Patterns of Corporate Philanthropy
Section One:
Passing the Shareholder's Buck
Summary EssayThe Advocacy Masquerade
The Critical Need for Public Disclosure of Corporate Giving
The last few years have been marked by swift advances in telecommunications, chiefly the explosion of activity on the Internet. Companies and organizations of all kinds realize that in today's society your website is your storefront. Companies use the Internet to reach consumers, but they have also discovered that they can reach investors through the web. In the 1990s mutual funds and Internet trading have democratized the marketplace by introducing securities markets to millions of current or prospective investors.
The new technology is improving the way companies meet their responsibilities to shareholders. As stewards of the public’s investment, corporate management must make certain that shareholders get accurate information about the company's activities and financial condition. Corporations are now posting this kind of information on their websites. In fact, laws and regulations require publicly-owned companies to disclose statements of earnings and tax-filings when shareholders request them.
Unfortunately, most corporations are not telling their shareholders about a significant aspect of their operations: their decisions to commit millions of dollars in company funds to philanthropy. Corporate philanthropy deserves shareholder scrutiny. Every corporate dollar given away is a dollar not directly reinvested into the company. Because the corporation’s principal aim should be to serve the shareholder’s interest, it should be open about its grantmaking and its reasons for grantmaking. Shareholders should not have to guess where corporate dollars are going and why.
However, large corporations are increasingly reluctant to publicize the details of their giving. Recently Capital Research Center conducted an informal survey of the websites of over 200 leading companies. We found that less than half posted any contributions data on the Internet, only a fraction posted itemized lists of grantee organizations, and still fewer posted the dollar amounts of individual grants. In contrast to more general financial data, companies are not required to report their direct giving—not even to shareholders.
Capital Research Center faces these barriers each year as we put together Patterns of Corporate Philanthropy. The study tracks annual philanthropic giving by the 250 largest publicly-held corporations in the United States (as ranked by Forbes magazine according to sales). Patterns XII examines corporate giving for 1996, the most recent year for which comprehensive information is available.
One hundred fifty of the 250 companies we surveyed failed to respond to written requests for 1996 giving data. When we telephoned these companies, 70 declined outright to participate, while many others failed to return messages. Only 57 companies voluntarily provided information for the study, and only 30 fully provided the comprehensive giving data we requested.
Most of the hard data in Patterns on corporate grant-making comes from another source: the 990-PF forms filed by company-sponsored foundations with the Internal Revenue Service (IRS). Our records indicate that 176 of the 250 companies have corporate foundations. Most companies do not willingly disclose their foundation tax filings. Rather, shareholders and members of the public must request copies of these forms through the cumbersome IRS bureaucracy. When companies fail to satisfy requests for giving data, we gain access to 990-PF forms through the Foundation Center’s philanthropy resource library in Washington, DC. This process of obtaining data contributes greatly to the lag in reporting overall corporate giving for recent years.
For twelve years Capital Research Center has examined corporate giving data, and our reviews have disclosed a pattern of corporate philanthropy. The Patterns study focuses on a particular kind of philanthropy: corporate gifts to public affairs organizations that engage in public policy research and advocacy. These organizations include think-tanks, civic organizations, groups concerned with public health, legal rights, the environment and minorities, pro-business associations and other groups that seek to affect public policies. Each year Patterns finds that corporate philanthropy for public affairs organizations disproportionately benefits groups opposed to the operation of a free market. Ironically, many of America’s most successful companies give millions of dollars annually to organizations that seek to expand government and undermine the free exchange of goods and services.
Patterns XII examines corporate grants to nearly 500 public affairs organizations in 1996. The study reveals $49.8 million in contributions to nonprofit public affairs groups made by 137 major American corporations. The Patterns survey rates these groups on an 8-point scale of political ideology from Left to Right. Based on the data we collected we calculate that these corporations contributed $4.61 to tax-exempt groups on the big government Left for every $1.00 they gave to conservative and free market groups on the Right.
The literature that companies produce to describe their philanthropy most often ignores the political dimension of their giving. Contributions reports published by companies like Dayton Hudson (parent company of Target Stores), Georgia-Pacific, and Intel simply fail to itemize grants. Other companies like Johnson & Johnson and Home Depot describe sample grants or go on for pages describing their most warm-and-fuzzy charitable projects without providing detailed giving data. Perhaps companies conceal the extent of their grantmaking to avoid controversy. However, this is precisely the kind of company information that should be available for review by the public and shareholders.
Corporations support big government advocacy groups even though their activities are far from what most people consider charitable. Traditional private charities serve people in need and seek the betterment of local communities. Many of the most effective are faith-based or depend primarily on volunteers. These groups are a vital component of American civil society. By contrast, the nonprofit Left considers advocacy for expanded government a more vital form of charity.
Current law allows many political advocacy groups to fall under Section 501(c)(3) of the Internal Revenue Code. This means a gift to the Public Citizen Foundation—a Ralph Nader organization that supports lobbying and litigation against businesses and government agencies—is just as tax-deductible as a gift to the American Red Cross. What is now called "the nonprofit sector" is to a great extent the creation of the U.S. tax code, and it has become more and more politicized as government takes on the role of providing or paying for social services, education, health care, conservation of natural resources and the arts. Advocates of so-called "progressive philanthropy" tend to dismiss the traditional goals of charity. Preferring to lobby for social reform through political action, they have persuaded many charitable 501(c)(3) organizations to re-direct their energies from direct service to political advocacy.
Since its founding in 1984, the mission of Capital Research Center has been to argue against these trends. A government that over-regulates, imposes high taxes, and encourages welfare dependency does not complement genuine charities—it crowds them out. When corporate managers fund advocates of big government, they undermine traditional charities, and they weaken the economic and social system that makes it possible for business to flourish.
