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green@work : Magazine : Back Issues : Jan/Feb 2007 : CSR

CORPORATE SOCIAL RESPONSIBILITY

Doing Well by Doing Good
If done right and with the best intentions, personal and corporate philanthropy is a win-win situation for everybody involved.

by Dennis Walsh


Amid speculation that a certain nonprofit agency may have diverted money raised for the families of victims of the Sept. 11 terrorist attacks for other purposes, two fund-raising former presidents found themselves having to reassure the public that they would monitor how the money was used.

The problem lies far deeper. Philanthropy has been accused of being decades behind business in applying rigorous thinking to the use of money. The lines are blurring between nonprofit and for-profit activities: Nonprofits are increasingly engaged in market-oriented transactions, such as charging fees for services; partnerships between community groups and corporations are expanding; and social entrepreneurs are creating a new generation of hybrid organizations that blend nonprofit and for-profit values. 

Americans have broadly followed the blueprint laid out by Andrew Carnegie. The steel tycoon believed that growing inequality was the inescapable price of the wealth creation that made social progress possible.

The world of giving is in the process of being reformed, even transformed, through lessons learned from the world of business. Leaders of the new generation of philanthropists seem determined to bring about a productivity revolution in the industry by applying the best elements of the for-profit business world they know. That has prompted the industry to adopt (and adapt to) some of the jargon familiar from the world of business. The new philanthropist talks about social investing, venture philanthropy, social entrepreneurship and the triple bottom line. The new approach to philanthropy is “strategic,” “market-conscious,” “knowledge-based” and often “high-engagement”—and always involves maximizing the “leverage” of the donor’s money.

Leverage is particularly important to the new philanthropist. They know that however large their personal fortunes, they are dwarfed by the financial resources at the disposal of governments and in the for-profit marketplace. They need to concentrate their resources on problems that are not being dealt with by governments or for-profit organizations. A host of new firms and institutions have been created that, with luck and good management, will provide the infrastructure and intermediaries of a philanthropic capital market and an efficient way for philanthropists to get their money to those “social entrepreneurs” and others who need it.

Still, there is no way to force philanthropists to adopt innovations, however desirable. The new rich have often made their money very fast, and get intoxicated with their own brilliance into thinking they can quickly achieve results in the nonprofit sector. They forget that their success may have been due to luck, and that the nonprofit sector may be far more complex than where they have come from.

This global elite—seeking to change the world by combining lots of money with new ideas, cutting-edge business techniques, media and marketing savvy, the mobilization of citizens, and helpful political connections—is bound to set alarm bells ringing in some quarters even as it spreads hope in others. Already George Soros, a famous hedge-fund philanthropist, has become embroiled in controversy over the role of some of the organizations he funds in various former communist countries as well as in America. And last year Bob Geldof, Bono’s philanthropist partner in rock activism, provoked demonstrations in Uganda when he suggested that the country’s president should not stand for re-election. Philanthropy seems sure to become an increasingly hot political potato.

Changing the Global Economic Landscape
Like many nonprofit organizations, SeedAmerica is keenly aware of how the changing global economic landscape affects businesses and communities. SeedAmerica (Supporting Economic and Entrepreneurial Development) is determined to strengthen American businesses and entrepreneurs through business education, business incubation and job creation in local communities. To accomplish this, SeedAmerica has adopted and mastered the practice of acquiring properties and using them along with grants and other donations to help create the right environment for entrepreneurs and small-business owners to flourish.

Social enterprise is not a new idea, but there is a new definition of philanthropy.  Over the past two decades, private, nonprofit organizations in the United States and elsewhere have become increasingly embedded in the market economy. As corporations go overseas to compete and become leaner at home, they find themselves with a vast number of underused buildings for which there is little demand. SeedAmerica works with corporations burdened with underused buildings with sometimes extremely high carrying costs.

Corporations convey title in exchange for receiving significant cash benefits in reduced taxes. The cash benefits are so great for the right kind of property that it usually outweighs a cash offer at the list price after you account for taxes and carrying costs on mostly depreciated properties. The advantage is that local entrepreneurs and local businesses gain inexpensive spaces in which to operate. Additionally, SeedAmerica helps entrepreneurs develop their business plans and teaches them the ins and outs of how to do business right. The local, state and federal governments along with communities preserve and increase tax bases and jobs. Hence, underused buildings become “seeds” for American growth through SeedAmerica.

Not only do the corporations receive incredible cash benefits, but they also receive priceless intangibles, such as gaining back the trust of a community through SeedAmerica’s public relations campaigns for the corporations they work with even after shutting down its facility and laying off employees. To top it off, corporations are able to focus on their core business and not managing a headache—which again leads to more economic productivity both for the corporation and America.

All this is done through the 561 Exchange Program, also known as RIM Exchange. The 561 Exchange Program is an IRS-approved transaction using IRS publication 561 that allows property owners to convey title in exchange for a substantial cash benefit that exceeds the cash benefit attained by selling a property at list price if the owner has certain tax liabilities and has a certain amount of carrying costs. The process is very quick and simple—usually less than 45 days.

