Becoming a Good Corporate Citizen

for board members Feb 23, 2021

Whether your business is a sole proprietorship, a partnership, an LLC, a C Corporation, or a B Corporation, you can benefit by becoming a good “corporate citizen.” What does this mean? Supporting your community, financially, with your time, and with your talent.

If you are a small business owner, you might think, “I cannot afford to support my community’s nonprofits; let the big guys do that.” Or, “What difference can I make with a small contribution.” Or, even, “There are so many nonprofits all asking for my money, how do I choose the right ones to support?”

One fact that surprises many people, both nonprofits and business leaders, is that smaller nonprofits are actually more generous than large corporations. Fortune 100 companies give approximately 10 percent of their gross profits to charities—all businesses combined give approximately 13 percent of their gross profits.

Why Your Business Should Support the Nonprofit Community

The nonprofit community is often called the third sector, because it fills a role that neither government nor business fills. Nonprofits provide education, health care, human services. They support arts and culture, research, and advocacy for those who cannot advocate for themselves. Without the third sector, these tasks would fall to the government, and would be paid for with taxes from individuals and/or businesses. So yes, financially, it makes sense to have a third sector. But there is more to it than that. The nonprofit community provides services to make our communities better places to live and work.

Nonprofits have an economic impact on our society as well. Though many people are not aware of it, the nonprofit community is an enormous contributor to the American economy: It provides 5.5 percent of the nation's entire GDP or $805 billion worth of output.

Nonprofits employ nearly fourteen million individuals, or approximately 10 percent of the country's workforce. In addition, according to 2010 national data from the Corporation for National and Community Service, 62.7 million volunteers contributed 8.1 billion hours of service produced an estimated value of $173 billion. (More about nonprofit volunteer opportunities in a future issue)

Where Do Nonprofits Get the Financial Resources to Provide These Much Needed Programs?

Although many people think corporations and foundations provide a lot of support to nonprofits, surprisingly, about 80 percent of all philanthropic dollars in the United States come from individuals—your employees, your clients, and you!

The corporate sector typically provides about 5 percent of philanthropic dollars given to charities. Could we be doing more? Yes. But of course, the purpose of business is to make money for stockholders or owners. No one expects your business to “give until it hurts.” But being supportive of your nonprofit community can help your business as well as your community, your customers, and your employees.

How to Choose the Right Charity to Support

In recent years, we have seen the very best and, at times, the worst face of philanthropy, making us more aware than ever of financial abuse, misuse, and fraud on the part of charities and nonprofit organizations.  Many businesses are more reluctant than ever to donate time, talent, and treasure to the many nonprofit organizations that truly need and deserve help.  It becomes increasingly difficult for donors and volunteers to decide which organizations deserve their support and which ones will use their gifts wisely.

How do you select from among the many charities that ask for your money?  By what criteria can you judge if your money is being used wisely?

A good rule of thumb to follow, when evaluating a charitable request, is to follow the Donor Bill of Rights.  The Bills of Rights was developed by the Association of Fundraising Professionals (AFP) and numerous other associations representing the nonprofit sector have adopted it.  Some key points that can help you make educated decisions about philanthropic giving follow.

Mission

Does the organization have a clear mission statement that is articulated to the public? Is this mission one for which you have a passion? Is it clear what this organization does? Many organizations have similar names and some, unfortunately, purposely choose a name similar to a well-established, reputable charity in order to defraud the public. You need to understand who the organization is and what it does before getting out your checkbook.

Leadership

You have a right to be informed about the people who provide leadership and governance of the organization. Is the board of directors comprised of community leaders that are known and respected?  Is the board qualified to govern the organization and assure that it fulfills its mission? Do the members of the board have term limits, and how long have they served on the board? Who are the leaders of the organization; do they have the credentials required in the field in which they operate? You should look for a list of the board and executive staff on the letterhead, annual report, or other written materials of the organizations.  You should also ask to see copies of the annual report to see if the board members are listed as donors.

Financial Information

In many states, most nonprofits are required to register with the Secretary of State Charitable Organizations Division (or similar authority) before they can raise money from that state’s citizens. This rule is true regardless of where the charity is based, so solicitations from all organizations that are required to register must contain a written disclaimer that directs potential donors to the Secretary of State for more information about the charity’s financial statements.  If you have concerns about a registered charity, contact your state’s charitable division and ask for the financial reports. Most 990 forms (the tax return required to be completed by most nonprofit organizations) are available on the Internet through the Guidestar website—www.guidestar.org.  The 990 forms will list income and expenses of the charity including fundraising expenses.

Acknowledgment & Recognition

The Donor Bill of Rights also states that donors are entitled to proper acknowledgment and recognition for gifts to charities and that they have a right to remain anonymous if they choose to do so.  Charities are also required by the IRS to tell the donor the Fair Market Value of any substantial goods or services received in exchange for a donation. For instance, purchases at charity auction are not tax deductible because the donor has received goods equal to the value of their “contribution” to the charity.

So How Do You Decide Where to Spend Your Time, Talent, and Treasure?

First of all, be informed—follow news stories about local and national charities, ask the organization’s leadership to provide information about the charity before making gift.  Read the materials the organization publishes, such as annual reports, brochures, website, etc.  Talk to board members of the organization. Talk to others who donate to this organization. If there are doubts about the legitimacy of a charity, call your Secretary of State or check their website to see if the charity is registered. Ask if the person soliciting you is a volunteer or paid solicitor.  Fundraisers who are members of AFP also subscribe to a code of ethics that, among other things, prohibits them from receiving a percentage-based compensation.  Many statewide associations of nonprofits also offer a program called Standards of Excellence, which grants a “seal of approval” to nonprofit organizations who have met rigid criteria covering financial, fundraising, personnel, ethics and program areas.  Looking for the Standards of Excellence approval on charities that are asking you to donate is another way of assuring that you are contributing to a legitimate charity.

Test the organization—many donors give small gifts to an organization first and track how the organization acknowledges and recognizes their gift before making a more substantial gift. Getting involved as a volunteer, sharing talents and time, before making a gift, is also a good way to discover if the organization is one for which you feel a real passion.

Focus on the positive aspects of philanthropy—a gift to charity can make a real difference in the life of a child, a family, or a community.  And can help your business, your employees, and your customers.

So…give, but give wisely.

This article is not meant to provide tax or legal advice; please consult your tax advisor before making a charitable gift.

To learn more about giving to charity, and choosing the right charity for board service, take my course, Be the Best Board Member You Can Be. Sign up here

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