The Internet revolution has complicated this picture, and it is making corporate support for leftist advocacy groups even more destructive. It is against federal law for 501(c)(3) groups to engage in election campaigning, and their right to directly lobby lawmakers is severely limited. However, these restrictions do not keep advocacy organizations from engaging in vigorous policy debate—especially in cyberspace. Indeed, politicized nonprofits are more likely to have established a presence on the Internet. Unlike traditional charities, which give away goods and services, nonprofit public affairs groups give away ideas.
For instance, the Heritage Forest Campaign recently orchestrated 170,000 e-mails to Vice President Al Gore "urging him to stop logging in national forests." The Campaign will use the 170,000 names, e-mail addresses and other personal information for further fundraising and lobbying.
The most radical and politically active organizations on the web are unlikely recipients of corporate philanthropy. However, their aggressive Internet-based tactics are often copied from more established groups. Public Citizen lauds the Heritage Forest Campaign’s method of "prospecting" for new members, noting that it has been used successfully by the Environmental Defense Fund, National Education Association, Democratic Congressional Campaign Committee, Sierra Club, Handgun Control, and Pew Charitable Trusts. The groups mentioned are a mix of nonprofit charities, nonprofit lobbying groups, unions, political party committees, and private grantmaking foundations. Public Citizen unwittingly discloses what most Washington political insiders already know only too well—that these groups are parts of a common political fundraising culture.
Nonprofit public affairs groups are deft at using campaign and tax law to disseminate their political messages, and the Internet only accelerates the process. Like candidates and political parties, they use the law to their advantage. When an organization wants a tax-deductible donation and wants to lobby or promote a political campaign, it sets up a 501(c)(3) organization to handle the charitable or educational side of the business and a 501(c)(4) or political action committee to deal with explicitly political actions. The complexities and inevitable loop-holes of the current system only pave the way for deception and exploitation.
Most of the explosion of "issue advocacy" campaigning comes from the nonprofit Left. It is especially troubling that major corporations help pay for it. For instance, just a few weeks before election day in 1996, the American Cancer Society’s (ACS) initiated a $5 million ten-city television ad campaign to support the tobacco tax bill. The ads ran across the country in media markets covering some of the most hotly contested House and Senate races. Most U.S. corporations had opposed the bill. Yet as Patterns XII demonstrates, many of the same companies poured more than $1 million into ACS in 1996, and have probably contributed even more to the organization in the years since.
Consider another recent controversy in corporate philanthropy. In January 1999 news reports disclosed that Macy’s, the Federated Department Stores chain, paid out $360,000 in grants to four Los Angeles community groups as it prepared to close down an unprofitable store in L.A.’s Crenshaw neighborhood. The National Urban League’s Los Angeles chapter received $150,000 and a local affiliate of the Southern Christian Leadership Conference (SCLC) received $60,000.
Neither of these very political organizations appreciated the business considerations that led Macy’s to close its store. The groups attacked the company’s philanthropy as soon as the story went public."They were trying to assuage their conscience….I think they were trying to make some kind of gesture as they made a business decision with Macy’s," declared an ungrateful Genethia Hayes, President of the Los Angeles SCLC, who nonetheless refused to return the money. SCLC and the Urban League lobby for increased welfare spending and higher taxes, and in 1996 their California chapters opposed Proposition 209, which repealed racial preferences statewide. By supporting these groups Federated’s charity bankrolled its adversaries and bought the company a media disaster.
Of course, corporate philanthropy can produce "win-win" situations for companies and charities. Supporting charities that are recognized for their effectiveness is good public relations. This kind of philanthropy smoothes corporate relations with local communities, increases worker morale, and can even expand the labor pool.
Companies can also contribute to public affairs organizations that are dedicated to limited government and free markets. When they do this they help create the conditions in which businesses prosper. There are scores of nonprofit public affairs groups with a conservative or free-market focus. If corporations want to invest in public affairs organizations, there is no shortage of groups sympathetic to their fundamental interest in a free market economy.
Unfortunately, companies are easily manipulated by the nonprofit Left. Since 1991 corporations in the Patterns survey have supported left-of-center public affairs groups over right-of-center alternatives by a better than 3-to-1 ratio. In 1995 the situation improved over previous years, but 1996 saw a substantial increase in corporate giving to liberal groups. The ratio of Left to Right giving dropped from a record $4.07 to $1.00 in 1993 to $3.23 to $1.00 in 1995. However, in 1996 the ratio shot up to $4.61 to $1.00. Even if we exclude corporate grants to new public affairs groups not included in prior editions of Patterns, the ratio approaches the old record of $4.07 to $1.00. [Table I in the section below illustrates the changes in the Left-Right dollar ratio from 1986 to 1996.]
In 1996 137 of the largest publicly-held corporations gave away $39 million to liberal policy groups and left-wing activist organizations while contributing just over $8 million to groups that support limited government. These figures are a drop in the bucket in the U.S. economy, but they make a real difference to nonprofits that formulate and promote public policy.
Shareholder-owned corporations should make charitable contributions with great care. With the technology available today, there is no reason why publicly-owned companies should not fully disclose them. Corporate leaders who unwittingly or secretly fund a political agenda of new regulations, increased taxes, and government spending on ineffective social programs are cheating their shareholders. A company’s managers can use philanthropy to protect their shareholders’ investment and benefit traditional charity. They also can support public affairs organizations committed to limited government and free markets. Too often managers miss these real opportunities and fall for the sanitized rhetoric of the nonprofit Left. In a time of unprecedented access to information, corporations continue to bankroll the advocacy masquerade.
