Corporate Foundations: how they can help companies achieve their CSR objectives
There are various ways corporations can meet their Corporate Social Responsibility objectives and aspirations. Setting up a foundation is one way of satisfying CSR requirements. Palladium's Director of Grants, Defrim Dedej, outlines the building blocks of a successful corporate foundation and guidelines for getting started.
What is a corporate foundation?
A corporate foundation is a legal entity set up by a commercial business to carry out charitable activities. Well-known examples – like the Nike, JPMorgan Chase and MasterCard Foundations – usually derive their income from an endowment of invested capital or a regular donation from the business.
A corporate foundation can work in a number of ways (for an example see figure/image below), but most often it acts as a vehicle that enables a corporation to undertake philanthropic activities. The foundation receives most of its funds from the parent company. It then it converts these funds into grants (or other financial modalities) to give to individuals and/or charitable organisations, uses these funds to finance its own charitable activities, or both.
The benefits of establishing corporate foundations
Most public limited/traded companies now have a CSR policy. Establishing a foundation can help improve the reputation of a corporate organisation while also helping it achieve its CSR objectives.
- Strategic and coherent giving and CSR: A foundation gives a corporate organisation the freedom to think strategically about the issues on which it wishes to make an impact. Its charitable activities can be linked directly to its CSR policy and objectives and be planned in a coherent, proactive manner.
- Improved security and reduced social risk: For corporations that operate in unstable or high risk environments, the work carried out by their foundation can make local communities see the company as a contributor to their wellbeing and accept it as part of the community, in turn reducing security risk.
- Increased attractiveness to other donors: Donors such as DFID and USAID often utilise established and well-run foundations to disburse funding to the same beneficiaries. This becomes even more attractive when the target beneficiaries are considered hard-to-reach groups and located in places where security or the reputation of a statutory donor is an issue. The foundation can also leverage further donations from its employees who might want to get involved by donating their own money, time or expertise.
- Potential tax advantages: Companies cannot generally claim a charitable contribution tax deduction for the funds they use to implement their CSR projects, but such funds can often be channelled in a tax-efficient way through the foundation, leaving more money for community initiatives.
- Enhanced reputational trust: The reputation of a foundation that bears a company’s name might be of considerable value to corporations when they are faced with reputational challenges, whether with the public, customers or other stakeholders. Creating a foundation is a more powerful gesture than a one-off donation – it demonstrates that a company is serious about long-term community investments and is committed to a long-term approach to social risk mitigation.
- Improved staff morale and enhanced reputation for new recruits: With competition for bright young graduates still high, companies with a strong CSR reputation are often seen as more attractive to prospective employees. Having a foundation can also benefit staff morale, as they can all participate directly or indirectly in foundation work.
Establishing a corporate foundation – what to consider
While establishing a corporate foundation can yield a number of benefits for a corporation, it is not the only option available for meeting CSR objectives. As a result, a first step should be to undertake a feasibility study to assess whether other ways to make contributions to charities and community activities might be a better option. These options could include:
- Seconding an employee to work for a charity,
- Making resources, such as office space and surplus materials, available to a community or charity
- Donating money through payroll giving schemes, or
- Investing in or trading with charities or communities
To ensure compliance with all the rules and regulations concerning corporate foundations, get advice from your local regulatory body (like the Charity Commission in the UK) in the country where you would like to establish your foundation.
One of the most important steps is clarifying the aims and objectives of a charitable foundation. One approach that has proven useful is giving the foundation a function aligned with the company’s area of business, so that you can add value through your corporate practices. Consider the nature and ethos of the company and the impetus that created the foundation: can you build on or reï¬‚ect it?
While the foundation will receive most of its funding from a company (and usually bear its name) it is crucial that the company gives the foundation full independence and honours that arrangement. The risks of blurring these lines of independence are both reputational and legal.
The relationship between the corporation and foundation will need regular management, and it is worth agreeing how this will be done from the start; for example, schedule regular meetings between the Chair of the foundation and the corporation CEO. Consensus that is reached at the top usually means more straightforward implementation, and the beneï¬ts of thorough and continuous communication between the corporate donor and the foundation cannot be overemphasised.
Try to secure trustees from different backgrounds, and encourage them to make full use of their areas of expertise when attending trustee meetings. Processes and procedures must be in place for trustees to avoid any conï¬‚icts of interest that could present legal or reputational complications.
Ensure that a monitoring and evaluation (M&E) system is in place to capture the outcomes and impact achieved with foundation resources and so that the lessons you learn are shared internally and externally. An effective M&E structure will also inform where future foundation resources are best used in the future.
One of the advantages that corporate foundations have over statutory donors (such DFID, USAID and other government departments) is that they are not directly accountable to the public at large. As such, a foundation can have a larger risk appetite and is not restricted to more traditional grant-making. This flexibility allows for greater experimentation and the consideration of new models to achieve the foundation’s goals. After all, some of the most successful global businesses today are those that dare to take calculated risks and consistently come up with innovative ideas to achieve their corporate objectives. A corporate foundation is built on solid ground when it adopts a reasonable balance of risk mitigation and innovation.