Big Business Means Big Philanthropy

Large companies forecast 11% rise in gifts, but mergers worry charities

Many of America’s largest companies expect to give significantly more to charity this year than in 1997, a Chronicle survey has found.

Among 66 big companies that reported their giving plans for 1998, cash donations are expected to rise by 11 per cent, to $1.3-billion. Those same companies had already increased their donations by almost 14 per cent from 1996 to 1997. By comparison, previous Chroniclesurveys have found that giving at major corporations rose by 3 per cent from 1994 to 1995 and 8 per cent from 1995 to 1996.

Much of the increase can be attributed to the companies’ financial success. Corporations that provided income figures reported an 11-per-cent growth in profits, on average, from 1996 to 1997.

But while both profits and corporate-giving budgets are on the rise, companies have not necessarily become more generous. Corporations are still willing to give to charity only a small portion of their earnings — 0.8 per cent of their previous year’s pre-tax profits in both 1997 and 1998.

The Chronicle‘s survey is based on data reported by 111 companies, which are among the 150 biggest in the United States, based on annual revenue, as ranked by Fortune magazine. All 111 companies gave about $2-billion in cash and $700-million in in-kind gifts to charity last year, or nearly $1 out of every $3 in cash and in-kind gifts made by companies nationwide, according to estimates in Giving USA, an annual report that measures American philanthropy.

Also fueling the increase are employees, who are giving more and more money to charity — and asking companies to match their gifts. Among 65 businesses that provided figures for 1997 and estimates for 1998, spending to match employees’ gifts is expected to rise by 12.3 per cent, to $190-million.

Even as companies announce plans to increase contributions, however, charities that rely on corporate philanthropy are increasingly anxious as they watch a flurry of mergers and acquisitions among many of the nation’s biggest businesses. Many fear that the deals will lead to changes in the philanthropic priorities of major corporations and an overall reduction in donations by companies undergoing restructuring. At least two dozen companies in The Chronicle’s survey have started or completed major mergers or acquisitions in the last 18 months.

In the survey, International Business Machines Corporation, which has traditionally been among the most generous corporate donors, reported giving away the most money last year — $96.8-million. It also donated computers and other products that had a fair market value of $51.3-million.

I.B.M., which has its headquarters in Armonk, N.Y., did not provide specific giving figures for 1998 but said it expected to contribute at least as much as it did in 1997.

Among the companies that did provide 1998 figures, Philip Morris Companies is expected to give away the most money. It plans to donate $60-million — the biggest chunk of that, about $20-million, to charities that help the homeless and the hungry. The company also plans to donate $13-million in food products to Second Harvest, the Chicago-based organization that runs a national network of food banks.

Philip Morris continues to be one of the top donors to charity even at a time when the company finds its business threatened by government attempts to tighten regulations on the tobacco industry and by lawsuits by people who blame tobacco use for their health problems.

Not all charities are eager to accept gifts from the tobacco seller, however. In May, Inova Health System, a non-profit group that runs hospitals and health-care facilities in Virginia, turned down a $25,000 grant from Philip Morris, which was one of the sponsors of a fund-raising event intended to benefit the charity. A spokesman for Inova said that the organization did not take money from tobacco companies because of the health risks associated with smoking.

Karen Brosius, Philip Morris’s director of corporate contributions, said that the company’s donations are rarely rejected because almost all its contributions are made in response to solicitations. She said that since a group other than Inova sponsored the fund-raising event, the company had not been in contact with Inova about its gift.

“Organizations can pick and choose how they get their money,” Ms. Brosius says. “Normally we are in direct contact and have direct relations with the folks that apply for grants and we are all on the same page.”

When gifts of company products are included, Merck & Company, the drug maker, is No. 1. This year, the company plans to donate $32.5-million in cash, plus drugs valued at $175-million.

Among the companies that provided 1998 giving budgets, all but five corporations reported increases from what they gave in 1997. Three insurance companies, which have typically given less than some of their rivals, were among those reporting the biggest rises:

The New York Life Insurance Company reported the largest percentage increase among all companies in the survey; it more than doubled its charity budget, to $5.1-million. Officials say one reason they decided to give more was to better match their competitors’ philanthropy. Still, the company has a long way to go to equal its rivals: Aetna will give $22.4-million, and the Prudential Insurance Company of America will donate $30-million.

