurdles are being overcome in environmental and social issues. Examples of some initiatives include sustainable farming in East Africa and banking options to low-income communities in Mexico. J.P. Morgan alone has spent $50 million in impact investing, and other self-proclaimed impact investors contributed $9 billion.38 Indeed, there are numerous examples of compa- nies supporting community involvement. Although these actions are noble, they are not always considered in tandem with organizational goals and strengths.

In some cases, corporate contributions may be made to nonprofit organizations in which top managers have a personal interest. When Unilever acquired Ben and Jerry’s Homemade, they agreed to support the causes and initiatives that are extremely important to founders Ben Cohen and Jerry Greenfield. Unilever agreed to maintain the Vermont employ- ment and manufacture base, pay workers a livable wage with complete benefits, buy milk from Vermont dairy farmers who do not use bovine growth hormones, contribute over $1.1 million annually to the Ben and Jerry’s Foundation, open more Partner Shops owned by nonprofit orga- nizations providing employment opportunities for disadvantaged persons, and maintain relationships with alternate suppliers.39 Finally, many com- panies will match employees’ personal gifts to educational institutions. Although gift-matching programs instill employee pride and assist educa- tion, they are rarely linked to company operations and competencies.40 In the traditional approach to corporate philanthropy, then, companies have good intentions, but there is no solid integration with organizational resources and objectives.

In the social responsibility model that we propose, philanthropy is only one focal point for a corporate vision that includes both the welfare of the firm and benefits to stakeholders. This requires support from top management as well as a strategic planning structure that incorporates stakeholder concerns and benefits. Corporate giving, volunteer efforts, and other contributions should be considered and aligned not only with cor- porate strategy but also with financial, legal, and ethical obligations. The shift from traditional benevolent philanthropy to strategic philanthropy has come about as companies struggled in the 1990s and 2000s to redefine their missions, alliances, and scope, while becoming increasingly account- able to stakeholders and society.

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Strategic Philanthropy versus Cause-Related Marketing The first attempts by organizations to coordinate organizational goals with philanthropic giving emerged with cause-related marketing in the early 1980s. Whereas strategic philanthropy links corporate resources and knowledge to address broader social, customer, employee, and sup- plier problems and needs, cause-related marketing ties an organization’s product(s) directly to a social concern. Table 9.5 compares cause-related marketing and strategic philanthropy.

Cause-related marketing donates a percentage of a product’s sales to a cause appealing to the relevant target market. The Avon Breast Cancer Crusade, for example, generates proceeds for the breast cancer cause through several fundraising efforts, including the sale of special “pink rib- bon” products by Avon independent sales representatives nationwide. Gifts are awarded by the Avon Products Foundation, Inc., a nonprofit 501(c)(3) accredited public charity, to support six vital areas of the breast cancer cause. Both the cause and Avon Crusade “pink ribbon” products appeal to Avon’s primary target market: women. Between 1992 and 2013, the Avon Breast Cancer Crusade generated more than $957 million net in total funds raised worldwide to fund access to care and in finding a cure for breast cancer.41

American Express was the first company to use cause-related marketing widely, when it began advertising in 1983 that it would give a percentage of credit-card charges to the Statue of Liberty and Ellis Island Restoration Fund.42 As is the case with Avon, American Express companies generally prefer to support causes that are of interest to their target markets. In a single year, organizations raised roughly $1.7 billion for causes through marketing efforts.43 Thus, a key feature of cause-related marketing is the promise of donations to a particular social cause based on customer sales or involvement. Whereas strategic philanthropy is tied to the entire organi- zation, cause-related marketing is linked to a specific product and market- ing program. The program may involve in-store promotions, messages on packages and labels, and other marketing communications.44

cause-related marketing Ties an organization’s product(s) directly to a social concern.

taBle 9.5 Strategic Philanthropy Contrasted with Cause-Related Marketing Strategic Philanthropy Cause-Related Marketing

Focus Organizational Product or product line

Goals Improvement of organizational competence or tying organi- zational competence to social need or charitable cause Builds brand equity

Increase of product sales

Time frame Ongoing Traditionally of limited duration

Organizational mem- bers involved

Potentially all organizational employees

Marketing department and related personnel

Cost Moderate—alignment with organizational strategies and mission

Minimal—alliance development and promotion expenditures

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Although cause-related marketing has its roots in the United States, the marketing tool is gaining widespread usage in other parts of the world. Population Services International (PSI) was founded with mar- keting for social issues as its base. After traveling to Africa in the 1990s and witnessing the devastating effects of HIV/AIDS on the population, founder Kate Roberts decided to use her marketing expertise to address the problem. She established YouthAIDS as an education and prevention program for young people using media, celebrity partnerships, and music to relay messages to the target group. Over the years, YouthAIDS became a recognizable brand. This success led to the organization’s involvement with other social issues such as malaria, sanitary water, and tuberculosis in over 50 countries.45

