This year has ushered in many challenges that have altered the business landscape. The COVID-19 pandemic has had a far-reaching impact on communities across the globe. More recently, racial injustice in the United States has prompted a discussion for social reform. The world is vulnerable and changing, and it is important for corporations to stay involved throughout this process. This is a time in history where corporations will likely be scrutinized for their level of engagement with their communities.

Many companies realize the benefits of corporate philanthropy and now consider it to be an integral part of their corporate strategy. New research indicates that the motivations behind philanthropy extend beyond direct financial implications, such as tax relief. As an example of this new trend, evidence suggests customers prefer to do business with, and employees want to work for, organizations with a strong corporate social responsibility profile.

Certified B Corporations, such as Patagonia Inc., Ben & Jerry’s Homemade Holdings Inc., and Cabot Creamery Cooperative, exemplify this recent trend. They are for-profit companies but do not make business decisions strictly for profit maximization. They consider all stakeholders, their community, and the environment when making business decisions. The idea is that companies operating like this believe being strong corporate citizens will help them to attract and retain top talent whose values align with those of the company. Further, the symbiotic relationship between the corporations and their community is intended to benefit both parties.

In this paper, we discuss the trend toward corporate social responsibility, specifically focusing on the role that a private foundation, created and sponsored by a corporation, can have in facilitating a company’s philanthropic objectives.

Philanthropic Platforms

Once a company decides to pursue corporate philanthropy, it generally picks one of three popular options: direct giving, donor-advised funds (DAFs), or private foundations. In Table 1, we discuss some of the defining aspects of the different approaches. While each option has its own benefits and drawbacks, here we focus on the benefits of a private foundation.

Specifically, we focus on how, compared to direct giving and DAFs, a corporate foundation allows a company to maintain control of the assets, in a tax-advantaged vehicle, with the potential to make distributions in perpetuity. By using a private foundation, companies do not have to worry about contributing money from operations to charity each year. Instead, they are able to add money, company stock, or other assets at inception and use it to fund future philanthropic efforts. Additionally, if the company has a profitable year, it is able to add more to the foundation as it sees fit.

Table 1

Corporate Philanthropy Options

  Direct Giving
Donor-Advised Fund
Private Foundation
Ease of Implementation
Very easy
Simple
Requires Legal Services
Administrative and Compliance Costs
Minimal Costs
Administrative and investment management fees Ongoing legal, tax, and accounting fees; investment management fees
Ownership
None/only restrictions if specified in the terms of the grant None, but some advisory privileges retained Full control
Privacy
Typically donor choice and can depend on the recipient Ability to give anonymously, if desired Disclosed on Form 990 or Form 990-PF
Longevity
One time Recurring Recurring
Corporate Recognition
One time Potential to be recurring Naming rights and opportunity for ongoing goodwill and publicity

Source: PNC

What You Can Do with a Private Foundation

There are several ways to use the funds in a corporate foundation. In each of these, we will provide examples from PNC, as those are the stories that are easiest to share.

What can you do for the community?

The most obvious and the primary purpose of a foundation is to make charitable donations to causes that your organization supports on an ongoing or recurring basis. A private foundation can act as a pillar of your strategy to align your values with those of the community, specifically through giving back, and can help establish your business as a hometown brand. Companies that are invested in the broader success of their communities distinguish themselves from other companies that are not invested.

As an example of what a foundation can do, PNC sponsors the Grow Up Great® program, with the mission of assisting early childhood education. Wherever PNC has a footprint, it works with that local community to deliver school supplies, prepare school buildings for classroom sessions, and provide donations to allow for a strong learning experience for younger individuals. When expanding into new regions, PNC can reference the great work it does within its existing footprints, and how that work might translate and benefit the community where it is looking to establish a new presence. Having the PNC Foundation in place allows three benefits. The first is that it allows us to give back to our communities. The second is that it allows us to think strategically about our charitable giving. And finally, the funds for charitable giving are already established (and are allowed to grow through being invested in a tax-sheltered account over the long term), meaning PNC doesn’t have to set aside cash from the balance sheet every time it wants to contribute to a cause.

What can you do for employee engagement?

There are many creative ways to leverage a foundation to enhance employee engagement. The business could establish a matching program, where employees designate charities to which they would like to donate, and their contributions are matched by the employer. Similarly, the company could create competition around learning new skills, with the prizes being donations to charities of the employee’s choosing. Further, the business could administer scholarship programs for its employees and their families. Involving your employees in the donation process is a great way to increase their pride in your company and help them derive meaning from the work they do for it. It can build the feeling of family or even equity in your company, helping to increase productivity and employee engagement.

As an example, PNC has established initiatives in recent years to increase employee engagement. Last year, in celebration of the 15th anniversary of PNC Grow Up Great, approximately 52,000 PNC employees received a $25 DonorsChoose gift card, funded by the PNC Foundation, to help preschool teachers obtain high-quality resources and learning experiences for their students. DonorsChoose is an online charity that connects individual donors with classrooms in need; this effort to engage employees in supporting high-quality early childhood education is part of a $10 million alliance with the DonorsChoose to positively impact pre-K and Head Start classrooms across PNC’s communities.

How can you help employees through tough times?

Having a foundation in times of hardship creates an opportunity to give back in a unique way. One example is that corporations can institute an employer-sponsored relief program, enabling them to use funds from their foundation to provide aid directly to their employees.[1] This program permits employers to grant qualified payments to their employees who are negatively impacted by a catastrophe, subject to compliance with certain rules and regulations. If structured properly, these types of payments will not be included in the employee’s gross income, allowing them to receive the relief funds tax-free. Numerous studies have shown many Americans lack the savings to cover small emergency expenses. When unforeseen circumstances arise, an employer-sponsored relief program may provide your employees with the extra assistance they need to navigate an uncertain time.

For more information on employer-sponsored relief programs, please see the article, “COVID-19 and Employers: Financial Assistance for Employee Hardship,” from legal services firm McGuireWoods LLP.

How to Get Started

In our previous paper, Company-Sponsored Philanthropy as a Component of Corporate Strategy, we discussed what it takes to establish and maintain a corporate foundation. The four areas we focused on were mission and strategy, fiduciary oversight, compliance, and private foundation rules.

One area we did not cover in our first paper was ways to fund a foundation. It is important to remember that cash isn’t the only way you can fund one of these — you can also use company stock, appreciated assets, or other means to get it off the ground. We recommend consulting with your finance team and/or tax counsel to determine the most after-tax cost of dollar advantageous way for your organization to get it started.

Conclusion

A private foundation is a great way for a corporation to give back to their community, particularly in times of distress. A business can separate itself by being a strong corporate citizen, providing long-term competitive advantages. The foundation also allows corporations the ability to plan in advance their charitable endeavors and incorporate them strategically into their operations. People, now more than ever, want to work for and do business with companies that are committed to having a positive impact for all their stakeholders. With the corporate world becoming more philanthropically involved, we recommend understanding the ways you can utilize a private foundation.