Corporate foundations: last legs or new legs?

Charles Keidan and Andrew Milner

‘A brave new world’ is how Michelle Wright of philanthropy consultancy Cause4 describes corporate foundations in a 2014 Huffington Post article. David Grayson of Cranfield University’s School of Management, on the other hand, strongly believes ‘that businesses should be engaged in helping tackle social issues directly rather than through foundations’. So who’s right? Alliance sought a number of different perspectives to help us determine what corporate foundations do and how or whether they should continue to do it.

Brighton, UK, West Pier. Twilight or new dawn for corporate foundations?

Brighton, UK, West Pier. Twilight or new dawn for corporate foundations?

 

Three main questions stand out: how seriously do businesses take their corporate foundations: are they intended to mollify hostile public opinion or are they in earnest about doing good? Second, if they are serious, how well are they approaching the task? Third, will they continue to be of value in a world where broader notions of responsible business and corporate social responsibility (CSR) appear to be superseding the idea of corporate foundation giving?

What is a corporate foundation?
In different places, corporate foundations have differing degrees of importance and are governed by different rules. As a working definition, what we mean by a corporate foundation is where a business owns and establishes the foundation and is the primary funder.

Claudia Genier of SwissFoundations cites the definition given in the 2015 Swiss Foundation Code: a ‘corporate foundation is an independent legal entity, [which is] de facto very closely connected with the company. It is funded by the company that establishes it either on a one-off basis, repeatedly or annually, and representatives of the company sit on the foundation board ex officio.’

How many corporate foundations are out there?
Corporate foundations also account for very different proportions of the foundation sector in their respective countries. Statistics are not always available but, as in indication, there were 2,500 corporate foundations in the US in 2014 (out of a total foundation population of 87,000). A 2012 report found 450 in Germany. In Switzerland, says Claudia Genier, while no definitive statistics exist, a rough index is provided by the membership of SwissFoundations of which 20 per cent are corporate foundations. There are estimated to be around 13,000 foundations in Switzerland in total. There are 360 corporate foundations in France (though this figure excludes 150 foundations created by corporates but under another status: 116 sheltered foundations and 34 foundations of public utility), says Anne Fleury of Centre Français des Fonds et Fondations (CFF), out of a total of 4,759 foundations and endowment funds[1].

‘It’s a trend in Latin America…. 65 per cent of Colombian grantmaking foundations are corporate foundations.’ Carolina Suarez

Contrast this with Colombia where ‘corporate foundations are the most prominent sector’, according to Carolina Suarez of AFE, the Colombian Association of corporate and family foundations. She adds: ‘it’s a trend in Latin America…. 65 per cent of Colombian grantmaking foundations are corporate foundations.’ Not only that, they play the most significant part in the philanthropic sector in their countries. As Suarez explains, they ‘do more than giving; they plan, organize and implement their projects with their own funds and they have the capacity to fundraise working in partnership with other allies such as the government…other social organizations and international donors’.

What do corporate foundations do and where do they do it?
The relationship with the parent company often means that corporate foundations’ activities are shaped by the company’s operation and interests. In Colombia, ‘the target population of most corporate foundations is people living in territories where the businesses of the parent company operate,’ says Suarez. She also notes their concern with the aims of the parent business: ‘Corporate foundations, additionally, have their programmes focused on topping up, promoting and improving the business objectives of the corporation.’ However, this may be changing, as the peace process that Colombia is undergoing creates a wider sense of responsibility among corporate foundations, leading them to work in other areas where the state is weak and there are few development options available.

Isabel Kelly of Profit with Purpose and former international director of the Salesforce Foundation, also feels that ‘corporate foundations may only fund in places that they do/want to do commercial activity or where they have employees’. Parochialism aside, she notes a missed opportunity in this approach: ‘… likely they’re doing commercial work in the more developed countries in the world, which may not be where their philanthropy is best applied.’

Even where this picture is generally accurate, there are exceptions. In India, for instance, says Ahona Ghosh of Samhita Social Ventures, ‘Axis Bank Foundation in India does not restrict its development work to areas where it has branches. They are “geography agnostic” as long as the communities they serve are the most marginalized.’ In France, Fondation EDF, the corporate foundation of French energy company Électricité de France, ‘has chosen missions completely different from the corporate activity’, says Anne Fleury.

