This Business of Giving
The corporate contributions for the year 1952 may have exceeded $300 million, writes F. EMERSON ANDREWS, who has been Director of Publications for the Russell Sage Foundation since 1928. In his article, Mr. Andrews analyzes what proportion of these gifts comes from the gigantic corporations and how much is given by small companies, and he seeks to answer that key question of whether the donor corporations will attempt to control those agencies to which they are now contributing. Corporate giving, he demonstrates, as it grows in size and experience, can fill a unique place in the scheme of American philanthropy.
by F. EMERSON ANDREWS
A NEW giver has sprung into prominence in America in the past few years. As a philanthropist he does not much resemble previous givers — neither the widow with her mite, nor the churchman, nor Lady Bountiful, nor you and me. He does not give in order to save his soul, for he has none. His lawyers tell him that he must never give out of pure altruism, merely to benefit a needy cause or person; he must give to benefit himself. Yet he gives away each year more money than is collected by all the community chests in the United Stales — though nearly half of their receipts come from him. He may give grudgingly, sometimes thoughtlessly and unwisely, but sometimes in considered, effective ways that no one else could have matched. This strange new giver is the corporation. It is estimated that in 1952 corporate contributions may have exceeded $300 million.
In the latest year for which government figures are available, 1949, corporate gifts were reported at $223 million. While it is true that individuals gave fifteen limes that much, most of the individual giving went to churches and to causes with “heart appeal” that have mass-collection methods. For many welfare and health agencies corporate gifts are already a crucial part of annual budgets, and their importance is increasing. What opportunities and dangers lurk in this new force in American philanthropy?
Among corporation executives themselves, at least three attitudes toward giving may be distinguished. “Give money to charity?” sputtered one corporation president. “Why, that’s nonsense. Any money we would give must be taken either from profits, which belong to stockholders, or wages of employees, or show up in higher prices to our customers. We have no right to do any of those three things.”
“Don’t use my name, or some folks would think I was pinko,” said an executive of one of the largest corporations in America. “But I think American corporations must go much farther in giving. Let’s say all welfare services make a circle of 360 degrees. If a corporation sets up operations in a backward community in Brazil, if occupies the whole 360 degrees. It builds the church, constructs hospitals and schools, pays the doctors, brings in the teachers, finances all the welfare services there are — not because it’s a philanthropist at heart, but because it can’t make a good profit, and perhaps can’t operate at all, in a community that doesn’t have those services. In the United States, corporations now take in about 45 degrees of that welfare circle. We don’t need to go the whole 360, but we ought to get to about 180 degrees.”
Henry Ford II staled the case from a slightly different angle when recently the Ford Motor Company Fund was set up: —
Traditional sources of financial support of private institutions operating in these fields are tending to disappear. We do not like the consequences inherent in the alternative facing such private institutions— that of having to turn to government for much-needed financial aid. In our opinion, this situation places an increasing responsibility upon American businesses in their role of industrial citizens.
As for the public, 80 per cent of it approves of such giving, according to a recent survey by the Public Opinion Index for Industry. Even stockholders are in favor, though when the searching question about contributions by “the company in which you own stock” was asked, approvals dropped to 62 per cent and definite negatives rose to 13 per cent.
Until recently, the chill shadow of the law often froze the generous impulses of corporate directors into inaction. But these shadows have been nearly cleared away by developments of the past several years. Permissive legislation of some sort is now on the books of 29 states and the Territory of Hawaii. Kentucky, Mississippi, and Rhode Island have acted during the past year. No significant law case has been decided against a contributor company in any state since 1919. Corporations can give to philanthropic causes if a slight relation to their own interests can be demonstrated.
Which corporations give? How much? To what causes? According to the government figures, of the 537,000 corporations which reported contributions for 1948, half a million (93 per cent) had assets of less than $1 million each. These comparatively little fellows gave $68 million — 29 per cent of all the reported contributions — at the rate of 1.3 cents on each dollar of not profit before taxes.
