The authors of this article argue that corporate foundations can be powerful vehicles to help crystallise a sense of common purpose within a business. Corporate foundations can be effective focal points for companies committed to social good, and successful for businesses of all sizes.
Authors: Elizabeth Jones (main picture), partner, Emma James,
associate and Sarah Gill, associate, Farrer & Co.
The following article touches on philanthropy and the kind of
structures that charities use. We hope readers find this content
of value. As ever with guest contributions, editorial disclaimers
apply. To comment, email tom.burroughes@wealthbriefing.com
Corporate commitments to philanthropy have grown sharply over the
past couple of years, with the most recent analysis from the
National Philanthropic Trust UK (NPTUK) revealing that corporate
foundation giving in 2020 increased by 12.5 per cent, dwarfing
the 0.9 per cent increase from families and personal
foundations.
One reason for this increase may well be the increased profile
of ESG – environmental, social and governance – concerns
within business. ESG has risen rapidly up the corporate agenda,
with businesses increasingly seeking to demonstrate a
purpose-driven approach, both in their investment strategies and
in their wider operations. It is against this backdrop that
corporate foundations are beginning to grow in popularity as a
means of delivering meaningful change.
A dedicated charitable focus
Due to the costs associated with creating a foundation, corporate
foundations are more commonly formed by larger firms. However,
even though many of the highest profile foundations have annual
grants budgets in the tens of millions, size is not necessarily a
bar. Many foundations, established by SMEs, are equally viable
and successful on a small scale, often operating with impact in
the communities local to the founding business.
Corporate foundations are usually funded mostly or exclusively by
the founding business – but crucially, they operate as separate
legal entities with independent decision-making.
As charities, corporate foundations in England and Wales are
regulated by the Charity Commission and governed by charity law.
This means that they are required to pursue the charitable goals
set by the foundation, as opposed to the commercial goals
relating to the business.
With this in mind, the trustees of a corporate foundation,
irrespective of any position they have on the board of the
founding company, must consider only the interests of the charity
when taking decisions as trustees. Any situations where a
conflict of interest or loyalty arises (for example, if the
business is entering into a funding agreement with its
corporation foundation) must also be carefully managed.
These requirements are vital to the success of corporate
foundations, as they are separate from the constraints of the
founding business and compliant with the requirements of charity
law. With robust structures in place, many become more than just
vehicles for corporate giving or employee volunteering, and
instead act as a hot bed for innovation and meaningful action.
Reputational impact
A corporate foundation can enhance a business’s reputation
considerably. Most notably, foundations are one way of providing
demonstrable and ongoing commitment to the not-for-profit
sector.
However, the fact that foundations and their associated
businesses will often share the same name can pose reputational
risk.
For instance, if a foundation experiences regulatory issues, the
founding business may also be tarnished by association, which
could impact the business’s reputation and reduce confidence
among shareholders, customers and the wider public. The reverse
is also true, with any perceived poor behaviour from the
corporate could potentially have a consequence to how the
foundation’s stakeholders perceive it.
Maintaining clear lines of separation between the business and
corporate foundation can help manage reputational risk, although
where a foundation shares a name with a business it is unlikely
to mitigate this risk entirely. Businesses should also consider
the basis on which the foundation is able to use the business
name and consider whether a contractual agreement between
business and foundation can help to manage the situation for both
business and foundation, by setting out expectations and
circumstances where a foundation may decide to change its name.
Good governance
A foundation operates with its own board of trustees (separate
from the business’s board), who will usually include individuals
from the business and a number of independents with no current
connection to the business. Provided conflicts of interest are
managed and the trustees act exclusively in the foundation’s
interests, there is no barrier to people within the business
being trustees, and the foundation is still likely to be capable
of having the necessary independence. There is a balance to
strike on independence though, and it is an important part of the
foundation’s governance to keep a careful eye on.
Other options on the ESG journey
Corporate foundations are one option available to businesses keen
to focus on their ESG impact. Businesses may test the waters with
initiatives such as direct giving, starting out with employee
fundraising schemes or payroll giving, and potentially extending
this to using a ‘donor advised fund’ to funnel giving. (DAFs are
philanthropic funds established under an umbrella charity that
administers the fund on behalf of the donor.)
Others may prefer to make in-kind donations, for instance by
partnering with a charity or by setting up a local volunteering
programme and offering know-how and expert insight pro bono.
Others again may focus on investing, for instance setting up a
social investment programme or making social investments into
charities or social enterprises.
Where corporate foundations come into their own is in their
ability to gear efforts towards ESG objectives in a single-minded
manner, unfettered by the commercial goals of the founding
business and its shareholders.
Corporate foundations can be powerful vehicles to help
crystallise a sense of common purpose within a business and help
provide a manifestation of a company’s culture and ethos. Thanks
to their separation from the core business, they can provide the
dual benefits of delivering accountable action on ESG goals while
providing a boost in satisfaction among employees and
stakeholders at the same time.
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