The situation is reversed in Switzerland, says Claudia Genier: ‘Corporate foundations will typically not fund areas too close to the business, where the “tax exemption status” could be questioned. Some corporate foundations fund for instance in other countries than where the business is present, to anchor the fact that they act in a philanthropic, disinterested way.’

‘Corporate foundations may only fund in places that they do/want to do commercial activity or where they have employees.’ Isabel Kelly

Safety first?
Are there thematic areas into which corporate foundations won’t venture? ‘Not necessarily,’ says Amanda Jordan of Corporate Citizenship in the UK and chair of the UK’s Association of Charitable Foundations. However, most of our informants felt that in practice, corporate foundations act with caution. ‘Corporate foundations can be risk-averse,’ says Isabel Kelly, ‘and stick to funding “safe” activities such as education and employment and apprentice programmes – which are uncontroversial and can provide quick reportable “wins”.’

‘By and large the giving is skewed to “safer” causes like education, healthcare, agriculture among others.’ Ahona Ghosh

‘Safe’ is also a word used by Ahona Ghosh. Among corporate foundations in India, as with corporates in general, she says, ‘by and large the giving is skewed to “safer” causes like education, healthcare, agriculture among others’ rather than attempting to address fundamental injustices. She notes that a recent CSR report[2] found ‘only 5 per cent of CSR funding [which incorporates funding by corporate foundations] directed towards human rights issues’.

‘Corporate foundations can be risk-averse,’ says Isabel Kelly, ‘and stick to funding “safe” activities such as education and employment and apprentice programmes – which are uncontroversial and can provide quick reportable wins.’

At 58 per cent (and increasing) of their spending, education is by far the largest area of interest for French corporate foundations, too. Carolina Suarez also notes that, for Colombian corporate foundations, ‘education and capacity building are the most important areas of work. Human rights, justice, democracy and civil liberties continue to be seen as marginal issues.’

‘In France, Fondation EDF, the corporate foundation of French energy company Électricité de France, has chosen missions completely different from the corporate activity.’ Anne Fleury

Why set up a corporate foundation?
These limitations notwithstanding, there can be a number of advantages of establishing a corporate foundation. A report by the Center for Philanthropy Studies at Basel University in Switzerland asserts that: ‘Creating a foundation is a powerful gesture to show that the engagement is intended to be long-term. It ensures continuity of giving and can channel the company’s donations toward specific causes and, hence, allow a more strategic use.’

Claudia Genier points out that ‘corporate foundations can rely on the business presence, the staff and the company’s know-how, and thus implement projects quicker and easier than other foundations which first need to build up these relationships.’ Claudia Genier 

In the Huffington Post article cited earlier, Michelle Wright argues that a corporate foundation is a way of bundling up all of a company’s philanthropic activity ‘from sponsorship to corporate responsibility, to one-off gifts, payroll giving and workplace volunteering schemes’. She argues that ‘in every respect, it’s a cleverer way of giving money that is sustainable and has ongoing benefits.’ The arm’s-length relationship with the company means that it can do things that the business itself could not. In an article in the UK’s Guardian newspaper, the Shell Foundation’s former director Kurt Hoffman noted: ‘[The foundation] has been absolutely critical in allowing us to engage robustly with the outside world and has enabled us to engage as a fellow member of civil society with non-profits rather than coming in with corporate baggage.’

Corporate foundations can also tap into the expertise of the parent company. Claudia Genier points out that ‘corporate foundations can rely on the business presence, the staff and the company’s know-how, and thus implement projects quicker and easier than other foundations which first need to build up these relationships.’

According to Carmen Perez of Committee Encouraging Corporate Philanthropy (CECP) in the US, ‘…a corporate foundation offers control for family-owned companies; it also offers tax advantages. A corporate foundation is a highly visible way to segment giving activities and demonstrate that it is important to a company, while keeping them at arms-length.’