Findings on 1996 Corporate Giving
This year’s edition of Patterns of Corporate Philanthropy reveals that in 1996 major American corporations contributed $49.8 million to nonprofit public affairs groups. This amount was 3.5 percent of the cumulative $1.4 billion in corporate contributions made by the 137 companies we monitored. Special interests commonly spend tens of millions of dollars on major policy initiatives. However, it would be a mistake to dismiss the proportion of corporate philanthropy flowing to nonprofit advocacy and policy groups. This year’s edition of Patterns features expanded coverage of public affairs groups. We identified over 150 additional groups involved in political advocacy activities, and most of these groups were on the Left. [See Table I.]
Table II compares 1996 corporate public affairs spending across a spectrum of political ideology. Last year’s edition of Patterns identified $25.5 million in corporate grants to left-of-center groups as compared to $7.9 million to right-of-center groups. In 1996 companies continued to fund groups on the Right at approximately the same level as in 1995, but increased their support to groups rated 2-Left and 3-Liberal by 25 percent. [See the section on "Methodology" for a further description of Patterns ratings.] As in past years, groups comprising what we identify as the "Establishment Left" received the most corporate giving to nonprofit public affairs groups: $31.5 million or 63.2 percent.
There was an increase in giving to groups we categorize as the "Change-Oriented Right." Patterns XII has reevaluated the American Enterprise Institute (AEI) and upgraded its rating from 6-Center-Right to 7-Conservative to reflect what we consider its increasing emphasis on conservative and market-oriented public policies. As a result, corporate grants to AEI have increased the level of giving recorded for the "Change-Oriented Right," which now receives more corporate funding than the "Establishment Right."
Table I
Left – Right Dollar Ratio
Amount Flowing to the Nonprofit Left for Every $1 to the Right
The second column for 1996 represents the Left - Right Dollar Ratio when considering only those nonprofit public affairs groups known to Capital Research Center at the time of last year’s study.
Fifty-seven of the 137 companies we evaluated gave at least $250,000 or more to nonprofit public affairs groups. Eleven gave more than $1 million each. We distribute letter grades to these large givers based on our calculation of their giving. In 1996 no company earned an "A." There were two "B"s, eight "C" grades, 35 "D"s and 11 "F"s. In other words, 80 percent of graded companies received a "D" or "F." Last year the proportion was 75 percent.
The "Ten Best" and "Ten Worst" corporate givers listed in Table III are taken from the letter grade list. Companies that make large contributions to nonprofit public affairs groups, are more polarized this year than last. Except for Cigna the best corporate giver, whose rating (5.73) is lower than last year’s first-ranked Eli Lilly (6.23), all other ratings in ranks two through ten are higher. By contrast, every company on the 1996 "Ten Worst"list has a rating worse than the company in the same rank last year. All received "F" grades.
The lowest rated company is the federally-chartered mortgage lending company Freddie Mac. It was next to last during the two previous years. May Department Stores, last year’s worst "misgiver," improved, as did Monsanto and WMX Technologies. (WMX received no letter grade this year because it gave less than $250,000 to nonprofit public affairs in 1996.) Three companies on the 1995 "Ten Worst" list—Mobil, General Mills, and Fannie Mae—are off this year’s list, but not because their giving got better. Other companies displaced them in the race to the bottom.
Fannie Mae is particularly noteworthy, improving by one letter grade since 1994 because of increased, sustained, and substantial support to right-of-center groups. Despite its low rating and "D" grade, Fannie Mae actually gave more money to conservative and free-market groups than any other company in 1996. It gave $25,000 to the Manhattan Institute and made the second $75,000 installment of a $150,000 grant to the Progress & Freedom Foundation. However, these grants pale in comparison with Fannie Mae's support for left-wing groups like ACORN ($105,000) and the Center for Community Change ($100,000).Patterns XII shows that corporate funding to the nonprofit Left is at an all-time high. A surge in funding to the Right in 1995 has been lost in a flood of renewed support for left-wing causes. In 1996 the ratio of corporate support for left-wing causes matched or exceeded the proportions of 1993—the first year of the Clinton Administration. After settling into a new political landscape in 1996, the rejuvenated nonprofit Left successfully mined more corporate funding than ever before.
