Chapter 18 The Community and the Corporation Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

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 18-2

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 18-3

The Firm and Its Communities Figure

What the Community and Business Want from Each Other Figure

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 18-6

Community Relations  The importance of community relations is shown by the following statistics, drawn from a study conducted by the Center for Corporate Citizenship:  86 percent of companies have a specific community involvement strategy  80 percent of companies factor community involvement into their overall strategic plan  59 percent of companies set their community involvement strategy centrally and execute locally  71 percent reported information about their community involvement activities on their corporate Web site 18-7

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 18-8

Community Relations  Several specific ways in which businesses and their community relations departments have addressed some critical concerns facing communities are:  Economic development  Housing  Aid to minority, women, and disabled veteran-owned enterprises  Disaster, terrorism, and war relief 18-9

Corporate Community Involvement – Economic Development  Intended to bring new business into the area and develop workforce skills  The Great Recession has made it even more imperative that businesses do so  In 2009, Microsoft Corporation launched a program called Elevate America to provide job training at a time when many were looking for work or seeking to improve their skills as the economy struggled to recover from a severe downturn 18-10

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  Corporations also often work with nongovernmental organizations (NGOs) such as Habitat for Humanity to build or repair housing 18-11

Corporate Community Involvement Aid to Minority, Women, and Disabled Veteran-Owned Enterprises  These businesses often operate at an economic disadvantage.  In some cases, they do business in economic locations where high crime rates, poor transportation, low-quality public services, and a low-income clientele combine to produce a high rate of business failure  Large corporations, sometimes in cooperation with universities, have provided financial and technical advice and training to such enterprises  They have also financed the building of minority-managed inner-city plants and sponsored special programs to purchase services and supplies from minority firms 18-12

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 18-13

Corporate Giving  Important aspect of business-community relationship, involves corporate giving to non-profit organizations  Also called corporate philanthropy  America has historically been a generous society  In 2011, corporate contributions totaled $14.6 billion, or about 5 percent of all charitable giving  As U.S. firms have become increasingly globalized their international charitable contributions have also grown  The major factors driving international gifts were the size of the company’s workforce in the receiving region and perceived humanitarian need 18-14

Philanthropy in the United States by Source of Contributions, 2011 Figure

Corporate Contributions in the United States, as a Percentage of Pretax Corporate Profits, Figure

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  Eighty-one percent of large U.S.-based corporations have such foundations; collectively, corporate foundations gave about $42 billion in

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 2010, 38 percent were in-kind (noncash)  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 18-18

Priorities in Corporate Giving Figure

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 18-20

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 18-21

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 (return on social investment) 18-22

Measuring the Return on Social Investment  The benefits that accrue to business and society are sometimes called return on social investment  Companies are using standard business tools to measure the outcomes of their investments in the community, just as they would any other investment  Return on social investment is often more difficult to measure than other kinds of return  Nevertheless, community relations and corporate giving professionals have made significant advances in developing appropriate metrics as shown on the next slide 18-23

Measuring the Return on Social Investment Figure

 Inputs are the resources companies provide  They may include cash contributions, employee time, products and services, or logistics support  Outputs are measures of the activities that took place  usually numerical counts of people and communities served  Impacts represent the difference the program made, that is, the actual benefits that accrued to the people and communities served  It is similar to outputs, except that it tries to capture the actual results of the gift  Value creation represents the benefits to the business of the program  This is similar to the concept of enlightened self-interest Measuring the Return on Social Investment 18-25

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 18-26