‘…a corporate foundation offers control for family-owned companies; it also offers tax advantages. A corporate foundation is a highly visible way to segment giving activities and demonstrate that it is important to a company, while keeping them at arms-length.’ Carmen Perez

The requirement on UK corporate foundations to ‘maintain independence and a deep commitment to their aims and objectives’, notes Alisha Miranda of IG Advisors, gives them an advantage over other forms of CSR, where there is no such requirement.

What corporate foundations can’t do
And yet only about a third of corporate giving goes through their foundations. The bulk is done outside the corporate foundation model. So why doesn’t every company want one?

‘Corporate foundations have less room for companies to leverage their brand and align their strategic business priorities through the different causes they support.’ Carmen Perez

For one thing, there is a common view that corporate foundations are simply a gesture by companies to disarm criticism of their more controversial activities. Alisha Miranda points to one of the shortcomings of the model: ‘Corporate foundations, for better or worse, seem a relic of the period of benevolent rich people (usually men) sharing their corporate largesse with the downtrodden. Today companies are encouraged to be more strategic in integrating their CSR initiatives with their business objectives. There are legal limitations to this within the corporate foundation structure, leaving more room for innovation and risk outside of it.’

Carmen Perez, too, talks about the drawbacks of the arm’s-length relationship. ‘Corporate foundations have less room for companies to leverage their brand and align their strategic business priorities through the different causes they support. That means the business must not profit from the activities of the foundation.’ Another disadvantage is that ‘the process for corporate foundations to make grants is typically more rigorous and time-consuming than the procedures to approve corporate giving budgets directly from the company.’

Autonomy from the parent company
This brings us on to the question that is central to corporate foundations: their relationship with the parent company. In many cases, independence from the parent company is a legal requirement. UK Charity Commission guidance states that ‘charitable corporate foundations must be independent of the companies that set them up. This means that they must exist only to further charitable purposes for the public benefit and not the purposes of the company.’

‘Corporate foundations, for better or worse, seem a relic of the period of benevolent rich people (usually men) sharing their corporate largesse with the downtrodden. Today companies are encouraged to be more strategic in integrating their CSR initiatives with their business objectives. There are legal limitations to this within the corporate foundation structure, leaving more room for innovation and risk outside of it.’ Alisha Miranda

Even where independence is not a formal requirement, it is generally acknowledged to be desirable. The German Association of Foundations has defined ten principles to ensure a transparent relationship between a corporate foundation and the company. ‘If a corporate foundation bears the name of the parent company,’ says Isabel Kelly, ‘and delivers its philanthropy by giving the resources of the company (product, people, services etc), then it’s really important to get the structure right to avoid self-dealing (or the appearance of self-dealing) or governance issues.’

‘If a corporate foundation bears the name of the parent company… then it’s really important to get the structure right to avoid self-dealing (or the appearance of self-dealing) or governance issues.’ Isabel Kelly

On the other hand…
While formal independence might be a good thing, a complete separation can undermine the value of a corporate foundation. As Amanda Jordan notes: ‘their funding company is a very important asset so, to reach full potential, they should maintain a close relationship.’ Claudia Genier expands on this: ‘…being too far away from the company’s activities and know-how can be a disadvantage. A foundation able to build upon know-how, staff and business relations of the company is able to achieve more than a truly independent foundation.’ Isabel Kelly also notes that ‘it can be a distinct disadvantage to be autonomous if the corporate foundation is tasked with traditional fundraising and bears a well-known company name,’ since everyone will assume that the foundation is funded by the company.

‘Their funding company is a very important asset so, to reach full potential, they should maintain a close relationship… A foundation able to build upon know-how, staff and business relations of the company is able to achieve more than a truly independent foundation.’ Amanda Jordan

So, what is the ideal? For Alisha Miranda, it’s ‘a close relationship with the parent company – one that doesn’t influence activities but allows the foundation to leverage its assets to achieve its mission’.

‘A hybrid model is optimum,’ for Isabel Kelly, ‘with the people, volunteer programmes and product programmes sitting within a company, but with the grant money sitting in a separate charitable entity or in a CAF account or similar to ensure that the money is spent strategically and within charitable guidelines.’

Is it serious? Look at the board
But whatever the degree of independence, a corporate foundation usually bears the company’s name. As Ahona Ghosh notes, they remain ‘closely linked to the business interests of the parent company’. In practice, ‘closely linked’ can mean that, legal prohibitions notwithstanding, corporate foundations are a handy way of boosting the company’s image.

