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COMMENTARY: Making A Difference By Creating Charitable Foundations

Making A Difference By Creating Charitable Foundations

Frank Foster

What can the business community do to address the funding shortage local charities are suddenly facing this holiday season, and may face in the future?

Charitable organizations are reporting many of their usual donors are not able to give because of the economic downturn, or have chosen to donate their contributions to funds dedicated to assisting victims of the recent terrorist attacks. While we take pride in the way our nation has rallied to support fellow citizens impacted by tragedy, the current funding shortfall serves to underscore a weakness in how many companies organize their giving efforts.

This weakness could be overcome if more companies established charitable foundations. Now, you may be thinking, charitable foundations are for big givers, like Bill Gates or the Ford Motor Co. This is simply not the case. Fieldstone Communities is a mid-sized residential homebuilder. We established The Fieldstone Foundation in 1983, right in the middle of a recession. I believe this foundation has enabled us to make a difference in the communities where we build.

Facilitates Consistent Giving

Many companies and individuals donate money out of a deeply felt moral responsibility to give back to the communities in which they operate. Not surprisingly, a lot of philanthropic giving takes place at the end of the year when companies assess their profitability and, therefore, their ability to give.

Unfortunately, when the economy is weak, there is often a dip in charitable giving at a time when charities need our support the most. A foundation establishes consistent giving procedures to help in good and lean economic times.

Here’s how it works. To start, a company determines what amount they would like to contribute to the foundation. An excellent method of doing this is by establishing a formula based on profits. A certain percentage of the foundation’s cumulative endowment is subsequently dispersed annually (a foundation is required to give away at least 5 percent of its assets every year.)

In times of plenty, the foundation’s endowment may grow substantially. However, if there is a later downturn in the business cycle, the foundation can still draw upon its endowment so that its ability to fund selected charities will not be impacted.

One of the great advantages of this process is that it allows a company to maintain a consistent community investment strategy, year after year, in areas where they do business. For example, during the recession of the early 1990s, we were unable to contribute to the foundation for five years in a row. Since it had built up an endowment, it was able to continue giving during that time.

Another important benefit of this system is that it addresses challenges during times of crisis. A foundation’s endowment makes it possible to support special causes , like United Way’s September 11th Fund , without sacrificing contributions to important local organizations. This can be done through a special disbursement from the foundation, or a separate contribution from the company itself.

Foundations Make A Difference

Within many companies, charitable giving is not an organized process, but a reaction to formal and informal requests for donations. Say someone at the company receives a mailing to buy a table at a fund-raising dinner or support a local sports team. It’s easy to write a check for $250 here and $1,000 there, and find the company’s charitable-giving budget is used up all too quickly.

Ideally, a company’s goal should be more than simply to make donations. Ideally, its goal should be to make a difference. Making a real difference means investing money wisely.

It means taking the time to understand the root causes of local social problems and researching those organizations that are most effective in addressing those causes. It also means carefully evaluating a wide range of worthy causes and selecting those that are of particular interest to the company’s personnel.

Establishing a charitable foundation takes a commitment of personnel as well as financial resources. We decided to dedicate people to work exclusively on charitable giving. An executive director is responsible for determining how each donated dollar can have the greatest impact.

There are other ways to manage a foundation. Many corporate foundations are managed by small committees of cross-functional groups who administer giving based on input from employees or follow corporate-giving guidelines.

Through a foundation, a company is able to adopt a specific social mission, define target goals and measure its success in improving community problems. In other words, the same principles a company employs to achieve financial success can be applied to its philanthropic efforts.

Right For Your Firm?

Small and mid-sized companies can, and do, make a difference through charitable foundations. There are a number of organizations nationwide that can assist with setting up a foundation, regardless of the size of a company.

Helpful organizations include the Council on Foundations, based in Washington, D.C., (www.cof.org) as well as the Regional Associations of Grant Makers (www.rag.org). I encourage every company to take the time to learn whether this is a viable option for them. I believe a company can leave no more important legacy than to make a difference, and improve the quality of life, for those living in the communities they serve.

Foster is the president and CEO of Fieldstone Communities, Inc.

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