Chapter 17

The Community and the Corporation

McGraw-Hill/IrwinCopyright © 2008 The McGraw-Hill Companies, All Rights Reserved.

Ch. 17: Key Learning Objectives Defining a community, and understanding the

interdependencies between companies and the communities in which they operate

Analyzing why is it in the interest of business to respond to community problems and needs

Knowing the major responsibilities of community relations managers

Examining how different forms of corporate giving contribute to building strong relationships between businesses and communities

Evaluating how companies can direct their giving strategically, to further their own business objectives

Analyzing how can collaborative partnerships between businesses and communities can address today’s pressing social problems

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The Firm and its CommunitiesFigure 17.1

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Business – Community Relationship

Relationship is one of mutual interdependence There are expectations on both sides – what the

business expects from the community and what the community expects from the business List of common expectations shown on next slide

In best situations, community support of business and business support of community are in balance

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What the Community and Business Want from Each Other

Figure 17.2

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The Business Case for Community Involvement

Civic engagement

The active involvement of businesses and individuals in changing and improving communities

Reasons for community involvement Major way to carry out corporate citizenship mission To win local support for business activity, be granted an

informal “license to operate” in the community Helps to build “social capital”—the norms and networks that

enable collective action• High levels of social capital enhance a community’s

quality of life

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Community Relations

Is the “organized involvement of business with the community”

Grown in importance in recent years from “fringe” function to mainstream/strategic

Corporations have established a specialized community relations department, either stand-alone or as part of public affairs department

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Community Relations

Boston College Center for Corporate Citizenship study: 81% of companies now include a statement in their

annual report on their commitment to community relations

74% of companies have a written policy or mission statement for their community relations program

68% of companies factor community involvement into their overall strategic plan

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Corporate Involvement in the Community

Top concerns identified in 2005 survey of community involvement managers: Education

• 10th year in a row was identified as top issue Health care Economic development Higher education Housing Others including literacy, environmental issues, crime, job

training, and transportation

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Corporate Involvement in the Community

Social issues areas where a number of corporations are now focusing their efforts:1. Economic development2. Crime abatement3. Housing4. Welfare-to-work job training5. Aid to minority enterprises6. Disaster, terrorism, and war relief

Following set of slides gives examples of these types of initiatives

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Micro-Credit: A New Model of Economic Development

Grameen Bank (meaning village bank), based in Bangladesh, is an internationally recognized innovator in the field of economic development.

In 1974, Muhammad Yunus, an economics professor at Chattagong University, took his students on a field trip to a poor rural village. There, they interviewed a woman who supported herself by crafting bamboo stools. The woman had to borrow money for raw materials at the outrageous interest rate of 10 percent a week, leaving a profit of only one penny per stool. The professor, shocked by what he saw, began lending his own money to villagers.

Finding that small loans helped many people pull themselves out of poverty, Yunus founded Grameen in 1983 to provide micro-credit to individual entrepreneurs who would not normally qualify for loans. Today,

Grameen has nearly two thousand branches and serves six million borrowers. “These millions of small people with their millions of small pursuits can add up to create the biggest development wonder,” Yunus has said.

Exhibit 17.BExcerpts

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Corporate Community Involvement – Crime Abatement

Example of “Minnesota HEALS” In the mid-1990s, the crime rate in the metropolitan area of

St. Paul-Minneapolis, Minnesota, had become so bad that out-of-town newspapers called the city “Murderopolis”

Collaborative alliance formed by 60 companies, including Honeywell, General Mills, 3M, and Allina Health Systems, local and state law enforcement agencies, and civic groups to address public safety issues in the community

Among the initiatives were development of an integrated information system for law enforcement agencies, better housing, job training, and after school programs

Crime rates dropped sharply, and the overall climate for business in the city improved

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Corporate Community Involvement – Housing

Life and health insurance companies have taken lead to revitalize housing through nonprofit organizations like the Neighborhood Housing Services of America (NHS)

New York City’s coalition for the homeless includes corporate, nonprofit and community members

Many corporations work with NGO’s, like Habitat for Humanity

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Corporate Community Involvement – Welfare to Work Example of work of Bank of America (BofA)