How can you tell when a company is serious about producing social good and when it is more interested in doing itself a favour? For Ghosh, there is a straightforward litmus test: ‘When corporate foundations are headed by the corporate communications team, then there is a stronger PR focus.’ However, she notes that ‘increasingly foundations recruit people from the development sector.’

‘A hybrid model is optimum with the people, volunteer programmes and product programmes sitting within a company, but with the grant money sitting in a separate charitable entity or in a CAF account or similar to ensure that the money is spent strategically and within charitable guidelines.’ Isabel Kelly

Isabel Kelly, too, sees some very clear indicators of how seriously a company takes its corporate foundation: ‘How is the foundation structured and funded? Does is report to the CEO? Does it have to beg for budget every year or does it have a guaranteed budget…? Do they employ the right people… who are experts in social purpose, or have they moved someone over from HR or marketing, and staffed up with people who did some nice volunteering at the donkey sanctuary?’

For Claudia Genier, ‘the composition of the foundation board and profiles of foundation staff can provide an indication. Furthermore, the same quality criteria as for other foundations should apply. Does the foundation have a strategy? How is it making decisions? How does it fund programmes and projects and are they aligned with the purpose? What about evaluation of the foundation work?’

‘When corporate foundations are headed by the corporate communications team, then there is a stronger PR focus.’ Ahona Ghosh

Alisha Miranda thinks there is no cut-and-dried distinction. ‘It comes down to one question: are they making an impact?’ She believes that ‘effective corporate foundations can do both – create good PR, but also achieve an impact. There’s no need for well-run, strategic corporate foundations to sacrifice one for the other.’

‘Effective corporate foundations can do both – create good PR, but also achieve an impact. There’s no need for well-run, strategic corporate foundations to sacrifice one for the other.’ Alisha Miranda

How can corporate foundations assess the impact on the areas they serve?

How can corporate foundations assess the impact on the areas they serve?

A corporate foundation niche?
What do corporate foundations do really well?

Marc Pfitzer and Nina Reichert of FSG see a role in the creation of shared value by ‘using philanthropic research capital to make the case for why the company… should seek economic benefits from social change’. They cite the example of The Ideas for Life Foundation, which is connected to Skandia Insurance in Sweden. To further the foundation’s goals and capitalize on its prior research, the Skandia sustainability team was given the task of developing an ‘ill-health cal­culator’ tool that demonstrated how lifestyle interventions such as improved diet and in­creased physical activity could lower the costs of illness and disease. Research like this contributes to the development of the overall journey of the parent company from risk coverage to risk prevention.’ They can also ‘use philanthropic donations to learn about unmet needs, overcome market failures and unlock potential to bring the company’s value proposition to market’.

Latin America is always likely to defy most generalizations about corporate foundations, because there, the future of corporate foundations is the future of the foundation sector. In Colombia, Carolina Suarez believes that foundations will have an important role to play in rebuilding the country following the conclusion of peace in its long-running civil strife[3]: ‘Post-conflict in Colombia is the particular framework in which corporate foundations will work.’

Growth or decline? Depends where you look
Marc Pfitzer and Nina Reichert believe that ‘as more and more companies are taking on shared value strategies as their core corporate strategies, we would imagine that we will see fewer new corporate foundations.’ But, even if no new ones are set up, that doesn’t necessarily mean that existing ones will decline in importance. They point out that, for its product or goods to succeed, a company needs not only to convince would-be consumers, but to influence a large ecosystem and ‘the larger the system that needs to be changed – for example, healthcare or agricultural practices in developing countries – the more time and resources the change will cost, and the less legitimacy a single company has to instil it’. That’s where corporate foundations come in: ‘as the “long arm” of companies, working pre-competitively with cross-sector actors on the remedy of market failures and being a trail blazer for corporate shared value at scale’.

Ahona Ghosh points out the significant role corporate foundations have played and will continue to play in Indian corporate giving: ‘The Companies Act 2013 has given the impetus to corporates to increase the quantum of giving and many corporates give through their foundations.’

