The Community and the Corporation Chapter 18 The Community and the Corporation

Ch. 18: Key Learning Objectives Defining a community, and understanding the interdependencies between companies and the communities in which they operate Analyzing why it is in the interest of business to respond to community problems and needs Knowing the major responsibilities of community relations managers Examining how different forms of corporate giving contribute to building strong relationships between businesses and communities Evaluating how companies can direct their giving strategically, to further their own business objectives Analyzing how collaborative partnerships between businesses and communities can address today’s pressing social problems

The Firm and Its Communities Figure 18.1

The Business–Community Relationship Community refers to a company’s area of local business influence Whether a business is small or large, local or global, its relationship with the community or communities with which it interacts is one of mutual interdependence There are expectations on both sides – what the business expects from the community and what the community expects from the business In best situations, community support of business and business support of community are in balance

What the Community and Business Want from Each Other Figure 18.2 What the Community and Business Want from Each Other

The Business Case for Community Involvement Civic engagement – The active involvement of businesses and individuals in changing and improving communities Reasons for community involvement Major way to carry out corporate citizenship mission To win local support for business activity, be granted an informal “license to operate” in the community Helps to build “social capital”—the norms and networks that enable collective action High levels of social capital enhance a community’s quality of life

Community Relations The importance of community relations is shown by the following statistics, drawn from a study conducted by the Center for Corporate Citizenship: 81% of companies now include a statement in their annual report on their commitment to community relations 74% of companies have a written policy or mission statement for their community relations program 68% of companies factor community involvement into their overall strategic plan

Community Relations Is the “organized involvement of business with the community” Grown in importance in recent years from “fringe” function to mainstream/strategic In support of this commitment, some corporations have established specialized community relations departments; others house this function in a department of public affairs or corporate citizenship Community relations departments are typically involved with a range of diverse issues including education, health care, and environmental issues

Community Relations Several specific ways in which businesses and their community relations departments have addressed some critical concerns facing communities are: Economic development Crime abatement Housing Aid to minority enterprises Disaster, terrorism, and war relief

Corporate Community Involvement – Economic Development Intended to bring new business into the area In the United States, the federal Community Reinvestment Act requires banks to demonstrate their commitment to local communities through low-income lending programs and to provide annual reports to the public This program has led many banks to begin viewing the inner city as an opportunity for business development

Corporate Community Involvement – Crime Abatement Some firms have become actively involved in efforts to reduce crime in their neighborhoods Business has an interest in reducing crime, because it hurts the ability to attract workers and customers and threatens property security

Corporate Community Involvement – Housing Life and health insurance companies have taken the lead in programs to revitalize neighborhood housing through organizations such as Neighborhood Housing Services of America NHS is a locally controlled, locally funded nonprofit and tax-exempt organization that offers housing rehabilitation and financial services to neighborhood residents Similar efforts are being made to house the homeless

Corporate Community Involvement – Aid to Minority Enterprises Minority-owned small businesses often operate at a great economic disadvantage Large corporations, sometimes in cooperation with universities, have provided financial and technical advice and training to minority entrepreneurs They have also financed the building of minority-managed inner-city plants and sponsored special programs to purchase services and supplies from minority firms

Corporate Community Involvement – Disaster, Terrorism and War Relief International relief efforts are becoming more important, as communications improve and people around the world are able to witness the horrors of natural disasters, terrorism, and war Corporate involvement in such efforts is an extension of the natural tendency of people to help one another when tragedy strikes

Corporate Giving Important aspect of business-community relationship, involves corporate giving to non-profit organizations America has historically been a generous society In 2008, corporate contributions totaled $14.5 billion, or about 5 percent of all charitable giving The 2008 amount represented a drop of 8 percent, adjusted for inflation, from 2007, reflecting the economic recession that began around that time

Philanthropy in the United States by Source of Contributions, 2008 Figure 18.3

Corporate Contributions in the United States, as a Percentage of Pretax Corporate Profits, 1968 – 2008 Figure 18.4

Corporate Giving In the United Sates, tax rules have encouraged corporate giving for educational, charitable, scientific, and religious purposes since 1936 Current rules permit corporations to deduct from their taxable income all gifts that do not exceed 10 percent of the company’s before-tax income Corporations can give directly or through establishing corporate foundations Ninety-two percent of large U.S.-based corporations have foundations; collectively foundations gave $2.1 billion in 2007

Forms of Corporate Giving Typically, gifts by corporations and their foundations take one of three forms: Charitable donations (gifts of money) In-kind contributions (gifts of products or services) Category now exceeds cash contributions Of U.S. corporate contributions in 2007, more than half – 54 percent – were in the form of in-kind gifts Volunteer employee service (gifts of time) Involves the efforts of people to assist others in the community through unpaid work An important trend is what is known as skills-based volunteerism, in which employee skills are matched to specialized needs

Priorities in Corporate Giving Figure 18.5

Corporate Giving in Strategic Context Strategic philanthropy – Corporate giving that is linked directly or indirectly to business goals and objectives. In this approach, both the company and society benefit from the gift. Is made directly from the company to community organizations, not through a foundation Increasingly popular approach to corporate giving

Strategic Philanthropy Areas in which corporate contributions are most likely to enhance a company’s competitiveness, according to Harvard Business Review study: Factor conditions - supply of trained workers, physical infrastructure, and natural resources Demand conditions – affect demand for a product or service Context for strategy and rivalry - designed to support policies that create a more productive competitive environment Related and supporting industries - strengthen related sectors of the economy, may also help companies

Strategies to Optimize Benefit from Contributions Draw on the unique assets and competencies of the business Align priorities with employee interests Align priorities with core values of the firm Use hard-nosed business methods to assess the impact of gifts

Building Collaborative Partnerships The need for collaborative partnerships is very apparent when dealing with community problems One area in which collaborative partnerships among business, government, and communities have been particularly effective is education Partnerships offer an effective model of shared responsibility in which businesses and the public and nonprofit sector can draw on their unique skills to address complex social issues