CSR Issue Position Paper Corporate Philanthropy, CSR and Corporate Reputation

1. CSR Issue Position Paper Corporate Philanthropy, CSR and Corporate Reputation Akif Koca Maria Isaac Hans Cole

2. Corporate Reputation Rankings “Corporations today need to measure, understand and holistically manage their corporate reputation and leverage it as an asset. Those who do, find that ratings and rankings take care of themselves.” (*)Robert Fronk, Senior VP, Harris Interactive

3. CSR Issue How does corporate philanthropy contribute to corporate reputation in CSR and to overall corporate reputation? - Background : Corporate Philanthropy - Analysis of leading surveys and other indicators Overall Reputation CSR Reputation Corporate Philanthropy

4. CORPORATE PHILANTHROPY

5. Corporate Philanthropy – why do it? “Philanthropy can often be the most cost-effective way – and sometimes, the only way – to improve competitive context. It enables companies to not only leverage their own resources, but also the existing efforts and infrastructure of nonprofits and other institutions.”* Michael Porter and Mark Kramer “It’s very important these days to have a good reputation as a corporate citizen, particularly for an industrial company that hasn’t put a lot of money into branding.” ** Jack Bergen, Senior VP, Siemens Co., Head of Siemens Foundation *”The Competitive Advantage of Corporate Philanthropy”, Porter, Michael E. and Mark R. Kramer, Harvard Business Review, December 2002. **“The Art of Giving”, Mattlin, Ben, Global Finance Magazine, July/ Aug. 2006, pg. 49.

6. Corporate Philanthropy Choices Less control – less strategic • United Way drive – funds directed through separate non-profit collection organization • Donor-advised Funds – separate entities run by a community organization or financial firm, usually for a nominal fee More control – more strategic • Corporate foundations – 501(c) 3, receives funds from a specific corporation and representatives of the corporation supervise disbursement of funds • Direct corporate giving – corporations donate funds, products, or services directly, without a foundation or other intermediary *Information reference from “The Art of Giving”, Mattlin, Ben, Global Finance Magazine, July/ Aug. 2006, pg. 49.

7. Benefits vs. Drawbacks of a Strategic Focus Benefits • Provides a framework for allocating scarce resources • Helps the grantmaker achieve greater impact • Provides a clear rationale to shareholders for the distribution of corporate dollars • Allows for linkages among employee volunteer efforts, cash and in-kind giving and other corporate resources (such as marketing and gov. relations) • Integrates the contributions programs into the larger corporate strategy • Helps the company achieve a competitive edge Drawbacks • Inability to respond to a breadth of community needs • Lack of flexibility in addressing new or growing needs • Limited interaction with all segments of community *Also…company might be accused of other shortcomings • Self-serving • Focused on PR, rather than doing good • Unresponsive to the interests of a diverse employee base or community Serving Many Masters: the challenges of corporate philanthropy. Council on Foundations. 2003. pg. 53

8. Foundation vs. Corporation Should the company create a foundation? Pros: • Some removal from business cycle lends stability to annual giving – an endowment can help • Tax benefits (both for corporations and donors) • Less “competition” for positioning as a program within the corporation – managers can worry less about their place in the overall corporate hierarchy • Indicates a “pure” purpose – separate from marketing efforts and from promotion of particular products/ services • Less risk of cynical backlash from external media, non-profit sector, other critics • Easier to link with typical non-profit channels for grant-making, communication, and partnership Cons: • Greater disconnect with the company, and, therefore possible risk of non-strategic approach. This could manifest in a number of ways: • Communication challenges between different teams, corporate vs. foundation • Lack of synergy or connection between corporate goals and foundation goals • Lack of focus – a tendency towards general philanthropic activity as opposed to more focused goals • Leadership differences, between corporate CEO/ Board and foundation CEO/ Board Questions: With a foundation, is it more difficult to measure impact of corporate philanthropy on overall corporate reputation? Does foundation giving differ in its impact on overall corporate reputation?