Table II
1996 Ideological Distribution of Public Affairs Grants
Using Updated List of Public Affairs Groups
| Rating | $ (Millions) | % of Total | Classification | $ (Millions) | % of Total | $ (Millions) | % of Total |
| Unranked | 1.315 | 2.64% | |||||
| 1-Radical Left | 0.005 | 0.01% | |||||
| 2-Left | 7.220 | 14.50% | |||||
| Change-Oriented Left | 7.225 | 14.51% | |||||
| 3-Liberal | 26.477 | 53.17% | |||||
| 4-Center-Left | 4.995 | 10.03% | |||||
| Establishment Left | 31.472 | 63.20% | |||||
| Left 38.697 | 77.70% | ||||||
| 5-Center | 1.389 | 2.79% | |||||
| Centrist | 1.389 | 2.79% | |||||
| 6-Center-Right | 2.682 | 5.38% | |||||
| Establishment Right | 2.682 | 5.38% | |||||
| 7-Conservative | 1.707 | 3.43% | |||||
| 8-Market Right | 4.011 | 8.06% | |||||
| Change-Oriented Right | 5.718 | 11.48% | |||||
| Right 8.400 | 16.87% |
Total 1996 corporate funding to public affairs groups: $49.800 million
Funding Differential: $4.61/Left to $1/Right
Using Previous List of Public Affairs Groups
| Rating | $ (Millions) | % of Total | Classification | $ (Millions) | % of Total | $ (Millions) | % of Total |
| Unranked | 1.133 | 2.69% | |||||
| 1-Radical Left | 0.000 | 0.00% | |||||
| 2-Left | 4.702 | 11.14% | |||||
| Change-Oriented Left | 4.702 | 11.28% | |||||
| 3-Liberal | 22.820 | 54.08% | |||||
| 4-Center-Left | 4.321 | 10.24% | |||||
| Establishment Left | 27.141 | 64.33% | |||||
| Left 31.843 | 75.46% | ||||||
| 5-Center | 1.283 | 3.04% | |||||
| Centrist | 1.283 | 3.04% | |||||
| 6-Center-Right | 2.362 | 5.60% | |||||
| Establishment Right | 2.362 | 5.60% | |||||
| 7-Conservative | 1.661 | 3.94% | |||||
| 8-Market Right | 3.917 | 9.28% | |||||
| Change-Oriented Right | 5.578 | 13.22% | |||||
| Right 7.940 | 18.82% |
Total 1996 corporate funding to public affairs groups: $42.199 million
Funding Differential: $4.01/Left to $1/Right
Table III
Best and Worst Corporate Givers to Nonprofit Public Affairs
(includes only corporations that gave $250,000 or more to nonprofit public affairs)
Ten Best Corporate Givers
|
1996 |
1995 |
|||||||||||||
| No. |
Company |
Rating |
Grade | No. |
Company |
Rating |
Grade | |||||||
|
1. |
Cigna | 5.72 |
B |
1. |
Eli Lilly | 6.23 |
B |
|||||||
|
2. |
Dow Chemical | 5.51 |
B |
2. |
Chevron | 4.93 |
C |
|||||||
|
3. |
McDonnell Douglas | 5.23 |
C |
3. |
Cigna | 4.92 |
C |
|||||||
|
4. |
Eli Lilly | 5.13 |
C |
4. |
GTE | 4.74 |
C |
|||||||
|
5. |
Wal-Mart Stores | 5.01 |
C |
5. |
Procter & Gamble | 4.70 |
C |
|||||||
|
6. |
Nabisco Group Holdings | 4.87 |
C |
6. |
Exxon | 4.66 |
C |
|||||||
|
7. |
Emerson Electric | 4.78 |
C |
7. |
Allstate | 4.56 |
C |
|||||||
|
8. |
General Motors | 4.75 |
C |
8. |
Alcoa | 4.54 |
C |
|||||||
|
9. |
Bristol-Myers Squibb | 4.61 |
C |
9. |
Aetna Life & Casualty | 4.53 |
C |
|||||||
|
10. |
Exxon | 4.53 |
C |
10. |
RJR Nabisco | 4.44 |
D |
|||||||
Ten Worst Corporate Misgivers
|
1996 |
1995 |
|||||||||||||
| No. |
Company |
Rating |
Grade | No. |
Company |
Rating |
Grade | |||||||
|
10. |
May Department Stores |
2.92 |
F |
10. |
Mobil | 3.29 |
D |
|||||||
|
9. |
BankBoston |
2.90 |
F |
9. |
General Mills | 3.28 |
D |
|||||||
|
8. |
Pacific Bell |
2.87 |
F |
8. |
Fannie Mae | 3.27 |
D |
|||||||
|
7. |
Allstate |
2.85 |
F |
7. |
J.P. Morgan & Company | 3.21 |
D |
|||||||
|
6. |
Dayton Hudson |
2.82 |
F |
6. |
Monsanto | 3.04 |
D |
|||||||
|
5. |
Travelers |
2.78 |
F |
5. |
Travelers | 3.02 |
D |
|||||||
|
4. |
J.P. Morgan & Company |
2.77 |
F |
4. |
Dayton Hudson | 2.94 |
F |
|||||||
|
3. |
PNC Bank |
2.60 |
F |
3. |
WMX Technologies | 2.90 |
F |
|||||||
|
2. |
Sara Lee |
2.48 |
F |
2. |
Freddie Mac | 2.83 |
F |
|||||||
|
1. |
Freddie Mac |
2.31 |
F |
1. |
May Department Stores | 2.80 |
F |
|||||||
lHow Corporations Organize their Philanthropy, and Why
Top-ranked Cigna says the goal of its philanthropy is to strengthen itself "by supporting organizations and activities that improve the overall climate for business." Eli Broad, former Chairman and Chief Executive Officer of SunAmerica (acquired earlier this year by American International Group) shares this understanding. In an essay published by the Center for the Study of American Business, Broad writes, "It is important to note here that I accept—and indeed endorse—shareholder value being the yardstick by which we judge senior management…..The point I want to make is that providing shareholder value does not rule out civic and community leadership."
How different companies make their grantmaking decisions tells us something about why they give. In preparing Patterns we have noted that the typical corporation divides its philanthropy between a company giving program and a corporate foundation. All but three of the 137 companies in Patterns XII operate foundations. Corporate foundations are tax-exempt and legally separate from their sponsors. Companies claim tax deductions for the money they give their foundations just as they do with when they make a charitable contribution. However, unlike direct contributions, the public has access to a corporate foundation's tax filings, which disclose key information, including total annual grant amounts and itemized grants.
Occasionally a single corporate official administers both direct and foundation giving. More often, however, responsibility is divided. Some companies appear to treat their foundation as a "rainy day fund," allowing grant-making to continue if profits slump. However, the day-to-day autonomy of the company foundation may result in disproportionate support for left-wing advocacy groups. Last year’s Patterns found a noticeable difference in the political tilt of many company direct giving programs and their foundations. The professional grantmakers running corporate foundations are generally more sympathetic to the causes of "progressive philanthropy" than their corporate counterparts.