Cause-related marketing activities have real potential to affect buying patterns. For cause-related marketing to be successful, consumers must have awareness and affinity for the cause, the brand and cause must be associated and perceived as a good fit, and consumers should be able to transfer feelings toward the cause to their brand perceptions and purchase intentions. Studies have found that a majority of consumers said that, given equal price and product quality, they would be more likely to buy the product associated with a charitable cause. More than 80 percent of customers say they have more positive perceptions of firms that support causes about which they personally care. These surveys have also noted that most marketing directors felt that cause-related marketing would increase in importance over the coming years.46 Through cause-related marketing, companies first become aware that supporting social causes, such as environmental awareness, health and human services, education, and the arts, can support business goals and help bolster a firm’s reputa- tion, especially those with an ethically neutral image. However, firms that are perceived as unethical may be suspected of ulterior motives in develop- ing cause-related campaigns.47

One of the main weaknesses with cause-related marketing is that some consumers cannot link specific philanthropic efforts with companies.48 Consumers may have difficulty recalling exact philanthropic relationships because many cause-related marketing campaigns have tended to be of short duration and have not always had a direct correlation to the spon- soring firm’s core business. Because strategic philanthropy is more per- vasive and relates to company attributes and skills, such alliances should have greater stakeholder recognition and appreciation

SoCial entrepreneurShip and SoCial reSponSiBility While social philanthropy and cause-related marketing are important ways for businesses to demonstrate social responsibility, some entrepreneurs are taking this a step further by structuring their entire business model around creating positive social change. Traditionally, organizations that structured

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themselves around the creation of social value chose to become nonprofit organizations. Nonprofits are organizations that are formed to meet some public purpose rather than making profits. Unlike for-profit companies, non-profits must reinvest any additional earnings into their operations.49 While some non-profits sell their goods or perform services to raise funds, many depend upon stakeholder donations to support their causes.

However, a new type of organizational structure is emerging that spans across or within nonprofit, business, and government industries. The social enterprise is an organization that uses entrepreneurial principles to create positive social change. Because it is an emerging field, research- ers have not yet come up with a consensus on how to define it. For our purposes, we define social entrepreneurship as what occurs when an entrepreneur founds a business with the purpose of creating social value. This means that unlike a traditional for-profit business, the main goal of a social entrepreneur is not to earn profits but to provide a solution to a social problem.50

As mentioned earlier, because the overarching purpose of social entre- preneurship is creating social value, social enterprises can be organized as a nonprofit, business, or government form of an organization—as well as a combination of any of these. Many social enterprises are set up with a nonprofit organizational structure. However, social enterprises differ from more traditional nonprofits as they pursue business-led strategies to achieve social objectives.51 While a social enterprise might be a nonprofit, it operates more like an entrepreneurial business venture in its strategy, structure, norms, values, and its approach to finding innovative solutions to social problems.52 Like a business entrepreneur, social entrepreneurs seek to be change agents by seizing upon opportunities and finding solu- tions that others missed to solve challenges in society.53 We go into further detail about nonprofit and for-profit types of social enterprises in the fol- lowing sections.

History of Social Entrepreneurship Social entrepreneurship as a concept is relatively new, but its precursors go back hundreds of years. Using entrepreneurial practices as a means to support a social mission is not new. For instance, monasteries sold surplus wine and cheese and used the money to further their mission.54 Early social entrepreneurs included historical figures such as Florence Nightingale, John Muir, Susan B. Anthony, and Maria Montessori.55 The concept itself was first widely used in the 1960s and 1970s. In 1980, entrepreneur Bill Drayton made major inroads in popularizing the concept when he founded Ashoka as an enterprise to encourage and support social entrepreneurs throughout the world.56

Probably the most famous social entrepreneurship success story is Muhammad Yunus’ establishment of micro-lending organization Grameen Bank in Bangladesh. Micro-lending occurs when investors provide small loans to local entrepreneurs to start their own businesses, cutting out the

social entrepreneurship When an entrepreneur founds a business with the purpose of creating social value.

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middlemen and avoiding predatory lending rates that are often common in developing countries. The inspiration for Grameen Bank occurred in 1974 during a famine when Yunus lent $27 to a woman and her neighbors to help them earn a living. After he was paid back in full, Yunus realized the difference these small amounts of money could have in the lives of poor people. The Grameen Bank Project was founded in 1976, and in 1983 a government ordinance allowed Yunus to turn his micro-lending project into an independent bank.57

Grameen Bank adopted an innovative approach to lending. It would have borrowers take out loans in groups of five, and each borrower would guarantee the other’s debts.58 Interest rates are around 16 percent, which is lower than bank rates in many other countries. Grameen’s model places pressure upon the borrowers to repay their loans or risk being shamed in front of their community members. Grameen Bank has had a high repay- ment rate, with 95 percent of borrowers paying back their loans.59

Grameen Bank has successfully changed the business environment in Bangladesh. Not only did it develop an innovative model to help villagers get out of poverty, but because 97 percent of loans are made to women, Grameen’s micro-lending model promoted respect for women entrepre- neurs.60 Grameen also established training programs to replicate its micro- lending model in other countries.

