How to Incorporate Philanthropy Into Your Business
Recently divorced Mike Hannigan was in a grocery store looking for spaghetti sauce when he came across Newman's Own for the first time. Discovering that all the profits of the competitively priced brand were donated to charity made something to click for the office products company manager.
"As a consumer I wasn't making any sacrifice," he says. "Use business as a tool to accomplish a community goal — it made perfect sense."
In 1991 Hannigan started the office products company Give Something Back and committed to earmarking the company's profits for nonprofit organizations instead of shareholders or investors. Since then, the Oakland-based company has become the largest independent office products supplier in California and its main competitor is Staples' commercial division.
Becoming philanthropic isn't just a nice thing to do when business is booming. Donating time and resources can be an essential part of a sustainable business strategy. Plus, becoming a better corporate citizen fosters good will that can have its own rewards later. Achieving this doesn't even have to cost a dime. Here's how:
Start with a Solid Enterprise
Sound business practices make for ideal philanthropic planning. Having a stable organization, even if profits aren't soaring yet, will ease the process of incorporating giving.
"Make sure the business metrics work. The business itself has got to stand alone as a successful venture," Hannigan says. "If we charge twice as much as Staples, we can't get those customers. We shouldn't get those customers."
One of the risks involved is that a company's leadership can end up getting overly focused on the social side of philanthropy and subsequently lose track of the business platform. Hannigan says he's seen it happen, which is why in his model commerce is where the company's greatest value is developed. Without that, they couldn't continue being a community partner.
Incorporating Philanthropy Into Your Business: Develop a Philanthropic Strategy
Philanthropy starts not with cash but with an idea, and one of the first steps is developing a strategy around giving: what issue or issues will the company be addressing and why, what form will the philanthropy take, precisely how that will be accomplished, the long-term goal, and how that all fits into the company's core values.
"I really encourage businesses that are starting up to incorporate the triple bottom line approach," says Christopher Ellinger, co-founder of Bolder Giving Initiative, an organization based in Boston and New York that aims to inspire and support donors to give at their full potential. That approach should be written into a clear mission statement that serves as the business's moral compass.
Ellinger also suggests tapping into networks for social responsibility to get guidance and support. Prominent networks include B Corp, corporations that use business to address social and environmental problems, and the Social Venture Network. Beyond formal networks, informal ones can be valuable resources. "Reach out to people who have done it before and find out what lessons they've learned," Hannigan recommends.
Incorporating Philanthropy Into Your Business: Set Philanthropic Targets
Philanthropy has a number of forms, not just monetary ones, so the key is to find a donation structure that melds with the company's identity and plays off its strengths. Non-cash options include donating products and services, such as volunteering based on the company's unique skill sets.
For new businesses, Ellinger suggests adding philanthropic structure from the start. "It could be offering a matching grant program for employees, it could be setting up a corporate foundation," he says. One company he's familiar with matches gifts from employees, and it currently has 100 employees who each put up $1,000. Another company he knows matches at a more modest $100 per employee.
On average, a standard amount for businesses to give away falls between 1 and 2 percent of the gross profit, although there are those like Give Something Back that aim for the sky. The formula depends on the business, says Leslie Pine, senior vice president for program at the Philanthropic Initiative, Inc., a nonprofit organization based in Boston that collaborates with individuals and companies to advance the field of strategic philanthropy.
"We've worked with companies that aren't even making a profit yet," she says. "It doesn't make sense to think about a percentage, but there are other ways to get started and set that as a goal over the next three or four years." A company like that could volunteer its skills initially and then gradually commit to a percentage once it becomes profitable. Pine also advises donors to budget for philanthropy to help manage requests as they come through the door.
Incorporating Philanthropy Into Your Business: Delegate Philanthropic Responsibilities
Donating can only be effective if the employees know whom is supposed to be doing what. A common stumbling block that Pine has seen relates to how a business manages the workload associated with giving. "It can be a challenge if a business is just starting up its philanthropic effort," Pine says. "Sometimes they don't want to dedicate a staff member to implementing the program."
Head off what could morph into a thorny HR issue. Leadership might want to identify a manager and, in close collaboration with that person, restructure the role to include philanthropy, Pine says. Or the company could recruit volunteers from the staff and form an employee giving committee that makes collective decisions.
"Another option is to outsource," Pine says. Her organization and others across the country will manage grant making for funders, and can assist with the formation of giving committees, training them on evaluating organizations and projects before dedicating resources to them. Pine says that philanthropic initiatives can actually improve employee retention, and make recruitment easier.
Incorporating Philanthropy Into Your Business: Get to Know Your Community
Successful philanthropic endeavors have something in common: they are built steadily over time. The impact ultimately comes not just from which organizations receive funding but also the development of positive, lasting relationships between companies and their communities.
"Our philanthropic model is not a top-down model. It doesn't rely on the rich and powerful," Hannigan says. "We poll the grassroots." Give Something Back asks customers in specific geographic areas they serve to decide where to invest the profits. They are most likely to know which organizations will be effective.
"If it's a bad decision, the organization will not earn the respect of the people who live in the community," Hannigan says. Letting the community decide has other benefits, too. Successful projects reflect well on the business, which could influence consumers and clients who are constantly making choices in the marketplace.
Incorporating Philanthropy Into Your Business: Find Projects That Are the Right Fit
When sizing up a nonprofit, use similar basic criteria that an investor would in a for-profit venture: Take a close look at the organization's leadership, programs, activities, and strengths, as well as the risks associated. Do due diligence by assessing their track record and financial stability.
"In our work we always push companies and funders to develop other criteria that might be very specific to the business," Pine says. For example, an R&D company centered on innovation might intentionally seek to fund innovative approaches to furthering their goals. That could mean thinking about what will resonate with employees and other stakeholders.
Employees might be the motivating force, deciding on an issue that matters to them. Ellinger also suggests talking to a foundation. "You could ask the local community foundation in the area to give you a docket of projects in the area you're focusing giving," he says. There are hundreds of these foundations across the country.
When philanthropic funds become available, word gets around. Pine recommends publishing proposal guidelines and being prepared to say no to proposals that don't fit. "For companies it's particularly challenging because they don't want to create bad will within the nonprofit community," she says. Decline gracefully by restating the goals and wishing the organization luck.
Incorporating Philanthropy Into Your Business: Start Giving Strategically
Even small gifts can be highly effective. Pine and her colleagues worked with a funder in Boston that wanted to foster greater interest in science and math at area schools. On the surface the issue appeared extremely large and daunting. TPI began talking to experts and learned that interest tends to drop off in middle school. It asked middle school science teachers what, precisely, would help.
"There are teachers with creative ideas on how to engage students, but they just need a little bit of money for more hands-on experiences," Pine says. It turned out that a trip to the aquarium made a big difference. For several thousand dollars, the funder could transform students' lives and inspire them for life.
Step back and do an assessment, ideally at least once a year. Review accomplishments and communicate them to key stakeholders. Hannigan says his company has given away 78 percent of all of the profits it has made since 1991, leaving 22 percent to be donated in the future. Last year the company only made $30,000 in profits, but he says that what really matters is who benefits from the surplus once the bills are paid.
"Every company gives its profits away. Chevron gives its profits away — they give it away as dividends to their investors," Hannigan says. For him and many other companies like his, the marketplace is a tool to create wealth and resources that can be distributed back through the community to solve myriad problems. That way, everyone profits.