Corporate Giving Takes a Dip

Economic slump forces businesses to be more selective

Charitable giving by many of the nation’s wealthiest companies declined last year after spiking in 2001,

a year when many companies gave to September 11-related causes, according to a Chronicle survey.

Cash donations decreased at 53 of the 92 businesses surveyed, with cash gifts falling among the survey sample by a median 3.8 percent from 2001 to 2002, meaning half the companies had larger decreases and half smaller decreases or increases in giving.

And the outlook for the current year is not much better. While most companies don’t expect their giving to suffer such large declines in 2003, 53 of the 74 corporations that made estimates about their cash giving for this year said they expected their donations to be frozen at 2002 levels or reduced.

‘Economic Malaise’

The unprecedented outpouring for relief and recovery efforts following the terrorist attacks escalated corporate donations two years ago, leading many companies to cut their philanthropy in 2002 when they returned to their standard giving programs.

At the same time, the sluggish economy ate away at corporate profits, causing some philanthropic programs to remain flat or decline. A little less than half the corporations that provided income figures to The Chronicle earned less in pretax profits in 2002 compared with 2001.

At the Electronic Data Systems Corporation, in Plano, Tex., for example, giving fell from $7.8-million in 2001 to $3.8-million last year as pretax income plunged $674-million. The 2001 figure included roughly $1-million in company donations for a September 11 employee matching-gift program that ran that year alone.

As a result of the “economic malaise,” companies will be less scattershot with their philanthropy, said Marc J. Drizin, vice president of Walker Information, a research company in Indianapolis that studies corporate giving. “There’s always been the desire to make sure those dollars are being spent wisely, but whenever you’re keeping a tighter eye on the dollars, then more of this discussion will happen,” he said.

One example: Wal-Mart Stores, in Bentonville, Ark., plans to be more selective in its giving. It is requiring its 3,000 or so store managers to seek suggestions from local-government officials and community leaders, such as the heads of United Ways, to identify the most pressing needs in their areas, and then focusing local donations on those two or three problems to the exclusion of other requests for money.

More Product Donations

Companies are also giving away less in cash, while offering more donations of products and expanding employee-volunteer programs. They also are trying to squeeze more marketing value out of their philanthropy programs to justify the costs of the donations to shareholders and management.

“The economic downturn produces an imperative to make sure you’re bringing value to the company,” said Richard E. Luftglass, director of U.S. philanthropy at the pharmaceutical company Pfizer, in New York. “It puts the onus of responsibility on corporate-giving programs to make a better case internally for the value of what we do.”

Many of the recent changes to corporate-giving programs could mean charities will have a harder time this year finding businesses willing to support them. But a few companies have taken steps to add grants specifically aimed at helping nonprofit groups weather a difficult fund-raising climate.

In May, the Freddie Mac Foundation, in McLean, Va., established a fund for charitable programs that are at risk of being shut down because of a loss in support.

The $2-million Helping Hands Emergency Fund will cover budget shortfalls at charities serving children in the Washington area that the grant maker has given to previously. Maxine B. Baker, president of the foundation, said officials felt that after hearing numerous pleas for a financial lifeline for charities, “it didn’t seem right to turn our back on these people.” She cautions, however, that the fund has only a limited purpose. “It’s not for capital campaigns,” she said, “it’s for programs in the community.”

The foundation announced the fund before questions raised about accounting practices at Freddie Mac prompted the departure of the company’s chief executive officer, who subsequently resigned as chairman of the foundation. Ms. Baker said the shake-up will not affect the foundation’s programs.

The Lockheed Martin Corporation, a defense contractor in Bethesda, Md., plans to increase its giving for the first time in six years, according to David E. Phillips, who oversees the company’s philanthropy.

Lockheed, which supports science education, among other things, expects to give away $19-million, $1-million more than last year.