Approximately 95 percent of the bank is owned by the borrowers themselves, giving them the incentive to see the bank succeed.61 In 2006, Yunus and Grameen Bank won the Nobel Peace Prize.62 The bank’s emphasis on joint accountability and ownership has led to a successful lending model to address a major economic problem. Grameen Bank has also been sustainable; with the exception of a couple of years, the bank has earned a profit.63 Today, similar micro-finance organizations include Kiva. org, BRAC, Accion, and FINCA International.

Types of Social Entrepreneurship Many social enterprises tend to organize themselves as nonprofits. The Delancey Street Foundation is a nonprofit based in San Francisco. Founded by Mimi Silbert in 1971, the purpose of the Delancey Foundation is to assist homeless people, drug addicts, felons, and others into changing their lies. The Delancey Street Foundation acts as a residential education center that trains people in skills and expertise so they can become pro- ductive members of society. Approximately 65 percent of the Delancey Street’s operating costs are paid for by operating over 20 small businesses, including the Delancey Street Restaurant, which are staffed by the people using Delancey’s services. Thus far, Delancey Street has helped more than 14,000 people change their lives.64

Other social entrepreneurs decide to organize as a for-profit organiza- tion or as hybrid between the two. Blake Mycoskie’s TOMS Shoes, for instance, was created with the mission to provide a pair of shoes to chil- dren in need throughout the world. However, the model was incorporated

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into a for-profit business that builds the cost of the free pair of shoes into shoe sales. For each pair of shoes bought, TOMS donates a pair to a child in need somewhere in the world. Its nonprofit subsidiary Friends of TOMS handles the shoe donations. The model has been successful enough that TOMS has expanded into eyewear: for each pair of sunglasses sold, somebody in the world receives surgery or eyeglasses to help him or her see clearly.

It is clear that social entrepreneurship does not encompass any particu- lar type of business structure. Rather, it is distinguished from traditional organizations—both for-profit and non-profit—by its emphasis on innova- tive solutions and entrepreneurial principles to solve social problems.

Social Entrepreneurship and Strategic Philanthropy There are many distinct similarities among social entrepreneurship, cause-related marketing, and strategic philanthropy. All of these con- cepts emphasize social responsibility and a desire to support positive change. The delineation occurs more in how they achieve their goals. Businesses with cause-related marketing initiatives have not incorporated philanthropy into their business models. Rather, they use programs to strongly support initiatives to benefit society, such as Yoplait’s support of the Susan G. Komen Foundation or Avon’s support for breast cancer research. Strategic philanthropy uses organizational core competencies to achieve both organizational and social benefits. Strategic philanthropy in business occurs when organizations incorporate these causes into their overall strategies. As part of its strategy to support environmental aware- ness, Patagonia donates 1 percent of its profits to a global movement of companies called 1 Percent for the Planet, which in turn donates to envi- ronmental organizations.

Like social entrepreneurship, strategic philanthropy implements strate- gies to support solutions for societal challenges. Companies incorporating strategic philanthropy, however, usually outsource the execution of their program and its goals to other organizations, often nonprofits. Home Depot, for instance, strongly supports Habitat for Humanity but its operations are not centered around building houses for people in need. In contrast, the social entrepreneur executes the organization’s program for change directly.65 The business objectives of these organizations are to create social value; Grameen, therefore, is in the business of micro- lending, while TOMS directly executes its program through its nonprofit subsidiary. Cause-related marketing, strategic philanthropy, and social entrepreneurship are all innovative and socially responsible ways to meet the organization’s obligations to society.

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Earth in the Balance

Global Social Entrepreneurs

Sources: Anonymous, “Two Awards for the Institute of OneWorld Health,” Appropriate Technology, June 2005, p. 26; Christian Seelos and Johanna Mair, “Social Entrepreneurship,” Business Horizons 48, no. 3 (May–June 2005): 241–246; “Global Initiatives,” VIVALEAP, http://www.vivaleap.com/global.html (accessed July 14, 2014); Skoll Foundation, http://www.skollfoundation.org/skoll-entrepreneurs/ (accessed July 14, 2014); John L. Thompson, “The World of the Social Entrepreneur,” The International Journal of Public Sector Management 15 (2002): 412–432; Sekem website, http://www.sekem.com/index.html (accessed July 14, 2014); PATH website, http://sites. path.org/drugdevelopment/ (accessed July ); “Innovative Models Promoting Adaptation and Climate Technologies (IMPACT) Business Award: Call for Submissions,” FANRPAN, http://www.fanrpan.org/documents/d01233/ (accessed July 14, 2014).

Many companies worldwide have become increasingly

concerned with the society and communities in which

they operate. This new breed of business is concerned

about bettering the lives of the surrounding community

while providing a profitable good or service at the same

time. This new type of business is called social entre-

preneurship. Leaders in organizations from the United

States to Egypt are becoming social entrepreneurs.

