Corporate Community Involvement
Establishing a Business Case

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Contents

• Executive Summary
• Chapter 1: A Social Role for Business:
  Backgrounding and Concepts
• Chapter 2: State of Play: Corporate Community Involvement in Australia
• Chapter 3: Thinking Strategically
• Chapter 4: Emerging Models of Community Involvement
• Chapter 5: Including Employees
• Chapter 6: Assessing the Benefits Management issues
• Conclusion
• Appendix
• Appendix A: Research Methodology
• Case Studies
• Figures
• Boxes

Chapter 5: Nature of activities

The year 2000 report that preceded this study drew attention to some emerging approaches to community investment. In leading companies these included the decline of cheque book charity and disinterested ‘philanthropy’; a shift to fewer deeper relationships with community partners; pursuit of activities that were a good fit to the industry, technology or skill sets of the firm; and looking for new
ways to meaningfully engage staff.

The story of the ensuing six years has been for organizations to shift further in this direction, and for more companies to embrace these developments. This chapter explores the nature of major corporate activities and approaches, and relevant issues.

Heike Bruch and Frank Walter⁴⁰ provide a framework for community investment using the language of ‘corporate philanthropy’ (which is still mainstream in American academia). Their framework is based on the perspectives of market orientation (external approach) and competence orientation (internal approach). A market orientation puts stakeholder expectations at the centre of the corporate approach to philanthropy with activities focused on the needs of stakeholders. A competence orientation focuses on internal issues and the alignment of philanthropic activities to corporate expertise.

Despite the use of the term ‘philanthropy’, the four approaches Bruch and Walter identify are useful for exploring corporate community involvement in Australia.
They are:

• peripheral philanthropy — where activities are driven by external demands
  and stakeholder expectation, considered difficult to sustain in the long term;
• constricted philanthropy — where activities are based on corporate core
  competencies to achieve a social purpose without consideration of an external
  stakeholder perspective. This approach is useful in some circumstances but
  lacks strategic orientation and has limited impact on a company’s competitive
  situation;
  
• dispersed philanthropy — a ‘piecemeal’ approach that does not consider
  internal competencies or stakeholder expectations, is often the approach for
  corporate donations. This approach lacks strategic direction for activities and
  should not be considered as a general approach; and
  
• strategic philanthropy — seen as the best approach as it allows for the
  alignment of corporate expertise with philanthropy activities, while also
  taking into account stakeholder and market expectations.

Figure 5.1 illustrates the four types of corporate philanthropy.

Source: Bruch and Walter, 2005.

A number of companies still operate on the traditional model of corporate community involvement which Bruch and Walter call peripheral. Some companies still have a significant percentage of their activity based on ad hoc community requests, or do so in addition to a few deeper and more strategic relationships. Some companies involved in this current study routinely support 300 to 400 charitable organisations or community activities, not counting local community activities around business locations.

As illustrated in Figure 5.2, only a modest percentage of resources are currently spent in this way, although it is an element in the programs of almost all companies.

Figure 5.2: Responses to requests for support in cash/kind

• 7% of companies do not provide any resources to requests for support;
• 58% of companies estimate that between 1% and 19% of their community contribution is used to respond to requests;
  
• 14% of companies allocate 20% to 39% of their budget to requests for support;
  
• 11% of companies allocate 40–59% of their cash and in-kind contribution to requests;
  
• 7 per cent of companies allocate between 60–79%; and
  
• just 3% of companies allocate between 80% and 100% of their community contribution in response to requests for support.

Source: Centre for Corporate Public Affairs, Corporate Community Involvement Survey, September 2006

Even in the late 1990s when a positive response to ad hoc requests was more common, Telstra reported that nearly all of its 900 or so requests per month for funding were unsuccessful ‘because they did not fit within Telstra’s sponsorship program, even though many could provide leverage for Telstra’ (Telstra strategy planning document, 1999).

The realpolitik of companies and their management in communities, however, is that some discretion to deal with ad hoc requests is practical, and where they are not part of a formal mandate, some managers will find a way ‘under the line’ to respond.

Companies that operate on the more traditional ad hoc response mode would normally operate within a fixed budget, but are more likely than those with a more strategic approach to vary their level of contribution with the business/profit cycle.

