A Congressman’s Plan to Overhaul Corporate Giving Draws Criticism

Following are excerpts from letters submitted to the Securities and Exchange Commission in response to its request for comments on two bills proposed in the House of Representatives. The commission has been asked to prepare a report on the feasibility of two measures proposed by Rep. Paul Gillmor, an Ohio Republican (The Chronicle, November 13). One of the bills would require all public companies to give shareholders a say in deciding which charities should benefit from a corporation’s largesse; the other would require companies to disclose to shareholders all major donations. Full text of the comments that have been submitted is available on the commission’s World-Wide Web site at http://www.sec.gov/rules/othern/chgive.htm

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There are several interests which will be served by requiring disclosure of company giving. First, since most gifts are funded from company profits (which might otherwise be allocated to dividends or reinvestment) shareholders have a … right to know about such gifts, especially where giving is justified in the name of corporate social responsibility. In addition, because charitable giving has inherent ideological or political content (which has been accentuated recently by increased advocacy on the part of the non-profit community, and especially public-policy institutes), shareholders have a “speech” interest in knowing how these funds are allocated.

In addition, company gifts may be analyzed as an alternative form of management compensation. Because the current state laws afford individual corporate executives discretion to dictate the amounts and beneficiaries of corporate gifts independent of their firms’ commercial objectives, corporate giving may be used as a proxy for personal giving by management. … While many corporations tout the “profit-maximizing” effects of corporate gifts, without disclosure there is no means for shareholders to assess the validity of such claims. …

Requiring disclosure of corporate charitable contributions would impose little if any information gathering cost on companies, since they are already required to maintain records of their charitable contributions in order to support the federal income tax deduction. …

Although I believe that disclosure should apply to all corporate charitable gifts, I do believe that companies should be allowed to retain ultimate control over gifts which can reasonably be regarded as furthering the donor company’s commercial interests, gifts arising from employee matching programs … and so-called “director legacy” or “charitable award” programs (which constitute part of executive compensation, and hence should currently be disclosed under existing requirements). Required disclosure of the above forms of giving will provide shareholders the means to assess the credibility and reasonableness of management’s control over “business-oriented” corporate giving.

Faith S. Kahn
Associate Professor
New York Law School

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Are we to have a system in which tens of thousands of shareholders, who entrust their money and confidence in a board of directors and management, are going to insert themselves into the process for allocating monies to charitable institutions? Of all the issues that rise to the level of shareholder concern and involvement, this one should be well down the list of priorities. …

What is the value of the information to be collected, and for what purpose will it be used? One can only speculate. Most likely, shareholders armed with the information will argue, object, or under one bill vote to change the method by which the registrant makes contributions, or to change the level of total contributions. Are we truly prepared to give shareholders and special-interest groups input on this one point? We can quickly develop scenarios in which senior management’s time and attention, and significant corporate resources, are diverted from the critical issues surrounding the business, to defending and changing the way in which the registrant makes charitable contributions. These bills have the potential to make charitable giving a more pressing issue for management than the annual election of board members. We do not think it belongs at that level of priority or attention. …

The proposal would indirectly encourage giving to those large, non-controversial charities that would be without challenge in the light of public disclosure, such as the United Way, heart and cancer charities, and the like. Corporations would effectively move away from controversial or “leading edge” charities that would be open to question and attack once disclosed. We question whether this is a good result. It certainly does not encourage charitable “risk taking.”

Robert M. Wilson
Executive Vice-President
Roberds Inc.
West Carrollton, Ohio

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[The Tandy Corporation] is … concerned with confidentiality of charitable information which could be used by our competitors to our disadvantage. In some cases, companies like Tandy are pleased to announce their participation in charitable causes. However, a public company has other constituencies besides its shareholders with which it must deal, namely our customers and our employees. Clearly, we must choose which organizations we are able to assist among hundreds sponsored by our important customers. Consumer-electronics retailing is one of the most competitive industries in America. The disclosure requirements … could be used by our competitors to undermine important customer relationships.

John V. Roach
Chief Executive Officer
Tandy Corporation
Fort Worth

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State laws under which corporations are organized do not put charitable contributions within the purview of shareholder decision. Rightfully, these are management decisions to be made, as are other day-to-day operating decisions, under the direction or delegation of the corporation’s board of directors. Insofar as the aggregate amount of contributions is not material to the corporation’s business, shareholders and investors are not benefited by disclosure of specific beneficiaries. In this respect, public disclosure of contributions is no more important to the investing public than disclosure of the specifics of other categories of operating expense.

[The proposal to give shareholders a say in giving decisions] would create a nightmarish system of red tape without benefit to the corporation. Corporate contributions are made in the context of the corporation’s best interests as a whole and the corporation’s relationship to the communities in which it operates. Permitting shareholders to determine recipients of corporate contributions would result in dispersal of contributions without any relationship to the corporation’s businesses. It would create an expensive and unwieldy layer of administrative requirements. It would also remove from the donor corporations the ability to screen recipients and weed out those whose activities do not merit support. Alan A. RudnickVice-President CSX Corporation Richmond, Va. I am concerned that all but the largest national charities would suffer under this legislation because many of the smaller and/or local non-profit organizations would not be known to shareholders and it would be virtually impossible for those smaller charities to prove that they are worthy recipients.