Social entrepreneurs typically follow a four-stage

process. In the first stage of envisioning, a clear need,

gap, and opportunity are identified. The second stage

is engaging in the opportunity and doing something

about it. Enabling something to happen is the third

stage. The final stage is enacting and leading the proj-

ect to completion.

The Institute of PATH, based in San Francisco, has

been a leader in social entrepreneurship. PATH’s focus is

on creating medicines to cure diseases that affect Third

World countries. The nonprofit organization is currently

working with partners in biotechnology, pharmaceutical,

and academic industries to increase the availability of

artemisinin-based combination therapy through improv-

ing the manufacturing process of the drug. Artemisinin-

based combination therapy is effective against malaria,

but the supply of this drug, which comes from a plant,

varies. By improving the manufacturing process, PATH

and its partners hope to help the 200 million people

each year that become victims of malaria.

The nonprofit status offers many advantages to

PATH. Most of its funding comes from the govern-

ment or philanthropic organizations. Biotech compa-

nies have gained a channel for intellectual property

that might normally have gone unused because of lack

of profit potential. Many members of the scientific

community are donating time and effort to help fight

disease in Third World countries.

Social entrepreneurs are present all over the world.

Take, for example, Sekem, located just north of Cairo,

Egypt. Sekem was founded in 1977 by Dr. Ibrahim

Abouleish. Since 1977, the organization has grown

from one person to several business firms. Sekem pro-

duces several organic products on its farms. Some of its

long-term goals include the following:

• We endeavor to build our economic, social, and cultural activities so that they invigorate each other.

• We nurture the development of all coworkers by facilitat- ing the possibility to learn through their work, to commit themselves to their task and to practice agriculture.

• We intend to restore the earth through implementing and developing biodynamic agriculture.

• We provide Primary Health Care and therapy using holistic medicine.

• We strive through our research to meet the questions of all aspects of life for the present age.

Sekem developed an alternative method for using

pesticides to protect cotton crops. This new system led

to a ban on crop dusting in Egypt. In 2011, Sekem won

the IMPACT Business Award in recognition of their

innovative contributions to preventing climate change.

In 2013, Dr. Abouleish won the “Award for Excellence

in Positive Change” by the Global Thinker Forum.

Sekem has also opened a school for holistic educa-

tion. The profits earned by Sekem help fund medical

centers and education for both children and adults.

They are committed to helping the community break

away from the poverty that has taken control of their

lives. Sekem is continually expanding operations to

help the community achieve a higher quality of life.

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BeneFitS oF StrateGiC philanthropy To pursue strategic philanthropy successfully, organizations must weigh both the costs and benefits associated with planning and implementing it as a corporate priority. Companies that assume a strategic approach to philanthropy are using an investment model with respect to their chari- table acts and donations. In other words, these firms are not just writing checks; they are investing in solutions to stakeholder problems and cor- porate needs. Such an investment requires the commitment of company time, money, and human talent to succeed. Companies often need to hire staff to manage projects, communicate goals and opportunities throughout the firm, develop long-term priorities and programs, handle requests for funds, and represent the firm on other aspects of philanthropy. In addi- tion, philanthropy consumes the time and energy of all types of employees within the organization. Thus, strategic philanthropy involves real corpo- rate costs that must be justified and managed.

Most scholars and practitioners agree that the benefits of strategic philanthropy ultimately outweigh its costs. The positive return on stra- tegic philanthropy is closely aligned with benefits obtained from strong social responsibility. First, in the United States, businesses can declare up to 10 percent of pretax profits as tax-deductible contributions. Most firms do not take full advantage of this benefit, as 10 percent is viewed as a very generous contribution level. In fact, corporate giving has dipped to 0.8 percent of pretax profits in the last year.66 Second, companies with a strategic approach to philanthropy experience rewards in the workplace. Employees involved in volunteer projects and related ventures not only have the opportunity to refine their professional skills but also develop a stronger sense of loyalty and commitment to their employer. A national survey of employees demonstrated that corporate philan- thropy is an important driver in employee relations. Those who perceive their employer as strong in philanthropy were four times as likely to be very loyal as those who believed their employer was less philanthropic. Employees in firms with favorable ratings on philanthropy are also more likely to recommend the company and its products to others and have intentions to stay with the employer. Positive impressions of the executives’ role in corporate philanthropy also influenced employees’ affirmative attitudes toward their employer.67 Results such as these lead to improved productivity, enhanced employee recruitment practices, and reduced employee turnover, each contributing to the overall effectiveness and efficiency of the company.

As a third benefit, companies should experience enhanced customer loyalty as a result of their strategic philanthropy. By choosing projects and causes with links to its core business, a firm can create synergies with its core competencies and customers. Consider the Pampers partnership with UNICEF described earlier. Pampers has developed a partnership to donate a portion of proceeds to help improve the health of babies throughout the world. This resonates well with the target market for Pampers: parents of

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infants and newborns. Another example is Home Depot’s partnership with Habitat for Humanity.

