I am going to talk about corporate philanthropy today.  I am going to skip over whether corporations can and should be doing philanthropy in the first place, which is a legitimate question.  If you read this blog, you probably already have your own opinion, and besides today’s entry is going to be too long anyway so thank your lucky stars I didn’t tack that on too.  In case you don’t have time to read the whole thing, my main point is:

There are great new opportunities for corporations to leverage their assets for social and environmental impact, and their own employees are increasingly demanding this of them.  However, corporate philanthropy is usually unable to meet this challenge because it retains structures and practices from past eras.  Companies that want to meet the challenge and take advantage of the opportunity need to integrate as much as possible their philanthropic objectives into their business.

OK?  If you have time, keep reading.  I used some profanity this time, so you have that to look forward to.

What do I know?

My work has intersected with corporate philanthropy twice.  First was as an employee with a day job in risk management at a large British bank. I had recently left the non-profit world, and I felt pretty rotten about how meaningless my work was. To make myself feel better I led a mentoring program for at-risk youth, and we won some kind of Chairman’s award for corporate do-gooding.  They gave me a plaque that I still have somewhere, and they put me on the San Francisco committee that directed tiny grants to local groups.  I never got to talk to the Chairman, but a few years later the Chairman’s special assistant flew in from London to talk to my partner and I when we were working (on our own initiative) on the first risk-optimized socially responsible equity fund.  He told us how happy they were that we had taken on this project on as it gave them a talking point when the bank was questioned by reporters and shareholders about unsavory governments they were required to work with to stay in business in Africa.  A few months later our project, which was making a tiny bit of money for the bank, was shut down by our local managers who could care less how this effected our colleagues in London.   Local management’s (correct) assertion was that my partner and I could be better utilized making gobs of money working on other projects (well, let’s be honest, it was mostly my partner).  He stayed, I left.  He owns three houses now.  I have one house and a blog. How many houses does one person need?  Non, je ne regrette rien.

The second time I worked in corporate philanthropy, it was on a much bigger stage, and it was a complete goddamn tire fire, so much so that the New York Times felt compelled to cover it.  I was told that one of these reporters was going to write a whole book about it, but after interviewing most of the principals, it was such a mess of score settling and recriminations that there was no coherent narrative. Well, I have no scores to settle.  Almost everyone I met there was nice and smart and wanted to do good work that helped people.  I still have borderline-irrational affection for that company, and their current philanthropic efforts now have a lot to recommend about them.  In many ways, the failures when I was there had nothing to do with the failures of corporate philanthropy broadly, but there were a couple of things that I will try to share below, both in terms of things they did wrong and as importantly things they now do right. 

Since then, I have worked with people in corporate philanthropy/CSR as a co-investor, collaborator and sounding board.  I fancy myself a student of corporate philanthropy.  I mention all of this merely to show that I have some real life experience to bring to bear answering the question:

Why is most corporate philanthropy so bad?

I meet with a lot of entrepreneurs who run impact-y companies and business-y non-profits.  (My advice is usually free, and I try hard to make it worth more than they pay for it.  Feel free to drop me a line if you want to talk.)  It’s an exciting time to be working with start-ups, for profit and non-profit, because so many people with business backgrounds and business mindsets want to solve big problems and are taking non-traditional approaches to do so.  Good social entrepreneurs always have a short list of companies who would be ideal partners for them, and usually money is not the top of the list of things they need from a corporation    Access to expertise, channel or employees, or signing them up as an early customer - all of these things rate higher on the wish list and, as importantly, good entrepreneurs usually have a solid pitch as to why this is in the corporation’s long term best interest.

Through my business school (Go Bears), I meet a lot of MBAs with an interest in social entrepreneurship.  By virtue of their debt loads and Bay Area real estate realities, most of them end up at larger companies rather than non-profits or start-ups, but they are just as interested in social innovation and often pick their jobs based on some expectation that they will be able to find worthwhile opportunities within their new company.  I try to connect them, when relevant, with the entrepreneurs I meet, but unless I know someone in exactly the right business unit, the answer is usually, “I don’t know how I could help them.  I think my company has a foundation?  Maybe I can connect you with them?”  So off we go to the corporate foundation, the central mechanism by which this company “does good”.

Why Does a Corporation Do Philanthropy Anyway?

I think I already outed myself as part-libertarian on this blog, so my thoughts on this shouldn’t be shocking.  For perfectly logical structural reasons, corporations do not do anything over the long haul that is not in their own self interest.   The difference between enlightened companies and Koch Industries is how willing they are to think hard about defining stakeholder groups, how their decisions and resource allocations serve those stakeholders in the long term, and how positive relations with those stakeholders benefit the firm in the long term.  Historically, corporate philanthropy was primarily a fairly straightforward, uncreative exercise in community and government relations.  You have a factory in that town?  Make sure you give something to the local charities. When it comes time for the city council to vote on the tax break for your factory expansion, it will help that you are known as a good citizen, right?