‘As more and more companies are taking on shared value strategies as their core corporate strategies, we would imagine that we will see fewer new corporate foundations.’ Marc Pfitzer and Nina Reichert

German corporate foundations continue to play a strong role, with a higher payout rate than the rest of the country’s foundation sector – 43 per cent of German corporate foundations spent more than €100,000, while the figure for other foundations was 37 per cent.

‘In Switzerland,’ says Claudia Genier, ‘the foundation sector overall is growing, therefore so does the corporate foundation sector. One explanation for this is that corporate foundations are a popular way to institutionalize previous community investments and charitable giving.’ In France, too, Anne Fleury sees growth as likely. The significant role Carolina Suarez sketched out for corporate foundations in post-conflict reconstruction in Colombia means that corporate foundations are likely to grow there too.

Nor is there any sign of the corporate foundation population thinning in the US. According to CECP’s 2015 data, 76 per cent of companies had a corporate foundation, a proportion that seems to be holding fairly steady.

‘The parent company’s core business will always be the corporate foundation’s biggest lever for social change. Not using it is foregoing a massive chance for social impact.’ Marc Pfitzer and Nina Reichert

The future
The landscape of corporate giving is changing. Socially responsible corporate behaviour and all that it implies doesn’t necessarily require corporate foundations, but as some of our respondents have pointed out, nor does it necessarily preclude them. Not all corporate foundations are alike. No doubt some companies use corporate foundations as a way of deflecting criticism.

For those that are in it wholeheartedly and conscientiously, Isabel Kelly highlights ‘a need to think more creatively about how the wealth of resources they have access to can be a force for good in the world’. Marc Pfitzer and Nina Reichert argue that because ‘philanthropic funds of all kinds are dwarfed by the potential of corporate revenues to create societal value (for example, through products and services that help meet unmet needs)… the parent company’s core business will always be the corporate foundation’s biggest lever for social change. Not using it is foregoing a massive chance for social impact’.

This reminds us of David Grayson’s observation, quoted at the start of the article. There is a growing view that the real value of a company’s contribution to social good is to be sought in the work of the company itself rather than in its philanthropic arm – in its relations with its suppliers, its workforce, its consumers, with the environment and with anyone who is affected by what it does and how it does it. As Grayson explains: ‘people increasingly want to know how a company makes 100 per cent of its money rather than how it gives away one or two per cent of pre-tax profits. What really matters is the responsibility that business takes for its social, environmental and economic impacts.’ In a time when the scope of corporate social responsibility is being construed more widely and with greater sophistication, perhaps the main question is how corporate foundations can successfully position themselves in the changing landscape. It’s not a question we can answer here, but it’s very likely a question that the most thoughtful companies and their foundations are asking themselves as they review their work and their worth into the future.

Charles Keidan is editor, Alliance magazine. Email charles@alliancemagazine.org 
Andrew Milner
is associate editor, Alliance magazine. Email am@andrewmilner.free-online.co.uk

Alliance would like to thank the following for contributing to this article:
Ahona Ghosh, senior manager, knowledge and partnerships, Samhita Social Ventures, India

Alisha Miranda, managing director, IG Advisors, UK

Amanda Jordan, founder director, Corporate Citizenship

Anne Fleury, programme director, Centre Français des Fonds et Fondations, France

Carmen Perez, director of data insights, CECP, US

Carolina Suarez, CEO, Association of Corporate and Family Foundations (AFE), Colombia

Claudia Genier, deputy director, SwissFoundations, Switzerland

Isabel Kelly, founder and principal consultant, Profit with Purpose

Marc Pfitzer, managing director, leadership team, FSG – Reimagining Social Change, (Europe, India, US)

Nina Reichert, associate director, FSG – Reimagining Social Change, (Europe, India, US)


Footnotes

  1. ^ Panorama des fondations et des fonds de dotation créés par des entreprises mécènes – 2016: Peut-on concilier performance et intérêt général? (2016) EY and Les Entreprises pour la Cité
  2. ^ Transforming India: The CSR opportunity (2016) Samhita Social Ventures
  3. ^ At the time of writing, a peace agreement had just been concluded between the contending parties in this conflict. That agreement has subsequently been put in doubt.

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