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

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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

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The Firm and Its Communities

Figure 18.1

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What the Community and Business Want from Each Other

Figure 18.2

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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

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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

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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

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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

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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

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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

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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

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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

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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

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Philanthropy in the United States by Source of Contributions, 2011

Figure 18.3

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Corporate Contributions in the United States, as a Percentage of Pretax Corporate Profits,1972 - 2010Figure 18.4

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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 2011

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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

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Priorities in Corporate Giving Figure 18.5

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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

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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

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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)

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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

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Measuring the Return on Social Investment Figure 18.6

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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

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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

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