Part one of a four part series on optimizing corporate philanthropy

Nobody’s ever asked that before

One of my favorite questions to ask corporate philanthropy folks is, “How do you determine your philanthropy budget for the year?” The responses are always fascinating, and usually start with the words “it depends upon…”

Some of the things upon which it depends seem to be:

  • The previous year’s corporate financial results,
  • whatever last year’s philanthropy budget was, and frequently,
  • however much the executives decide to give me. 

Not once have I ever heard anything related to social or financial performance.  Which probably makes optimizing corporate philanthropy very difficult.

Into the black hole

I had a fascinating conversation with one such person, responsible for distributing several hundred thousand dollars annually. As we talked, a little bit of cognitive dissonance emerged: The stated goal of spending this money was to increase both social good and financial results, but from her perspective there didn’t seem to be any visible link between those two activities. She had no way to determine if or how that money was having either of the intended effects!

Sure, she got grant reports back, which provided some proof that the money wasn’t being totally wasted. But were those the right charities? Were those the right gift amounts?  Was that the right total gift pool to get optimal social and financial return?

The result, unsurprisingly, was exasperation. She felt that there wasn’t enough data, time or money available to figure out how to deploy this funding in the best possible way. The practical result of this is that her corporate philanthropy expenditures were being handled in an informal way.

This is a totally understandable result that surfaces in purchasing procedures in every business. Inexpensive, non-critical purchases don’t require any authorization or approval because the time it takes to do something formal negates any potential cost savings.

For example, let’s say a small firm donates $10,000 per year. The research and time it would take to determine whether those gifts are resulting in the best social and financial good might cost the firm an additional $10,000. So unless the financial return was at least $20,000 (more likely that plus IRR,) it’s not a good investment. So the default is to spend the $10,000 and assume it’s fine.

What optimizing means in this context

So what does “optimizing corporate philanthropy” really look like? Or more practically, what would the executive summary of the corporate philanthropy budget narrative say in a perfect world?

Let’s make one:

XYZ Corporation is proud to invest in areas that enrich the lives of our community members, our customers, and our employees. For that reason, we have budgeted $1 million for charitable purposes, which will result in goodwill, advertising and risk protection valued at $1.3 million, and social impact valued at $2.1 million.

Hang on. Is that even possible? Or desirable?

We’ll tackle the second question first. Is this a smart road to go down? Interestingly, I’ve heard competing views on this one, and the reason is probably connected to the difference between social and economic transactions, as discussed in this post. The short version goes something like this: If we tell everybody about the great charitable things we do, that’s just bragging, which is distasteful, and it will have the opposite of the intended effect.

But I’m reminded of the “People do” ads that Chevron used to put in National Geographic with pro-environment stories like how offshore drilling platforms were actually good for the environment because they became artificial reefs. This provoked a predictably cynical response, but the ad campaign apparently resulted in increased gasoline sales of 22%.

Ultimately, if you’re not getting any social or financial return, why are you doing it?

But can you quantify the financial effects of corporate philanthropy? Yes you can.

Image:  Biorock reef construction in Pemuteran Bay, Bali (November, 2005) by Wolf Hilbertz, CC BY 1.0