Is business benefiting from strategic philanthropy?

Is business benefiting from strategic philanthropy?

CEOs are facing quite a challenge. On one hand, they have to meet the expectations of shareholders – that the company will generate the highest possible profit. On the other hand, they are facing the expectations of stakeholders – employees, society, customers – that the company will be socially involved. Can strategic philanthropy, in the long run, strengthen the competitiveness of companies and solve problems that they will face in the future?

Skillful and strategic philanthropy is a unique value for consumers, employees, business partners and investors. It is not surprising that in mature markets it has a long tradition. The approach to it has changed towards a more strategic one along with changes in industry, society and the economy. It is worth considering also in less developed philanthropically markets. Data shows that 93 percent of Poles expect brands engagement in philanthropy, and 73 percent millennials are able to pay more for brands that are socially responsible.

An investment, not an expense

Strategic philanthropy and the associated innovative mechanism of social funds, based on the structure of venture capital funds, in a non-obvious way to combine classical philanthropy (social return) with the traditional form of investment (financial return). There is no financial return in strategic philanthropy, but there are long-term benefits for business, e.g. in the form of providing appropriately qualified staff for the future.

According to Mitch Reznick from Hermes Investment Management, banks give higher credit scores to companies that anticipate and prevent business risks. In businesses, especially those which rely on human capital in their activities, anticipating staffing problems and strategic counteracting them can realistically affect their business operations in the future and raise their credit score today. This means that even though there’s no ROI on strategic philanthropy, the activities implemented in this area can support enterprises in the financial aspect in a long run. According to the Polish Chamber of Statutory Auditors, non-financial data are beginning to be as important to investors as the company’s financial results.

The obligation of non-financial reporting has existed in Poland since 2017. It was imposed by the EU directive, implemented in Poland by the amendment to the accounting act to about 300 companies. These are the largest companies and groups listed on the stock exchange, banks, investment funds and other public interest entities. It is worth noticing that the obligations of entrepreneurs related to social responsibility, not only its reporting, will increase.

Talking about it matters

Since research shows that customers are willing to pay more for socially engaged brands, it would be unreasonable from a business perspective not to inform them about it.

When planning activities in the social area, let’s remember that millennials are sensitive to conducting social and voluntary activities which do not fulfill the idea of social responsibility, on an ad hoc basis. So if our activity in the area of philanthropy is not strategic but focused only on the promotional aspect, we probably won’t be able to achieve the company’s long-term business goals.

How to finance social involvement

Philanthropy implemented in a sustainable and strategic way gives measurable, long-term social and business effects. However, if social activity is to be an investment, not a cost for the company, it is worth treating it as an element of a larger whole and looking for unobvious solutions. Companies are increasingly combining social engagement with strategic areas of their business – major products or markets.

Question arises – how to finance this activity? Our answer is: you can use funds that you already have planned in the budget.

A well-developed strategy for social activity is part of the brand’s DNA – it reflects the company’s values and business goals. As an important building block of our brand, social activity can therefore be financed from the marketing budget. But not only.

If the social areas in which the company is involved are to solve the staffing issues, they can be financed or co-financed from the HR budget. If we run a gastronomic activity and our social activities strategically solve the problem related to the utilization of food waste, we can reach the budget allocated for utilization or logistics.

From words to action

In theory, philanthropy is supposed to support society without providing benefits for business. I don’t agree with this approach when strategic philanthropy is concerned. As a shareholder of the company, I would expect managers to conduct social activities in a way that would also support business goals of the company. Let’s not forget that one of the major goals of companies is to generate profit.

Searching for connections between social activities and business goals is a challenge not only for managers, but also for NGOs seeking funding from this source.

A wide range of solutions available for corporate philanthropists allows me to believe that every company will find a way for its social engagement that will be compatible with its corporate culture, will take into account its resources and will support its business goals.

Anna Korzeniewska, Founder of Social Impact Alliance for Central & Eastern Europe
Original text was written for Forbes Poland, published on on Jan 31, 2020