At the other end of the continuum, 73% of companies surveyed have indicated that they have actively created, or played a leading part in creating, an external activity or organisation to channel community involvement activities.

These range from high level national and significant activities though to local community activities, while others include initiatives to support neighbourhoods around plants and facilities.

For a variety of reasons, including transparency, performance pressure and community expectations, companies have become more strategic in selecting activities from the vast array of community engagement opportunities. They are increasingly seeking to add value to the company as well as the recipients of their support. This leads them to question how they can be more effective.

Alignment with business attributes and interests

For recipients, effective corporate community involvement frequently meansaccessing the particular resources and competencies of a particular company or business sector. For the company, effective involvement can mean finding alignment between community partners or engaging in activities with business imperatives.

ANZ CEO John McFarlane has touched on the need for alignment between community investment and the needs and competencies of specific industries:

‘… we should be pro-active in increasing community support for our
industries.

We all work in industries that are larger than ourselves. A healthy
industry creates the environment for successful companies to
prosper within the industry. For this reason we should encourage the
community to admire our industries, as a pre-condition to admiring
our companies.

To make sense of our community obligations, company leaders must
first ensure that their community programs are consistent with the
business of the company and its reason for being. What this means is
that community initiatives that are not consistent with our reason for
being in business, cannot easily be justified as being in the interests
of the shareholders as owners of the company.

For this reason it is natural for medical companies to promote
community health, and for banks to promote financial health in the
community. For this reason, all of ANZ’s community programs focus
on financial issues in the community.’ ⁴¹

Box 5.1 and Box 5.2 illustrate the pervasive alignment between industry interests and attributes and community investment selection. The following examples make the same point:

• mining companies work particularly on environment, indigenous affairs,
  and relevant services the Flying Doctor Service (as well as local community
  activities around sites);
  
• personal products companies work particularly with issues of hygiene and
  public health, as well as environmental issues associated with their production;
  
• pharmaceutical companies work particularly on public health and health care;
  
• information technology companies focus on science, eduction, computer
  literacy and the digital divide;
  
• breakfast food companies align themselves with community sport, healthy life
  styles and causes that their youth market embraces;
  
• oil companies and utilities will tend to concentrate on environmental issues
  such as energy use and relevant science and technology;
• fast food companies align themselves with nutrition, children’s health, welfare
  and healthy lifestyles;
  
• professional service firms will assist with pro bono work in areas of their
  expertise such as law, accounting or strategy consulting;
• telecommunications companies occupy the help line space; and
  
• insurance companies are prone to work on areas of public risk, community
  safety and most recently, climate change.

Figure 5.3 illustrates the degree of alignment between community engagement activities and business attributes and interests. Only 9% of respondents said their community involvement activities were not at all aligned with business attributes and specific interests. Thirty-seven percent said some were, 38% said most were, and 16% said all were.

Figure 5.3: Are your significant community involvement activities aligned to your business sector or its specific interests?

Source: Corporate Community Involvement survey, September 2006

This trend has been so developed in some companies that the overwhelming majority of their support is in-kind (product and staff time) with very limited cash on the table.

Box 5.1: Programs linked to business competencies and attributes — finance sector

 

Box 5.2: Programs linked to business competencies and attributes — other sectors

Sponsorship

A large amount of corporate resources are applied to marketing sponsorships of, for example, sporting events and personalities that are directly related to building commercial brands and selling products. Many of these will have benefits to the community as a secondary effect.

Non-marketing sponsorships are intended to support community activity or to build corporate reputation, and many have benefits to sales and commercial brand awareness as a secondary effect. Non-marketing sponsorships can include a range of programs including local community activities, sporting and cultural activities, health research and education. They are delivered by cash or kind and frequently in medium to long-term partnerships with non-profit organisations. There is a natural continuum from product or corporate marketing or brand building sponsorship on the one hand (usually managed by marketing departments) and sponsorship of community activities with a community investment motive on the other. In many cases there is a significant overlap, for example in the sponsorship of the arts or community sporting activities that provide brand visibility (corporate or product) as well as opportunities for building relationships with stakeholders or social utility.

The following figure illustrates the estimate of corporate resources (cash and in-kind) devoted to non-marketing sponsorship.