Finally, strategic philanthropy should improve a company’s overall reputation in the community and ease government and community rela- tions. Research indicates a strong negative relationship between illegal activity and reputation, whereas firms that contribute to charitable causes enjoy enhanced reputations. Moreover, companies that contribute to social causes, especially to problems that arise as a result of their actions, may be able to improve their reputations after committing a crime.68 If a business is engaged in a strategic approach to contributions, volunteerism, and related activities, a clear purpose is to enhance and benefit the commu- nity. By properly implementing and communicating these achievements, the company will “do well by doing good.” Essentially, community mem- bers and others use cues from a strategic philanthropy initiative, along with other social responsibility programs, to form a lasting impression—or reputation—of the firm. These benefits, together with others discussed in this section, are consistent with research conducted on European firms. Table 9.6 highlights the perceived benefits of corporate philanthropy. The table suggests that companies believe that their charitable activities generally have a positive effect on goodwill, public relations, community relations, employee motivation, and customer loyalty.69

implementation oF StrateGiC philanthropy Attaining the benefits of strategic philanthropy depends on the integration of corporate competencies, business stakeholders, and social responsibil- ity objectives to be fully effective. However, fruitfully implementing a strategic philanthropy approach is not simple and requires organizational resources and strategic attention. In this section, we examine some of the key factors associated with implementing strategic philanthropy.

Although some organizations and leaders see beyond economic con- cerns, other firms are far less progressive and collaborative in nature. To the extent that corporate leaders and others advocate for strategic

taBle 9.6 Benefits of Socially Responsible Strategic Corporate Philanthropy • Consumer trust

• Stakeholder loyalty

• Employee engagement

• Reputation

• Enhance brand image

• Increase share value

• Positive publicity

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philanthropy, planning and evaluation practices must be developed just as with any other business process. Almost all effective actions taken by a company are well-thought-out business plans. However, although most large organizations have solid plans for philanthropy and other community involvement, these activities typically do not receive the same attention that other business forays garner. A study by the American Productivity and Quality Center found that many organizations are not yet taking a systematic or comprehensive approach in evaluating the impact of philanthropy on the business and other stakeholders.70

Top Management Support The implementation of strategic philanthropy is impossible without the endorsement and support of the chief executive officer and other members of top management. Although most executives care about their communi- ties and social issues, there may be debate or confusion over how their firms should meet stakeholder concerns and social responsibility. Under CEO Jean-Laurent Bonnafé, BNP Paribas has partnered with the Chair of Philanthropy at ESSEC Business School in order to collaborate and contribute to the development of philanthropy itself. This is in addition to the Individual Philanthropy Offering program established by the seventh largest bank and the social activities of the BNP Paribas Foundation.71

Top managers often have unique concerns with respect to strategic philanthropy. For example, chief executive officers may worry about hav- ing to defend the company’s commitment to charity. Some investors may see these contributions as damaging to their portfolios. A related concern involves the resources required to manage a philanthropy effort. Top man- agers must be well versed in the performance benefits of social responsi- bility that we discussed in Chapter 1. Additionally, some executives may believe that less philanthropic-minded competitors have a profit advan- tage. If these competitors have any advantage at all, it is probably just a short-term situation. The tax benefits and other gains that philanthropy provides should prevail over the long run.72 In today’s environment, there are many positive incentives and reasons that strategic philanthropy and social responsibility make good business sense.

Planning and Evaluating Strategic Philanthropy As with any initiative, strategic philanthropy must prove its relevance and importance. For philanthropy and other stakeholder collaborations to be fully diffused and accepted within the business community, a performance benefit must be evident. In addition, philanthropy should be treated as a corporate program that deserves the same professionalism and resources as other strategic initiatives. Thus, the process for planning and evaluating strategic philanthropy is integral to its success.

To make the best decisions when dealing with stakeholder concerns and issues, there should be a defensible, workable strategy to ensure that

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every donation is wisely spent. Author Curt Weeden, President of Business & Nonprofit Strategies, Inc., has developed a multistep process for ensur- ing effective planning and implementation of strategic philanthropy.

1. Research If a company has too little or inaccurate information, it will suffer when making philanthropic decisions. Research should cover the internal organization and programs, organizations, sponsorship options, and events that might intersect with the interests and competencies of the corporation.

2. Organize and Design The information collected by research should be classified into relevant categories. For example, funding opportunities can be categorized according to the level of need and alignment with organizational competencies. The process of organizing and designing is probably the most crucial step in which management should be thor- oughly involved.

3. Engage This step consists of engaging management early on so as to ease the approval process in the future. Top managers need to be co-owners of the corporate philanthropy plan. They will have interest in seeing the plan receive authorization, and they will enrich the program by sharing their ideas and thoughts.