Under the current corporate-giving structure, non-profit organizations like our own have a fair opportunity to meet with corporate executives and to submit written proposals in an effort to show why we deserve their support.

This process is fair and allows all non-profits to compete on a level playing field. I cannot imagine any way possible that thousands of shareholders would have a chance to receive and consider that information prior to making a decision on which non-profit organization a corporation should support.

Instead, I believe that shareholders would simply vote for those national charities that have instant name recognition.

Craig W. Floyd
Chairman
National Law Enforcement Officers Memorial Fund
Washington

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Trying to devise a method to administer a designation by this many shareholders would require an enormous amount of work hours to implement and manage. Even if possible to do so, if each shareholder were able to designate some proportionate share of the company’s contributions, most of the donations would be so small that they would have no significant impact, either for the charity or for the company. Many amounts would be so small that it would cost more to issue and mail the checks than the organization would receive. Furthermore, without an extensive knowledge of the company and its strategies, the donations determined by shareholders would not be effective to further our corporate purposes. Without this connection to corporate purposes, charitable contributions are not a good use of corporate funds.

We believe this proposal, if implemented, will cause many corporations to cease the types of charitable giving that would be subject to this process.

John E. Jacob
Executive Vice-President

JoBeth G. Brown
Vice-President
Anheuser-Busch Companies
St. Louis

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This legislation would work against the corporate interest, by permitting shareholders to direct contributions to any non-profit organizations of the shareholder’s choice, subject to their personal interests or whims. There is no evidence that their designation of recipients would be aligned with the strategic corporate interest. While corporate managers are accountable to corporate directors for their decisions regarding the selection of recipients of charitable donations, shareholders would have no such accountability. Moreover, corporate assets are not owned by the shareholders; they are owned by the corporate entity. It is the directors and officers who are legally responsible for the stewardship of corporate assets, and for insuring they are employed in a way that furthers the strategic interests of the corporate entity. …

The legislation only affects charitable donations made by the corporation. It does not cover business or political contributions. If corporate managers deem it to be in the strategic interests of the corporation to provide financial support to a particular non-profit organization, they will be able to do so using funding mechanisms other than their charitable contributions budget. Similarly, the legislation does not apply to disbursements made by corporate foundations. … It would be possible to avoid the burdensome requirements of this legislation by corporate managers ceding disbursement of all charitable donations, other than those that would be exempt, to the corporate foundation.

Peter Broffman
Executive Director
Intel Foundation
Hillsboro, Ore.

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This bill would be extremely difficult to implement.

It would require additional proxy tabulation and inspection services. Companies would have to account for and track a potentially limitless and ever-changing number of charities. We understand that there are over 600,000 institutions that currently have 501(c)(3) status with the I.R.S. We estimate it would cost over $1-million to institute the new voting procedure. … Also, we may need to educate shareholders as to why these matters are now being submitted for vote. For us, a special shareholder mailing for this purpose would cost approximately $250,000. These additional expenses would make corporate charitable giving more costly and likely reduce the amount of future giving. … In an era of government cutbacks of support for non-profit organizations and social programs in general, with calls for more support from the private sector, it appears somewhat inconsistent to adopt legislation that may discourage private giving.

Cheryl Sorokin
Executive Vice-President
BankAmerica Corporation
San Francisco

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[House Majority Leader Richard] Armey et al. appear determined to de-fund the “left” no matter what it takes, even if it means intense scrutiny of corporate philanthropy. Excuse me, but has anyone in Congress ever tried writing a grant? Non-profits already have to jump through so many hoops to get businesses to consider them favorably, that adding any more hurdles would put many worthy causes on the “left” and on the “right,” whatever those terms mean anymore, out of business. …

Government doesn’t want to help people any longer. They’re leaving it up to “volunteerism” and institutions like churches. … Now the Congress is going to make businesses afraid to help non-profits. But it’s O.K. in their minds if corporations give us lots of gifts in kind. … Do they expect us to barter? Do they really think that if I.B.M. gives us a computer, Public Service of New Hampshire will take it in exchange for our electric bill?

Rebecca K. Paquette
Assistant to the Director
David’s House
Lebanon, N.H.

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As the development director of a non-profit organization, I am puzzled about the benefits or reasoning behind these two bills. Certainly, the publication of the names of the organizations which a publicly traded company supports would let shareholders understand the charitable philosophy of a corporation. For what purpose? I am not sure that the business acumen of a company and its charitable philosophy have any connection.