Northwestern Mutual Life Insurance Company, in Milwaukee, also reported a big increase: 48 per cent, rising to $8.5-million. That increase may seem surprising, since the company’s profits dipped from 1996 to 1997. But Northwestern officials say they measure the health of their business — and determine how much to give each year — based on policyholder turnover, which is currently among the lowest in the industry.

Liberty Mutual Group reported an increase of 40 per cent in donations, to $3.1-million. While that is a notable increase, the company’s 1998 giving budget is still the smallest of any company that responded to the Chronicle survey. The Boston company, which ranked No. 132 on Fortune’s list of big companies, says it has not previously emphasized philanthropy because the company did not sell insurance to individuals or families, focusing instead on selling businesses insurance that provides workers’ compensation.

Liberty Mutual officials had doubted that many businesses would have been influenced to buy the company’s insurance because of a generous corporate-gifts policy. However, as the company has been selling to more individuals, it has started to pay more attention to its image — and philanthropy has become more important.

The 1998 increase in spending will go toward a half-million-dollar payment of the company’s $750,000 pledge for a tutoring program that it decided to support in response to the Presidents’ Summit for America’s Future.

While grant seekers may be encouraged by the number of companies planning to increase their giving, some charities anticipate a tougher time seeking business gifts in the next year because of the spate of mergers and acquisitions.

“In general, [mergers] will hurt the charitable community,” says Lee M. Cassidy, executive director of the National Federation of Nonprofits. “They make corporations less local, so community involvement becomes less of an issue.”

In addition, corporate mergers and acquisitions — which are happening in record numbers this year, according to Securities Data Company, in New York — typically throw grant making into flux while the deals are being worked out, a process that can take more than year.

Charity officials say they can do little more than watch carefully as companies that support them undergo mergers or other restructuring.

“You keep an eye on things and figure out how you are going to approach the new or reorganized company,” says Michael Lewis, assistant director of development for corporate giving at the Detroit Institute of Arts.

Mr. Lewis says his current challenge is to figure out how the museum will be affected by the pending merger of Detroit’s Chrysler Corporation with the German company Daimler-Benz. The arts institute receives at least $100,000 each year from Chrysler, Mr. Lewis says, and he is optimistic that the car company’s support will not decrease after the merger.

Mr. Lewis says that the art institute has had a good relationship with Chrysler — which is helping to sponsor an exhibit of artwork from the Vatican this year — and that Daimler-Benz has a record of supporting the arts here and in Germany.

Even so, says Mr. Lewis, “you never know. It can be a nervous time.”

Last summer’s telecommunications-industry merger between Bell Atlantic Corporation and NYNEX demonstrated how compromises are often made when companies merge.

Before the merger, each company’s foundation had concentrated much of its giving on the same cause — helping charities acquire and use technology — but that’s where the similarities ended. NYNEX typically gave 1 per cent of its pre-tax profits annually to charity, while Bell Atlantic gave just 0.4 per cent.

According to Suzanne DuBose, president of the Bell Atlantic Foundation, which absorbed the NYNEX Foundation in February, the companies settled on a middle ground when they merged: The new company will aim to give 0.7 per cent of its pre-tax profits to charity each year.

Not all outcomes of mergers result in such compromises — especially when charities let their concerns about a potential loss in giving be known.

First Union Corporation, which completed its acquisition of CoreStates Financial Corporation in May, is more than doubling its donations, to at least $38-million this year.

First Union, in Charlotte, N.C., has promised to sustain its own giving level and pick up the tab for CoreStates’ gifts, for at least the next five years. CoreStates, a Philadelphia company, gave $17.8-million last year. First Union also agreed to provide $100-million to set up the First Union Regional Foundation in Philadelphia.

Those promises helped assuage critics, who had complained that the bank merger might cause a decline in donations to charities in the Philadelphia metropolitan area.

Citicorp and Travelers Group, two financial giants that have announced their intentions to merge, have yet to work out their giving plans for the new company.

But one element of Citicorp’s philanthropy program that officials hope to continue is its policy of matching employee gifts. Travelers Group does not match employee gifts.