BofA has partnered with Women in Community Service (WICS), a nonprofit organization that provides job and life skills training to women who are on public assistance, in prison, or are homeless or living in public housing

Bank has contributed staff, products and services, internship opportunities, and money to WICS, and has hired thousands of new employees out of welfare-to-work programs

BofA has experienced many benefits: an improved reputation, tax credits, and recruitment of motivated workers

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Corporate Community Involvement – Aid to Minority Enterprises

Example of work of Microsoft: Microsoft spends $10 billion annually on procuring supplies and

services, 5 percent of this is directed to minority-owned businesses

According to Microsoft’s Director of Supplier Diversity

• “The general rule here, is, if all other things are equal, pick the minority company”

Microsoft works closely with its minority suppliers to refine their business processes to make them more competitive

• An example is Group O Direct, an Illinois-based firm that provides fulfillment services for customer promotions

• Group O Direct, a Mexican-American owned firm, now has several other high-profile clients, including SBC Communications, and annual revenues of more than $50 million

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Corporate Community Involvement – Disaster, Terrorism and War Relief

Example of corporate giving for Tsunami relief in December 2004: Their donations, estimated to be around $2 billion, collectively

exceeded those of most governments Many companies drew on their own expertise to lend a hand:

• United Parcel Service mobilized its planes to airlift disaster relief supplies to the region free of charge

• Pfizer donated millions of dollars worth of medicines

• GE sent power generators and mobile water treatment plants

• British Airways, Intel, and Cisco collaborated to set up a high-speed wireless Internet network in Banda Aceh, Indonesia, to enable communications in and to one of the hardest-hit areas

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Corporate Philanthropy Programs

Important aspect of business-community relationship, involves corporate giving to non-profit organizations

Business is only one part of U.S. society’s generous giving patterns As shown on next slide, in 2005 $260 billion was given to

religious, charitable and other non-profit organizations Business was small, but important, percentage of overall

giving (5%), remainder through individuals and private foundations

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Philanthropy in the U.S. by Source of Gift, 2005

Figure 17.3

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Corporate Philanthropy Programs

Corporations can give directly or through establishing corporate foundations

U.S. tax rules since 1936 have allowed 10% of company’s before-tax income to go to educational, charitable, scientific and religious purposes Average yearly corporate giving is between 1 and 2% of pre-

tax income In selected companies and communities, firms give as much

as 5%

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Corporate contributions in the United States, as a percentage of pretax net income Figure 17.4

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Forms of Corporate Giving

1. Charitable donations (cash)

2. In-kind contributions Donating products or services Category now exceeds cash contributions

3. Volunteerism Donations of employee time doing community work Many companies sponsor and encourage volunteer

activities A small number of firms offer paid time off for volunteer

community service

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Priorities in Corporate Giving Figure 17.5

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Corporate Giving in Strategic Context

Strategic philanthropy

Corporate giving that is linked directly or indirectly to business goals and objectives. In this approach, both the company and society benefit from the gift. Is made directly from the company to community organizations, not through a foundation.

Increasingly popular approach to corporate giving

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Strategic Philanthropy

Areas in which corporate contributions are most likely to enhance a company’s competitiveness, according to Harvard Business Review study: Factor conditions - supply of trained workers, physical

infrastructure, and natural resources Demand conditions – affect demand for a product or service Context for strategy and rivalry - designed to support

policies that create a more productive competitive environment

Related and supporting industries - strengthen related sectors of the economy, may also help companies

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Strategies to Optimize Benefit from Contributions

Draw on the unique assets and competencies of the business

Align priorities with employee interests Align priorities with core values of the firm Use hard-nosed business methods to assess the

impact of gifts

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Collaborative Partnerships Introduced in Ch. 7 - voluntary collaboration between

business, government, and civil society Education partnerships have been very effective,

have followed 4 “waves”:1. Direct involvement (e.g. “Adopt-a-School”)

2. Application of management/business principles to school administration

3. Public policy initiatives in education

4. Collaboration for systemic reform

Partnership model could be equally useful for other community issues