Show Me the Numbers: Measuring Corporate Giving
Show Me the Numbers: Measuring Corporate Giving
By: Maria Nardell, 11/29/06
In a world of increasing philanthropy, it’s the million-dollar question smart business leaders struggle to answer: how can corporate giving be measured most effectively?
It has become nearly a cliché in corporate philanthropy to acknowledge the difficulty of evaluating program results. Some say it can’t be done with any useful degree of precision or standard for comparison. Others have built global companies around the business of quantifying and evaluating corporate social involvement programs, each with different methodologies. Both perspectives on this issue were represented in the final panel of the first annual Corporate Responsibility Officer Conference, held this month in New York City.
Representing the side of indexes and metrics were Eric Fernald from KLD Research & Analytics and John Deosaran from the Environmental, Social and Governance Analytics Division of Institutional Shareholder Services. Taking a different view was Kevin Thompson, Program Manager for Corporate Citizenship at IBM, a man skeptical of the results of grading organizations despite the fact that IBM’s corporate giving program repeatedly earns good marks. Much of the panel discussion was about corporate social responsibility rankings, addressing issues such as survey fatigue among company employees and the need for greater transparency on the part of research firms as well as the companies they analyze.
Yet measuring corporate giving means more than simply conducting surveys and ranking companies. Such lists are one tool for comparison, but how else can companies assess the social impact of their specific programs? In the interest of balancing social and business returns, what is the link between corporate giving and a company’s bottom line? And how can investors and consumers better distinguish among the myriad corporate giving programs advertised to the public?
Measuring Social Impact
The problem with measuring social impact, Kevin Thompson explained later, is that it is “difficult to get an apples-to-apples comparison.” This is true in two ways. To illustrate the point, consider IBM’s corporate giving program and international foundation, each focusing on education. The input for an educational initiative is typically money—or in IBM’s case, often in-kind donations including technology and employee time and talent. The intended output is frequently an intangible such as second-grade reading levels.
First of all, it is a challenge to develop a method of benchmarking second-grade reading improvements and translating that output (e.g., the number of students who pass a reading diagnostic test) into terms equivalent to the given input (e.g., volunteer time). Second, even if such a formula were devised, Thompson observed, how would one compare the impact of education programs in places as diverse as Vermont and India?
Most companies rely upon their nonprofit partners for the statistics to measure social impact. As with corporate giving programs, however, there is no single standard by which nonprofits gather, analyze or present that data, and so Thompson would question a company that states it has exact data detailing the impact of its giving. Nevertheless, he does highlight the efforts of a man named Farron Levy, the creator of a methodology called True Impact. Launched this year, True Impact is designed to measure the social and business value of CSR programs, and it has been utilized by companies including Home Depot, Allstate, Verizon and Deloitte.
According to Farron, “You can look at social return in a couple of ways.” One way is non-monetary. That is, social change is measured by quantity times quality, allowing for “customizable social units of outcome,” such as the number of lives saved by a vaccine or the number of people educated through a scholarship program. The other way is to think about social return in a monetary sense. The socio-economic value of corporate giving investments can consist of the money society saves or the increased number of people contributing toward the tax base. Some companies also measure the market value of their investments, although Farron points out that most companies don’t accurately determine the percentage of goods and services actually being used. (For example, brand-new donated computers sitting in an organization’s closet don’t do anyone any good.)
Quantifying Business Value
With corporate giving as with every area of business, profitability matters. As Kevin Thompson commented during the panel, corporate giving is relatively new within most companies, and in order to grow, it needs to demonstrate “real results.” You can’t just say philanthropy is “good for the brand,” he insisted. It’s too vague; “brand is the parking lot for all the intangibles.”