Before the merger announcement, Citicorp planned for a 10-per-cent increase in spending on matching gifts this year, to an estimated $7-million. Like many other companies surveyed by The Chronicle, Citicorp has found that its employees have been making many more donations because of the strong economy.

“All donors are feeling more gen erous, and our employees are not an exception to that,” says Paul Ostergard, president of Citicorp Foundation.

A dozen companies estimated that they would increase their spending on matching gifts by at least 25 per cent this year.

Several businesses said they were trying to promote even more generosity by making more of their employees and non-profit groups eligible for matching-gift programs.

At Prudential, where matching-gift spending is expected to more than triple, to $6.6-million this year, officials say they plan to match for the first time the donations made by the 18,302 employees of the company’s subsidiary Prudential Securities.

At New York Life, where the gift matching is expected to increase two-and-a-half times, to $650,000, the list of non-profit groups eligible for matching gifts has expanded. Now the company will match gifts not only to colleges and universities but also to public and private elementary and secondary schools.

At seven companies, spending on matching gifts is expected to account for at least one-fifth of all cash donations this year. Microsoft reports that 55 per cent of its $17.3-million in cash gifts will be used to match employees’ donations.

Emphasizing employees’ giving is based on “a belief that our employees are our major asset,” says Barbara Dingfield, director of community affairs at Microsoft. Each employee is eligible to have the company match up to $12,000 a year in donations.

But not all companies are eager to devote so much of their charitable resources to matching gifts. PG&E Corporation, the California utility company, limits the amount it will match to $1,000 per employee annually, and it plans to set a ceiling for matching-gift spending at $250,000. The company, which started to match employee gifts in 1996 and will donate $150,000 for them this year, says it wants to maintain control over the use of its charitable dollars.

Other companies aim to limit spending on employee-matching gifts, too. At Johnson & Johnson — where matching gifts will account for less than 10 per cent of cash donations this year — officials say they want to direct as many philanthropic dollars as possible to charitable programs that help meet business goals.

Most of the company’s cash and product donations go to health charities and hospitals. Such charitable donations are in Johnson & Johnson’s self-interest because they go to potential purchasers of the company’s drugs and first-aid products.

By contrast, some companies are involving employees in philanthropy beyond just matching their gifts to charity.

Wal-Mart Stores, which matches some employee donations to charity, also encourages its workers to spend time after work organizing fund-raising events for which the company will match — dollar-for-dollar in most cases — the money that employees help raise.

Last year, Wal-Mart employees raised more than $17-million, and the company matched the entire amount. The fund-raising drives, typically held in Wal-Mart stores or on its parking lots, included such events as bowling matches that pitted Wal-Mart employees against workers from rival Target stores and charity drives held on the roofs of Wal-Mart stores.

“Where our people are involved, we as a company are involved,” says Emerson Goodwin, director of the Wal-Mart Foundation. “We’re not a foundation that says charities should send proposals in,” he adds, although the company does make some grants to organizations that aren’t part of the employee fund-raising events.

Mr. Goodwin estimates that fund raising by Wal-Mart employees has caused nearly a 50-per-cent increase in corporate donations over the past two years, rising to $50.3-million in 1997. The company also matches employees’ gifts to United Way and provides college scholarships for employees’ children.

Philip Morris is another of the big companies in the Chronicle survey that has found a way to give its employees more say in where the company’s charitable dollars go.

The company replaced its traditional United Way campaign in 1996 with the Philip Morris Employee Fund, which is administered by a committee composed of a cross section of company workers.

Employees are asked to make contributions to the fund through payroll deductions in a fall campaign, and they may also make contributions throughout the year. The company pays all of the fund’s administrative costs, and the panel of employees — with the help of a consultant — decides where the money should go.

The program caught on right away. During last fall’s campaign, employees pledged $1.1-million — more than three times the amount workers gave the year before. Philip Morris then contributed more than $500,000 to show its support for the employee fund.

The money this year will support more than 50 projects to relieve hunger, promote literacy, and combat homelessness, domestic violence, and AIDS.

Says Ms. Brosius, director of corporate contributions: “It was really created in response to the employees’ interest to directly help people in need and become involved in the community.”