9. Foundation vs. Corporations Brand Confusion Case: Bill and Melinda Gates Foundation vs. Microsoft* • Gates Foundation’s $24B plus – overshadowing effect • Currently Microsoft doesn’t have a foundation – instead focuses on corporate giving within the company • Microsoft does partner with the Gates Foundation on some initiatives – for example, expanding public access to computing and the Internet in public libraries Case: William and Flora Hewlett Foundation vs. Hewlett-Packard** • “With Hewlett, we’re in the atmosphere of brand confusion with the corporation, whose money helped start the foundation…” Eric Brown, Communications Director, Hewlett Foundation • Communication by foundations and companies is critical – to ensure that grantees and the public understand affiliations CONCLUSION: confusion yes, but there can also be synergy and mutual benefit. *Compassionate Capitalism: how corporations can make doing good an integral part of doing well. Benioff, Marc, and Karen Southwick. Career Press. 2004. pgs. 132-133. **”Foundations Reap What They Sow”, McKenna, Ted, PR Week, August 21, 2006.

10. Case Study 1 – Cisco Systems Why? - Goal: “To establish a legacy of trust between the community at large and the foundation. We believe the foundation further establishes Cisco’s commitment, as well as its longevity.” John Morgridge, Chairman Emeritus, Cisco Systems* What and How? • Cisco Systems Foundation – grantmaking in communities where Cisco has a significant business presence • 2005 endowment – over $100M • Focus on two “fundamental equalizers in life”: access to education and the Internet • Cisco Networking Academy: provides people in developing countries with technology access and training Benefits? • John Morgridge cites recent research by the Walker Institute: “…research indicates that customers, employees, and community leaders who view a company’s philanthropic programs as successful are more likely to conduct business with that company – even when faced with a better financial deal elsewhere.” *The Business of Changing the World. Benioff, Marc and Carlye Adler. McGraw-Hill, 2007. pgs. 187-197.

11. John Morgridge’s Strategies for Successful Corporate Giving • Look carefully at your employee engagement programs: The variety of programs you offer, how strongly you support them, and your willingness to encourage employee originated ideas are essential for a successful program. • Get strategic about your giving: Just as in business, you can have greater impact by focusing on a few “markets” for corporate giving programs. At Cisco, we have focused our efforts in three areas: education, the Internet, and support for basic needs, such as food and shelter. This three-pronged focus allows us to leverage the energy, ideas, and strengths of Cisco employees and product solution areas. • Be creative: There are many other ways besides cash and equipment donation programs in which companies can contribute. We have launched more the 10,000 Cisco Networking Academies – many located in least developed countries – and U.S. Empowerment Zones – to help train the next generation of information technology engineers. • Partner with nonprofits that demonstrate success: Many nonprofits seek the business expertise and technical know-how that business can offer, while others are already highly successful and would receive greater benefit from ongoing counsel and support. When choosing a nonprofit in which to invest, assess your choice as carefully as you would a stock market investment: devote resources to organizations that consistently demonstrate success over time. • Make it a win/ win: There are many ways that companies can contribute to the global community, but we’ve found partnering to be successful over the years. The best partnership, and those that are able to make the biggest impact, are those in which both parties benefit. Make any initiative a win/win situation for all parties involved. • Provide long-term commitment: Most programs are not successful overnight; they require an investment in time, money, and resources. By being committed for the long term, the initiative has a better chance of success. For example, Cisco’s Networking Academy program is now 10 years old and Cisco continues to invest in this initiative. • Consider endowing a corporate foundation: There are more than 2,000 corporate foundations in the U.S. Many of these foundations are funded as line items in annual company budgets. As a result, foundations are funded generously in good business cycles but suffer when business is challenging. By endowing a corporate foundation and diversifying its portfolio, you protect your foundation during tough times. The Business of Changing the World. Benioff, Marc and Carlye Adler. McGraw-Hill, 2007. pgs 196-7.