Figure 5.4: Estimate of resources devoted to non-marketing sponsorship

• 5% of companies do not allocate any resources to non-marketing sponsorship;
  
• 25% of companies estimate that between 1% and 19% of their community contribution resources is allocated to non-marketing sponsorship;
  
• 37% of companies allocate 20% to 39% of their community resources to sponsorship;
  
• 18% of companies allocate 40–59% of their cash and in-kind resources to sponsorship;
  
• 9% allocate between 60–79% of their community resources; and
  
• 6% of companies allocate between 80% and 100% of their corporate community involvement resources to non-marketing sponsorship.

Source: Centre for Corporate Public Affairs, Corporate Community Involvement Survey, September 2006

Some sponsorships include activities for both marketing and non-marketing motivations. For example, the sponsorship of an arts company may focus on brand and hospitality, but may help the community through teaching drama or music in underprivileged schools. And sponsorship of a major sporting code aimed at television and other brand awareness will frequently also include a grassroots community activity (see the example of Australia Post, Box 5.3). A number of companies that support high profile sports have accompanying local community, and/or youth activities, with a focus on issues such as youth welfare or public health.

Box 5.3: Australia Post and arts sponsorship

Source: Australia Post

Some argue that it is irrelevant or not particularly useful to make clear distinctions in the motives for sponsorship. Others believe it is important if only to clarify a fundamental strategic purpose, segment budgets or to determine how to report expenditures to interested stakeholders.

Some of those who see important distinctions between marketing and community investment sponsorships argue that the priorities and approach established by the marketing mindset are likely to be different to those of community investment.

They also argue that the marketing approach to promotion and publicity can, when inappropriately managed, damage the reputation value of the activity.

Others note that companies find it easier to spend significant resources on marketing initiatives because returns are perceived to be more tangible. In that case, they argue, the more that community investment activities can leverage off ‘the mighty marketing dollar’ the better.

In research for this study and other consulting activities we found that the more conservative and non-strategic approaches to community investment still embraced sponsorships, even at CEO level. As one CEO put it: ‘My predecessor was a sports fanatic so a lot of our sponsorship went in that direction, I guess I’m more into the arts, and can see the value of that. We are slowly shifting our community sponsorship towards the arts.’

Cause-related marketing

Cause-related marketing has been defined as:

The process of formulating and implementing marketing activities
that are characterized by an offer from the firm to contribute a
specified amount to a designated cause when customers engage
in a revenue-providing exchange that satisfy organizational and
individual objectives. ⁴²

Some common examples of cause-related marketing are telephone companies offering to donate an amount to a designated charity for every call made in a low traffic period, or donations of computers to local schools in return for shopping volumes in local supermarkets. More subtle examples might be aligning product promotion with social goals such as a rejection of female beauty stereotypes, or a company donation to a worthy cause for each ace served in a tennis tournament.

Companies are devoting significantly less resources to cause-related marketing. Figure 5.5 shows that nearly half (47%) of survey respondents indicated that their company did not allocate any resources to cause-related marketing. A further 41% were allocating between 1% and 19% to cause-related marketing.

Obviously, companies dependent on strong retail brands will have a greater interest in cause-related marketing than other companies. See Box 5.4 for some examples.

Figure 5.5: Cause-related marketing

• 47% of companies do not allocate any resources to cause-related marketing;
  
• 41% of companies estimate that between 1% and 19% of their community
  contribution resources is allocated to cause-related marketing;
  
• 4% of companies allocate 20% to 39% of their community resources to causerelated
  marketing;
  
• 3% of companies allocate 40–59%; 4 per cent allocate between 60–79% of
  their community resources; and
  
• 1% of companies allocate between 80% and 100% of their corporate
  community involvement resources to cause-related marketing.

Source: Centre for Corporate Public Affairs, Corporate Community Involvement Survey, September 2006

Box 5.4: Cause-related marketing

Inter-firm collaboration and competition

One question companies face is whether or not to pursue community initiatives alone rather than in partnership with other companies, to maximise visibility and brand and to differentiate programs and image for competitive reputation advantage. A go-alone strategy can help build the most direct and specific relationships directly with stakeholders, and align a company’s activities and partnerships with its specific needs and competencies. These motives suggest that working alone or as a clear lead sponsor is preferable to an activity in which the corporate position (profile and opportunity for relationship) is diluted by agglomeration with other companies.