4. Spend Deciding what resources and dollars should be spent where is a very important task. A skilled manager who has spent some time with the philanthropy program should preferably handle this. If the previous steps were handled appropriately, this step should go rather smoothly.73

Evaluating corporate philanthropy should begin with a clear under- standing of how these efforts are linked to the company’s vision, mission, and resources. As our definition suggests, philanthropy can only be strate- gic if it is fully aligned with the values, core competencies, and long-term plans of an organization. Thus, the development of philanthropic pro- grams should be part of the strategic planning process.

Assuming that key stakeholders have been identified, organizations need to conduct research to understand stakeholder expectations and their will- ingness to collaborate for mutual benefit. Although many companies have invested time and resources to understand the needs of employees, custom- ers, and investors, fewer have examined other stakeholders or the potential for aligning stakeholders and company resources for philanthropic reasons. Philanthropic efforts should be evaluated for their effects on and benefits to various constituents.74 Although philanthropists have always been con- cerned with results, the aftermath of September 11 brought not only wide- spread contributions but also a heightened sensitivity to accountability. For example, the American Red Cross suffered intense scrutiny after its leaders initially decided to set aside a portion of donations received in response to the terrorist strikes. The rationale for setting aside $200 million was that a long-term program on terrorism response needed to be developed and funded. Many donors rejected this plan, and the Red Cross reversed its decision. A survey in late 2002 indicated that 42 percent of Americans have less confidence in charities than they did before the September 11

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attacks. Major philanthropists are also stepping up their expectations for accountability, widespread impact, strategic thinking, global implications, and results. A recent report by The Panel on the Nonprofit Sector discusses four major areas that all non-profit organizations need to address in order to demonstrate solid governance and ethical practices. Table 9.7 lists these areas, along with specific recommendations on how charitable organiza- tions can go about preserving the soundness and integrity of the nonprofit

taBle 9.7 Principles for Sound Practice for Charities and Foundations 1. Legal Compliance and Public Disclosure

2. Effective Governance

3. Strong Financial Oversight

4. Responsible Fundraising

Source: Panel on the Nonprofit Sector, “Principles for Good Governance and Ethical Practice: A Guide for Charities and Foundations,” http://www.nonprofitpanel.org/Report/principles/Principles_ Executive_Summary.pdf (accessed July 7, 2014).

table 9.8 A Donor Bill of Rights Philanthropy is based on voluntary action for the common good. It is a tradition of giving and sharing that is primary to the quality of life. To assure that philanthropy merits the respect and trust of the general public and that donors and prospective donors can have full confidence in the not-for-profit organizations and causes they are asked to support, we declare that all donors have these rights:

1. To be informed of the organization’s mission, of the way the organization intends to use donated resources, and of its capacity to use donations effectively for their intended pur- poses

2. To be informed of the identity of those serving on the organization’s governing board and to expect the board to exercise prudent judgment in its stewardship responsibilities

3. To have access to the organization’s most recent financial statements

4. To be assured their gifts will be used for the purposes for which they were given

5. To receive appropriate acknowledgment and recognition

6. To be assured that information about their donations is handled with respect and with confidentiality to the extent provided by law

7. To expect that all relationships with individuals representing organizations of interest to the donor will be professional in nature

8. To be informed whether those seeking donations are volunteers, employees of the organization, or hired solicitors

9. To have the opportunity for their names to be deleted from mailing lists that an organization may intend to share

10. To feel free to ask questions when making a donation and to receive prompt, truthful, and forthright answers

Source: Association of Fundraising Professionals, “A Donor Bill of Rights,” http://www.aps.org/about/ support/upload/bill-rights.pdf (accessed July 7, 2014). The Donor Bill of Rights was created by the Association of Fundraising Professionals (AFP), the Association for Healthcare Philanthropy (AHP), the Council for Advancement and Support of Education (CASE), and the Giving Institute: Leading Consultants to Non-Profits. It has been endorsed by numerous organizations.

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community.75 Table 9.8 lists ten guidelines that potential donors should use in evaluating and choosing organizations with which to partner or provide funding. Both types of input are important to individuals and companies in the process of deciding where to donate time and money.

Methods to evaluate strategic philanthropy should include an assess- ment of how these initiatives are communicated to stakeholders. It is rec- ommended that organizations develop an overall evaluation framework to be used to measure the initiative’s success. This evaluation framework pro- vides guidelines for how the organization will view the evaluation as well as descriptions of the evaluation type, standards to demonstrate successful implementation, and methods for communicating results.76 Such report- ing mechanisms not only improve stakeholder knowledge but also lead to improvements and refinements. Although critics may deride organizations for communicating their philanthropic efforts, the strategic philanthropy model is dependent on feedback and learning to create greater value for the organization and its stakeholders, as we shall see in the next chapter.

Summary More firms are investigating ways to link their philanthropic efforts with consumer interests. From a strategic perspective, a firm’s ability to link consumer interests to philanthropy should lead to stronger economic rela- tionships. Community relations are the organizational functions dedicated to building and maintaining relationships and trust with the community. To determine the key areas that require support and to refine the mission statement, a company should periodically conduct a community needs assessment.

