Corporate Philanthropy: Hostile Takeover or Helpful Charity?

03/04/2015 12:30 pm ET | Updated May 04, 2015

The business of philanthropy tends to rely on an emotional appeal to donors. Corporations are not necessarily driven to make donations for altruistic reasons nor are they influenced emotionally to support nonprofits -- much like individual donors. Individuals have a heart. Corporations have a bottom line. The result is that corporate donations only make up 5 percent or $16.7 billion of total giving in the United States, according to the Giving USA 2014 Report.

If corporations could be engaged further in philanthropy through a method that positively affects their bottom line, they would be more likely to give and engage with nonprofit organizations. The 5 percent is pitiful when compared to the nearly 75 percent of donations or $241.3 billion from individual donors. What if corporations could be rewarded for their philanthropy in a way that positively influenced their bottom line?

Corporate institutions like banks receive credits per the Community Reinvestment Act (CRA) for their good work in low-income communities that allows them to do more business and benefits the bottom line of the company. Enacted by Congress in 1977, the Community Reinvestment Act is intended to encourage depository institutions to help meet the credit needs of the communities in which they operate, including low- and moderate-income neighborhoods, consistent with safe and sound banking operations.

Carl Ballton, President and CEO of Union Bank Foundation, explained how the bank has found another reason to do good and, simultaneously, do well. "We are making an investment of philanthropic dollars in low-income communities with the expectation of a return." The return for Union Bank is healthy communities. Healthy communities attract more businesses into the area that require business loans as well as financial services. These businesses provide jobs that allow families to buy homes and take out mortgage loans with the bank. "We are moving the needle so that in the long run, the community improves. This is beyond CRA credits."

Ballton expressed that this is a new way for corporations to think about philanthropy. "There was a time when the only reason that companies made philanthropic contributions was because they received recognition or the CEO had a pet charity. Marketing exposure and a pet charity are not reasons for corporate philanthropy -- nor do they make a real impact on improving a community."

While the bank still sponsors nonprofit events like galas and 5K walks, they see these contributions as short-term investments with returns of marketing and exposure. Union Bank is really looking to put their philanthropic dollars into charities that will help create a long-term effect in building a healthy community.

Jeff Hoffman is an expert in corporate philanthropy. Most recently, he headed up Disney's global philanthropy and now consults to corporations about their philanthropy. His philosophy is that "corporate philanthropy needs to be strategic and built out of a shared value among the corporation, the nonprofit and the community."

Ballton agrees. "The LA Times supports literacy. Amgen supports health because it is their core competency. Similarly, the bank is an economic engine and we help generate economic activity. So it makes sense for Union Bank to engage in philanthropy around building financially healthy communities."

Another benefit the bank receives from its philanthropy is that it attracts the younger generations of employees who want to work for a socially conscious corporation. In 2013, the 10,000 Union Bank employees gave 75,000 hours of volunteer work. That same year, more than 300 Union Bank executives serve on nonprofit boards and collectively provided a total of $2 million worth of pro-bono hours (based on the executives' hourly rates).

Hoffman states that "dollars are important, but so is the involvement of their employees. Their expertise can sometimes be more valuable than the cash."

Ballton suggested that they take employee volunteering one step further. "What if we put together a SWAT team of company employees to work directly with a nonprofit to address specific issues? We've done it on a smaller scale. It would be another way to bring value to and create healthier communities."

Ballton cautions that one corporation's philanthropy can't build a healthy community on its own. "Union Bank's commitment of 2% of after tax profits in contributions annually is not going to move the needle, but if we can come together with partners we can make a difference in the community." A great example of Union Bank's collaboration is with the community of Fresno. Union Bank set up a bank branch inside McLane High School that is operated by the students and overseen by the bank manager. Students receive hands-on experience with banking and teaching financial literacy, as well as the same training as any branch employee. Upon graduation, some of these students have been hired to work for Union Bank. "Through this program, the school and school district have seen tremendous improvement with student graduation rates and an increase in students' intentions to go to college."

How can a reward system be instituted for corporations that, when they engage in philanthropy, would go straight to their bottom line?

Ballton outlined how a corporation can be more strategic with its philanthropy to positively affect its bottom line. "For corporate philanthropy to be successful, companies need to see the value coming back to the business and on their bottom line."

1. Look for communities where the corporation has a good market share.
2. Actively listen to what the community needs.
3. Analyze how the corporation can make a difference.
4. Look for partners and collaborators who are going to double and triple the corporation's impact to positively change this community.
5. Be strategic about the corporation's giving and where the dollars are invested in order to see a result in the community.
6. Provide resources beyond dollars by adding in human capital from your corporation. Utilize employees' expertise to help nonprofits in capacity areas such as accounting and finance. Organize groups of volunteers to take on one-day building projects. Offer your company's conference room as meeting space or extra office space to be utilized by nonprofits that can't afford rent and utilities.
7. Stay invested in the community, knowing that this type of philanthropy will yield long-term results.

The results of this type of corporate philanthropy would result in building healthy communities and seeing a direct increase in their business that would positively affect the bottom line. Doing well by doing good.

This post has been updated to remove an incorrect description of Union Bank's collaboration with the city of Fresno. It has also been updated to clarify that not all students in the McClane High School program are hired by Union Bank after graduation.