Chapter 17 The Community and the Corporation McGraw-Hill/Irwin Copyright © 2008 The McGraw-Hill Companies, All Rights Reserved.

Ch. 17: Key Learning Objectives  Defining a community, and understanding the interdependencies between companies and the communities in which they operate  Analyzing why is it 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 can collaborative partnerships between businesses and communities can address today’s pressing social problems

The Firm and its Communities Figure 17.1

Business – Community Relationship  Relationship 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  List of common expectations shown on next slide  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 17.2

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  Is the “organized involvement of business with the community”  Grown in importance in recent years from “fringe” function to mainstream/strategic  Corporations have established a specialized community relations department, either stand-alone or as part of public affairs department

Community Relations  Boston College Center for Corporate Citizenship study:  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

Corporate Involvement in the Community  Top concerns identified in 2005 survey of community involvement managers:  Education 10 th year in a row was identified as top issue  Health care  Economic development  Higher education  Housing  Others including literacy, environmental issues, crime, job training, and transportation

Corporate Involvement in the Community  Social issues areas where a number of corporations are now focusing their efforts: 1.Economic development 2.Crime abatement 3.Housing 4.Welfare-to-work job training 5.Aid to minority enterprises 6.Disaster, terrorism, and war relief  Following set of slides gives examples of these types of initiatives

Micro-Credit: A New Model of Economic Development  Grameen Bank (meaning village bank), based in Bangladesh, is an internationally recognized innovator in the field of economic development.  In 1974, Muhammad Yunus, an economics professor at Chattagong University, took his students on a field trip to a poor rural village. There, they interviewed a woman who supported herself by crafting bamboo stools. The woman had to borrow money for raw materials at the outrageous interest rate of 10 percent a week, leaving a profit of only one penny per stool. The professor, shocked by what he saw, began lending his own money to villagers.  Finding that small loans helped many people pull themselves out of poverty, Yunus founded Grameen in 1983 to provide micro-credit to individual entrepreneurs who would not normally qualify for loans. Today,  Grameen has nearly two thousand branches and serves six million borrowers. “These millions of small people with their millions of small pursuits can add up to create the biggest development wonder,” Yunus has said. Exhibit 17.B Excerpts

Corporate Community Involvement – Crime Abatement  Example of “Minnesota HEALS”  In the mid-1990s, the crime rate in the metropolitan area of St. Paul-Minneapolis, Minnesota, had become so bad that out-of-town newspapers called the city “Murderopolis”  Collaborative alliance formed by 60 companies, including Honeywell, General Mills, 3M, and Allina Health Systems, local and state law enforcement agencies, and civic groups to address public safety issues in the community  Among the initiatives were development of an integrated information system for law enforcement agencies, better housing, job training, and after school programs  Crime rates dropped sharply, and the overall climate for business in the city improved

Corporate Community Involvement – Housing  Life and health insurance companies have taken lead to revitalize housing through nonprofit organizations like the Neighborhood Housing Services of America (NHS)  New York City’s coalition for the homeless includes corporate, nonprofit and community members  Many corporations work with NGO’s, like Habitat for Humanity

Corporate Community Involvement – Welfare to Work  Example of work of Bank of America (BofA)  BofA has partnered with Women in Community Service (WICS), a nonprofit organization that provides job and life skills training to women who are on public assistance, in prison, or are homeless or living in public housing  Bank has contributed staff, products and services, internship opportunities, and money to WICS, and has hired thousands of new employees out of welfare-to-work programs  BofA has experienced many benefits: an improved reputation, tax credits, and recruitment of motivated workers

Corporate Community Involvement – Aid to Minority Enterprises  Example of work of Microsoft:  Microsoft spends $10 billion annually on procuring supplies and services, 5 percent of this is directed to minority-owned businesses  According to Microsoft’s Director of Supplier Diversity “The general rule here, is, if all other things are equal, pick the minority company”  Microsoft works closely with its minority suppliers to refine their business processes to make them more competitive An example is Group O Direct, an Illinois-based firm that provides fulfillment services for customer promotions Group O Direct, a Mexican-American owned firm, now has several other high-profile clients, including SBC Communications, and annual revenues of more than $50 million

Corporate Community Involvement – Disaster, Terrorism and War Relief  Example of corporate giving for Tsunami relief in December 2004:  Their donations, estimated to be around $2 billion, collectively exceeded those of most governments  Many companies drew on their own expertise to lend a hand: United Parcel Service mobilized its planes to airlift disaster relief supplies to the region free of charge Pfizer donated millions of dollars worth of medicines GE sent power generators and mobile water treatment plants British Airways, Intel, and Cisco collaborated to set up a high- speed wireless Internet network in Banda Aceh, Indonesia, to enable communications in and to one of the hardest-hit areas

Corporate Philanthropy Programs  Important aspect of business-community relationship, involves corporate giving to non-profit organizations  Business is only one part of U.S. society’s generous giving patterns  As shown on next slide, in 2005 $260 billion was given to religious, charitable and other non-profit organizations  Business was small, but important, percentage of overall giving (5%), remainder through individuals and private foundations

Philanthropy in the U.S. by Source of Gift, 2005 Figure 17.3

Corporate Philanthropy Programs  Corporations can give directly or through establishing corporate foundations  U.S. tax rules since 1936 have allowed 10% of company’s before-tax income to go to educational, charitable, scientific and religious purposes  Average yearly corporate giving is between 1 and 2% of pre- tax income  In selected companies and communities, firms give as much as 5%

Corporate contributions in the United States, as a percentage of pretax net income Figure 17.4

Forms of Corporate Giving 1.Charitable donations (cash) 2.In-kind contributions  Donating products or services  Category now exceeds cash contributions 3.Volunteerism  Donations of employee time doing community work  Many companies sponsor and encourage volunteer activities  A small number of firms offer paid time off for volunteer community service

Priorities in Corporate Giving Figure 17.5

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

Collaborative Partnerships  Introduced in Ch. 7 - voluntary collaboration between business, government, and civil society  Education partnerships have been very effective, have followed 4 “waves”: 1.Direct involvement (e.g. “Adopt-a-School”) 2.Application of management/business principles to school administration 3.Public policy initiatives in education 4.Collaboration for systemic reform  Partnership model could be equally useful for other community issues