When the giving stops
When corporations have money problems, so do charities
Thu, Apr 9, 2009 (midnight)
Las Vegas is a town that depends on nonprofits more than most cities of its size, due to the limited safety net provided by government in Nevada. And one of the most visible signs of giving in Vegas is from corporate foundations. For example, turn on KNPR, and you are likely to hear a show sponsored by the Harrah’s Foundation.
But that is just promotion, according to Thom Reilly, who runs the Harrah’s Foundation. The real focus of the foundation is supporting seniors in a variety of ways. The Harrah’s Foundation contributes to a national Alzheimer’s charity, as well as Meals on Wheels. Data for 2007 indicates the Harrah’s Foundation distributed more than $13 million nationwide.
Reilly says the foundation is only part of Harrah’s charitable work. “The other components include corporate giving, and the properties are required to make various types of gifts to the community. But if you combine them all together it is very substantial.” So substantial that in 2006, Harrah’s was the only casino company included on Business Week’s list of largest cash-givers.
But, as everyone knows, things have changed, and as companies like Harrah’s struggle to survive, the question lingers: When a company has a huge debt load, what happens to charitable giving? Can a company that is not making a profit be expected to continue philanthropic work?
According to Todd Cohen, editor and publisher of the Philanthropy Journal, “Overall, everyone is very worried in the non-profit sector about where their money is going to come from. It is really tough. Charities are being hit three ways: Their costs are going up. They are finding it tougher to raise money. And demands for services from them are increasing.” According to Cohen, “Less than half of charities in the country raised more in 2008 than they had in 2007. The fundraising declines were regardless of issue, the size of the nonprofit or where they were located. The expectation is that this year it will either continue or get worse.”
Aaron Dorfman, executive director of the National Committee for Responsive Philanthropy, thinks the financial health of companies should not deter them from charitable giving: “The best corporate citizens, whether or not they are making profits, are continuing their charitable giving.”
But as a separate entity, on some level the Harrah’s Foundation has a built-in cushion against the shifting economic winds. According to Reilly, the Harrah’s Foundation favors multiyear grants for charities and will have the money in the bank before making the pledge. Therefore, a gift promised over five years to Meals on Wheels is not in jeopardy. But as far as new pledges, since the Harrah’s Foundation gets its money as a percentage of the business done at every Harrah’s property, when business is down, the pie is smaller, and there is less to donate.
Reilly estimates that in the last reporting cycle Harrah’s would have originated about $6 million in new pledges, and for the next one he expects that number to be closer to $4 million.
Meanwhile, one study by Dorfman’s group might in an odd way suggest a possible future for the large Vegas casino companies should they founder further or fall apart altogether by studying the mergers of banks (actually the perfect choice for the next owners of the Vegas Strip). “We were looking at what happens when banks merge. And, the hypothesis was that as banks merge the total net giving would go down. In fact, we didn’t see that. We found it went up. Post-merger giving of the banking conglomerates was larger than the sum of the pre-merger parts. We attributed the results to additional scrutiny and community pressure.”
Charles Moore, executive director at the Committee Encouraging Corporate Philanthropy, sees the situation differently. “I don’t see any conflict between value creation for shareholders and helping solve societal issues. There are employee advantages, brand advantages and business-strategy advantages. Businesses have a contract with a society, and when times are tough, it is important that they step up.” Though he had no previous knowledge of the Harrah’s Foundation, Moore recommends many of its practices: multiyear grants, encouraging employee involvement and targeting a specific problem.
But at the end of the day it turns out what companies can do the best to help nonprofits isn’t in what they give but in how many people they employ. According to Cohen, corporate giving remains a small fraction of charity in this country. “Foundations account for only 12 percent of giving. Seventy-five percent of giving is from living individuals. Thirteen percent are individuals giving through family foundations or through bequests or wills.” Therefore people who are working are not simply less in need of a nonprofit’s assistance; they are also the ones whom charities depend on more for giving than ever is expected or comes from the profits of corporate employers.