BUSINESSWEEK ONLINE : DECEMBER 18, 2000 ISSUE
SOCIAL ISSUES

Corporate Charity: Why It's Slowing
This year's performance will be the worst since 1991

The holiday season is hitting high gear, with the usual hectic round of glittering charity soirees for every good cause imaginable. But to many fundraisers, Corporate America will be playing the part of Uncle Scrooge. Corporate charitable contributions are likely to remain flat this year, according to a new Conference Board survey of 209 large companies. If that holds true across the board, it would be the worst philanthropic showing since the 1991 recession.

True, business giving to charities and nonprofits has climbed by 4.2% a year in the past decade, after adjusting for inflation, hitting $11 billion last year. That's according to the AAFRC Trust for Philanthropy, a nonprofit group in Indianapolis associated with the American Association of Fundraising Counsel, which promotes professional standards in philanthropy. At the same time, though, pretax corporate profits jumped by 5.6% a year since 1989, to $836 billion. So as a percentage of pretax income, companies' charitable contributions remain stuck at nearly half the 2% peak of 1986 (chart). ''Philanthropy is in a catch-up mode with earnings,'' says Paul M. Ostergard, president of the Committee to Encourage Corporate Philanthropy.

COST-CONTROL FREAKS. After years of fat bonuses and overflowing coffers, why the Grinchlike trend? For one thing, many companies that cut back on charity in the last recession never got back in the giving habit. The merger wave of recent years has hurt as well, as has the growth of cause marketing, by which companies link up with a do-good group to improve their image. Indeed, despite the boom economy of recent years, many executives cast a sharper eye on charity today. Most companies put all expenditures under the microscope in the 1990-91 slump. But even after times turned good, fierce competition and the inability to raise prices kept management focused like a laser on cost control. ''It's always nice to say that when times are good, you should be giving more,'' says John Rintamaki, a Ford Motor Co. (F) group vice-president who oversees the company's giving. But ''you've got to manage it so that what you commit to, you can sustain.''

Corporate giving has also been set back by the economy's shift from manufacturing to services. Because manufacturers make tangible products like medicine, chemicals, and computers, it's easier for them to donate to a good cause. Cincinnati-based LensCrafters expects to give away more than 92,000 pairs of glasses this year. And Hewlett-Packard Co. (HWP) last year contributed $58 million, with about half the total in computers and other high-tech equipment. Overall, some 28% of corporate charity comes not in cash but in other forms, primarily goods, according to the Conference Board survey.

Point the finger, too, at the cost-cutting mentality after a corporate acquisition or merger. In Denver, for instance, Qwest Communications International Inc. (Q) is already curtailing its giving following its takeover last summer of regional Bell company US West Inc., whose foundation had been doling out about $25 million a year. Qwest has stopped matching employee gifts to nonprofits--worth an estimated $5 million annually--and told beneficiaries to expect more changes. With Qwest's Internet focus, it's now ''a very different company,'' explains spokesman David Goldberg. ''We have to be careful how we spend those dollars.'' Before the takeover, Qwest had no giving program at all; Goldberg says its priority now is shoring up poor service.

Indeed, among 124 corporations surveyed recently by the National Committee for Responsive Philanthropy in Washington, D.C., 46 had been involved in a big merger since 1996; of those, only one said giving would increase post-merger (the study didn't ask whether giving would decrease).

One of the biggest shifts in corporate giving involves a company's desire to treat philanthropy as an opportunity to advance their strategic interests. ''At the end of the day, we're all employees of the shareholders, and we're giving away the shareholder's money,'' says Ford's Rintamaki. So, for example, when Citibank (C) created a program to make small loans through nonprofits to borrowers who wouldn't qualify for bank loans, it helped people who otherwise would turn to loan sharks and pawnshops. But it also helped itself by drawing new people into the banking system and learning how to serve low-income customers.

GENEROUS LOGIC. Such bottom-line philanthropy has blurred the line between giving and marketing. A company might sponsor a cause that's important to its customer base, as cosmetics retailer Avon Products Inc. (AVP) does with its breast cancer crusade. Or it might link up with an organization's mission, using the group's name in its marketing in return for donating a portion of its sales, as Welch Foods Inc. and Johnson & Johnson (JNJ) have done with the World Wildlife Fund.

Such deals make good business sense. Two-thirds of consumers say that if price and quality are equal, they are likely to switch to a brand or retailer backing a good cause, according to a 1999 study done for Cone Inc., a Boston marketing firm. What's more, cause marketing builds loyalty: Nearly 90% of employees of companies promoting causes feel a strong sense of loyalty to the firm, Cone found, vs. 67% at companies that don't.

As the giving season hits its peak, charities and nonprofits are grateful for the corporate support they get. But no doubt many lament, as the economy appears to be softening, that business did not open the spigot more when the good times were really rocking.

By Christopher H. Schmitt in Washington

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