The 36,000 intermediate United States corporations— with assets ranging between $1 million and $100 million — made 53 per cent of the contributions, $125 million, at a rate of 0.8 cents on their profit dollar.
The gigantic corporations with assets of $100 million and over numbered exactly 601. This small group gave $44 million, or 18 per cent of the reported total, but it was at the exceedingly low rate of 0.3 cents on the dollar.
The general impression has been that only the very large corporations give substantial sums, and at a generous rate in proportion to income. Only the first portion of this statement is true, with some notable exceptions. Big gifts do come from large corporations because they have so substantial a part of the total profit; but if their rate of giving had even equaled that of the “under $1 million” corporations, their gifts would have quadrupled.
The rate of giving also varies widely among different types of corporations. Trade and service companies are usually small and close to their customers; they are subjected to heavy pressures—“customer blackmail,” one company president called it — and see at first hand the advantages of giving and the penalties for not giving. Their giving rales are high, and help explain the record of the smaller corporations.
The causes to which they give are not revealed in the Federal reports. But Russell Sage Foundation secured information on this point from a sampling of corporations of all sizes and types.
Corporations in this sample were contributing in 1950 more than a third of their total gifts and contributions (36 per cent) to community chests; they gave an additional 8 per cent to other welfare agencies, making 44 per cent, or nearly half of every dollar, to this one broad category.
Health accounted for a large quarter of all types of corporate gifts —27 cents out of every dollar. Of this amount, 15 cents on the dollar went directly to hospitals, and it should be pointed out that hospitals were also the beneficiaries of some of the money given for community chest budgets. National health agencies, including Bed Cross, polio, heart, and like groups, received another 10; miscellaneous health, the remaining 2 cents.
Education received slightly less than health — 21 cents out of the gift dollar. Just half of this amount went to direct aid for schools and colleges and for scholarships and fellowships. Research in colleges and agencies supporting “the American way” split the remainder.
Religious agencies, unless they are interfaith or at least nonsectarian, present difficulties to corporations, where gifts are scanned by boards of directors of possibly many faiths and sometimes by stockholders. It was no surprise to find only 4 per cent of corporate gifts in this category—though nearly half of all individual giving goes to religious agencies. The final 4 per cent could not be pinpointed.
THE Russell Sage Foundation Survey reports that in 89 per cent of the sampled companies requests for contributions go directly to a single top executive, usually the president himself. Three per cent of the companies, usually large ones, have contributions committees. The whole board of directors functions in 2 per cent of the cases. The rest scatter — finance committees, local or district managers, the company foundation. Fewer than a third of these corporations include contributions as a budget item.
Giving is a complicated business. Julius Rosenwald once declared that he found it “nearly always easier to make $1,000,000 honestly than to dispose of it wisely.”All large companies, and many small ones, are bombarded constantly by appeals for funds — not only community chest, hospital, college, Red Cross, polio, heart, cancer, tuberculosis, arthritis, cerebral palsy, muscular dystrophy, multiple sclerosis, crippled children, the blind, firemen, policemen, veterans, church, ladies’ aid, Salvation Army, Boy Scouts, Girl Scouts, and the YMCA, but by dozens of additional causes. Even in those communities where most of these services are “wrapped in one package" in a tight community chest or united fund, the extra appeals flood in.
What does the harried president do? He gives in to the squeezes when they begin to hurt. As for the rest, usually he takes refuge in the causes he’s heard about year after year. In the Sage Survey,
18 per cent of all sampled companies gave all their contributions to annually recurring drives, and 91 per cent gave at least half their 1950 contributions to such drives. Most of these agencies need support, bul to give only to them is to miss opportunities to fit the company’s gifts to the particular needs of its community.
Such giving suggests both dangers and opportunities. One obvious danger is the closer tie between philanthropy and the business cycle. We were just emerging from the great depression when statistics on corporate giving began to be available in 1936, and we have since gone through no major red-ink period. But it seems exceedingly likely that in a depression, if corporate profits vanished, corporate contributions would nearly vanish, too. Unfortunately, that is precisely the period when the needs of welfare agencies expand.
