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Economy Affecting Businesses’ Charitable Donations
 

By Kathy Gurchiek  11/14/2008
 
 

U.S. charities looking under the Christmas tree likely will be disappointed in 2008, as they can expect to see a drop in donations from businesses as well as individuals.

Charity Navigator, which evaluates the financial health of more than 5,300 of the nation’s 1 million-plus charities, sees leaner philanthropic giving now and into 2009.

“It’s already happening as we speak that there are a variety of [donors] that are already cutting back, and at the same time the demand for services,” such as food banks and utility assistance, “are already beginning to rise. And we expect it to continue into next year,” Charity Navigator president and CEO Ken Berger told SHRM Online.

Giving can take a variety of forms, such as donations of tangible goods, but “we’re certainly talking money, first and foremost,” he said.

One-third to one-half of all charitable giving occurs between Thanksgiving and the end of the year, according to Berger, whose nonprofit group also relies on charitable donations.

His organization focuses on the “top tier” of charities, which he defined as groups with annual revenues of more than $1 million.

“We’re looking at the biggest charities and we’re looking at the charities that get at least a third or more of their money from private contributions. We’re looking at the charities [that] get a lot of money from the individual donors.”

Those are donors whose charitable deductions are indicated on an individual tax return; corporate giving, regardless of the organization’s size, also is based on cash and in-kind donations indicated on corporate tax returns, Berger explained.

In 2007, U.S. corporations, individuals and foundations donated $306 billion to charity. Of that $306 billion, nearly three-fourths (74.8 percent) came from individual contributions.

A variety of major economic indicators—tight credit, increased unemployment, falling wages, declines in the stock market, increased foreclosures, weak consumer spending, reduced consumer confidence—apply equally to employers and individuals, Berger said.

Other factors include the California fires and rising gas prices in the spring of 2008, according to a transcript of a roundtable discussion that Charity Navigator held with eight charities from around the nation.

Although some charities participating in the discussion reported a consistent, or increased, level of giving, “We’re hearing from charities from all over the country that the giving is down and the demand is up,” Berger noted in a video on Charity Navigator’s web site.

Giving from Small Business Impacted

Small businesses “are very engaged in charitable giving,” according to The Chronicle of Philanthropy, which reports on the nonprofit world. However, a weak economy has started to impact their giving, it found.

Sixty percent of 1,033 U.S. small business owners—those with annual revenues of $100,000 to $250,000—say the economy is having an effect, according to an August 2008 survey conducted for The Chronicle and Advanta Bank Corp., an issuer of credit cards to small businesses.

The Chronicle defines small business as those with fewer than 500 employees, and in most cases fewer than 20. There are 27 million small businesses in the United States, and they employ about half of the nation’s workers, according to The Chronicle.

While the median cash contribution from small businesses in 2007 was $500 to $2,000, just under half (47 percent) gave the same amount in 2008, 38 percent gave less and 14 percent gave more.

Some small business leaders (43 percent) say their organization is not doing enough charitable giving; they point to a lack of money, organization and time as the top three reasons they haven’t contributed more, The Chronicle reported.

Oftentimes, “they don’t have the infrastructure to support [charitable giving],” Chronicle editor Stacy Palmer told SHRM Online, including people who are professionals at thinking about philanthropy.

Many also lack the time to devote to developing relationships with charities or think about the best way to support a charitable cause, and may not know about organizations such as Charity Navigator that can be used for vetting charities, she said.

“Most of them don’t know what’s available.”

When small business owners do give, social service charities receive the largest amount of support (62 percent), followed by educational groups (55 percent), health-related charities (44 percent), arts institutions (28 percent) and environmental causes (27 percent).

Giving is not necessarily seen as having an influence on the success of their business, and most of those surveyed don’t have a plan for making charitable contributions, although young entrepreneurs are starting to incorporate philanthropy into their business plans, The Chronicle found. Business owners who align their charitable donations with their business tended to have businesses younger than five years old.

“It’s a very Gen Y feeling,” Palmer said. “They’re very interested in social causes … so when they start a business they think of working with a charity as a natural thing they would do,” she said. “I think young people have a much more integrated view.”

Among small business owners who give through their company, 66 percent donate cash, 51 percent volunteer, 41 percent give services and 39 percent contribute products.

Cause-related marketing, which aligns the sale of a product with a charitable cause publicly, is becoming a common method among businesses, he said. He pointed to businesses that partner with the Susan G. Komen breast cancer foundation as one example.

“Now we’re seeing millions and millions of dollars raised in that fashion,” he said. “We anticipate more of that.”

Among the nation’s largest businesses, some will increase their giving in 2008, but monetary donations from this group are expected to be flat or smaller.

That’s according to another Chronicle survey that collected data from some of the nation’s largest businesses as ranked based on those businesses’ annual revenue by Fortune magazine. Among 77 of those businesses that projected their 2008 giving level, 50 said their level would remain constant with 2007, 21 were increasing their donation level and six were dropping their level of donation, The Chronicle reported.

Tapping Employee Interest

The number of the nation’s largest companies that pair employees’ professional skills with charities’ needs continues to grow, The Chronicle found.

Palmer advises organizations to find ways employees can become involved with a charitable cause. Some businesses The Chronicle surveyed are giving employees more paid time off to volunteer, promoting volunteer opportunities on their internal web sites, and offering non-cash assistance to counterbalance a monetary cutback in cash donations.

“Employees really love getting engaged” beyond contributing to a United Way drive, she said, noting that it’s important for organizations to recognize the value employees place on giving back.

“Employees want that chance to get involved. The employees love the connection to the charitable cause, especially at a time when there’s not a lot of extra cash around,” she said.

Find an organized activity that taps into that value, Palmer advised. The skills used could serve as a development tool, she added.

“You need to keep people tied to your company and this charitable giving is terribly important to them,” she said. “They want a hands-on experience to help a charity.”

Battalia Winston’s Annual Survey on Corporate Holiday Celebrations found in its 2008 survey that 74 percent of 108 of the country’s leading businesses plan to participate in charity efforts even though many plan to cancel holiday parties and expect a drop in year-end bonuses. Those efforts include donating money, food, clothing and gifts, and volunteer efforts.

“We’re seeing more and more creative ways to try to find ways to give,” Charity Navigator’s Berger said. “Those kinds of volunteer efforts and innovative things that people do—I suspect there will definitely be more of those attempts” to give back.

Savvy Giving

“All charities are suffering in this economy, and they do need help,” Berger said.

His recommendations for savvy giving can apply to individuals and businesses, he said:

  • Look for charities that use at least 75 percent of every $1 donated toward the cause they purport to support, with no more than 25 percent for administrative and fund-raising costs.
  • Consider supporting a charitable organization through consumer spending. Some organizations sell gift cards, toys and other products as ways to raise funds.
  • Look for charities where the CEO is reasonably compensated; he noted that an average annual salary of $150,000 “is not unreasonable.”
  • Donating online reduces a charity’s processing expenses.

He urges employers to contribute to groups providing human services programs such as food banks, utility assistance and job training.

“When there are layoffs,” Berger said, “these are the places people would go for support.”

Kathy Gurchiek is associate editor for HR News. She can be reached at kathy.gurchiek@shrm.org.

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