12. Case Study 2 -- salesforce.com Why? • Goal: “We have integrated philanthropy into our corporate culture from the inception of our company…” Marc Benioff, Chairman/ CEO of salesforce.com What and How? - salesforce.com and salesforce.com/foundation - the 1-1-1 model: 1% of the corporation’s stock upon founding went into the foundation *the salesforce.com initial public offering raised more than $12M 1% of company profits into the community *salesforce.com includes product donations and funding 1% of employee working hours to community service *over 2,000 employees have donated over 30,000 hours Benefits? “Our employees …tell us that the foundation is the secret weapon that keeps them grounded. People are here to do more than just make money – they want to help make the world a better place during their time here.” The Business of Changing the World. Benioff, Marc and Carlye Adler. McGraw-Hill, 2007. pgs xxii-xxvii.

13. Is there evidence for a direct benefit of corporate philanthropy? Siemens Foundation: sponsors math and science scholarships and academic competitions “A recent multimillion-dollar deal Siemens signed with MGM was won, in part,…because the work of the Siemens Foundation showed the company to be socially responsible, which was among MGM’s criteria in choosing a telecom network equipment provider.” Jim Whaley, President, Siemens Co. ”Foundations Reap What They Sow”, McKenna, Ted, PR Week, August 21, 2006.

14. CORPORATE REPUTATION SURVEYS

15. Corporate Reputation Surveys • Growing number of rankings and lists • Different methodologies • Different benchmarks and metrics • Different survey samples • Different target audiences • Different surveys, different rankings • Examples: • Harris Interactive: Corporate Reputation Quotient (RQ) http://www.harrisinteractive.com/news/allnewsbydate.asp?NewsID=1170 • Fortune: America's Most Admired Companies http://money.cnn.com/magazines/fortune/mostadmired/2007/index.html • Corporate Reputation Watch 2006:Hill & Knowlton http://www2.hillandknowlton.com/crw/home.asp

16. Different Surveys, Different Rankings

17. Corporate Reputation Quotient (RQ) 2006 Harris Interactive • Survey methodology • Nominations Phase (July and August) • Online and telephone interviews with 7,886 people • Each respondent nominates two companies • Harris Interactive identifies list of top 60 companies • Ratings Phase (September and October) • Online interviews with 22,480 people • Respondents rate companies on 20 attributes • Survey focus • Capture perceptions of corporate stakeholder groups such as consumers, employees, investors, or key influentials • Target audience : corporations and general public stakeholders’ perception corporate reputation

18. Corporate Reputation Quotient (RQ) Drivers and Attributes

19. America's Most Admired Companies-2007 Fortune • Survey methodology • Surveyed 3,322 executives, directors, and securities analysts • Respondents select 10 companies they admire most. • Survey focus • Capture perceptions of business executives • Target audience: Corporations and general public • Survey benchmarks • Issue areas • Innovation • Quality of management • People management • Financial soundness • Use of corporate assets • Long-term investment • Social responsibility • Product/services quality

20. Corporate Reputation Watch 2006Hill & Knowlton • Survey methodology • 282 telephone interviews with buy and sell side analysts with over 2 years experience • Key Findings • Over 90% of analysts agree that if a company fails to look after reputational aspects of its performance it will ultimately suffer financially too. • Top factors affecting analysts' assessment • Quality of management & financial performance • Making good on promises and corporate strategy • Non-financial factors • executing company strategy • transparent disclosure/strong governance • clear & consistent communication with stakeholders • Branding, corporate culture, employee issues and social responsibility may also contribute to their assessment but are less likely to lead to negative ratings.

21. SRI RANKINGS

22. Goals and Target Audience • Reach out to a very sophisticated audience: investment professionals • Growing number of rakings and lists: • Increasing demand for information on companies’ practices • By-product of analysts work… It also generates buzz for the SRI companies • Focused on investment decisions: • Risks, preferences, social and financial returns • Examples: • Calvert ranking: 100 largest US corporations (market cap): http://www.calvert.com/sri_calvertratings.html • KLD’s 100 best corporate citizens: http://www.kld.com/research/socrates/businessethics100/ • Dow Jones sustainability index: http://www.sustainability-index.com • Innovest’s global 100 - the most sustainable corporations in the world: http://www.global100.org/what.asp and http://www.innovestgroup.com/