Corporate grantmakers sometimes appear to believe their companies should act as multi-purpose social institutions. This outlook puts corporations in the cross-hairs of interest groups that demand support for policies harmful to business. Companies in industries regulated by government are especially vulnerable to these arguments, and they will suffer when leftist advocacy groups use government sanctions to extort corporate funds in the name of charity, community development or corporate citizenship.
The financial services industry, for instance, "contributes" to activist groups like ACORN (Association of Community Organizations for Reform Now!). ACORN uses the federal Community Reinvestment Act (CRA) to pressure lending institutions to give low-interest loans to its clients and contributions to itself. By threatening to use CRA provisions to hold up federal approval of bank mergers and acquisitions, ACORN, its affiliates and other ACORN-like groups have forced billions of dollars in bank loan pledges to high-risk borrowers. These agreements often include hefty pay-offs to the activist group filing the complaints. In 1996 ACORN affiliates across the nation secured nearly $570,000 in contributions from leading companies—a 40 percent increase over 1995.
Last year ACORN and other groups received a pledge from BankAmerica and NationsBank to provide $350 billion over the next ten years for low-income and minority loans. Activists also secured a ten-year pledge of $115 billion from the merger of Citicorp and Travelers. To avoid regulatory complications both "community-reinvestment" pledges were made on the day each merger was announced. These pay-offs often do not work. BankAmerica funded ACORN and ACORN-like groups to the tune of about $500,000 in 1996, yet found itself battling many of them in San Francisco over the issue of a "living wage."The public and shareholders seldom see the contents of deals that banks strike with their adversaries. However, the U.S. Senate Banking Committee, chaired by Sen. Phil Gramm (R-TX), uncovered one agreement in which an unnamed activist group permitted a bank expansion only after the bank agreed to provide $750,000 a year for ten years to the group. The bank (also unnamed in public documents) paid the activists $200,000 for new office space and promised to pay a $2,000 surcharge on each loan closed and approved by the bank in the group’s region. New regulations may require banks and community groups to make deals like this public [see section below "Prospects for Change"].
The threat of boycotts and lawsuits can also generate corporate "contributions." In 1997 Rev. Jesse Jackson’s Rainbow/PUSH Coalition netted $2 million from Viacom and other communications companies by petitioning the Federal Communications Commission to block mergers and deny broadcast licenses on the basis of alleged racial discrimination. Regulatory policies often give corporations a built-in incentive to pay-off left-wing activists.
Sometimes companies are persuaded to join advocacy groups in lobbying for government action against a competitor. The corporate philanthropy that results is among the most misguided. For instance, MCI Communications’ sizable 1996 grants to Consumer Action and the Consumer Federation of America were not enough to stave off Ralph Nader’s opposition to last year’s MCI-WorldCom merger. Instead, Nader, Jesse Jackson and AFL-CIO president John Sweeney promoted GTE’s bid for MCI. Some news reports even claim that GTE covered costs for the Nader-Sweeney-Jackson campaign against the MCI-WorldCom merger. The Communications Workers of America union was allegedly poised to organize MCI’s non-union employees if the company merged with GTE.
Companies sometimes use nonprofit advocacy groups to promote public policies hostile to market entry. Large corporations accustomed to a tightly regulated business climate frequently oppose deregulation, and accept red-tape and high taxes that smaller competitors cannot afford. This is one reason why major banks and telecommunications companies do not push for relief from CRA and FCC requirements even when they are abused by them. A corporation’s desire to keep business predictable can outweigh its zeal for free-market innovation.
Government regulations also create new markets for some corporations. For instance, Enron’s support for the as-yet unratified Kyoto Protocol on climate change may reflect its desire to exploit the artificial markets created by prohibitions on fossil fuels. Enron’s managers realize that energy will become more expensive if the treaty goes into effect. Enron gives generously to activist supporters of Kyoto, most notably the Nature Conservancy. Here a short-term view of profitability obscures the fact that complying with the treaty, which would apply unevenly across the globe, may cause serious and quite unnecessary economic dislocation without achieving its intended result.
Ultimately, many corporate grant-makers simply do not appear to understand how their giving affects public policy. Many companies give grant-making authority to a Public Relations or Community Relations office, which is usually part of a Marketing or Media Relations department. This is the case with companies Great Atlantic & Pacific Tea Company (parent of A&P stores) and ConAgra. Major contributions are sometimes widely advertised to the general public, but many other gifts appear to mollify specific constituencies.
Corporate guidelines typically bar charitable donations to "political" causes. Occasionally, a corporation will direct grants through a Public Affairs or Government Affairs office, which also handles lobbying and campaign contributions (by way of a separate Political Action Committee). Supervalu, for instance, has this arrangement. Advocacy groups can get around political restrictions by claiming to be "civic" organizations. Furthermore, most corporate public affairs grants are scattered among categories—"Health and Human Welfare," "Education," "Children," "Environment," and "Community Development"—that obscure their potential for political controversy.
An uninformed person might mistake the Joint Center for Political and Economic Studies for an academic research organization or assume that the Children’s Defense Fund (CDF) is really a children’s charity. A corporate grants official who accepts the liberal opinion that racial harmony or children’s health is unattainable without preferential government action will not recognize the threats to freedom that such groups pose. Of course, this kind of giving can also be intentional. Past editions of Patterns noted the 1993 surge in corporate support for the CDF, whose former chairmen included First Lady Hillary Rodham Clinton and Donna Shalala, Secretary of Health and Human Services.
Occasionally, a company with a low Patterns rating actually seeks out our advice on how to improve. Some of these inquiries were no doubt reactions to pressure from the Republican majority that took control of Congress in 1995. Since then, Capital Research Center has received scattered reports of corporate lobbyists who have been challenged by the study’s findings.
