The Key Question for Corporate America

Corporations across the nation are under fire from investors for hoarding too much cash. Yet they're not alone in keeping plenty of cash on hand. Many of the charitable foundations associated with major corporations are equally careful in spending down their assets -- but some foundations have gone beyond traditional giving, to make larger gifts in relation to their available assets.

The 5% rule
As a rule, charitable foundations tend to be conservative in spending money. With a long-term endowment-based philosophy, charitable foundations aren't just interested in spending whatever cash they have on hand toward immediate needs. Instead, they aim to strike a balance between meeting needs now and enabling themselves to sustain their charitable endeavors far into the future. Small family foundations often aim to spend the minimum of 5% of their assets every year on current expenses, focusing on retaining the rest for use in future years.

Similarly, the result of the conflict between doing good now versus doing good later has led many corporate foundations to put only small portions of their available assets to work in any given year. Here are a few examples of such foundations and the companies behind them:

Company Supporting Foundation

Foundation Assets

Corporate Giving

Giving as % of Assets

Alcoa (NYSE: AA  ) $392.0 million $26.2 million 6.7%
Merck (NYSE: MRK  ) $333.7 million $36.0 million 10.8%
Fidelity Investments $251.8 million $18.6 million 7.4%
Abbott Labs (NYSE: ABT  ) $208.8 million $29.0 million 13.9%
General Motors (NYSE: GM  ) $135.6 million $22.8 million 16.8%

Source: Foundation Center.

These companies have clearly drawn the line between current and future needs in a way that favors the future. Although their giving surpasses the 5% mark, it still represents fairly small portions of their available assets. Moreover, those figures don't include inflows into the foundations in question, which could make net outlays from long-term foundation assets even lower.

Choosing now
In contrast, some other foundations aim to make a bigger difference in the present. Whether it's because they believe that current economic conditions, which have millions of people facing financial difficulties, warrant an extraordinary response, or because they simply think that their emphasis should be on making a difference as quickly as possible, these foundations pay bigger portions of their overall assets on an annual basis:

Company Supporting Foundation

Foundation Assets

Corporate Giving

Giving as % of Assets

AT&T (NYSE: T  ) $111.9 million $56.9 million 50.8%
Metlife (NYSE: MET  ) $110.4 million $39.5 million 35.8%
BP (NYSE: BP  ) $115.1 million $37.2 million 32.3%

Source: Foundation Center.

These foundations have opened the spigots on their money flow, letting cash run out of their coffers at a high rate. It's easy to speculate on the reasons why, but by doing so, these foundations make it easier for people in need.

Paying it forward
As easy as it is to characterize tight-pursed corporate foundations as Scrooge-like, there's a role for both models. The need for charitable help isn't going anywhere, so making sure institutions last far into the future is very important.

Here at the Fool, we think that supporting local people who can then get on their feet and sustain themselves is an investment worth making, both now and in the future. That's why for our 2010 Foolanthropy campaign, we've once again chosen Thurgood Marshall Academy, a D.C.-based charter school, as the focus of our time and attention. And we're putting money where our mouths are, too -- for every comment you make on this or any Fool article throughout the campaign (Nov. 29 to Jan. 7), we'll add another $0.10 to our campaign pledge. At the end of the campaign, we'll give the entire amount -- up to $20,000 -- to the school.

Before you dismiss big corporations as causing more harm than good, take a look at the work their corporate foundations are doing. You might find that their actions make a surprisingly large impact in your community and around the nation.

To learn more about Thurgood Marshall Academy, or to make a donation, you can visit the TMA website here.

Fool contributor Dan Caplinger wants charities to last forever. He doesn't own shares of the companies mentioned in this article. General Motors is a Motley Fool Inside Value selection. The Fool owns shares of Abbott Laboratories. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy answers all your questions.


Read/Post Comments (2) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 13, 2010, at 2:48 PM, TheDumbMoney wrote:

    $.10

  • Report this Comment On December 13, 2010, at 7:03 PM, DDHv wrote:

    One useful way to help would be with the Cashflow(tm) game. Although is is much simpler than the real economy, I've found it teaches me lessons. And it is less expensive to make mistakes with play money. At least unless we get hyperinflation!

    Monoply, although simpler, can be used as a teaching tool also.

Add your comment.

DocumentId: 1397880, ~/Articles/ArticleHandler.aspx, 7/28/2014 4:45:40 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement