Distribution Network
Content
The advance of corporate social
responsibility is causing some companies to review whether their
corporate foundations need to change to reflect new priorities
In the public mind, there is little difference between a corporate foundation and the company that set it up – a confusion caused in part by the common company practice of naming their foundations after themselves. Yet a corporate foundation, though the creation of a company, has its own governance and financial structure – foundations are statutorily independent and many receive funding from sources other than the founder company. As with pension funds, trustees must act in the interests of the foundation, not the founding company.
With CSR now an accepted part of business practice and thinking, where does this leave foundations? That, broadly speaking, is the question posed by a thought-provoking pamphlet written by the Smart Company consultancy for the Charities Aid Foundation* and published earlier this summer. It continues a line of enquiry begun in an earlier report** from the two UK-based organizations that identified 126 corporate foundations, most of which have been set up since the 1960s. The income of these foundations typically ranged between £100,000 and £5million ($200,000–$10m), but the largest had an annual income in excess of £26m. Compared with overall charitable giving in the UK, the total income of corporate foundations – just over £208m – is small beer, amounting to less than one per cent of all charity receipts.
The 72-page pamphlet, based on interviews with 12 companies and their foundations, specialists in the field, and charities at the receiving end, uncovers diverse connections between CSR and the role and function of foundations. Some foundations have remained tightly focused on their original grant-giving role as a tax-efficient means of channelling funds to deserving causes. The foundation model is made for this, providing a distinct form and structure, making budget management more transparent and relieving the company of an administrative burden.
In other cases, the original reason for the foundation has largely disappeared. Building society foundations, set up in the 1990s to deter investors hoping to profit from demutualization, are an example. These foundations received the windfall shares that would otherwise have been collected by ‘carpetbaggers’. But demutualization is now on the wane, while the community credentials of building societies are being challenged by the social programmes of competing high street banks. This means developing a more sustainable approach. Hence, the Chelsea Charitable Foundation, established seven years ago by the eponymous building society, is engaging the society’s members and staff, matching funds raised for charity by the staff and making a donation on behalf of every member who votes at the AGM.
Still other companies are integrating their foundations into their CSR programmes. This takes the foundation beyond grant-making into areas such as civil society partnerships and projects that further the companies’ social and environmental objectives. Done effectively, it plays to a foundation’s strengths. An arms-length charitable foundation may be a more acceptable partner for a non-governmental organization than the company itself, particularly in a sensitive area, and foundations are a tax-efficient means of giving. Thus, the foundation of the catering and facilities management company Sodexho works with several national charities on food-related campaigns. The supermarket chain Waitrose invests, through its foundation, a percentage of the sale price of farm produce from South Africa in social welfare programmes for that country’s farm workers and their families. And Dyson, the vacuum cleaner manufacturer, promotes design engineering skills through the James Dyson Foundation.
The study is cautious about identifying a trend, partly because foundations are so diverse that it is hard to generalize, partly because the sample is small. The general impression is that some companies are happy to let their foundations get on with it, while others want them to dance more to a company tune. This latter group, at least, is likely to start asking for the sort of detailed information on social and environmental impacts that the companies themselves are now expected to produce. Charitable foundations are not legally required to report to their corporate sponsors and it seems that few do. Ironically, foundations are much tougher than companies at asking how their money is spent, according to the recipients of their largesse.
What seems clear is that some foundations now co-ordinate employee involvement, fund new projects and link with voluntary groups, in addition to making grants. New functions are also emerging, such as the role foundations can play in helping companies to engage with stakeholders. But what stands out is that, for the most part, the relationship between a company and its foundation has changed little, despite CSR’s rapid rise.
*The changing nature of corporate responsibility – what role for corporate foundations?, 2007
** Revealing the foundations, 2006
In the public mind, there is little difference between a corporate foundation and the company that set it up – a confusion caused in part by the common company practice of naming their foundations after themselves. Yet a corporate foundation, though the creation of a company, has its own governance and financial structure – foundations are statutorily independent and many receive funding from sources other than the founder company. As with pension funds, trustees must act in the interests of the foundation, not the founding company.
With CSR now an accepted part of business practice and thinking, where does this leave foundations? That, broadly speaking, is the question posed by a thought-provoking pamphlet written by the Smart Company consultancy for the Charities Aid Foundation* and published earlier this summer. It continues a line of enquiry begun in an earlier report** from the two UK-based organizations that identified 126 corporate foundations, most of which have been set up since the 1960s. The income of these foundations typically ranged between £100,000 and £5million ($200,000–$10m), but the largest had an annual income in excess of £26m. Compared with overall charitable giving in the UK, the total income of corporate foundations – just over £208m – is small beer, amounting to less than one per cent of all charity receipts.
The 72-page pamphlet, based on interviews with 12 companies and their foundations, specialists in the field, and charities at the receiving end, uncovers diverse connections between CSR and the role and function of foundations. Some foundations have remained tightly focused on their original grant-giving role as a tax-efficient means of channelling funds to deserving causes. The foundation model is made for this, providing a distinct form and structure, making budget management more transparent and relieving the company of an administrative burden.
In other cases, the original reason for the foundation has largely disappeared. Building society foundations, set up in the 1990s to deter investors hoping to profit from demutualization, are an example. These foundations received the windfall shares that would otherwise have been collected by ‘carpetbaggers’. But demutualization is now on the wane, while the community credentials of building societies are being challenged by the social programmes of competing high street banks. This means developing a more sustainable approach. Hence, the Chelsea Charitable Foundation, established seven years ago by the eponymous building society, is engaging the society’s members and staff, matching funds raised for charity by the staff and making a donation on behalf of every member who votes at the AGM.
Still other companies are integrating their foundations into their CSR programmes. This takes the foundation beyond grant-making into areas such as civil society partnerships and projects that further the companies’ social and environmental objectives. Done effectively, it plays to a foundation’s strengths. An arms-length charitable foundation may be a more acceptable partner for a non-governmental organization than the company itself, particularly in a sensitive area, and foundations are a tax-efficient means of giving. Thus, the foundation of the catering and facilities management company Sodexho works with several national charities on food-related campaigns. The supermarket chain Waitrose invests, through its foundation, a percentage of the sale price of farm produce from South Africa in social welfare programmes for that country’s farm workers and their families. And Dyson, the vacuum cleaner manufacturer, promotes design engineering skills through the James Dyson Foundation.
The study is cautious about identifying a trend, partly because foundations are so diverse that it is hard to generalize, partly because the sample is small. The general impression is that some companies are happy to let their foundations get on with it, while others want them to dance more to a company tune. This latter group, at least, is likely to start asking for the sort of detailed information on social and environmental impacts that the companies themselves are now expected to produce. Charitable foundations are not legally required to report to their corporate sponsors and it seems that few do. Ironically, foundations are much tougher than companies at asking how their money is spent, according to the recipients of their largesse.
What seems clear is that some foundations now co-ordinate employee involvement, fund new projects and link with voluntary groups, in addition to making grants. New functions are also emerging, such as the role foundations can play in helping companies to engage with stakeholders. But what stands out is that, for the most part, the relationship between a company and its foundation has changed little, despite CSR’s rapid rise.
*The changing nature of corporate responsibility – what role for corporate foundations?, 2007
** Revealing the foundations, 2006
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