The feasibility of shareholders participating in the selection of the charitable organizations which a company supports is preposterous. Educating the decision-making employees of publicly traded corporations about an agency’s mission is already a daunting task. Multiply that by thousands and what do you have? A slowed-down system which will serve to only hurt the beneficiaries of the charitable organization. We would have to add unneeded staff just to be able to educate shareholders. Not a good use of already stretched non-profit funds.

Paige Flink
Development Director
The Family Place

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As the director of a small non-profit without any ties to a large national organization, my concerns about the bills are:

Corporations already resent constant restraints and regulations in dozens of areas. They may simply decide to close off all charitable donations to circumvent the potential difficulties it will cause them. Most companies already proudly declare their contributions to their shareholders. … Giving their stockholders adequate information about the thousands of charities is a costly burden which would discourage charitable giving.

Large, powerful charities may be able to marshal their forces and push through “votes” on their charities to the exclusion of small local groups such as the one I represent. It would be very difficult for us to compete with the American Association of Retired Persons or the National Rifle Association in convincing stockholders to “elect” us for donations.

“Unpopular” causes, such as arts and population control, may lose all funding as corporations will hesitate to alienate their stockholders by donating to these causes and having to disclose that. Just because all stockholders do not see the value to the community of some causes does not mean that they should not be funded.

Large hospitals and universities who hold stock in corporations may leverage donations back to their institutions by the fact that they are stockholders with a “vote” concerning donations.

Sharon M. Gilbert
Executive Director
The Caring Place
Valparaiso, Ind.

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As a stockholder — and part owner in the company — I should have a voice in expressing opinions about company donations. The proposed legislation would open up the corporate board rooms to be more open and responsive to shareholder opinion about contributions.

Randy Daniel
Dayton, Ohio

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I find the proposal to require stockholder participation in this matter to be absurd on all three levels. Let me begin with my experience administering a non-profit. In the last three years I have received three contributions from regulated industries. From one publicly traded bank, I received law books that they were no longer using. From a chemical company, I received outdated personal computers, which we could use. I also received a used copier from another publicly traded company.

I would suggest that to require a company to request approval for such donations from stockholders is absurd. It would cost more in mailing than the total value of the contributions. The real result would be that each of the companies would destroy the equipment rather than donating it to a non-profit. …

As a stockholder in a number of companies, I would hate to see the mailings requesting stockholder approval. The amount of paper generated by such a requirement would create a disaster in my mail box. For most companies that I hold, the cost of mailing would outweigh the total amount of contributions made. And frankly, I don’t care if they give funds to local public radio, the United Way, or other organizations. I believe in corporate giving, and would encourage them to be generous to who ever. Voting on it is not in my self-interest, and would waste my time and the resources of the companies.

Edward J. Hoort

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Widespread disclosure of specific recipients of corporate charitable contributions will, based on our experience, have a chilling impact on creative, cutting-edge, innovative giving to the poor during an era of limited and decreasing government support.

We also oppose the S.E.C. focusing its scarce resources on an issue of very limited financial concern to shareholders. Instead, we urge the S.E.C. to require that the proxy statement include the following on charitable contributions: Aggregate compensation benefits of top five officers vs. total charitable contributions.

For example, in 1996 Bankers Trust of New York’s proxy statement showed $77-million in compensation to its top five officers but only $9-million for charitable contributions. John C. GamboaExecutive Director Robert Gnaizda General Counsel and Policy Director The Greenlining Institute San Francisco Management should be free to determine where a certain amount of the giving went, particularly if a matter of corporate interest was involved, but that the greater amount be determined by shareholders. It was not felt [among our members] that shareholders should vote on particular gifts. It was felt that half to two-thirds of corporate giving should be in the form of gifts that matched shareholders’ and employees’ gifts in whole or in part. It was felt that currently a number of corporations match the gifts of employees. Since the money disbursed is more rightfully the property of share owners, it would seem that that privilege should be theirs.

The amount of corporate gifts should be disclosed in the annual report along with the names and amounts given to the top five to ten recipients.

The complete list of gifts and recipients should be available on share owner’s request. In this report the corporation’s policy of matching gifts should be publicized.

Thomas E. O’Hara
Chairman, Board of Trustees
National Association of Investors Corporation
Madison Heights, Mich.

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This bill could substantially reduce corporate support of non-profits at a time when our country is looking to non-profits to play larger roles in our society.

Shareholders are removed from the corporation’s operations. They are often unaware of the community good will and tangible returns that their corporations gain from charitable contributions. … Shareholders as a whole are more likely to focus on the near-term impact of contributions on earnings-per-share and not appreciate the long-term best interests of the corporation in connection with civic involvement. …

This bill is also contrary to principles of corporate law and governance, which dictate that the business operations of a company, including charitable donations, are the responsibility of management. It would be an intrusive, unprecedented shareholder usurpation of management responsibility for operations and foreseeably would have serious negative impact on non-profits. Appropriate protections already exist in corporate governance to protect shareholders against corporate waste. …

Any government intrusion in charitable giving is unwise and inappropriate.

Walter T. Gangl
Chair
American Society of Corporate Secretaries
New York