As with social value, Farron Levy offers a way to measure business value. The key is going back to the basics: increasing revenue and reducing costs. Corporate giving can increase revenue by attracting and retaining customers or allowing a company to charge a premium for its goods and services. It can increase efficiency through such channels as improved recruiting, productivity or retention. Even where the impacts on revenue or costs are indirect, as with brand or reputation, there can be value “to the degree [these impacts] ‘drive’ reduced costs and increased revenues,” according to his article from In Perspective last spring. Using mapping and modeling, Levy’s system converts the “drivers” from qualitative to quantitative terms, resulting in expected outcomes such as value per customer or value per applications in recruiting.
Thompson agrees with Farron that expected revenue can be a productive way to measure corporate giving. For example, requests for proposals, particularly in Europe and Asia, increasingly include sections on the companies’ corporate responsibility programs. This suggests that corporate giving can factor into clients’ decision to hire a company, even if Thompson would argue that the degree to which corporate giving is a factor in the decision-making process cannot be perfectly quantified. Another measure is the tracking of relationships from corporate giving that lead to new business opportunities. IBM’s current online project on China’s Forbidden City, for instance, could lead to new contacts interested in the company’s digital media technology.
To measure the return on the Forbidden City project, Levy’s True Impact approach would use formulas to estimate the expected monetary outcome resulting from IBM’s new contacts. Even Levy, however, acknowledges that many times a rigorous quantitative analysis is neither possible nor realistic. Furthermore, he points out that some companies insist upon more precise measurements for CSR, where “the bar [for measurement] is unnaturally high,” than they expect for the measurements of more established departments, such as human resources or marketing. Levy believes that it is most practical for a company to begin measuring corporate giving with the same standard that they use to measure their other functional areas, even if that means simply a pilot study or an analysis of possible scenarios and their likely outcomes.
Information for Investors and Consumers
Despite debates within the business community about the approach and transparency of organizations that rank corporate social responsibility, new rankings are produced every year. At the CRO panel, John Deosaran from the Institutional Shareholder Services remarked that shareholders and consumers will gravitate toward the rankings that best align with their outlooks. Businesses, on the other hand, will have to pay attention to all reports, maintaining open lines of communication with researchers to ensure better-quality and more accurate analyses.
KLD Research and Analytics is one such firm providing indexes on corporate giving. During the panel discussion, Eric Fernald spoke of KLD’s research process, which includes communication with company officers, global research, public documents, government information, and media sources. KLD’s approach is thorough, but it is impossible, Thompson believes, for such a process to be entirely objective.
Thompson suggested that there are other useful ways that external stakeholders can evaluate a company’s corporate responsibility program, such as looking at its place within the company’s overall structure. IBM’s program, for example, has a unique reporting structure that reflects its core position within the company. Many CSR programs report to marketing or public relations. IBM’s program reports to the Chief Innovation Officer, one step away from the company’s CEO.
Another aspect of a company’s giving program that indicates its relative importance in the corporation is its size. In CRO Magazine, Michelle Gansle from the Clorox Company proposes that instead of CSR being a “one-person show,” as it is in many companies, it should be a “team of people across management…part of the corporate culture and something that everybody [is] responsible for as part of their corporate scorecard and practices.”
The Quest Continues…
Though it is growing, corporate giving is still a relatively small area of operations within most companies. Furthermore, it is often subsumed by the larger category of CSR, making it difficult to isolate specific philanthropic measurements.
Even so, events like the CRO Conference illustrate the rapidly growing interest in corporate social responsibility as a whole, which is now a $20 billion domestic industry, according to CSRWire. Launched on August 1, CRO Magazine merged with the former Business Ethics Magazine, a move which, according to its website, reflects “the mainstreaming of the corporate responsibility movement.”
As corporate giving matures within the broader field of corporate social responsibility, so too will the methods by which to measure it. Farron Levy writes that “the quest continues for that elegant, singular equation that measures CSR’s total return on investment.” As individuals and organizations continue to pursue that elusive goal, it is clear that the era of just giving for giving’s sake is over, and a new world of assessing the impact of corporate giving is upon us. Exactly how the quest for an investment yardstick will evolve remains to be seen.