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March 21, 2007

Morph of a Nerd CEO – Company Charitable Donations

Should your startup be making charitable donations?  In general, no – but there are exceptions.  Let’s take a look, case by case, at this stingy advice.

Suppose all the funding came from you and perhaps a few other members of a close group of founders.  It’s your money; you can do whatever you want with it.  But, given tax law, you get more bang for the buck when you give personally; you can use the tax advantage either to fund bigger donations or to put more money into the company.  Investing your money in the company and the having the company donate it just gives the tax man a bigger slice.

Suppose a substantial amount of the funding comes from angels or VCs.  They have every right to think they can do a better job than you or your designee can in deciding which charities to fund.  They expect you to make a return for them from which they may choose what to donate to whom.  The tax considerations above also apply; the main beneficiary is the tax person when invested capital is donated.

And if you’re public?  I would prefer that companies I own stock in return profits to me and let me donate them or not as I see fit.  I don’t want to have to read the company’s donation policy and track whether it follows it.  Tough enough to know  whether they’re doing a good job running the business.  Also very unlikely that my priorities and theirs will be matched. 

Companies like the old AT&T were very generous with charitable donations; probably the new at&t is as well.  I’m sure the local charities were very glad to get the money; but I think a disproportionate allocation went to buying social status for the executives who sponsored the charities and ended up being feted by them in return.  Both employees who were being laid off in droves (when I was at AT&T) and stockholders who were fleeing in droves would have preferred more profit or even more investment in the business.

Marketing is a legitimate reason for a donation.  A company gains in many ways by being well-regarded in the community.  To the recipients, this is charity. To the stockholders, though, this is a marketing expense and has to be looked at against other possible ways of achieving the company’s objectives and against the “return”.  As much as I hate to say it, marketing should make the recommendation on this type of giving.  As CEO, you need to make sure that it is the company and not the sponsoring executive who is being promoted by the donation.

Just a little less cynically, it is also absolutely appropriate – sometimes even necessary – for a company to make a donation for the good of the community where it is located.  This could be to the hospital, the fast squad, the fire department, even the school.  The company and its employees benefit by being in a successful community and suffer if elements of the community fail.

Perhaps the most important reason for a company to make a donation is as an employee benefit.  People like working for a company that the community respects.  But then whom do you give how much too]?  Should it be a staff meeting decision? You and your staff have neither the time nor the expertise to do charitable allocations.  Do you need to form a committee? (not the right answer to any questions I ask) Do you need a consultant? (shudder). 

When I worked at Microsoft I saw a very good model for corporate giving: Microsoft matched employee contributions to tax-qualified charities – initially without limit until some employees became wealthy and charitable enough to do significant damage to the bottom line.  This is a great policy.  It encourages employee giving; it leverages employee giving; and it eliminates the need for any allocation committees.  No need for the company to choose between the Sierra Club and Scientists for a More Nuclear Energy Policy (made up).  If both are recognized as charities as far as the tax code is concerned, employees can put their money and a reasonable amount of the stockholders’ money where their mouths are.

An interesting thing happened with a dumb pr move Microsoft made.  The company, hugely profitable even in those days, donated $25 for ever Seattle Mariner home run (or maybe it was strike out, I forget).  It did get an inordinate amount of publicity on radio and television coverage of the games “Another $25 goes to….” but that amount from that source was an insult.  A smart guy who worked for me for a while (and who cared a lot about the company’s reputation for all the right reasons) did a smart thing: he got everybody he knew – which was almost everybody – to pledge their own $25 for each homerun (or strikeout).  Of course the company had to match that.  Pretty soon charities really did benefit on the rare occasions when the Mariners were hitting (or pitching).

Other posts in this series are:

How Hard Will You Work?

Sick Days are Sick

The Power of Silence

First Sole Practitioner

Yuk, Selling

The First Employees

The Close

When Free is the Right Strategy

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