Figure 5.6 shows estimates of corporate community investment resources allocated to programs developed or delivered with a consortium or collaboration of other companies across industries. It reveals the practice is common but that the level of resources spent in this way is small relative to other approaches.

Figure 5.6: Programs developed or delivered with a consortium or in collaboration with other companies across industries

• 41% of companies do not allocate any of their resources to collaborative
  programs;
  
• 41% of companies estimate that between 1% and 19% of their community
  contribution resources is allocated to collaborative programs;
  
• 16% of companies allocate 20% to 39% of their community resources to these
  sorts of programs; and
  
• just 1% of companies allocate 40–59% and 1% allocate between 60–79% of
  their resources to collaborative programs.

Source: Centre for Corporate Public Affairs, Corporate Community Involvement Survey, September 2006

Factors supporting collaboration in a cause or program include the greater depth and quality of support, bench strength, shared administrative burdens and synergies in support (for example for volunteering).

An organisation can also carve out a specific niche or speciality within a collaboration that delivers at least some of the advantages of a ‘go-alone’ strategy.

A significant number of programs require, or are best served, through substantial intermediaries in the non-profit sector. Intermediaries depend on the support of a multiplicity of corporate (as well as private) contributions and in return have the delivery mechanisms and have expertise in relation to target beneficiaries. See Box 5.5 for examples of effective collaborations.

One CEO who played a leading role in the establishment of a collaborative community support program has also led his company into a deep commitment to stand alone company programs and highly badged sponsorships.

There is room for both. I’d love to see more businesses working
collectively on important general issues, but the company has its own
specific interests with all the benefits and obligations associated with
our own targeted community programs.
CEO interview

An associated issue is how much public recognition or media attention to seek for programs and activities. Opinions varied greatly between CEOs on this question, sometimes reflecting personal style and philosophy, and sometimes reflecting business judgement.

Views ranged from, ‘We’ll let the actions speak for themselves’ and ‘Bragging makes our commitment just look like PR’, to ‘In pursuit of the business case, it is important for our stakeholders to know what we are doing’. If winning and maintaining reputation is an important element of the business case, and justifies the spending of shareholders’ funds, informing relevant stakeholders of those activities seems appropriate.

One issue is to determine what proportion of the community investment budget should be spent on promotion. Opinions vary according to the nature of the industry sector. There has been strident criticism, for example, of consumer product companies spending multiples of the dollar contributions that are being promoted on TV and other press. This might be seen as a form of cause-related marketing, in which case it may be appropriate to allocate the whole budget (for the cause as well as its promotion) to the marketing department.

A number of companies have also wrestled with leveraging community investment to optimise the benefit of activities, such as adequately engaging busy executives in publicity or taking advantage of relationship or learning opportunities.

Previous reference was made to the role of corporate community investment in inter-firm competition. This arises particularly, but not exclusively, in industries subject to socio-political vulnerability or reputational sensitivity and where perceived corporate social performance (CSR including community investment) can deliver staff commitment, customer support, or comfort for regulators. In one example from the mining sector, an Australian company was advised its success in bidding for an exploration permit in an Asian country was ‘because of your strong demonstrated behaviours with local communities’. We have seen the high profile competition to establish CSR and community investment credentials between petroleum companies globally.

Companies in the Australian banking industry compete through paid advertisements promoting comparative achievements. In several sectors, there have been explicit decisions made in industry associations to pursue social or community programs company by company, rather than through unified industrylevel programs.

The following figure provides estimates of corporate community investment resources that are provided to programs delivered at an industry level. It is apparent that, as with collaborative programs, companies contribute a relatively modest amount of corporate resources to community investment at this level.

Figure 5.7:Resources devoted to programs delivered at industry level

• 24% of companies do not allocate any resources to industry programs;
• 58% of companies estimate that between 1% and 19% of their community
  contribution resources is allocated to industry programs;
• 13% of companies allocate 20% to 39% of their community resources to these
  sorts of programs;
• 3% allocate between 40% to 59%;
• 1% allocate between 40% and 79%; and
• 1% allocate between 80% and 100% of their resources to industry programs.