Companies play a major role in community economic development by bringing jobs to the community, interacting with other businesses, and making contributions to local health, education, and recreation projects that benefit residents and employees. When a company leaves an area, financial repercussions may be devastating. Because they have such a pro- found impact on the economic viability of their communities, firms that value social responsibility consider both the short- and long-term effects of changes in their workforce on the community.

For many firms, a series of legal and regulatory matters must be resolved before launching a business. On a basic level, society has the abil- ity to dictate what types of organizations are allowed to operate. As more companies view themselves as responsible to the community, they consider their role and the impact of their decisions on communities from an ethical perspective.

The success of a business can be enhanced by the publicity generated from and through stakeholder acceptance of community activities. One way that organizations are exercising their philanthropic responsibilities is through volunteerism, the donation of employee time by companies in support of social causes. In structuring volunteer programs, attention must be paid to employee values and beliefs.

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Many companies are finding creative ways to satisfy their responsibili- ties to consumers and the community. These relationships must be man- aged, nurtured, and continuously assessed. Resources devoted to this effort may include programs for educating and listening to consumers, surveys to discover strengths and weaknesses in stakeholder relationships, hiring consumer affairs professionals, the development of a community relations office, and other initiatives.

Generally, philanthropy involves any acts of benevolence and good- will. Strategic philanthropy is defined as the synergistic use of organi- zational core competencies and resources to address key stakeholders’ interests and to achieve organizational and social benefits. Strategic phi- lanthropy involves both financial and nonfinancial contributions to stake- holders, but it also benefits the company. As such, strategic philanthropy is part of a broader philosophy that recognizes how social responsibility can help an organization improve its overall performance. Research suggests that companies that adopt a more businesslike approach to philanthropy will experience a better image, increased employee loyalty, and improved customer ties.

Corporate giving, volunteer efforts, and other philanthropic activities should be considered and aligned with corporate strategy and financial, legal, and ethical obligations. The concept of strategic philanthropy has evolved since the middle of the twentieth century, when contributions were prohibited by law, to emerge as a management practice to support social responsibility in the 1990s. Whereas strategic philanthropy links corporate resources and knowledge to address broader social, customer, employee, and supplier problems and needs, cause-related marketing ties an organi- zation’s product(s) directly to a social concern. By linking products with charities and social causes, organizations acknowledge the opportunity to align philanthropy to economic goals and to recognize stakeholder inter- ests in organizational benevolence.

Social entrepreneurship occurs when an entrepreneur founds a busi- ness with the purpose of creating social value. There are many distinct similarities among social entrepreneurship, cause-related marketing, and strategic philanthropy. All of these concepts emphasize social responsibil- ity and a desire to support positive change. The delineation occurs more in how they achieve their goals. Like social entrepreneurship, strategic philanthropy implements strategies to support solutions for societal chal- lenges. Companies incorporating strategic philanthropy, however, usually outsource the execution of their program and its goals to other organiza- tions, often nonprofits. The social entrepreneur executes the organization’s program for change directly. The business objectives of these organizations are to create social value.

Many organizations have skillfully used their resources and core com- petencies to address the needs of employees, customers, business partners, the community and society, and the natural environment. To pursue strategic philanthropy successfully, organizations must weigh the costs and benefits associated with planning and implementing it as a corporate

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priority. The benefits of strategic philanthropy are closely aligned with benefits obtained from social responsibility. Businesses that engage in strategic philanthropy often gain a tax advantage. Research suggests that they may also enjoy improved productivity, stronger employee commit- ment and morale, reduced turnover, and greater customer loyalty and satisfaction. In the future, many companies will devote more resources to understand how strategic philanthropy can be developed and integrated to support their core competencies.

The implementation of strategic philanthropy is impossible without the support of top management. To integrate strategic philanthropy into the organization successfully, the efforts must fit with the company’s mission, values, and resources. Organizations must also understand stakeholder expectations and the propensity to support such activities for mutual benefit. This process relies on the feedback of stakeholders in improving and learning how to better integrate the strategic philanthropy objectives with other organizational goals. Finally, companies will need to evaluate philanthropic efforts and assess how these results should be com- municated to stakeholders.

Responsible Business Debate

The Influence of Business on Society Issue: Does business owe anything to society?

For decades, there have been two clear and opposing

responses when answering the question, “What is the

role of business in society?” One camp argues that

the business of business is business, and therefore,

there ought to be little consideration beyond profit

and shareholder return. Milton Friedman was a sup-

porter of this belief. He believed businesses only owed

responsibility to shareholders and worried that any

concern for the general public would lead to a totali-

tarian state.

