Philanthropy gets serious for some companies

Growing number are making donations from revenue, not from profit
By Drew Armstrong
Inc.com

With the holidays gearing up, companies will soon start preaching about "the season of giving," in hopes that their products will be the ones customers put under the tree at Christmas. But some companies have made the giving spirit a part of their year-round operations and have turned the idea on its head — making good deeds and charity a part of their business plans, and donating revenue to non-profits that matter to their CEOs, employees and customers.

Last year, philanthropic giving in the United States grew 6 percent to $260.28 billion, according to data by the Chicago-based Giving USA Foundation. While corporate giving made up only 5.3 percent of that total in 2005, it represented a 22.5 percent increase from the previous year — in large part due to the outpouring following the South Asia tsunami and Hurricane Katrina.

Most of these gifts go to charities and foundations — the usual routes for philanthropic contributions. But a growing number of companies have taken their philanthropy a step further, not in how much they give, but in how they do it. Instead of just making donations, they’re making philanthropy a core part of the company's mission. With each item they sell, a portion of the revenue automatically goes to the company’s chosen cause, often a specific non-profit that has become a de facto partner.

According to Dwight Burlingame, associate executive director at Indiana University’s Center on Philanthropy — which wrote the Giving USA study — the old style of corporate giving is now almost matched by this new brand of corporate philanthropy, which he estimates at a near-equal 5.2 percent of total philanthropic contributions.

Most corporate giving today is focused on, 'How can I do good at the same time I do well for the company?'" Burlingame says.

For companies following the new charitable path, that means finding causes that relates directly to their products and helps tie customers' philanthropic values to the companies'. It also lets consumers combine their shopping with their philanthropy — important, since not everybody has the time to spend hours searching out a charity that fits their passions, or wants to receive reams of junk mail asking for contributions.

Outdoor gear manufacturer Patagonia helped pioneer the trend, and now gives away 1 percent of sales to environmental causes. Ethos Water, purchased by Starbucks in 2005, gives away 5 cents of each bottled-water sale to clean drinking water programs in developing nations such as Bangladesh and Honduras. Even Internet companies are getting into the act. GoodSearch.com, an Internet search engine, gives 50 percent of its advertising revenue to a huge slate of charities chosen by its users.

It’s important to note that these companies are giving away a percentage of revenue, not profit. That means they’re putting their balance sheet more at risk than an organization where giving is dependent on making money for its owners first. “I think customers are pretty savvy, and they smell a fraud a mile away,” says Kim Jordan, whose New Belgium Brewing Company gives away $1 of every barrel of beer sold to local causes like care for kids with learning and developmental disabilities. “If [corporate philanthropy] turns out to be a hollow promise, there’s huge backlash. And that kind of thing gets found out eventually.”

With more companies than ever jumping onto the branded philanthropy bandwagon — you can buy a pink food mixer made by KitchenAid to support breast-cancer awareness for $299.95 — customers are likely to pay closer attention than ever to the sales pitch. To make sure they’re not just buying into a marketing gimmick, consumers need to check the fine print.

To make that easier, one organization brands philanthropy-involved products with the “One Percent for the Planet,” label, which promises that one percent of the product’s revenue will go toward environmental causes. One Percent for the Planet has about 450 member companies, up from just 90 a year and a half ago, says executive director Terry Kellogg. Mostly made up of small and midsize businesses, the group also allows bigger companies to join with specific branded product lines, like hats and shirts from clothing maker Volcom’s “v.co-logical” label.

While these companies are giving away a share of their revenue, their generosity hasn't exactly been bad for business either. Casey Sheahan, Patagonia’s president and CEO, explains the company’s philosophy: “Every time we do good, we end up making money.” Along with food company Newman’s Own, which gives away 100 percent of its profits to charity through owner Paul Newman, Patagonia helped lead this new wave of company philanthropy. In 1985, the company decided to give 10 percent of profits as an “earth tax,” to offset the resources the company used. As Patagonia grew, that number turned into 1 percent of revenues, and to date, the company has given over $26 million to environmental causes.

“This is in large part enlightened self-interest,” Sheahan says. “To have a business, our customers need to have wild places to recreate…. There’s no business to be done on a dead planet.”But it also helps the company appeal to its nature-loving customers, when it comes down to choosing products from a wealth of competing outdoor clothing makers. “We see it as a tie-breaker,” Sheahan says. To that end, the company has started looking for other ways to grow the philanthropy brand. A few years ago, they switched to all-organic cotton, a risky move that they weren’t sure would pan out, because of a shortage of suppliers. The move was a success, and other manufacturers — including Nike — have since followed suit. Customers, meanwhile, have responded by picking up the items in droves.

Others have started to follow Patagonia's lead, according to the Center on Philanthropy's Burlingame. “Today, almost all of the giving is thought of strategically as, ‘How can it increase my brand recognition?’”
GoodSearch.com has done philanthropy branding one better, making giving its entire identity. The company has partnered with Yahoo, which lets GoodSearch borrow its technology on the site so that Web searchers are using the exact same tool they would at Yahoo.com. But instead of just clicking and surfing, users choose a charity from a list of thousands that have registered with the site.

Each time the user searches the Internet, half of GoodSearch’s advertising revenue gets funneled to the charity of their choice. So far, GoodSearch has registered around 20,000 charities and is growing at a steady clip — donating thousands of dollars to charities ranging from the Cystic Fibrosis Foundation to the Elephant Sanctuary.

“Companies are finding that they can grow their businesses by being socially responsible," says GoodSearch co-founder and president Ken Ramberg, who also founded job search engine JobTrak and eventually sold it to Monster.com. "That’s generating interest in their products where they may not have had it before. Sure, they may be giving a percentage away to charity, but their overall revenue is growing."

GoodSearch's motto? "Why wouldn't you use it?"

Copyright Mansueto Ventures, LLC 2007