While the Congress was able to stop nationalized healthcare, pass welfare reform, and implement modest spending restraints, these significant policy changes did not slow down leftist organizing. The nonprofit Left is following power back to states and local communities where, according to the Nation, "liberals and progressives at the state level have become a force to be reckoned with." Dozens of state-level imitators of the Children’s Defense Fund have been established and corporate giving records show they are receiving support. Two or three years ago, Arizona’s Children’s Action Alliance and Maryland’s Advocates for Children & Youth were simply irrelevant. Now they command attention in their states’ annual budget battles. Likewise, the state-level infrastructure of Citizen Action is largely intact even though the national organization has been destroyed by the Teamsters’ scandal. Those groups are making real in-roads in state policy and they have the advantage of new names and their own misleading auras of charity.
Yet there are reasons for optimism about corporate philanthropy. Companies are getting smarter about philanthropy and seeking out genuine and effective charities. Several companies like Coca-Cola Enterprises (the bottler, not the soft drink manufacturer) and Safeway did not provide detailed giving data for Patterns, but they appear to restrict their grants to traditional direct-services charities. Many companies are targeting their charity toward demographic groups who buy their products and their contributions reports reflect these trends. For instance, pharmeceutical companies like Eli Lilly and Merck fund medical care and research, and high tech firms Sun Microsystems and Microsoft give to libraries and universities.
Many corporations also recognize how their philanthropy affects their own workforce morale. Corporations that emphasize an employee component in giving, like Halliburton, locate their contributions program in the Human Resources or Personnel department. They encourage employer/employee gift matching and grant scholarships to colleges and universities. Employee-designated contributions are rarely directed toward public affairs organizations. In fact, corporations appear to be expanding worker-oriented philanthropy by encouraging workers to volunteer. Our informal survey of corporate websites revealed that at least 54 of the Forbes 250 companies encourage this practice. Many allow "on-the-clock" volunteering, donate paid annual leave time, and offer a "volunteer match" directing grants to organizations where employees volunteer their time.
If more corporate grants officials think in terms of seeking a return on the dollar-value of their charitable investments, it is possible that more corporations will break their ties to the nonprofit Left.
Methodology
Section II of Patterns profiles the companies in the Forbes 250 and rates their public affairs giving. The section actually covers 249 companies since USX-Marathon (ranked 85th by Forbes) and USX- U.S. Steel (ranked 210th) act as one grant-maker. Capital Research Center was able to provide numerical ratings for 137 corporations. Thirty-two companies received a "Traditional/Partial Data" designation because the incomplete information we obtained revealed no grants to nonprofit public affairs groups. Three companies that made no grants in 1996 received a "Traditional" designation. Companies which either did not respond, operate no known corporate foundation filing a 990-PF form, or provided inapplicable information received the label "Insufficient Data."
Gathering data on corporate contributions is not easy. Our researchers amassed basic information on the Forbes 250 target sample. Several companies published grants information for 1997 and 1998, but 1996 is the latest year for which comprehensive information is available. Shifts in Forbes rankings, mergers, and spin-offs change the composition of the Forbes 250 list by about 20 companies each year. The size of the sample and the consistent inclusion of leading companies ensure a representative picture of corporate giving preferences.
Mergers particularly complicate the process of gathering data. Combinations among the largest companies have increased dramatically in the last few years. Twenty-seven companies—more than ten percent of the 1996 Forbes 250 sample—no longer exist because they have been purchased by other companies since early 1997. The new companies, almost without exception, rarely provide information on the giving history of the companies that they buy. As this study goes to print, ten more companies in the 1996 sample have mergers pending.
Capital Research Center President Terrence Scanlon wrote each Forbes 250 company (or its new owner) requesting an itemized list of all 1996 grants made to 501(c)(3) organizations, as well as total 1996 contribution amounts. Six weeks later, a follow-up letter was sent and phone contact was initiated. The "Source/Notes" portion of each corporation profile describes this correspondence.
When corporations ignored our requests or provided insufficient data, Capital Research Center also sought the 1996 990-PF tax forms for over 150 corporate foundations. The Foundation Center maintains extensive records of these IRS forms. Though silent on direct corporate giving, a typical 990-PF form reports total foundation contribution amounts and includes an itemized list of foundation grants to 501(c)(3) organizations. These tax forms provide most of the data reported in this study.
In some cases, Capital Research Center relied on data available through FC Search, the Foundation Center's searchable CD-ROM database of foundation grants. FC Search mostly covers private foundations, but also tracks grants by corporate foundations and a few direct corporate giving programs. One major limitation of FC Search is the absence of grants under $10,000. More than half the grants identified in this year's Patterns are under $10,000 each. They have a total value of $4.7 million.
Researchers searched these sources for contributions to 900 nonprofit public affairs organizations or their affiliates. Wherever possible, in-kind donations listed without dollar-value and employee-directed matching gifts are excluded from the study. Grant recipients and dollar amounts were entered into a computer database and grant recipients were assigned a rating according to an 8-point scale. The scale identifies political ideology from Left to Right: 1=Radical Left; 2=Left; 3=Liberal; 4=Center-Left; 5=Center; 6=Center-Right; 7=Conservative, and 8=Market-Right. Some grant recipients were left unrated because their issue-focus defies classification on a simple Left-Right spectrum.
Capital Research Center averages the ratings of a company’s grant recipients, weighted by the dollar amounts of individual grants. Company giving-pattern ratings are based on these weighted averages. For instance, if a company contributed two grants of $100 each to two groups rated 8-Market Right and a single grant of $1000 to one group rated 3-Liberal, its giving-pattern rating would be "3.83-Liberal."