Source: Centre for Corporate Public Affairs, Corporate Community Involvement, September 2006

Box 5.5: Collaborative programs

Fewer, deeper, relationships

We have noted previously that there has been a distinct trend over the past decade to step back from simply responding to requests on their merits, for example, via donations committee. This has been to concentrate efforts in specific areas determined strategically, and to select — in some cases to actually create — community partners with whom deeper relationships can be established.

These partnership relationships are now commonly established with clear formal agreements that might cover each party’s expectations, measures of success, or reciprocal obligation and issues around the length of commitment and termination.

The nature of relationships vary widely. They can include:

• collaborative research in areas of common interest;
  
• funding non-profit organisations to support company or local community related needs;
  
• using partners with close proximity to recipients and relevant skills to deliver the community benefits (for example welfare, education and community capacity building); and
  
• working directly with partner organisations such as schools, arts companies, and local community networks.

A common element in close partnership relationships is the direct engagement of company personnel in volunteering, discussed further below. Another is for senior managers to accept management or governance responsibilities with partner organisations. As noted elsewhere, managers see the value of exposure to external experiences that come from active engagement in community activities. Working closely with non-profit partners and in community groups is a convenient vehicle for this exposure. Several CEOs stated that they accepted the role of chair or committee member of agency boards of non-profit organisations, to cement these relationships and inspire others in management to get involved.

Box 5.6: Partnerships

Community relations

The survey shows that companies are devoting more resources to community relations programs than to the other areas of community investment, both in terms of cash and kind resources. Figure 5.8 illustrates resources provided to community relations activities such as building relationships with local communities, supporting community activities, and other matters relevant to location and local licence to operate. Twenty-five percent of companies spend 60% or more of their community investment resources in community relations and 16% of companies spend 80% or more.

Figure 5.8: Resources devoted to community relations

• 3% of companies do not allocate any of their resources to community relations programs;
• 21% of companies estimate that between 1% and 19% of their community contribution resources is allocated to community relations;
  
• 34% of companies allocate 20% to 39% of their community resources to community relations;
  
• 17% of companies allocate 40–59%;
  
• 9% of companies allocate 60–79%; and
  
• 16% of companies allocate 80–100% of their community investment resources to community relations projects.

Source: Centre for Corporate Public Affairs, Corporate Community Involvement Survey, September 2006

Interviews and other research confirms that local community relations activity is a high priority for heavy industry where impacts in urban settings are significant; for resource companies in remote areas, where staff or staff connections dominate the population; or in rural areas where there can be significant dependency on corporate economic activity.

Community relations is also important in other ways. Banks and companies like Australia Post, whose operations are nationwide, are sensitive to their role in the local as well as the broader community, and face high expectations to contribute to community life.

Box 5.7: Community relations programs

Volunteering

Through the first half of the 2000s the engagement of employees in community investment activities has grown more strongly than any other element.

Interviews revealed that this has become a major issue for senior executives. As one CEO put it: ‘We find them interviewing us rather than us interviewing them and we are under the pump to demonstrate that we are making a positive social contribution.’

Competition for talent in a tight labour market is a major factor in corporate success. Therefore, companies seeking to become an employer of choice need to consider the growing demand of employees to contribute to the community.

In recent years, there has been an increase in employee volunteering and workplace giving. Volunteering Australia estimates that 6.3 million people in Australia volunteer around 836 million hours of their time each year. This includes both individual and corporate volunteering. A 2006 survey by Volunteering Australia and Australia Cares indicates that most corporate volunteer programs have been established since 2003. ⁴³ The survey also found that nearly a third of companies had a full-time person dedicated to employee volunteer programs. Many companies have a policy to provide paid work time for employee volunteering: 40% of corporate respondents provide one day a year, 21% provide two to three days and 6% provide a week.

As Figure 5.9 indicates, only 3% of companies do not allocate any of their resources to programs designed to engage employees and 10% of companies allocate 80% or more to these programs.

 

Figure 5.9: Programs designed to engage employees

• 3% of companies do not allocate any of their resources to these projects;
  
• 34% of companies estimate that between 1% and 19% of their community contribution resources is allocated to projects to engage employees;
  
• 36% of companies allocate 20% to 39% of their community resources;
  
• 13% of companies allocate 40–59%;
  
• 4% of companies allocate 60–79%; and
  
• 10% of companies allocate 80–100% of their community investment resources to projects that engage employees.

