As a result of the financial downturn, many companies in Australia are experiencing significant pressure on budgets, including their budgets for corporate community investment.
However, not all companies are experiencing financial pressure. Correspondingly, their community investment approach and programs are unaffected. Even corporations that are under pressure to cut costs are looking for areas to find savings other than in community investment budgets.
Our research indicates that overall, companies are maintaining their commitments to corporate community investment.
Some corporations are adjusting their priorities and cutting back in areas such as sponsorships. However, for many of the largest companies in Australia, there continues to be a focus on strategic, long-term community investment.
An important context to note is that large publicly owned companies in Australia are going through the transformation to a more strategic approach to community investment, (as noted in the Centre's report on
Corporate Community Investment in Australia (2007)).
These changes are characterised by a shift away from responding to ad hoc requests for worthy causes, to requiring some level of business case or return on investment justification, and choices of engagement that are closely aligned with business issues and specific corporate competencies.
Companies are moving to fewer, deeper relationships, which enable better leveraging and assessment of benefits and more sustainable, longer term relationships with explicit mutual obligations. These relationships are underpinned by identified key performance indicators.
These trends are not yet typical among small and medium enterprises (SMEs), private companies, or 'closely held' public companies, a fact that may not make this study typical of companies as a whole.
There is also a trend in major companies to expand long-term community investment to meet employee and community expectations and enhance reputation.
A number of companies have cited relatively new and high-level corporate commitment to longer-term community investment as a protection against deep cuts in the current economic downturn.
In general, companies are anxious to avoid reputational damage and risks to trust with partners and communities by reducing community investment support in an environment of greater community need. Nevertheless, while there is an increase in demand for support from community organisations, we found that most companies are reluctant to engage in new relationships or expand existing activities.
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A focus on strategic, long-term community investment activities
Companies consulted for this research say they are maintaining their focus on strategic, longer-term community investment. Three-quarters of the participants in our survey report that the rationale or motives for undertaking community investment remains the same, even during an economic downturn. Motives such as community trust/support, reputation and employee engagement continue to be the most important drivers of corporate community investment strategy and activity.
Companies are continuing to focus on alignment of community investment activities and programs with corporate strategy, despite the downturn. The Centre's 2007 research highlighted this trend. The economic downturn has not changed this, and if anything, has confirmed this approach, as more companies look to ensure alignment to justify the value of their community investment.
Business practitioners report that they are spending more time providing justification of the value to their company from resources spent on community investment.
This in turn means that NFP partners are being asked more frequently to justify the benefits of community investment and provide more information to their corporate partners. As one business practitioner commented, 'Every decision is looked at even more closely for strategic alignment to the corporate strategy and vision'.
Companies are honouring longer-term commitments
Companies that have multi-year contracts or long-term commitments are honouring those agreements.
According to our survey respondents, 69 per cent of companies are sustaining their multi-year commitments, while 12 per cent report they have been reviewed downwards. Another 12 per cent say their commitments have been postponed or abandoned.
We note that respondent companies allocate (on average) 52 per cent of their corporate community investment budget to multi-year strategic partnerships.
Some companies most severely hit by the downturn (notably some US-based multinationals subject to global cost saving mandates) have been forced to cut their community investment contributions, and some companies are re-negotiating to push some of their commitments into later years when they assume more normal conditions.
While existing commitments tend to be honoured, NFP partners and corporate champions of community investment are concerned about the position budgets will be in when agreements are rolled over in coming years.
Some companies also report a move away from longer-term commitments. Against the trend, these companies are responding to more urgent needs from NFP organisations and re-focusing some of their community investment activities towards more immediate community needs flowing from the economic downturn.
Managing community investment budgets
In 2008/09 compared to the previous year, 41 per cent of respondents to our survey indicated that their overall community investment budget had increased. Thirty-five per cent reported no change. Most (55 per cent) expect no change to their budget in 2009-2010, while 26 per cent anticipate an overall increase. Nineteen percent forecast a decrease.
One theme that emerged strongly from our research is a consequence of the propensity of some companies to respond to financial pressure by announcing flat percentage cuts to costs in business departments across the board. So far, in public affairs departments that administer corporate community investment programs, hits are being taken in rearranging priorities, head count and overhead costs rather than in contributions to community investment.
While some companies report some diversion of resources from NFP partners because of recent natural disasters, this has had only a modest effect. This is because disaster relief tends to be budgeted separately from ongoing community investment resources.
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Change in approaches to corporate community investment and nature of support
According to our research, companies expect no major change in the direction of corporate investment contributions in 2009-2010. Focus groups for this report reveal, however, there could be some diversion of support from what may be perceived as less urgent activities (or for the sake of 'optics'), such as arts and culture activities or sponsorships that are aimed at corporate branding, or community investment that could be considered as indulgent.
A recent arts sponsorship survey by the Australian Business Arts Foundation (2009) highlights that nearly half of surveyed companies expect a decrease in their arts sponsorships over the next year. The report suggested that sponsorship was more vulnerable if the motives were hospitality or senior management personal interests, rather than strategic alignment to the company (AbaF 2009).
For some companies reductions in these areas can result in savings to corporate budgets (especially marketing budgets) or some diversions to welfare activities or local community needs. At the same time, some companies see benefit in associating themselves and their products with community needs via cause-related marketing including, funds tied to product sales.
Our research finds no major change in levels of corporate support for different areas of community investment - including community activities, non-marketing sponsorships, workplace giving and payroll deductions, research partnerships and corporate volunteers. As noted earlier, some companies are reducing support in areas such as marketing-related sponsorship and untied cash.
Corporate volunteering continues to expand, including to retain an under-employed but valued workforce. Sixty-eight per cent of respondents to our survey expect an increase in corporate volunteer support in the next year, while 52 per cent expect an increase in workplace giving and payroll deductions. This is consistent with the finding that companies are increasing their resources on programs that engage employees.
Some companies also report a shift from cash to in-kind contributions. We expect this will increase in the next year as companies face further economic pressures and look for alternative ways to continue their support.
Managing relationships with NFP partners
As noted above, corporate public affairs departments, that have responsibility for administering community investment programs, are making changes to head count, priorities and other overhead costs rather than making cuts to corporate community investment budgets. This is negatively impacting the company's ability to manage its community relationships.
At a time when community investment is being recognised for its positive contribution to business and community objectives, these challenges relating to the management of NFP partnerships threaten to have important long-term consequences.
Corporate employees report that while there is a need for communication with partners as a consequence of economic pressures, they have less time and money to stay close to them. They also have less time to leverage contributions for their companies' benefit and hence demonstrate return on investment value. Concerns are that this could lead to a return to arms length 'cheque over the fence' philanthropy that deflects from the positive trends under way.
Despite this, companies report that communication, trust and understanding remain strong with their NFP partners. Sixty-three per cent of survey respondents agree there is more communication with their NFP partners, while 60 per cent say they are working closely to manage uncertainties.
This study concludes that relationships with NFP organisations are more likely to be sustainable if they are based on longer-term, strategic alignment with company strategy.
Sustainable relationships are also likely to involve regular contact, good communication, and include regular measurement and reporting of outcomes.
We note that many of the characteristics of sustainable relationships will benefit larger NFP organisations in particular. In this environment it would be difficult for smaller or less sophisticated NFP organisations to win corporate support if they cannot satisfy accountability demands, or if they are in community areas or sectors that are less attractive for companies who are seeking specific alignment with corporate strategy.