“The demand on our contributions budget is difficult to meet with $18-million,” Mr. Phillips said. He estimated that the number of nonprofit groups seeking aid from Lockheed has been up about 10 percent this year.

Top Donors

The Chronicle survey is based on data reported by 92 companies that are among the 150 biggest in the United States, in terms of annual revenue as ranked by Fortune magazine.

The Chronicle asked the corporations to report the total amount of cash donations they made this fiscal year and in each of the last two fiscal years, and the fair market value of their donated products during each of those three years.

The survey does not attempt to calculate other ways that companies support charities.

Companies may give employees paid leave to volunteer, for example, or offer low-interest loans to nonprofit groups. The marketing or research divisions of companies may also give money to nonprofit groups through deals intended to help the companies test a new product or gain the endorsement of a charity. Those deals typically are not counted as part of a company’s giving budget.

As in previous years, pharmaceutical companies gave away the most in combined product and cash donations in 2002. Merck & Company, in Whitehouse Station, N.J., topped the list by donating $58-million in cash and drugs valued at $575-million last year, more than doubling its distribution of products. However, the surge resulted from an accounting change rather than a huge jump in philanthropy, said Shuang R. Huang, the company’s director of corporate contributions. In calculating its corporate giving, the company historically has not included donations of medicines for poor patients in the United States because, until recently, the donations had been relatively modest compared with the company’s overseas donations, said Ms. Huang. But last year the domestic program grew to $288-million in product donations, and Merck decided to include it in its philanthropy total, she said.

Pfizer came in right behind Merck with $69.7-million in cash and $528-million in product donations. Pfizer’s giving was up $151.4-million from last year, in part because of the company’s donations of drugs to Africa to fight an AIDS-related illness and trachoma, an infection that causes blindness.

Unlike Merck, Pfizer plans to increase its philanthropy this year, driven by growth in product donations as it adds more countries to its international programs and because in April it acquired Pharmacia, a drug company in Peapack, N.J. While Pfizer plans to continue some of Pharmacia’s health-related giving — Pharmacia donated $14.7-million in 2002 — Pfizer does not plan to support all of it in the future.

“We will be looking at what Pharmacia had been doing and decreasing its programs as they start to wind down,” said Mr. Luftglass of Pfizer. He declined to say which Pharmacia programs may be threatened.

Rounding out the list of top corporate donors are the Bristol-Myers Squibb Company, in New York ($369-million); the Microsoft Corporation, in Redmond, Wash. ($207-million); and Johnson & Johnson, in New Brunswick, N.J. ($196.8-million).

Microsoft, which designs computer software, is the only nondrug company among the five-largest corporate donors, but like the others, the majority of its giving was in product donations.

Wal-Mart Stores reported the largest amount of cash giving, with almost $136-million in grants.

“Dollar-wise, we blew everybody out of the water,” said Betsy B. Reithemeyer, director of the Wal-Mart Foundation, which provides most of the corporation’s philanthropy. Wal-Mart’s cash donations last year were $19.4-million more than in 2001, and the company expects to give even more this year.

Only two other companies that responded to the survey donated more than $100-million last year: Altria Group, formerly Philip Morris Companies, in New York ($113.4-million); and the Ford Motor Company, in Dearborn, Mich. ($113.3-million).

As Wal-Mart asks its store managers, who direct the company’s philanthropy at the local level, to pick the most pertinent needs in their areas, Ms. Reithemeyer said she and the foundation’s staff will track the giving of stores to see if they are meeting the goals they have established.

“If I say children’s programs are important and yet I end up giving to Humane Society functions, they’re both great causes, but I’m not following through with my goal,” she said.

In addition to sharpening its local focus, Wal-Mart has also increased its efforts to publicize its philanthropy within its stores by displaying large banners that read: “Giving,” “Helping,” and “Doing.”

Explained Ms. Reithemeyer: “People’s perceptions of the company they shop with influences how much they spend. We’re going to give back because it’s the right thing to do, but we also want the community to know we are there.”

Changes in Giving

Other companies making recent changes to their giving programs include:

• Microsoft, which is shifting its cash giving away from programs that provide technology to poor people toward efforts to train those people to use the technology to find employment. While these efforts aren’t new for Microsoft, the company said the amount it spends on such programs will increase significantly. Microsoft expects to give away about $40-million in cash this year, divided between matches of employee donations and discretionary spending. Microsoft expects 80 percent, or $16-million of its discretionary money, to support training programs, said Pamela Passman, head of corporate affairs.
• Best Buy, in Minneapolis, which in March decided to move from supporting youth-development and mentorship efforts to technology programs that assist elementary and secondary students. Its foundation chose technology because in recent years Best Buy stores have put more of an emphasis on selling electronic entertainment devices and computers. “We wanted to align ourselves with our stores because, of course, that’s where the dollars come from,” said Joan E. Fawcett, grants administrator for the Best Buy Children’s Foundation, which operates most of the corporation’s philanthropy. Best Buy, which donated $15.8-million in cash in 2002, plans to give out fewer grants this year, but in larger amounts.
• The Intel Corporation, in Santa Clara, Calif., which has shifted its focus toward nonprofit groups and school districts with science programs that benefit students in elementary and secondary schools. The move means less support for research scholarships at higher-education institutions. The change started three years ago, said Wendy R. Hawkins, president of the Intel Foundation, and today about half of its $98.8-million philanthropy budget will support its new goal.

Some of the changes to the grant eligibility at corporate-giving programs are being driven by declining grant dollars.

For example, Hartford Financial Services Group, an insurance company in Hartford, Conn., expects its giving to drop $250,000 this year, down from the $4.9-million it gave last year, said Lynda Godkin, senior vice president for state and community relations. Because of the decline, the corporation will support only charities that it has successfully worked with in the past and not new groups, she said.

New Activities

Beyond moves to limit the number of charities eligible for corporate donations, many companies are looking for new ways to tout their philanthropic activities to their customers and the general public.

The Verizon Foundation tested a promotion in Pennsylvania to let the public vote via the Internet or cellphone on which of eight Boys & Girls Clubs in the state would win a literacy education grant. Each of the potential grantees was vetted before the voting began. With $250,000 available and grants limited to $50,000, most of the participants may at least receive partial support, said Denise G. Loughlin, director of contributions for the Verizon Foundation in Pennsylvania.

“Reality TV shows like American Idol were taking off kind of wildly,” she said. “So we thought it would be nice for the public to have the opportunity to vote.” The charities “campaigned” and promoted the contest to their donors as part of the effort. More than 3,200 votes were cast for the contest, which ended July 8.

Albertson’s, the grocery and drug-store chain based in Boise, Idaho, is asking charities to help distribute its Community Partners Card to their supporters.

Each time a card is used to make a purchase at the stores, the company gives a percentage of the sale — up to 5 percent — to a school or nonprofit group.

“We traditionally have not marketed the program very forcibly, but we are starting to promote it more because it is an advantage for us,” said Dee K. Mooney, director of charitable contributions at Albertson’s.

She expects the corporation to donate $16-million through the program in 2003, $2-million more than last year.

The program will make up a bigger share of the company’s overall giving this year since Albertson’s expects its cash donations to be flat, said Ms. Mooney. Last year, pretax income fell $16-million, prompting the company to reduce its cash contributions to $65-million from $67-million in 2001.

Even with the decline in profits, Albertson’s said philanthropy will remain a priority for the company. It plans to step up its donations of perishable items, such as meat and dairy products, to food banks, and to come up with new ways for employees to volunteer.

“Because of September 11 and the Enrons of the world, people are looking at corporations more for what they do for their communities,” said Ms. Mooney, “and not just being big money makers.”

Stanley W. Krauze and Marni D. Larose contributed to this article.