Source: Centre for Corporate Public Affairs, Corporate Community Involvement survey, September 2006

Workplace giving (employees donate to charitable organisations through automated payroll deductions) has also increased in recent years. This is a voluntary program that provides an automatic tax reduction for employees, by nominating a regular payment to a deductible gift recipient (DGR status). This is further discussed in Chapter 6.

The 2005 report ‘Giving Australia: Research on Philanthropy in Australia’ ⁴⁴ (an initiative of the Prime Minister’s Community Business Partnership) provides more perspective on the scale of giving in Australia. It estimates that 525,900 businesses in Australia provided $3.3 billion in donations, sponsorship and community business projects in 2003/04 and highlights volunteering (individual and corporate) as having increased significantly in recent years.

 

Engagement of ‘influencers’

We noted earlier that companies have responded pragmatically to the power of corporate critics and others with different perspectives on community issues, and sought to build relationships with them.

At one level this engagement is designed to break down negative stereotypes, diffuse hostility and win corporate credibility by association with groups that have successfully captured the high moral ground. Examples include NGO’s active environmental, consumer, and health activities. Another objective is to gain genuine value from this relationship by a closer understanding of non-corporate perspectives, or to use these organisations as intermediaries effective in the delivery of community investment activities such as environmental management, welfare and community education.

This trend toward engaging community groups has moved so quickly that some advocacy organisations have had difficulty in responding with their own resources to the proliferation of companies seeking partnerships, and have felt the risk of being diverted from their core advocacy mission by engaging in corporate-related activities.

There is still deep-seated suspicion and in some cases outright hostility to the corporate sector within much of the not-for-profit sector, and activist organisations in particular are keen not to be seduced by collaboration into or perceived endorsement of, corporate agendas.

There has been a significant overall trend to bridge this gap with movement from both sides. Many non-profit organisations have embraced this whole heartedly and accepted that collaboration with companies that engaging them with integrity, can make a positive contribution to their organisational objectives.

Figure 5.10 indicates the allocation of corporate resource to projects designed to engage NGOs and influencers

Figure 5.10: Programs designed to engage NGOs and ‘influencers’

• 12% of companies do not allocate any of their resources to these projects;
  
• 39% of companies estimate that between 1% and 19% of their community contribution resources is allocated to projects to engage NGOs and influencers;
  
• 28% of companies allocate 20% to 39% of their community resources;
  
• 12% of companies allocate 40–59%;
  
• 5% of companies allocate 60–79%; and
  
• 4% of companies allocate 80–100% of their community investment resources to projects that engage NGOs and influencers.

Source: Corporate Community Involvement survey, September 2006

Research partnerships

Working through controversial issues, and establishing mutual understanding has been one reason for companies to participate in research partnerships with NGOs, government agencies and universities. Figure 5.11 suggests a small majority of major companies are engaged in this activity. It varies considerably from university collaborations to solve technical questions in production (with benefits for the institution, but not counted as community investment) to the altruistic funding of research intended to address social problems.

In a majority of cases this research will be closely aligned with the industry’s particular needs or attributes, with a clear win-win outcome in mind. One clear example is BioMaps. BioMaps is a five year partnership between Rio Tinto’s WA Future Fund and the Australian Museum to conduct a biodiversity and regional mapping project in the Pilbara region (where the company has major projects and an exploration agenda). The information will be fed into an Australia-wide biodiversity map that the Australian Museum is creating in conjunction with Rio Tinto. The Pilbara research project has collected more than 95,000 specimens, of which 80% were previously undescribed in scientific literature. While contributing to the stock of scientific knowledge, the company is also collecting data to inform its exploration teams of potential environmental risks, and facilitate its environmental management.

A recent phenomenon has been the development of company coalitions to influence policy through research based advocacy. A recent example of funded research through this mechanism is the Australian Business Roundtable on Climate Change, involving a number of CEOs and the Australian Conservation Foundation. See Box 5.8 for examples of research partnerships.

Box 5.8: Research partnerships

Figure 5.11 : Research partnerships

Are you involved in research partnerships with NGOs or government that are related to business interest (eg health, environment, education)?

Source: Centre for Corporate Public Affairs, Corporate Community Involvement survey, September 2006

 

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