There is also the fear that big businesses could have

too much power over our daily lives. Critics believe that

if society relinquishes its decision-making authority and

power to businesspeople, then negative consequences

are likely to result. Businesses might try to make deci-

sions that some people believe should be a personal

choice. The marketing of unhealthy food to children

is a good example. While many societal members are

calling for companies to increase their healthy food

offerings or decrease their marketing of unhealthy

food, critics believe this decision belongs to the parents

and it is their job to oversee what their children eat.

For this reason, they claim that business is about mak-

ing a profit and business ideas probably won’t work for

confronting societal issues.

The other group focuses on the prospects for social

responsibility and for business to play a critical and pos-

itive role in society. Because business has such a major

impact, it should be responsible for reducing the nega-

tive impact of its decisions. Pollution is one example. It

is not uncommon for business operations to result in

the emission of greenhouse gases or unusable chemical

runoff. A common belief is that this pollution should

belong to the business, and it should carry the costs of

disposing of it. Others also point out that business is in

a unique position to make a significant positive differ-

ence. While government regulation takes a long time

to pass, businesses can make the conscious decision to

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give back to their communities, take action to reduce

their harmful impact on stakeholders, and promote

objectives that would benefit society. Businesses have

the financial resources and human talent that can be

effectively applied to community needs and problems.

Supporters of this mentality argue that in so doing,

businesses build a positive relationship with customers,

investors, and other stakeholders, leading to more busi-

ness and increased profits for the firm.

Beyond the theoretical question, however, emerges

the reality of the funds, time, and ideas that business

contributes to a host of charitable, social, and quasi-

governmental platforms. Implied in these activities is

that business has a role to play beyond its own indus-

try, products, and employees. Clearly, if society expects

business to make these contributions, then there ought

to be consideration to the level and type of influence

that business will have on society over the long-term.

There Are Two Sides to Every Issue:

1. Big business should be concerned solely with profits

and leave societal concerns out of the equation.

2. Businesses operate in society and therefore have a

social responsibility to effect positive change.

Source: Milton Friedman, “The Social Responsibility of Business Is To Increase Its Profits,” The New York Times Magazine, September 13, 1970.

community (p. 289) neighbor of choice (p. 289) community relations (p. 290)

volunteerism (p. 297) philanthropy (p. 299) strategic philanthropy (p. 300)

cause-related marketing (p. 304) social entrepreneurship (p. 306)

key termS

diSCuSSion QueStionS 1. What are some of the issues you might include in

a defense of strategic philanthropy to company stockholders?

2. Describe your personal experiences with philanthro- py. In what types of activities have you participated? Which companies that you do business with have a philanthropic focus? How did this focus influence your decision to buy from those companies?

3. How have changes in the business environment contributed to the growing trend of strategic phi- lanthropy?

4. Compare and contrast cause-related marketing with strategic philanthropy. What are the unique benefits of each approach?

5. Compare social entrepreneurship to cause-related marketing and strategic philanthropy.

6. What role does top management play in develop- ing and implementing a strategic philanthropy approach?

7. Describe the four-stage process for planning and implementing strategic philanthropy.

experiential exerCiSe Choose one major corporation and investigate how closely its philanthropic efforts are strategically aligned with its core competencies. Visit the company’s website, read its annual reports, and use other sources to justify your conclusions. Develop a chart or table to depict

how the company’s core competencies are linked to various philanthropic projects and stakeholder groups. Finally, provide an analysis of how these efforts have affected the company’s performance.

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As a new vice president of corporate philanthropy, Jack Birke was looking forward to the great initiatives and partnerships the company could create through his office. During his 18-year career, Jack worked for sev- eral large nonprofit organizations and earned an excel- lent reputation for his ability to raise funds, develop advisory boards, and in general, work well with the business community.

About a year ago, Jack decided to investigate other opportunities within the fundraising industry and started looking at companies that were formalizing their philan- thropy efforts. He was hired as vice president less than a month ago and was in the process of developing an office structure, getting to know the organization, and creating a strategic plan. His charge over the next year was to develop a stronger reputation for philanthropy and social responsibility with the company’s stakehold- ers, including employees, customers, and the communi- ty. An executive assistant, director of volunteerism, and director of community relations were already on board, and Jack was looking for additional staff.

The position and office were new to the com- pany, and Jack had already heard dissent from other

employees, who openly questioned how important phi- lanthropy was to the business. After all, the economy was slowing, and it seemed that customers were more concerned about price and value than any “touchy feely” program. About half of the company’s employ- ees worked on the manufacturing line, and the other half was employed in administrative or professional positions. Both groups seemed to be equally suspicious of Jack and his office. The company developed an employee volunteer program two years ago, but it was never very successful. A program to gather food, gifts, and money to support needy families at Christmas, however, drew strong support. The firm had fairly good relationships in the community, but these were primarily the top executives’ connections through the chamber of commerce, industry associations, non- profit boards, and so forth. In sum, while Jack had the support of top management, many employees were unsure about philanthropy and its importance to the company. Jack was starting to think about short-term policies and long-term strategy for “marketing” his office and goals to the rest of the organization. What would you do?

What Would you do? ?