An explanation of the 8-point scale is warranted. The use of this numerical device has been controversial although such instruments are common in social science research. The scale does not reflect a statistical bell-curve, but instead places public affairs organizations on a political spectrum. Of course, political ideology is more complicated than any Left-Right continuum. However, the Patterns scale focuses specifically on government’s effect on business and the overall economy. The study lists grants to public affairs groups dealing with single issues such as immigration, gun control, abortion, and foreign policy, but does not rate them on the 8-point scale. Capital Research Center obviously has its own point of view. Other organizations are welcome to develop their own scales.
The 8-point scale can be reduced to five classifications—"Change-Oriented Left," "Establishment Left," "Centrist," "Establishment Right," and "Change-Oriented Right"—and ultimately to two categories: "Left" and "Right."
Change-Oriented Left (ratings of 1-Radical Left and 2-Left). These are the most extreme elements in left-wing activism. These organizations are least concerned with research and most focused on advocacy. The Change-Oriented Left seeks political action to fundamentally restructure private social and economic institutions. Only six organizations have a 1-Radical Left rating. The most prominent are Greenpeace and the Animal Liberation Front. Greenpeace and the World Citizen Foundation are the only 1-Radical Left groups known to have received corporate funding in 1996. Groups rated 2-Left include welfare-support groups, feminist organizations, animal rights advocates, radical environmentalists, and racial preference groups. The Children’s Defense Fund and ACORN are high-profile examples.
Establishment Left (ratings of 3-Liberal and 4-Center-Left). This constitutes the largest segment of public affairs organizations surveyed in Patterns, and includes over half those monitored. The Establishment Left favors government action to stimulate the economy and solve social ills, strengthening of the state-monopoly on education, high taxes, further regulation of private industry and regulation by litigation. These groups bolster the political offices and bureaucratic agencies that serve their interests. Many represent constituencies that directly benefit from government programs. They include well-financed environmental groups like the Nature Conservancy, public health advocates like the American Cancer Society, and race and ethnicity-based advocacy groups like the National Urban League. The Urban League secured $3.3 million from major corporations in 1996, making it the top recipient of corporate public affairs money for the second year running. Groups rated 4-Center-Left support incremental expansion of the public sector, but are more pragmatic and friendlier to business-interests. They support free trade and favor "public-private partnerships" and include the Brookings Institution and conservation research groups like Resources for the Future.
Centrist (rating 5-Center). These public affairs groups are neutral or bipartisan, favor "good-government" reforms, and advocate policy changes that are non-controversial or procedural. The National Center for State Courts and the nonprofit RAND Corporation are two 5-Center think tanks that enjoy substantial corporate support. Centrist groups often try to avoid taking sides on current issues of political controversy.
Establishment Right (rating 6-Center-Right). "Pro-business, not necessarily pro-market" could be a motto for the Establishment Right. Less than twenty organizations have a 6-Center-Right rating, but this category includes two of the largest beneficiaries of corporate philanthropy. The Center for Strategic and International Studies and the combined Chambers of Commerce rank 8th and 9th, respectively, in amount of corporate support. [See Table IV.] These two groups account for two thirds of all corporate funding to the Establishment Right. Center-Right organizations generally favor less government, but they are cautious about systematic free market reform. They support tort reform, a strong national defense, public education reform, and would boost spending on public infrastructure. Establishment Right groups support the tactical interests of big business, but fear of the unpredictable prevents them from fully embracing free market principles.
Change-Oriented Right (ratings of 7-Conservative and 8- Market-Right). Capital Research Center believes that when corporations support nonprofits in this category they are acting in their long-term best interests. The Change-Oriented Right includes a little under one-fifth of the organizations monitored by Patterns, but these groups receive only 11 percent of the corporate philanthropy devoted to public affairs. These organizations would radically reduce government programs and have their functions performed by private institutions in civil society. Groups rated 7-Conservative like the American Enterprise Institute and the Family Research Council have offered powerful criticisms of U.S. policies and their harmful effects on American communities and families. Groups with an 8-Market-Right rating emphasize freedom and smaller government as the essential elements of social prosperity. The most influential of these groups, the Heritage Foundation and Cato Institute, rank only 32nd and 45th, respectively, in corporate support for nonprofit public affairs organizations.
We attach letter grades to the giving-pattern ratings when companies contribute $250,000 or more to nonprofit public affairs groups. Letter grades are A = 6.50 - 8.00; B = 5.50 - 6.49; C = 4.50 - 5.49; D = 3.00 - 4.49; F = 1.00 - 2.99.
Capital Research Center designates as "Traditional" any company whose complete contributions data reveals no grants to nonprofit public affairs groups. Companies rarely provide Capital Research Center with itemized lists of both direct and foundation giving. A company earning a "Traditional" label makes no grants or limits its philanthropy to what we consider traditional charities, i.e. those charities that provide direct services to individuals and communities. Only three companies analyzed in this year’s Patterns received this designation: Ingram Micro, Lucent Technologies, and NCR. If partial contributions data (which usually includes information on a company’s foundation giving, but lacks details about direct grants) reveals no grants to nonprofit public affairs groups, we designate the company as "Traditional/Partial Data."
Occasionally corporate contributions data contains a detailed list of recipient organizations but no dollar amounts. In this case the company’s giving-pattern is labeled "Insufficient Data," but its profile also includes an unweighted average of recipient ratings.
Some companies receiving the "Insufficient Data" label may actually have traditional giving patterns. These grant-makers tend to concentrate on local charity. Some local groups are actually affiliates of large public affairs organizations (e.g. the American Cancer Society and Chamber of Commerce), but community charities are by-and-large apolitical. In-kind donations, i.e. gifts of goods or services instead of money, are another mark of traditional giving. These donations are well-suited for organizations that provide direct services to the needy. Corporate grant-makers also like in-kind donations because their tax-deductibility often exceeds the cost of production.
Section III of this study lists corporate public affairs grants according to grant recipient. Contributions to parent and affiliate organizations are combined under the name of the parent entity. For example, grants to the New Orleans affiliate of the NAACP are listed under "NAACP." The group's rating on the 8-point scale and dollar amounts for each grant, where available, are also listed. Table IV lists the "Top 40" public affairs groups receiving the most corporate funding in the Patterns survey.
Table IV
Top 40 Nonprofit Public Affairs Organizations
Receiving Corporate Contributions
1. National Urban League & Affiliates3 $3,299,957
2. Nature Conservancy3 $2,059,500
3. Enterprise Foundation3 $1,652,000
4. NAACP2 $1,610,460
5. American Enterprise Institute7 $1,595,500
6. Accion International3 $1,155,350
7. American Cancer Society3 $1,044,622
8. Center for Strategic & International Studies6 $918,000
9. U.S. Chamber of Commerce & Affiliates6 $871,612
10. Committee for Economic Development3 $759,257
11. Action Alliance for Virginia's Children & Youth2 $705,000
12. National Council of Negro Women3 $697,567
13. Brookings Institution4 $694,500
14. Children's Defense Fund2 $678,750
15. Anti-Defamation League3 $636,770
16. World Wildlife Fund3 $620,495
17. Association of Community Organizations for Reform Now!2 $568,563
18. National Alliance of Business4 $552,150
19. Families & Work Institute3 $528,000
20. American Heart Association3 $462,920
21. Conservation International3 $456,500
22. Institute for International Economics $452,000
23. Catalyst for Women3 $425,500
24. National Center for Lead-Safe Housing3 $400,000
25. National Education Association3 $392,506
26. Economic Strategy Institute5 $390,000
27. Ethics Resource Center4 $385,000
28. Council on Foreign Relations $373,000
29. National Council of La Raza3 $372,900
30. American Federation for Aging Research4 $369,114
31. National Park Foundation3 $363,000
32. National Council on the Aging3 $345,000
33. Heritage Foundation8 $341,000
34. National Coalition for Consumer Education4 $330,200
35. Resources for the Future4 $323,500
36. Carter Center3 $315,000
37. Hudson Institute8 $300,765
38. Urban Coalition3 $298,000
39. Manhattan Institute8 $293,000
40. Food Research & Action Center2 $286,500
Prospects for Change
Political realities and current law explain the long-term dominance of Left among nonprofit public affairs groups. The imbalance in the number and funding of these groups will change only when new public policies reduce the perverse incentives described in this essay.
Policymakers are examining corporate philanthropy closely. As this study is published, the landmark Financial Services Modernization law is poised to implement reform of the Community Reinvestment Act. The bill will remove 60 year-old barriers to the integration of banks with insurance and securities firms. After tense negotiations with the Clinton Administration, Senate Banking Committee Chairman Phil Gramm (R-TX) succeeded in lessening the effects of CRA. The law exempts small banks (under $250 million in assets) from biennial CRA reviews for up to five years if they receive initially good CRA ratings. Most significantly, banks and the radical community groups that extort financial commitments from them will now have to make their agreements public in annual reports.
Gramm compromised with the Administration by allowing CRA review of banks that seek to enter the insurance and securities business. The law will not permit regulators to approve an expansion if the bank receives less than a "satisfactory" rating. While that change limits regulators, it is not significantly different from the current regulatory environment. ACORN and other radical community groups appear to have lost more power than they gained: "In their desire for a bill, the White House seems to have turned its back on lower-income people and minority communities," said Chris Saffert, a legislative assistant for ACORN. We will see how it affects their agreements with banks and their hold over corporate contributions.
Another disclosure-oriented proposal in Congress has had an uncertain future. Rep Paul Gillmor (R-OH) has reintroduced his 1997 bill in modified form. It requires publicly-held companies to disclose corporate grants to shareholders. The Securities and Exchange Commission (SEC) reviewed the original proposal and sought public comments in 1998.
Some traditional charities like the American Red Cross support disclosure. Not surprisingly, many corporate managers and advocacy groups do not. They suggest full disclosure would be burdensome (even though companies can already claim their contributions as tax deductions) and that it violates the anonymity of grant recipients. Ironically, some companies like Federated Department Stores protest that divulging grants "would dangerously expose corporate philanthropy to a broad range of special interest groups." Anheuser-Busch makes the novel claim that publicity about its contributions would reveal too much to competitors!
The modified Gillmor legislation would leave it up to the SEC to designate the minimum dollar amount of grants that must be disclosed annually in filings made before proxy shareholder meetings. The bill would also require disclosure of any executive, director or spouse who serves as a trustee or officer for a recipient of the corporation’s philanthropy.
On November 2, 1999, the bill was reported out of the House Commerce Committee’s Subcommittee on Finance and Hazardous Materials on a 13-8 party-line vote. Liberals like Rep. Ed Markey (D-MA) oppose the legislation vociferously. The bill’s liberal opponents are closely allied to activist groups that benefit most from anonymous corporate largess.
Opponents contend the legislation is unbalanced because it does not contain a requirement for companies to disclose their donations to political action committees. This argument demonstrates that the political character of corporate philanthropy is an open secret.
The enacted changes in CRA and the promise of the Gillmor legislation are first steps toward giving shareholders and the public the right to know the whole truth about corporate philanthropy. Indeed, these are first steps toward a more rational and honest discussion of politics and civil society in American life. Perhaps one day we will finally be able to get past the advocacy masquerade that distorts our national dialogue.
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