Giving 'til it Works
By Doris Rubenstein, PDP Services
Minneapolis Star Tribune, March 9, 2003

“Can you prove that giving to nonprofits will benefit my company?”

That’s the Number One question I’m asked in my business.

I can quote all kinds of studies and figures from a number of respected sources. But business owners are hard to convince. Now, a new study has been released in the Harvard Business Review (December, 2002) that proves the effectiveness of this practice beyond a shadow of a doubt.

Harvard Professor Michael E. Porter and Mark R. Kramer, a business consultant and cofounder of the Center for Effective Philanthropy, present compelling evidence in their report “The Competitive Advantage of Corporate Philanthropy.”

The authors stress the importance of strategic philanthropy in creating value in the act and process of giving. Through it a company can influence what they call the competitive context of their home and market communities.

Competitive context

There are four elements that compose what the authors call the competitive context for business.
According to Porter and Kramer, the four elements are

• Available inputs of production: employees, material resources, infrastructure for delivery such as roads, electricity, etc., tax structure.
• Demand for your products or services: healthy economy that can consume them.
• Healthy competition: to assure that there is continuous improvement and innovation. 
• Related and supporting industries, from parts suppliers to office suppliers.

Giving to improve the competitive context is what creates the value that translates into improved profits. Your ability to compete depends heavily on the competitive context of each location where you do business.

Beyond the competitive context, having a product or service that fills a need at a reasonable price is key. The product or service functions within the competitive context.

Affecting your competitive context

There are many ways of affecting competitive context.
The tax environment is one available input of production. Our many chambers of commerce lobby hard at the legislature to create a tax code that is favorable to businesses. This is an exceptionally long process to affect change. The results are measurable in terms of legislative sessions or executive terms.
In terms of creating demand and participating in healthy competition, billions are spent on advertising in our economy. Whether your company places advertising is in the mass media or in trade publications and shows, this is an expensive proposition.

What produces better results?

The Harvard report concludes that “Philanthropy can often be the most cost-effective way for a company to improve its competitive context, enabling companies to leverage the efforts and infrastructure of nonprofits and other institutions.”
They pinpoint four distinct advantages that business earns by using philanthropy to affect competitive context:

• Taking advantage of the existing programs and networks of nonprofits and educational institutions. Supporting non-profit housing programs in inner cities helps to provide a workforce for downtown industries such as hotels and restaurants who have need of unskilled workers. Companies like Wells Fargo and law firms like Moss & Barnett support Habitat for Humanity not particularly because they need low-skill workers, but their business clients do!
• Leveraging the collective actions of other companies who donate to nonprofits, enabling costs to be spread over multiple donor businesses. Capital campaigns -- from giants like the U’s Carlson School of Management drive in the 1980s to build a new, state-of-the-art facility, to small ones like the recent drive at the City of Lakes Waldorf School to purchase an inner-city landmark building -- demonstrate the power of cooperation. The CSOM Building bears the name of Curt Carlson, founder of the Carlson Companies. But the plaques on the interior classrooms and auditoriums tell the real story of dozens of Minnesota businesses pulling together to erect the infrastructure of tomorrow’s corporate community.
• Forging partnerships between cooperating companies and nonprofits or governments is more likely to happen since it removes the appearance of favoritism for one particular company. Milda’s Corner in North Minneapolis is a prime example of public-private partnerships. The nonprofit Redeemer Center initiated the project and operates transitional housing in the development. The Minneapolis Neighborhood Revitalization Program provided funding, and several private construction and contracting firms contributed or discounted materials or labor to build the mixed commercial and housing complex.

Each of these advantages translates into new or expanded business opportunities.

Strategic philanthropy

The Harvard report stresses the importance of strategic philanthropy to maximize the effectiveness of efforts to affect the competitive context. They recommend several points to include in a strategic plan: selecting the best grantees, signaling other funders, improving performance of grantees, advancing knowledge and practice. Companies developing these plans must weigh the benefits of concentrating their energies on any of these points. 

Where most companies go wrong in their planning, they say, is placing too much money and emphasis strictly on the public relations benefit of their contributions. I carry an old NSP cause-related ad from the Star Tribune in my portfolio that certainly cost several times more to produce and print than the amount of the donation made to the charity being promoted. Often the public can see through these self-congratulatory displays, negating the good will that the donation was meant to build in the first place. 

A strategic plan for corporate citizenship requires balance between communal obligation, goodwill building, and strategic giving in order to build competitive context, say the authors. Beyond a shadow of a doubt, improving the competitive context is the best long-term strategy that builds long-term profits for your business.