As head of CFO Selections corporate philanthropy initiatives, the question I get most often, especially now at budget time, from other company executives is, “What is the right amount of money to budget for donations?”
Before answering this question, I usually ask,
“What are you hoping to achieve with your corporate philanthropy?”
It is well understood that communities and stakeholders’ value and expect good corporate citizenship. You don’t have to look far to find examples of companies that make philanthropic donations or sponsor events. Many studies have shown that customers expect companies to not only make a profit but also operate responsibly in support of the social sector.
There are many benefits of a thoughtful and purposeful corporate giving plan. A few of these are:
What is the right amount of money to give away?
A historically based ‘rule of thumb’ to be considered an engaged community corporate citizen, meaning your company believes in good works, charitable contributions, and investing back into the communities where you do business, is for companies to target a cash-giving budget equal to, or greater than, 1.0% of their pretax profits. Any additional donations in the form of in-kind products, services, discounts or time off will not count towards the 1%.
It’s important to note that this is just one historical best practice standard. There are others. Philanthropy professionals Curt Weeden and Art Sabesevitz developed the Sabsevtiz Ante-Up Formula based upon extensive research and impact studies. The data yielded a simple formula;
Multiply last year’s pretax profit by 1.2 percent to budget
for next year’s base-line cash contributions.
These are just a couple of recommendations if you and your company are looking for ways to budget for your corporate giving. Some companies give way more than one percent, like Target which historically has given up to 5% of their pretax profits each year. Other companies give less. Your challenge is to determine what works best for your business and to map and communicate the impact to the business’s stakeholders.
Who were the top 10 corporate donators (ranked by total cash giving in 2017) and how much do they budget for philanthropy?
#1 Gilead Sciences $388M 2.9% of pretax profit
#2 Wells Fargo $287M 1.0%
#3 Goldman Sachs $280M 2.5%
#4 Google $255M 0.9%
#5 JP Morgan Chase $250M 0.7%
#6 Johnson & Johnson $227M 1.3%
#7 Pfizer $210M 1.7%
#8 Exon Mobile $204M 1.1%
#9 Bank of America $181M 0.6%
#10 Microsoft $169M 0.7%
The charitable arm of CFO Selections targets 4% to 5% of pretax profit in its annual giving plan.
That said, many small and private businesses contribute very little or nothing at all.
Many small-firm owners understand the importance of investing in the communities where they do business via a formal corporate philanthropy strategy. Others focus on making an impact in the lives of those who are disadvantaged or less fortunate.
At the end of the day, what matters most is that companies need to do something to help pay-it-forward into the ecosystems that support the business, its communities, employees and their families for the betterment of the whole community.
About the Author
Our team has walked in your shoes. We have built, run and expanded numerous nonprofits and social enterprises.
You are welcome to subscribe to get insights and news from our team.