Corporate Giving in a Recession

Donating to charity might be an unwelcome expense this year.

Selena Maranjian
Selena Maranjian
Apr 3, 2009 at 12:00AM

With a recession raging, nonprofit groups need money more than ever. But many individual donors are giving less, instead of more. Unfortunately, large corporations have begun to follow suit.

According to a report from the folks at the Conference Board, 45% of corporations surveyed are expected to decrease their charitable donations budgets for 2009. (A further 16% are mulling it over.)

This is a big deal for nonprofits. As just one example, let's look at DonorsChoose, the innovative organization helping fund projects in our nation's schools. (We here at The Motley Fool supported it in our annual Foolanthropy campaign.) Although individual donors are important, corporate sponsors like AIG (NYSE:AIG), American Express (NYSE:AXP), and Cisco Systems (NASDAQ:CSCO) also play a key role. But could some of these companies have trouble keeping up their previous levels of charitable donations? Yep.

I want nonprofits doing important work to get more money from year to year. I want them to do more good in the world, particularly at a time when more people need help. But on the other hand, I must concede that the cutbacks can make a lot of sense for these corporations.

Rationalizing reductions
After all, remember that a public company's three main constituents are its employees, customers, and shareholders. (As a fun exercise, try to rank those three critical factions in importance.) Continuing to give generously can boost a company's image in the eyes of customers, which can also boost sales. But shareholders may not be so happy. After all, if earnings and income drop, while donations stay the same, profit margins will slip. There will be less left to reinvest in the company or to pay out to shareholders.

One nice solution is the way that Target (NYSE:TGT) sets up its giving. It gives 5% of its income to communities where it operates -- and it doesn't plan to change that. And while its giving may slip along with company profits during the recession, it's a formula that can work in any environment.

Keep an eye on your holdings and prospective holdings, and see how they're dealing with donations in this economy.

Related Foolishness: