Pulling the Plug on Charity

Collapse of Enron, other corporate losses take a toll on nonprofit groups across the country

The Enron Corporation once seemed like a godsend to charities like

the Spay-Neuter Assistance Program, a charity in Houston that cares for more than 50,000 dogs and cats a year.

Not only did Enron contribute $200,000 to the group over the past 18 months, but last September it also invited the organization to move its main office into Enron’s headquarters building, saving it $5,000 a month in rent. Enron even offered to pay the group’s printing and postage expenses.

But three months later Enron collapsed in the biggest corporate bankruptcy case in U.S. history, its donations to charities stopped, and now the Spay-Neuter Assistance Program — along with hundreds of other charities in the Houston area — is hustling to replace the lost money.

“Our programs are at bare bones right now,” says Sean Hawkins, executive director of the Spay-Neuter Assistance Program. Unless other donors step forward, he says, “the next step would be to close facilities.”

While Enron is the most high-profile corporate donor to run into trouble in recent months, thousands of other companies across the nation have reduced or eliminated their giving because of corporate bankruptcies, relocations, and mergers. Not only that, but 1.4 million people — many of them donors in on-the-job fund-raising programs — have lost their jobs since the recession began last March.

As the economic troubles mount, charity managers from California to Pennsylvania are scrambling to find new ways to replace lost donations and keep their programs alive. In many cases, fund raisers are reducing their dependence on large corporate donors altogether and looking to individual contributors and small companies for more-stable sources of money.

“We are raising money in a changed environment,” says Sandra Duffy, the development director of the Reading Symphony Orchestra, in Reading, Pa., where some of the area’s biggest businesses, including one Fortune 500 company that left town, have trimmed operations in recent years. “It’s clear that we can no longer rely on a handful of major corporations. We don’t necessarily know who the major corporations will be from year to year, or whether they will be here at all.”

$11-Million Donated

In Enron’s case, few charity managers could have guessed that the energy company, once the nation’s seventh-largest corporation and a darling of Wall Street, would no longer be donating money. While Enron was not unusually generous with its corporate philanthropy, it was a major player on the Houston philanthropy scene. In 2000, the latest year for which data are available, it donated $11-million to charity — 1.1 percent of its 1999 pretax profits — with most of the money spread in modest-size grants to hundreds of groups. The Linda and Ken Lay Family Foundation, started by Kenneth L. Lay, Enron’s former president, and his wife, gave out another $2.5-million in 2000.

With Enron’s assets now tied up in bankruptcy court, the company’s donation spigot has gone dry. Says Rachael Tobor, an Enron spokeswoman: “We’re continuing to work with each charity to see what we can do to help them, without giving them money.”

The effects could be serious, say Paul R. Tetreault, managing director of the Alley Theatre, in Houston, to which Enron pledged $75,000 — a promise now unfulfilled.

“What concerns me is less the direct impact of this and more the indirect — not only the numerous employees who were subscribers and contributors [to the Alley Theatre], but also the fallout from other businesses that did significant business with Enron and were also contributors,” Mr. Tetreault says. “There’s potentially a longer term and much more devastating impact on not only the Alley but on other nonprofits in town.”

To be sure, many groups in Houston received little or no money from Enron, and others are already well on their way to repairing the damage from the company’s collapse. The Boys & Girls Clubs of Greater Houston was faced with the loss of all but $60,000 of a $2.4-million, 10-year commitment for what was called the Enron Boys & Girls Club. But a club board member stepped forward with a $2-million gift to keep the club open, and this week the club’s name was scheduled to be changed to reflect the new donor, Michael Holthouse.

Even so, the loss of Enron “is still a huge hit for us,” says John Havard, president of the Boys & Girls Clubs of Greater Houston. In the past five years, he says, the group had received $500,000 from Enron.

Troubles at United Way

The impact of Enron’s downfall could well be far greater for charities that receive money through the United Way of the Texas Gulf Coast, in Houston. Last year Enron and its employees gave the local United Way $5.5-million — roughly $1 in every $13 the local United Way collected. The United Way says it hopes other corporate donors will make up the lost Enron money, but charities that rely on United Way contributions are girding for cuts.

Already, United Cerebral Palsy of Greater Houston learned that United Way grants totaling $95,000 will not be renewed this year because of Enron’s collapse, says Kelly N. Dietrich, the health charity’s development director. The money had been earmarked for programs benefiting high-school students and small children with disabilities, Ms. Dietrich says.

The echoes of Enron’s bankruptcy are resounding far beyond lost monetary donations. Enron’s employees, 4,000 of whom have been laid off in Houston since November, had been involved regularly in the United Way of the Texas Gulf Coast’s “Day of Caring” campaign, which linked employees with charities ranging from homes for elderly people to literacy groups. “Enron’s employees made themselves available regularly for us,” says Mario Gomez, a spokesman for the United Way. “They were great volunteers.” Mr. Gomez says he hopes that Enron’s remaining 3,000 Houston employees will continue to volunteer. But, he says, “it’s too early to tell.”

Concern Over Mergers

While Enron’s troubles will probably affect some charities for months to come, a few nonprofit executives are looking on the bright side. “Mergers worry me much more than collapses,” says Peter C. Marzio, director of the Museum of Fine Arts in Houston, which received $1.4-million in donations from Enron from 1996 to last year. “At least with a collapse, there’s a hope that another company will move in” and continue supporting charities in the area, he says. Merging companies, on the other hand, typically want to cut costs and are more likely to pare contributions, he says.

Mr. Marzio advises organizations not to become too reliant on corporate donors. “If you get spoiled by corporate dollars, you’re in big trouble,” he says. “Corporations don’t exist to give money to charity.”

Jon K. Gossett, development director of the Houston Grand Opera, has drawn another lesson from Enron’s collapse. “Always try to collect on pledges as quickly as possible,” he says. Enron pledged $25,000 to the opera last April. Now, the charity has written off any chance of receiving the gift.

Kmart’s Troubles

As Houston charity managers look ahead to life without Enron, nonprofit groups in other parts of the country are either bracing for trouble from other corporate failures or building on the hard lessons they have learned from economic troubles that already have hit their cities.

Besides Enron, one of the largest bankruptcy cases on record is that of Kmart, which filed for protection from creditors just last month. In addition to Kmart’s corporate gifts, whose sum the company declines to disclose, the retailer’s 250,000 employees help raise millions of dollars each year through independent fund-raising efforts at many of the chain’s 2,100 stores. In the past 17 years, for example, Kmart stores raised $33-million for the March of Dimes, nearly $3.3-million of it last year.

Leslie J. Kota, a Kmart spokeswoman, says that while the company expects to close some of its stores and lay off employees this year, executives do not know how those changes might affect charitable giving. Remaining employees, called sales associates, might work harder to raise money, and it remains unclear whether stores that raise the most for charity will be among those that Kmart closes, Ms. Kota says.

Still, she concedes, “There will obviously be fewer people if stores close. Whether that equates to fewer dollars raised depends partly on how aggressively associates will rally around the causes.”

Job Losses

In Reading, charities have learned the hard way what can happen when jobs disappear. Since 1998, Reading lost thousands of jobs as one Fortune 500 company, the clothing maker VF Corporation, moved its headquarters to North Carolina, and another, Dana Corporation, which makes car parts, closed the city’s plant employing 1,200 workers. And just last month, Agere Systems, a spinoff of Lucent Technologies, announced it will close its Reading plant, possibly transferring many of the plant’s 1,600 employees to a facility about an hour away.

Faced with such staggering job losses, charities in Reading have cut costs and shifted their focus away from seeking big corporate gifts. For example, the Reading Symphony, which received $29,000 from Lucent and Agere in the past two years, is giving fewer performances than in the past and looking for new ways to encourage gifts from small employers. One approach, says Ms. Duffy, the symphony’s development director, is to bundle gifts from three or four companies into one large donation, then recognize each of the donors as a top contributor. And to attract more gifts of $5,000 or more from individuals, the orchestra plans to introduce a donor-recognition society in April, Ms. Duffy says.

In some cases, charities have been able to ride the roiling currents of corporate change. In Reading, a major bank has backed a series of band-shell concerts offered by the Berks Arts Council each year, even though the bank itself has had three different owners — and the band-shell events three different names: Meridian Bandshell, CoreStates Bandshell, and then First Union Bandshell. First Union Bank has put about $28,000 into the concerts each year since taking over their sponsorship in 1998.

But typically, any alteration in a city’s corporate landscape has huge implications for nonprofit groups.

After Lincoln Financial Group moved its headquarters and most of its operations out of Fort Wayne, Ind., in 1999, the company continued to make donations to charities in the region. Last year it contributed $245,000 to Arts United, a group that raises and disburses money to 57 organizations. The gift was Lincoln’s largest ever to the group.

But because fewer Lincoln employees work in Fort Wayne than before the move, an Arts United fund-raising campaign at Lincoln’s remaining operations in the city garnered only $88,000 last year, 20 percent less than before the headquarters move. And employee contributions are expected to slip further as Lincoln continues to trim its Fort Wayne operations.

While those losses have hurt, says Geoff Gephart, president of Arts United, “the most dramatic impact to the community was losing the leadership and an employee population that gave not only their money, but their time.”

‘We Had to Think Smarter’

In La Habra, Calif., charities reeled at the loss of $100,000 in corporate donations after a Chevron Oil plant relocated and the Alpha Beta supermarket chain closed in 1999.

“We had to think smarter and look beyond our borders,” says Kent A. Roberts, president of the La Habra Community Foundation, an umbrella group for 12 nonprofit organizations in the city of 55,000 residents.

The Boys & Girls Club in La Habra, which had previously raised money by itself, joined forces with 15 others in Orange County. In addition, many charities in La Habra began applying for grants from foundations and corporations located outside the city. That effort paid off, Mr. Roberts says, when ChevronTexaco Corporation, in San Francisco, gave $75,000 to the La Habra Children’s Museum.

Worried About Future

In Bartlesville, Okla., the likelihood of a major corporate relocation similar to those experienced by La Habra and Fort Wayne has charity executives on edge.

Phillips Petroleum, an 85-year-old company that employs about 2,400 people in the city, is expected to merge with Conoco this year and establish new headquarters in Houston.

Phillips has traditionally supported the city’s ballet, symphony, and other arts organizations, and it recently gave a $3.6-million building designed by the renowned architect Frank Lloyd Wright to a local museum.

James J. Mulva, the company’s chairman, said in a written statement released after the merger announcement that the company would fulfill its charitable commitments and continue giving in the area.

Still, charities in Bartlesville see trouble ahead from their reliance on Phillips.

“We realize the danger,” says Marguerite J. Arnold, executive director of the Bartlesville Regional United Way.

Efforts to find other big corporate donors have been only modestly successful, she says.

In the early 1990s, contributions from Phillips and its employees accounted for 48 percent of the United Way’s revenue. In the past few years, despite appeals to other local companies, the United Way has managed to reduce that figure by a mere 3 percentage points, to about 45 percent of its revenue.

Edward N. Harvey, the top executive of the Cherokee Area Council of Boy Scouts, in Bartlesville, says that if Phillips leaves town, the scouts will feel not only a financial void, but a leadership one as well.

Nineteen members of the council’s 66-person governing board are Phillips officials, and a Phillips executive usually serves as council president, the group’s highest volunteer post.

Says Mr. Harvey, “If the headquarters goes, the real significant loss is the loss of leadership in the community.”