23. How are the rankings done? • Mostly these rankings rely on public information: • Government databases • Company CSR reports • Calls and meetings with companies • News reports • Non-governmental organizations (NGOs) • External research providers in specialized issue areas, such as corporate governance rating agencies • Other public documents • Trade journals • Industry and regional publications • Direct contact with the companies. • Different rankings have different set of criteria

24. Calvert Rating of the top 100 US companies (market cap) • Methodology: • Data from public domain (reports, NGO’s etc..) • Focus: • analysis and ranking company corporate responsibility policies and performance across five key areas • Benchmarks: • Environment - Management & Policies, Performance & Impact, Product Lifecycle, Resource Use & Habitat • Workplace - Diversity, Labor Relations, Employee Health & Safety • Business Practices - Corporate Governance, Business Ethics, Product Safety & Impact, and Animal Welfare • Human Rights - Management & Policies, Performance, Indigenous Peoples' Rights • Community Relations - Economic Impact, Community Unrest, Philanthropy, Employee Volunteerism, Fair Lending

25. 100 Best Corporate CitizensCorporate Responsibility Officer (CRO) KDL • Methodology • Uses data from online social research database created by KLD and puts a numerical rating on companies’ service to various stakeholders. • Companies in Domini Social 400, S&P 500, or Russell 1000 are eligible for inclusion on the list • Focus • Rank leading “ethical” performers publicly listed in the US • Target audience: General public • Benchmarks • Eight stakeholder categories: • Shareholders (based on 3 year average return) • Community • Governance • Diversity • Employees • Environment • Human rights • Product

26. Dow Jones Sustainability index • Methodology: • Sustainability assessment that covers economic, environmental and social criteria. Industry-specific criteria to assess companies. The analyzed companies are assigned a sustainability score and are ranked accordingly within their sector. • Focus: Competitive advantage of companies. Looks for the creation long-term shareholder value by embracing opportunities and managing risks deriving from economic, environmental and social developments. • Benchmarks: • Economic: Codes of Conduct / Compliance / Corruption&Bribery Corporate Governance, Risk & Crisis Management, Industry Specific • Environment: Environmental Performance (Eco-Efficiency), Environmental Reporting, Industry Specific Criteria • Social Corporate Citizenship/ Philanthropy, Labor Practice Indicators, Human Capital Development, Social Reporting, Talent Attraction & Retention, Industry Specific Criteria

27. Innovest’s Global 100 • Methodology: • Intangible Value Assessment ratings are ultimately expressed on a relative scale similar to those currently in use by conventional credit rating agencies such as Moody’s and Standard and Poors. • Focus: performance factors, including innovation capacity, product liability, governance, human capital, emerging market, and environmental opportunities and risk. • Benchmarks: Innovest’s intangible value assessment measures 4 different criteria: • Stakeholder Capital: Regulators and policymakers; Local communities/NGO’s; Customer relationships; Alliance partners; Emerging markets • Strategic Governance: Strategic scanning capability; Agility/adaptation; Performance indicators/monitoring; Traditional governance concerns; International “best practice” • Human Capital: Labour relations; Health & safety; Recruitment/retention strategies; Employee motivation; Innovation capacity; Knowledge development & dissemination; Progressive workplace practices • Environment: Board and executive oversight; Risk management systems; Disclosure/verification; Process efficiencies – “eco-efficiency”; Health and safety; New product development; Environmental/climate risk assessment

28. Corporate Rep. Surveys Most surveys are based on primary research. They try to capture the reputation of a company. However, it is unclear what the relative weight of CSR is in these surveys. SRI Rankings Rankings issued by funds are more methodical Rely on same data - public for the most part Each group developed a specific metric to evaluate companies They apply a score to corporate philanthropy SUMMARY FINDINGS • There are many surveys and ratings. They are very different! • methodologies • benchmarks and metrics • target audiences

29. CONCLUSIONS • What are the best surveys/benchmarks to measure the return on corporate philanthropy in terms of corporate reputation? • It all depends on who you are trying to reach: • Average people? • CEO’s? • Investors? • Each one will look at a different ranking. Make sure you understand your target audience and do not try to be all things to all people. • Consider media training for the recipients of philanthropic activities. • Improve communication with the organizations doing the surveys.