Highlights:
- Corporate foundations can help increase the visibility of your company’s charitable activities.
- Bringing your charitable programs under the umbrella of a corporate foundation can also help to formalize your philanthropic strategy and increase accountability.
- A corporate foundation can also help provide more consistent funding in times of changing economic conditions.
- Meeting the legal requirements requires significant time and resources.
- Giving under a corporate foundation means less flexibility in how and where you spend your charitable dollars.
- Companies with corporate foundations need to carefully navigate the self-dealing rules.
Is launching a corporate foundation the right move for your enterprise? This is the question many corporate social responsibilities (CSR) leaders have grappled with.
Corporate foundations, or nonprofit organizations established by enterprises for philanthropic purposes, have been established by Walmart, The Coca-Cola Company, JPMorgan Chase, and many others.
There are many benefits to having a corporate foundation, such as advancing your company’s charitable initiatives, but the endeavor does not come without its challenges.
When it comes to foundations, do the pros outweigh the cons? While there’s no right or wrong answer, there are several important factors to consider.
The Benefits of Launching a Corporate Foundation
1. Increased Visibility
There’s no doubt launching a corporate foundation can reflect positively on the overall brand and image of the company, which is particularly important at a time when both consumers and employees want to support charitable enterprises.
Marcie Braswell, Senior Vice President and Head of Endowments and Foundations at Regions, said in a company article that establishing a foundation can help bring increased visibility to your charitable efforts.
“Customers, communities, and employees are asking for more information about corporate giving, and having a corporate foundation is another way for corporations to provide that,” Braswell said.
When your philanthropic efforts are more visible to the public, they’re also more visible to your employees, which can promote enterprise-wide engagement and involvement in your activities.
2. Formalization of Your Corporate Giving
Bringing your charitable programs under the umbrella of a corporate foundation can also help to formalize your philanthropic strategy and goals.
ESG & CSR Board Member Ali Mathias, Head of Community Responsibility Strategy and Vice President of the MassMutual Foundation, touched on this benefit during an ESG & CSR Board panel on advancing your corporate philanthropy strategies.
While Ali said she wasn’t with the organization when the foundation was launched, she said the decision to do so was, in part, an effort to demonstrate and formalize the community giving already taking place.
“Our executive leadership team saw it as an opportunity to really increase the rigor around our giving.”
Ali Mathias, MassMutual
By establishing a foundation and 501c3 status, you can ensure that certain governance practices will be in place to help keep the enterprise accountable. The activities of a corporate foundation are strategic, tracked, and measured, making it more likely that key stakeholders will remain committed to the success of your initiatives.
3. Consistent Funding for Your Charitable Programs
In a Perlman & Perlman blog, Partner Karen I. Wu, who advises companies with social impact objectives, outlined the additional benefits of creating a corporate foundation, one of which she said is more consistent funding for your charitable programs.
As a separate entity, she suggests that a foundation, which can be used to fund grants, pay employee donation matching, and more, can better weather changing economic conditions that stand to impact the corporate budget.
“A corporate foundation can be a vehicle to build up a charitable reserve in years of higher profits, allowing for a steady flow of charitable grants to organizations in leaner years.”
Karen Wu, Perlman & Perlman
The Downsides of Launching a Corporate Foundation
1. Meeting Legal and Compliance Requirements
During the ESG & CSR Board panel, Ali shared that the administrative burden that comes along with operating a corporate foundation is one of the larger challenges. A corporate foundation is a separate legal entity — as a result, a separate fiscal report must be filed with the IRS annually.
“From a tax and accounting processes, it would be much easier to just have corporate giving,” Ali said.
Karen also highlighted this challenge in her blog post, stating that meeting these compliance obligations can be time-consuming and costly.
Staffing is needed to handle the early tasks associated with launching a foundation, such as the legal work needed to file for nonprofit status. Additionally, there are operational costs such as financial reporting, managing the foundation’s board, and more.
She wrote, “Companies should evaluate whether the anticipated annual donations and the sought-after social impact outcomes are significant enough to warrant taking on the cost of compliance. In many cases, the same results could be achieved through a direct relationship with one or more existing charities, wherein the partner charities are responsible for their own compliance.”
2. Reduced Flexibility
Perhaps one of the larger arguments against launching a corporate foundation is that it restricts how you can spend money, and could reduce your ability to be nimble and act quickly.
With a company budget, you have the ability to be more flexible with where, who, and how you donate funds to. At times, this could mean that you can act faster in moments of crisis or shift your strategy when required.
3. Navigating Self-Dealing Rules
In her blog article, Karen outlined some of the challenges associated with navigating self-dealing rules. The IRS prohibits private foundations from engaging in financial transactions with certain “disqualified persons,” a category that includes the founding company.
Karen wrote, “For example, the company’s provision of goods or services to the foundation at a significant discount would be a violation of the self-dealing rules (although donating such goods or services is permitted).”
Companies must carefully navigate any financial transactions to ensure they are not violating these self-dealing rules.
It’s also crucial that these rules and requirements are effectively communicated back to the enterprise. During the panel discussion, ESG & CSR Board Member Karem Perez, Executive Director of the Motorola Solutions Foundation, touched on the importance of communicating the foundation’s independence.
“Education goes a long way in terms of clearly communicating that the foundation is a separate legal entity from the company. We have IRS guidelines that we have to abide by in order to protect our tax status, and some of those IRS guidelines have to do with the self-dealing principles.”
Karem Perez, Motorola Solutions Foundation
Karem also shared that, if possible, the best balance for an enterprise is having a corporate foundation with separate corporate giving initiatives.
“You have the foundation to handle those community-focused initiatives, but there is some level of funding from a corporate giving perspective as well,” Karem said.
Benchmarking with Other Corporate Philanthropy Leaders
When it comes to big decisions like starting a corporate foundation, benchmarking with your industry peers can be an invaluable tool.
During the ESG & CSR Board panel, senior social impact leaders shared the benefits and burdens of launching a corporate foundation.
