Philanthropy Class: Cisco Corp (10/26/2004)

Laura started out with a brief rundown of the stats on corporate philanthropy: $13.4B overall, with $3.4B coming from corporate foundations. Philanthropy makes up about 1.2% of pre-tax income. These numbers don't include expenditures made from the operating divisions that are immediately expensed. Of the money that is given, 28% is for public/social benefit; 26% for education; 17% for human services and 14% for arts. Although many internet startups took heat for not donating, Laura pointed out that they really didn't have the revenue or cash flow to give. The implosion of sectors or companies can have a drastic effect on the local nonprofits. For example, Enron, in the year before its bankruptcy, donated $11M to Houston-based charities, with another $2.5M coming from Ken Lay's foundation, and another $5.5M from United Way contributions from Enron employees.

Turning to a more general discussion of corporate philanthropy, we discussed the stakeholders both internal (employees, shareholders, investors) and external (customers, non-profits, governments, communities, and business partners). Some of the corporate motivations included:

1. Community image
   
2. Building employee morale
   
3. Recover from PR damage
   
4. Build markets
   
5. Improve quality of available workforce
   

We got into a debate about whether non-profits should be willing to accept donations from companies with an "agenda" that might be doing harm in other aspects of their operations. Generally the "realists" won out over the "idealists". There was a brief debate over whether companies should receive tax incentives for their philanthropic work if most of it was to advance corporate agendas anyway. Our final debate was on whether CEO's should be permitted to directly control money from a corporate foundation, an occasional perq, often part of a retirement package. While people were worried about appropriateness and precedent, I'd potentially be more of a realist here, pointing out that if a retiring CEO were inclined to give a $1M portion of his package to his alma mater, the company would end up with a $1M expense, the exec would owe tax on the $1M received, and might not receive any tax benefit because of AMT or would likely get a reduced benefit. Therefore, the gift to the university might end up being the after-tax amount, perhaps $600K or less. OTOH, if the money comes from the corporate foundation, the company gets the tax benefit for the full amount, and the university gets the full amount.

Finally, we started talking about the Cisco case. It was mostly a big fan fest, with Laura calling Cisco "one of the most strategic corporate donors in the world." They won points for being more concerned with results than PR, with leveraging each aspect of their giving: financial, employee talents, products. Their matching program gets employees involved and keeps the corporate goals connected to this stakeholder group. Some of their initiatives were creative and effective: allowing employees to purchase discounted equipment for non-profits as long as they agreed to install and maintain it. The Cisco Community Fellows program is one that I have a lot of personal respect for: rather than issuing pink slips in the down economy, they offered people the option to work for a non-profit for 12-18 months (at 1/3 original salary) but maintain benefits and vesting. I suspect the downturn was longer than they expected, but I hope that this was a win for them in maintaining employee loyalty and not needing to incur recruiting expenses to fill positions that were created with the rebound.

Adding a couple of personal notes to the case: I've had the pleasure of meeting John Morgridge on a few occasions, and I'd give him a good share of the credit for establishing a culture of philanthropy. For example, he endowed the Center for Public Service at U. of Wisconsin at Madison. He's been a speaker at Digital Divide conferences. Also, Cisco is sponsoring RDVP Fellow Dipak Basu, also the Executive Director of NetHope.