Corporate Foundations – Are the Benefits Worth the Burdens for Your Company?PDF
Dianne Chipps Bailey
Robinson Bradshaw Publication
Feb. 17, 2016
The positive impact of a strong philanthropic platform for companies is well documented. But how should your company deliver on its promise to engage in the communities where its employees and customers live and work? Corporate foundations can be an important vehicle to achieve philanthropic and business goals, but the benefits are not without administrative and other burdens.
Corporate Foundation Benefits
- Enhanced Corporate Brand – A well-run foundation raises the visibility of any corporation’s philanthropic platform. Research has demonstrated that corporate philanthropy programs are viewed favorably by customers, employees and shareholders contributing meaningfully to the success of the overall business enterprise.
- Community Impact – Corporate giving not only enhances corporate brands but strengthens communities. Strategic philanthropic investments made by corporate foundations are more likely to meaningfully impact community needs than typical marketing sponsorships.
- Risk Management – The risk management benefits that flow from the creation of any corporate subsidiary (i.e., the segregation and protection of assets from creditors of the parent) also apply to a corporate foundation.
- Focus of Separate Board of Directors – A separate corporate foundation requires fiduciary oversight by a separate board of directors to safeguard the company’s philanthropic platform including investment and distribution of the charitable assets. As an additional benefit, the privilege of serving on the foundation board can be a valued reward for many company leaders.
- Accountability and Evaluation – Consolidating the charitable activities of the corporation under the umbrella of a foundation makes it more likely that key stakeholders will be accountable for the strategic philanthropic goals and that the success of the charitable activities will be strategic, tracked and measured.
Corporate Foundation Burdens
- Grantmaking Procedures – The process for corporate foundation to make grants is typically more rigorous and time-consuming than the procedures to approve corporate sponsorships from marketing budgets. Grant applications, reviews, reports and records are the norm. As described above, this focused process also is likely to yield positive results in terms of community impact.
- Corporate Formalities – Foundations are required to continue to observe all basic corporate formalities, including holding and documenting periodic meetings of the board of directors. We generally recommend that the board meet at least quarterly, but a foundation may remain in compliance by holding only an annual meeting. The board may be able to satisfy this requirement by conducting business via telephone conference call or electronic voting.
- Legal Compliance – The federal tax rules applicable to private foundations are fairly restrictive. Governance documents and internal processes must be adopted by the foundation to ensure ongoing legal compliance, including safeguards to avoid violations of the self-dealing rules. Corporate foundations also are required to distribute at least 5 percent of their investment assets on an annual basis. In our experience, corporate foundations rarely have difficulty meeting this requirement, as spending rates typically far exceed the mandatory minimum distribution.
- Additional Expense and Transparency – A corporate foundation is required to annually file a Form 990-PF and, when is receives more than $1,000 in unrelated business taxable income, a Form 990-T. The Form 990-PF, which is available for public inspection, includes information about the foundation’s operations, expenses and grants. A well drafted Form 990-PF can be an important marketing document for a corporate foundation, as it is another opportunity to tell the story of the company’s philanthropic priorities and impact.
Is a Corporate Foundation Right for Your Company?
- Autonomy of Business Units – A foundation-driven corporate giving model may diminish the autonomy of local business units in grantmaking and corporate sponsorships.
- Administrative Burdens – Significant administrative burdens are associated with organizing and maintaining a corporate foundation, some of which are outlined above. Our firm has prepared a memorandum with additional details about these compliance obligations, which we are happy to provide upon request.
- Benefits to North Carolina Corporate Foundations – North Carolina is one of the most attractive states in which to organize a nonprofit corporation. The state law advantages include limitation of liability for directors and statutory immunity for officers and directors who are not compensated for their services as such. For this reason, we often organize new nonprofit entities in North Carolina for our national clients with positive results.