Cause marketing came next.  You know, the super bowl commercial with the breast cancer survivors on it and the beer company trumpeting its support for some well regarded breast cancer charity, p.s. please drink some more beer?  I am curious how well this works ( I personally couldn’t drink any more beer without threatening my already tenuous parenting record.)  The few deals I have seen up close involve less actual money to the charity than you would think and more “Your logo will be on all of these ads and billboards.  We’re raising awareness.” but I am willing to admit that some real money moves here.  I am also not sure how well this works as marketing, but I assume smart people are crunching the numbers at the breast cancer fighting beer company.

More recently there has been a great deal of talk about the role of corporate philanthropy in attracting and retaining talented employees.  Study after study  suggests that workers, especially millennials, want to work at companies that are achieving some broader goal beyond just profit.  Campuses are filled with students starting social ventures, the White House has an office of social innovation and a bunch of scum sucking investment banks are licking their lips at the prospect of selling impact investing products.  Using philanthropy to recruit and retain talent makes sense in theory, but to be honest, I have seen very little of it in practice.  In my experience, people are excited about what they work on directly and/or the core product or service of the company, and almost no corporate philanthropies are integrated into the core operations of the company (Once again, tip of the pen to Mark Benioff and Salesforce, once you are done hearing me complain go listen to this podcast around the 23 minute mark) 

I think that this - attracting and retaining talent - is the most important, self interested reason to do corporate philanthropy, and most of the CEO surveys I have seen confirm that top management agrees with this assessment.  What is interesting to me about this is that almost no corporate philanthropy is actually structured to maximize employee involvement or give employees visibility into the process, despite the fact that more and more corporations say that this is why they are doing philanthropy in the first place.  Well, how are they structured?  Good question.

The Types of Corporate Foundations

95% of the time the corporate foundation turns out to be one of three animals:  the Citizen  (this is about 60% of the time), the Brander (30%) or the Specialist (the other 5%). The final 5% are great, but in the interest of time I’ll talk about Salesforce Foundation some other day.

• The Citizen - 60% -  The Citizen foundation operates, explicitly or implicitly, as part of community relations.  Their job is to spread a little money around everywhere the corporation has facilities - $5,000 to the food bank, $2,500 to the boys and girls club.  Sometimes this adds up to a big number, but it is usually broken up into very small amounts.  They tend to be separate from the operations of the company, either intentionally or simply because this type of activity doesn’t require it.
• The Brander - 30% - The Brander does fewer, larger gifts than the Citizen and looks to get as much marketing bang as they can for their buck.  It usually associates with a big cause, breast cancer awareness or wounded veterans, makes a donation, and then trumpets to the heavens (and TV and the internet and billboards) how committed the company is to that cause.  The cause is almost never related to what the company does.  I assume the individual check sizes are bigger than the Citizen, although it’s usually not clear (except in cases where the actual donation is so much smaller than the amount being spent to promote it that I briefly consider becoming a Laker’s fan every time I see the goddamn commercial)
• The Specialist - 5% - The Specialist is often a reformed Citizen or Brander.  The company doesn’t want to just spread money around or build their own brand, they want to take on a specific challenge and “move the needle” in that area.  They bring in staff with expertise in that particular area and usually have a very proactive, hands on approach.  In theory, this is potentially a good strategy.  In practice, it almost never works and often the reason is that the issue they pick is usually unrelated to the operations of the company.

So, each of the structures above have their own individual failings.  The Citizen rarely provides enough support to any individual group to meaningfully help.  The Brander’s opportunism is easy for all but the least sophisticated to see though, and it’s unclear how much all their promotion actually helps the cause.  The Specialist . . . ugh, the Specialist . . . the big corporate philanthropy I worked for was a Specialist.  Cut off from the rest of the company, staffed by smart well-meaning, ex-Department of Energy and World Bank employees, working on impossibly big problems that had been identified in corporate retreats by well meaning executives.  One of my last retreat-y meetings there, I watched a senior staffer add “Cure Polio” to a whiteboard list of objectives for the upcoming year as an afterthought.  Ugh . . . .

Anyway, for all their differences, the three models above have their most key failings in common.  And these failings, dear reader, are why they are so goddamn disappointing to the rest of us

• Disconnection from the core business of the company  - Most companies are surprisingly reticent to engage in issue areas that connect to their business, whether that is from a fear of  being seen as self-serving or that philanthropic work will actually come back to bite a business unit in the future.  So, that large apparel company that you have approached with your group that is tracking labor conditions in SouthEast Asia?  The one that has all the knowledge and connections that would be so helpful and the CEO who has stood up and said “We’re working hard on improving our record with contract manufacturers?”  95% of the time they say “Sorry, we don’t do that.” Even in Mark Benioff’s book on strategic corporate philanthropy in its very first chapter (!) quotes the CEO of a giant toy company crowing about his company’s commitment to funding education centers in Afghanistan.  Pardon my french, but what the fuck does a U.S. toy manufacturer know about education in Afghanistan? Do you think his own employees have some ideas about educational toy development that could be better leveraged into social impact?
• Inability to engage employees in their professional capacity - It is one thing for your employees to do youth mentoring after work or build playgrounds on a weekend, and there is nothing wrong with any of that.  However, most social entrepreneurs would rather have access to them as professionals - as accountants, as designers, as programmers, as supply chain experts - than as tree planters.  And, in my experience, the kind of employees a company is trying to retain with its philanthropy would much rather be engaged as professionals than wielding shovels
• Philanthropic staff are outsiders - Because of the intentional disconnect from the rest of the business, the people who run corporate philanthropies often come from outside the company, and even the ones who are internal are usually off the executive track of the company.  As such, they are not able to help a social entrepreneur, for profit or non-profit, who is looking for different forms of partnership.
• Overly focused on grant making* - Related to the point above, money is almost never the thing at the top of the list for an organization approaching a corporation, and yet the tip of the corporate spear is usually a group that is focused solely on grants. 

*OK, I had to put this somewhere even though it is not the main point of my post.  Take a look at the 2014 CECP report of corporate giving.  Aggregate corporate in-kind donations are almost TWICE their cash donations!  And according to the authors, most of this comes from one-off contributions, which means the largest corporations taking a $2 write-off on product they couldn’t sell for every $1 in cash they are donating. Crazy!

Add all of this together and you have organizations that are appendages to corporations rather than integral to their operations.  That may have been fine thirty years ago, but if they are serious about integrating philanthropy into the culture of the company in a way that resonates with employees, it’s not going to cut it.

OK, smarty pants, what should they do?

Well, start with the realization that it’s really, really hard.  Way harder than having a standard corporate foundation, which means it’s not for everyone.  And, you need a commitment from the CEO on down or it’s not going to work.   OK, ready?

1. Realize that it is not all about grants - To maximize your company’s philanthropic impact, you need to be ready to use all of the resources at your disposal: expertise, networks, purchasing power, brand equity, investment capital and yes, also grants.
2. Recruit internally - To leverage internal resources, you need people who know the company.  This means recruiting existing employees to run philanthropy, and it also means encouraging people to move back out into the company after some period of time.  Ideally, it should be a stop on the way for people on the track to senior management.
3. Encourage internal project generation - Odds are your own employees have a bunch of ideas for how your assets could be leveraged for impact and some even know which groups to work with, so it is important to have a process to find the best and get them some resources.  Then find the right partners for those projects outside of the organization for 
4. Build a philanthropic entity that is focused on matchmaking between internal teams and outside groups, then fund those groups - An integrated philanthropy should be walking the halls of its own organization, meeting with external groups who have partnership pitches, and then determining what the best opportunities are and actively facilitating them.  
5. Develop a process to estimate the internal cost of these efforts, budget for them and have a process to decide what to do and what not to do- To go back with a sympathetic eye to my old managers at the bank, it DOES cost money to have your staff working on these things.  And partnering with impact start ups and non-profits has a whole host of implicit and explicit costs associated with it.  You need to develop a risk and cost budget associated with these partnerships, then you need some sort of process to determine which projects are worth allocating resources to (and for how long)
6. Measure the benefits - So you are measuring what all of this costs, now you need to measure to the best of your abilities what you get for it: recruiting, retention, brand equity, new product innovation, whatever there goals you have for the program.  It’s easy to say and hard to do.

One happy post-script to my earlier rant: that corporate philanthropy I used to work for?  They follow a lot of these principles now, and it seems to be working.  But, like I said, this isn’t for everybody.  Show that list to 10 CEOs and 9 of them with laugh and/or throw up in their mouths because by integrating deeply into the company, you could easily diminish focus on the actual business of the company.  I think this only really works if the executive team believes that building this into the culture of the cooperation benefits the core business in the long term, a belief that I think is spreading.  My hope in writing this down is that at least one of those enlightened exec teams doesn’t inadvertently pull one of the old models down off the shelf, thinking that if everyone else does it that way, it might work.  Because it doesn't.

OK, corporate america?  If you need help, call me.  

These days my path to wisdom seems to involve the following steps:

• Talk to people
• Think hard about a particular topic
• Come up with something that strikes me as a real breakthrough thought
• Realize 15 minutes later that it is totally obvious and that a certain group of people have already been doing it this way for years
• Write it down anyway in case there are other people as dense as I was 16 minutes ago who could be helped by me writing it down.  Try to make it funny. 
  

This is going to be one of those.

Customers are more valuable than investors.  You are more valuable to an early stage venture as a customer than you are as an investor.

I was out for drinks last week with a friend of mine who works for a large environmental conservation nonprofit. We have talked for over a year off and on about his organization starting a program to invest in some of the huge explosion of agricultural data companies (drones, sensors, data platforms) whose products could be turned toward measuring and managing environmental outcomes.  It’s an interesting proposition if I do say so myself, and something still may come of it.  But as we talked about each of these companies, especially in what is today a very frothy venture investment market, it quickly became apparent that there is an easier way to support and influence these companies: buy and use their products.  At this stage of their development, any one of them are willing to spend a lot of time with a customer who is willing to pay for their beta product and give them feedback.  The fact that much of this feedback will be tailored to help them build products that better meet the need of a conservation buyer is gravy.  And, unlike an investment program which would require hiring new staff and building out new capabilities, this organization already has staff who understand the technologies and can make informed purchase and deployment decisions. 

So that is the high flying start-up ecosystem, but what about everyone else?  I wrote a few months back about how venture capital is not useful for 99% of social ventures and regular businesses.  This is a major stumbling block for most social investors (including governments and corporations) when they realize that most or all of the companies they want to support have no ability or intention to create an exit for equity investors. But if you talk to these companies, most of them will tell you they don’t really need investment, they need good customers (and by good I mean long term relationships that create good margin without inordinate hassle)  If they really do need investment, the right set of customers make getting a bank loan relatively easy. 

I know this is probably obvious to most, and maybe it’s a result of the little corner of the universe I inhabit. I talk to corporations, foundations and NGOs all the time about setting up strategic investment programs, but we rarely talk about setting up strategic purchasing programs.  This seems like one area where government is ahead of the rest of us, although they usually insist on calling it “procurement” which sounds vaguely like proctological procedure .  I am very proud to say that my home city of Portland, Oregon, is about to launch an Early Adopter Program (powered by Switchboard) that encourages city departments to contract with local start-ups.  It is notable that they decided to do this instead of launching another seed-investment program.  Their (correct) view of the local scene was that these start-ups need their first large customer much more than they need another seed fund.

So, NGOs, corporations, foundations and governments should consider strategic purchasing as a complement to (or instead of) strategic investing for some simple reasons:

•  You already have the expertise on board
  
•  You can work with a much broader set of companies
  
•  You already have budget approved
  
•  You have no long term ownership or creditor relationship to manage
  
•  You can involve a much broader set of people in your organization (yes, I realize this is a double edged sword

Finally, and I am going to get high falootin’ here: 

• Engaging with companies or social ventures in a customer/vendor relationship creates a relationship that is inherently fairer than creditor/debtor or donor/recipient relationships.  
  

Each party is giving and receiving something of value, and, managed correctly, you have a chance to avoid some of the power dynamics that plague philanthropy and impact investing where one party has all of the resources and power, and the other flatters the powerful to get access to those resources.

OK, so that’s the big institution perspective.  What’s in it for the little guy?  Plenty.

• Validation - The most important thing a large customer brings to an early venture is credibility - credibility to other potential customers, credibility to business partners, credibility with regulators, and credibility to investors should investment be needed. Customers beget investment much more often than vice versa.
  
• Feedback - Along with validation comes feedback that improves the product.  If this feedback comes from a customer who is explicitly focused on accentuating the social or environmental impact of your product, so much the better.
• Flexible, Non-dilutive Capital - Earned revenue is the best investment there is because it’s yours.  You don’t have to give away part of your company, you can use it to grow your business however you see fit, and you don’t have to exit the business in 5 years to pay your investor back.
• And back to my high falootin’ point:  Receiving payment for product or services from a customer ensures the focus and dignity of the company, which is often an area of concern for entrepreneurs when talking to foundations or impact investors.

I think most people get this intuitively.  Part of the explanation for many on crowdfunding platforms moving toward pre-purchase arrangements has to be artists and entrepreneurs saying, “Look, I don’t want or need a donation, I just want to know that you guys will buy this thing if I make it.”

Obviously, there are some complications to consider.  Working with small companies requires some extra engagement and there’s risk that things will show up late or not as initially imagined.  From the company perspective, large clients with an explicit social or environmental mission may take some extra work to make happy, but these seem like surmountable issues and I am glad that cities like Portland and start ups like Switchboard are taking the lead. I don’t think any of the points above diminish the importance of impact investing, but I do hope that some of the PR glow we currently enjoy could slide over to the world of procurement Step one: come up with a better word than procurement.