Business executives are aware of this danger. In our interviews many of them expressed the hope that they could keep their contributions up even if profits went down. A few corporations have done something positive about the problem.
The International Harvester Company in Chicago, for example, has set up a foundation which it regards as chiefly a “ peaks-and-valleys” enterprise, designed to accumulate profits in good years to supplement the lower contributions of poor years. But our examinations of the confidential reports of other companies which have had a bad year usually show drastic cuts in contributions. Unless further efforts toward correction are made, some agencies which rely substantially upon corporate gifts are flirting with disaster.
Will corporations attempt to control agencies to which they are large contributors? One corporation is known which tries to have a major executive on the board of every agency, college, or institution to which it makes substantial contributions. From the corporation’s viewpoint, this ensures knowledge of the effectiveness of the agency’s program and an opportunity to suggest activities of direct interest and value to the corporation. But the agency and its other contributors may have a different view. Cases are on record in which contributions have been refused where even the suspicion of influence might alienate other contributors.
Much good may also come from introducing the new hardheaded giver into a field where sentiment and good intent have sometimes resulted in little practical accomplishment. If philanthropy grows in the corporate budget, and as experience accumulates, corporate giving may result in a wiser spread of contributors’ dollars. Corporations are more accustomed than individuals to avail themselves of advice of such agencies as the National Information Bureau, Better Business Bureaus, and councils of social agencies, and to require and study financial statements. In so doing they not only make more certain that their stockholders’ money is effectively spent; they help raise standards in the field.
A WORD about the tax angle is necessary, for the facts are startling. Current corporation taxes are 30 per cent on the first $25,000 of net income and 52 per cent on the rest, with excess profits taxed at 82 per cent. Under these high rates corporations may make substantial contributions at small cost in surrendered profits.
A corporation with normal profits can give away $1000 at a net cost of $480, the remaining $520 representing taxes saved. If it is in the excessprofits bracket, its gift of $1000 costs only $180; conversely, if it is willing to surrender $1000 in profits, it can make a gift of $5556, the government paying $4556 in forgiven taxes.
These remarkable bargains are a danger as well as an opportunity. The National Planning Association recently issued a report by Beardsley Ruml and Theodore Geiger, The Five Percent, which pointed out, presumably with favorable recommendation, that if all corporations should give to the 5 per cent deductible limit, their 1951 contributions could rise to the remarkable total of $2.2 billion.
No jump to $2 billion took place or is in prospect, and until corporations have more experience in wise giving, an increase of that dimension might indeed be dangerous. The Congress might regard tHe reduction in revenue so seriously, in the present emergency, that it would rescind the 5 per cent provision. Sudden abolition of this tax provision could be a catastrophe for agencies which have grown largely dependent on corporate giving over some sixteen years. Or the Congress might make up the lost amount by additional taxation. If this was directed chiefly against corporations, the tax deduction would be mere illusion.
Or the tax the corporation has escaped through its contributions program might fall directly on us, either in still higher personal income taxes or in a consumers’ tax. Then in effect we would be paying most of the costs of corporate philanthropy, with no control over its directions. The public reaction against business could be severe if corporations should be in such a rush to take advantage of the charitable bargain that they indulged in foolish, wasteful, or obviously selfish enterprises. The dollars they spend are now more the taxpayers’ than those of the shareholders.
But another view is tenable, especially if corporation giving increases in wisdom as it increases in dimensions. Intelligent philanthropy is not a pit into which money sinks and is lost. It may be an investment, yielding dividends as large and sometimes as tangible as business enterprise itself.
The money a life insurance company invests in health research or safety promotion may come back to that very company in delayed death payments for its own policyholders, and in a larger social dividend of longer productive lives. The money a company in a small community spends on the local college it expects to receive back in trained workers, and it suspects that if such voluntary support is not forthcoming, government will step in and the corporation ill still pay, this time through taxes. Viewed nationally, the situation is more complicated, but many of the philanthropic expenditures of corporations are for purposes which, directly or indirectly, reduce government expenditure.
