Curt Weeden is president of the consulting firm Business & Nonprofit Strategies, Inc. He is author of Smart Giving Is Good Business (Jossey-Bass/Wiley) and the novel Book of Nathan recently nominated for best mystery of 2010. His website: www.curtweeden.com
Curt Weeden
The syndicated radio host Ron Insana asked me this question a couple of weeks ago just after the release of my new book Smart Giving Is Good Business…
“Do you really think businesses are going to pony up another $8 billion in cash each year for charity?”
Yes, I do. For a couple of good reasons.
First, too many corporations have lost sight of how strategically managed contribution programs can address critical business needs and objectives. Getting past 13 roadblocks outlined in Smart Giving hopefully will fix that problem and turn around what’s been a two-decade-long decline in corporate philanthropy.
Second, at least some of the recommended $8 billion increase (which will move cash donations from roughly $15 billion to $23 billion a year) will come from reconfiguring line items in budgets already in place. Example? Some companies code cause related marketing payouts made to 501c3 organizations as ordinary business expenses and not as charitable deductions. The payments don’t get added to what businesses publicly declare as their total commitment to the nonprofit sector.
Publicly Disclosing Cause Marketing as a Charitable ContributionSmart Giving covers a lot of territory including a new algorithm companies can use to budget next year’s contribution investments. But the book is also important for another reason — it calls on companies to sign off on the same page when it comes to publicly disclosing a more comprehensive look at how they are financially helping nonprofits.
The Rule for Cause Marketing
For cause marketing, the rule is simple. If a nonprofit organization receives support via a cause marketing deal and if that payment is not subject to an unrelated business income tax (UBIT) then the nonprofit is counting the cash the same way it logs in other charitable gifts. For the sake of apples-to-apples reporting, the company making the cause marketing payment should add that same amount (not including any commercial or promotional costs) to its publicly reported giving total for the year.
Predictably this proposed change will drive more than a few accountants and tax lawyers nuts. The company books will still show the cause marketing cost as an ordinary business expense (probably carried as a marketing department charge). But the company then ramps up its corporate philanthropy numbers for public reporting purposes. Precedent trumps this concern. Companies already have double vision when it comes to accounting and reporting. Most corporations publicly point to the fair market value of products they donate which usually is a much higher number (sometimes more than eight times higher) than the product donation tax deduction shown on line 19 (“charitable contributions”) of a company’s federal tax return.
An Easy Start Toward an $8 Billion Hike in Corporate PhilanthropySmart Giving goes beyond nudging some businesses to increase their corporate social investments. It also campaigns for more factual tracking of what companies are already doing for nonprofit organizations. How much would adding non-UBIT-type cause marketing payments to the nation’s corporate giving total? Of the $1.5 billion IEG estimates businesses invest in cause marketing initiatives each year, we might see half that amount ($750,000) shifted to publicly reported giving totals. That still leaves corporations several billion dollars short of Smart Giving’s push to hike corporate philanthropy by $8 billion a year. But it’s an easy way to start.
Does your company consider cause marketing to be a charitable contribution? If not, how challenging would it be for your company to make this shift?
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“For the sake of apples-to-apples reporting, the company making the cause marketing payment should add that same amount (not including any commercial or promotional costs) to its publicly reported giving total for the year.”
Curt, great post! Question on the above. Do you think it’s fair that a company should be able to claim the money from a point-of-sale program–a simple ask the register for a dollar or two–when they are merely just handling the shopper’s donation.
I can see the case for purchase-triggered program because ultimately the donation comes from the company. They should be able to claim it in their reported giving! But I’m not sure about POS.
Joe
@joewaters
Joe,
If the retailer asks the consumer to make a donation that is separate and apart from the purchase price of a product, and if the retailer merely forwards the consumer’s donation to the charity, the retailer is not making a donation. The consumer makes the donation. The retailer merely acts as a volunteer pass-through agent to collect and forward the consumer’s donation to the charity (assuming the retailer is not compensated by the charity and does not keep any of the donated funds).
As for charitable sales promotions where the retailer (or manufacturer) reaches into its own pocket to forward a portion of the money it otherwise could have kept for its own profit from the sale of its product, the retailer/manufacturer has the choice how to characterize the payment to the charity — either as a donation or as an ordinary business expense. Many companies choose the ordinary business expense because there is no limit on the amount a corporation can deduct for ordinary business expenses. In contrast, a corporation typically is only allowed to take charitable deductions for up to 10% of the corporation’s taxable income in any year.
Ed Chansky