In order to have a successful 561 Exchange transaction, you need three ingredients: the right property—usually, but not always, 50,000 square feet or more—of industrial, warehousing, office or special property; the right seller (if the seller does not have a tax liability then it will not work); and the right buyer—a nonprofit, tax-exempt organization that specializes in 561 Exchange transactions, like SeedAmerica.

ConAgra Foods, FMC Technologies, Essex Electric, the Pritzker family (owner of the Hyatt Hotels), McQuay International, Chapel-Thorpe, GEM and Kaydon Corporation are just some of the companies that have used the 561 Exchange program with SeedAmerica.  

The 561 Exchange has provided these corporations great tangible and intangible benefits by getting an immediate and significant cash benefit, eliminating expensive carrying costs, giving back to the community, and having a great PR campaign, while getting rid of a management headache so these corporations focus on what they do best.

But the best part is that the property becomes the “seed” for economic and entrepreneurial growth in each local community. Some properties go through environmental cleanup, while others become small-business incubators, and others help fund the business educational programs of SeedAmerica—all helping our country to stay competitive while corporations focus on boosting profits, helping the community through small business enterprise and cleaning up the environment. The corporate world benefits; the local, state and federal governments benefit; and most importantly, the local community benefits.

It’s no wonder that thousands of 561 Exchange transactions have occurred in recent years, making the 561 Exchange the hottest trend in the corporate real estate world.

There Are So Many People In Need

We tend to live in our own little worlds and fail to see the need all around us. It is there. If we look long and hard enough, we will see it. If we care to think about it, we will realize that everybody can do something that makes a difference. Everybody has talents that could help someone else. Still, lots of people are afraid to volunteer. They think that getting involved is a slippery slope: The next thing they know, they will have to sell their possessions and become another Gandhi. It is true; we do have to set limits. We have to be honest about how much time we can really commit. The important thing is to have realistic expectations about what we can and cannot accomplish, and to be honest about those expectations.

To create real change in this world, we have to have a vision. We have to have enormous perseverance. Giving away money has never been so fashionable among the rich and famous, especially when so many benefit. The rich seem to be trying to figure out a moral biography of wealth, and philanthropy provides a large part of the purposeful side of living the good life. Abraham Maslow’s hierarchy of needs described the highest need as a desire for purpose beyond ourselves. Bill Gates already has handed over billions of dollars to the Bill and Melinda Gates Foundation, mostly to tackle the health problems of the world’s poor. The next generation of technology leaders is already following his example.

Pierre Omidyar, the founder of eBay, and Jeff Skoll, the auction site’s first chief executive, are each putting their billions to work to “make the world a better place.” The founders of Google, Sergey Brin and Larry Page, have committed a large slice of the search engine’s equity and profits to Google.org, a philanthropic arm of Google that ambitiously applies innovation and significant resources to the largest of the world’s problems.

The new enthusiasm for philanthropy is in large part a consequence of the rapid wealth creation of recent years, and its uneven distribution. Forbes claims there are 691 billionaires in the world; half of them are self-made. This extra wealth is creating huge new opportunities for philanthropy. Faced with the world’s many and urgent problems, a lot of wealthy people are asking themselves, “If I can help, why not?” They have been fortunate, and want to give something back.

It may be hard to tell whether some of the new wealthy feel guilty, but many of them seem to think that philanthropy is part of a social contract: both a duty and an insurance policy against populist redistribution. They believe they should be socially responsible because they are obligated to do so.

We do not have to be the Bill and Melinda Gates Foundation to make a meaningful difference. Giving USA says that charitable giving in America is increasing. Even Congress, together with the IRS, has given property owners another reason to be more giving through the great tax benefits of the 561 Exchange program.

People everywhere want to make a difference, and now corporations are joining in. But we do need to know that our time and money are going toward something worthwhile. It is not just writing a check. It means devoting time and skills to really do something. With all of the cuts in government services, it is up to us to work together to improve other people’s lives. Fundamentally, we are social beings. Our nature calls us to connect deeply to our community and to find larger meaning in what we do. Community makes life fun and meaningful. It brings depth to our lives and enriches our most intimate relationships. In that way, making a contribution becomes a mutual exchange rather than a one-way transaction.

Philanthropy Is Good For Business
“ You can do well by doing good” is SeedAmerica’s motto. We can indeed do good and do well at the same time. For one thing, we will differentiate ourselves from the competition: Down the road, clients might choose us over another company because they appreciate that we are good neighbors. In this market, where everyone is competing for staff, we have to be able to offer people more than just good wages and benefits. Showing that we truly care about the community is an effective way to do that.

A secondary motive may be the desire to take advantage of the many tax incentives and other fixes that can make a wealthy corporation look virtuous at an appealingly low cost or no cost at all, depending on a property’s carrying costs. America has the most generous treatment of charitable giving, allowing taxpayers and corporations to deduct their donations from their taxable income. But just as the world’s wealthy and powerful corporations are discovering the joys of giving, most people seem to agree that philanthropic motivation is beside the point. The act of giving and the effectiveness of that giving are what really matters. But if you can do well by doing good, you get the best of both worlds.

Dennis Walsh is a communications specialist focusing on renewable energy, social entrepreneurship and green philanthropy. He is the editor of America’s GreenHouse, a renewable energy newsletter, and the increasingly popular Green Philanthropy blog.


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