Consider this case, for example. The Bulova Watch Company, one of the few corporations which do give substantially 5 per cent of net income, has set up through its contribution arm (the Bulova Foundation) the Joseph Bulova School of Watchmaking in Woodside, L.I. This handsomely appointed school accepts only disabled veterans, whom it trains free as watch repairers. A large proportion of them are paraplegics—wheel-chair cases — and the school has its own wheel-chair basketball team. In its first five years it has graduated 346 men, 95 per cent of whom are now gainfully employed, chiefly in retail jewelry stores. The company received a tax deduction for its expenditures in setting up and operating the school. But in the absence of such special training, nearly all the disabled veterans now graduates of the school would have had to be supported by government subsidy the rest of their lives. Though they continue to receive disability pensions, most of them are pierforming useful work and many of them are making such substantial incomes that they pay considerable sums in personal income taxes.
BUSINESS statesmanship needs to consider what its share should be in supporting existing free enterprises in health, welfare, education, and research, and possibly in initiating fresh ventures in these areas. Such support is not a necessity. Private individuals can and do bear much of this burden, and government will take over any essential services which fail of private support, and add them to the tax bill. Corporate giving is chiefly an opportunity. An increasing number of corporations are now handling that opportunity with the care it deserves. They appoint contributions committees (G.E. had one as early as 1925), often aided by a full-time executive secretary, to look into all appeals and also to initiate programs in fields of the corporation’s special skills and interests. Some of them have set up corporation foundations, both to level off giving through good and bad years and to handle the details of more imaginative and creative giving projects.
The Ford Motor Company Fund has devised an ingenious scholarship plan whereby the children of Ford employees are selected on competitive tests by an independent outside agency and their expenses paid in the college of their choice, with an additional $500 a year paid directly to the college (unless it is tax-supported) for the college’s general support.
The Rich Department Store in Atlanta gives directly to regular, recurring drives but supplies also most of the operating income of the Rich Foundation. This foundation develops special programs, which have included: a building to house the Emory University School of Business Administration; a radio station for the city, county, and surrounding communities, owned and operated by joint boards of education; an outpatient clinic for a local hospital.
A few months ago I drove through Corning, New York, and visited there the new Corning Glass Center, including the Museum of Glass. This striking example of how handsome a modern museum may be has obvious values for the Corning Glass Company, but it is also a distinguished public service.
The Southern Railway System has contributed to churches of many denominations, white and Negro, some 64 bells from steam locomotives that were being scrapped. The Allis-Chalmers Manufacturing Company built a successful mechanical kidney which “snatched a man from death’s door,” and then donated this first machine to the community. A workshop for the handicapped has been built in Binghamton, New York, with the aid of several corporations, and its workers are executing regular business contracts. The Bridgeport Brass Company, in cooperation with the National Guard and the State Assembly, modernized and equipped an old armory, making it “one of the vital community sports centers in this area.”
Some 77 food manufacturers and related companies have contributed some $4 million to the Nutrition Foundation, set up for basic research and education in the science of nutrition—of value to the food companies but of even greater value to the public. E. I. du Pont do Nemours and Company has set aside $510,000 in the 1955-53 year for postgraduate fellowship and research grants to “stockpile" knowledge.
Corporation giving, as it grows in size and experience, can fill a unique place in the scheme of philanthropy, taking special care of the needs of the local community with which it is intimately acquainted and seeking out opportunities in the field of its own resources and technical knowledge. True, this new giver will be guided by self-interest. In the short view, self-interest is mere selfishness; in the long view, we are coming to learn, the highest self-interest is often scarcely to be distinguished from the things we used to call altruism and dedication to the social welfare.
Will the public be disillusioned by an orgy of spending masquerading as charity, or will the fabric of our free society be strengthened by substantial new resources invested in man’s progress? The decision depends upon whether the new giver, the corporation, is willing and able to take the long view.