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+MEASURING THE VALUE OF CORPORATE PHILANTHROPY: SOCIAL IMPACT, BUSINESS BENEFITS, AND INVESTOR RETURNS
+by
+Terence Lim, Ph.D.
+Report Author and Manager, Standards and Measurement,
+Committee Encouraging Corporate Philanthropy
+(through the 2008–2009 Goldman Sachs Public Service Program)
+
+How to measure the value and results of corporate philanthropy remains
+one of corporate giving professionals’ greatest challenges. Social and
+business benefits are often long-term or intangible, which make
+systematic measurement complex. And yet: Corporate philanthropy faces
+increasing pressures to show it is as strategic,cost-effective, and value-enhancing
+as possible. The industry faces a critical need to assess current practices and
+measurement trends, clarify the demands practitioners face for impact evidence,
+and identify the most promising steps forward in order to make progress on these
+challenges.
+
+This report aims to meet that need, by providing the corporate
+philanthropic community with a review of recent measurement studies, models,
+and evidence drawn from complementary business disciplines as well as the social
+sector. Rather than present an other compendium of narrative accounts and case
+studies, we endeavor to generalize the most valuable concepts and to recognize
+the strengths and limitations of various measurement approaches. In conjunction
+with the annotated references that follow, the analysis herein should provide an
+excellent starting point for companies wishing to adapt current methodologies in
+the field to their own corporate giving programs.
+To realize meaningful benefits, philanthropy cannot be treated as just
+another "check in the box," but rather must be executed no less professionally,
+proactively, and strategically than other core business activities. Our hope is
+that this work will enlighten giving professionals, CEOs, and the investor
+community to the many mechanisms by which philanthropic investments can
+be measured and managed to achieve long-term business value and meet
+critical societal needs.
+
+# Introduction
+
+Corporate philanthropy is as vital as ever to business and society but it
+faces steep pressures to demonstrate that it is also cost effective
+and aligned with corporate needs. Indeed many corporate giving
+professionals cite measurement as their primary management challenge.
+Social and business benefits are often long-term, intangible or both
+and a systematic measurement of these results can be complex. Social
+change takes time. The missions and intervention strategies involved
+are diverse. For these reasons, the field of corporate philanthropy has
+been unable to determine a shared definition or method of measurement
+for social impact. Similarly, the financial value of enhancing
+intangibles such as a company's reputational and human capital cannot
+be measured directly and may not be converted into tangible bottom
+line profits in the near term. Corporate givers and grant recipients
+often useless formal anecdotal methods to convey impact. While stories
+may vitalize and publicize a program's successes, it is more systematic
+measurement that brings rigor and discipline to the field. Data-based
+evidence quantifies the positive effects of corporate philanthropy
+thus making a more persuasive case for why companies should engage in
+philanthropic causes. If corporate philanthropy is to make progress in
+meeting these challenges, the industry must meaningfully assess current
+practices and measurement trends, clarify precisely what is needed in
+terms of impact evidence and then identify the most promising and
+practical steps forward. This report is designed to aid that critical
+agenda. Interviews with senior corporate management and giving
+professionals revealed a set of common questions they often face. These
+questions fall naturally into a hierarchy of three conversations:
+
+1. CONVERSATION ONE: Between grant recipients and their corporate funder's
+Chief Giving Officer (CGO). The funder wants to know
+- How to assess whether grantees are achieving the intended results and
+- How to estimate a return on investment ROI numeric for comparing and or
+aggregating the effectiveness across different grants in achieving
+social results
+
+2. CONVERSATION TWO: Between the CGO and Chief Executive
+Officer (CEO).
+- When pressing the CEO for significant commitment to
+philanthropic programs the CGO is often asked to articulate a
+business case and demonstrate how supporting the philanthropic
+initiative will be valuable to business.
+
+3. CONVERSATION THREE: Between the CEO and the investor community.
+- Investors want assurance that spending
+on corporate philanthropy enhances or at least does not diminish
+shareholder value
+- Concurrently a growing number of investors ask that
+the companies in which they invest demonstrate greater philanthropic
+leadership and social responsibility
+
+Indeed investors increasingly
+esteem companies that demonstrate strong social performance believing
+that this represents management quality and valuable intangibles. The
+ability to attract a large base of investors lowers costs of capital
+and raises share price valuations which in turn should incentivize
+companies to cultivate sustainable philanthropic programs that meet
+society's critical needs. The question is: How?
+Advanced by sophisticated
+private foundations and governmental agencies, a wide range of impact
+assessment methodologies already exists in the social sector. This
+report examine show some of these methodologies maybe applied to the
+specific needs and motivations of corporate giver's programs and
+grants. A wide review of academic and industry literature on the link
+between corporate social performance and financial performance
+reinforces the idea that philanthropic initiatives create long-term
+financial value by enhancing a company's employee engagement customer
+loyalty reputational capital and market opportunities. But these
+benefits accrue as intangible assets rather than as short-term cash
+flows and thus are more complex to measure. Moreover the mechanisms
+involved have not yet been well researched and understood. Consequently
+some companies pay little attention to assessing philanthropy's
+financial returns. Their engagement is primarily motivated by wanting
+to meet community obligations and do the right thing. By analyzing
+complementary disciplines such as human resources, marketing, risk
+management and capital budgeting, corporate philanthropy
+can improve its measurement methods and identify long term financial
+benefits. The next three parts of this report present in greater detail
+the conversations summarized above along with our analyses thereof.
+The last section presents conclusions as well as recommendations for
+how industry members might best proceed. An extensive glossary
+references and annotated bibliography follow.
+
+
+# CONVERSATION ONE: Between grant recipients and the Chief Giving Officer (CGO)
+
+The nonprofit sector employs abroad range of frameworks tools
+and methodologies to measure the social impact of programs and grants.
+Many of these approaches have evolved through application by
+sophisticated private foundations and government agencies, reflecting
+these organizations own unique preferences priorities and social
+values. Companies are encouraged to assess whether these approaches can
+be applied to corporate giving programs. Corporate givers generally
+demonstrate two types of philanthropic motivation. The first is a
+response to community obligations and may characterize an employee or
+community directed grant or volunteer program not necessarily aligned
+with any strategic giving objective. The second motivation seeks to
+define and differentiate the company through large visible signature
+programs that tackle critical issues perhaps even on a global scale.
+These programs typically involve the approval and engagement of senior
+executives multi-year partnerships with nonprofit organizations and in
+addition to cash, non-cash contributions such as in-kind products and
+access to company expertise, training and connections. When evaluating
+grant requests or designing signature programs corporate funders
+seek to engage nonprofit partners in developing more systematic ways
+to assess whether the intended results are being achieved and how
+effectiveness across multiple grants can be aggregated and compared. 
+
+Financial statements are expressed in common and
+objective monetary units but social results are
+much more varied, subjective and abstract. A review
+of measurement methodologies did not turn up a silver bullet or single numeric and
+learning from data against which performance can be and evidence over
+time universally gauged. Rather this reading reinforced the notion that
+to an extent measurement is its own reward. It encourages improvement
+management and the explicit formulation of assumptions and
+expectations. Measurement should be viewed as a process whereby the
+greatest value is achieved through organizations building up and
+learning from data and evidence overtime.
+
+## Question 1: How to assess whether grantees are achieving intended results.
+
+The most basic forms
+of performance metrics comprise two categories: These are activities
+such as the number of staff trained or amount of goods purchased and
+outputs such as the number of clients served products distributed and
+areas reached. With respect to giving programs comprising primarily
+short term one-off grants driven by community obligations, simply
+identifying activities and measuring output maybe all that is feasible.
+However output and activity metrics alone cannot indicate that
+positive societal changes are being achieved or if unintended harm is
+being caused. In the case of program initiatives such as signature
+projects companies share a strong connection with the cause and are
+concerned about the social outcomes of their efforts. Managers of these
+programs and their nonprofit partners must articulate the process by
+which changes and results are expected to occur. They should outline
+clearly how success is defined and track whether and how the programs
+are affecting their beneficiaries. Jeffrey Brach, Thomas Tierney and
+Nan Stone (2008) of The Bridgespan Group address how nonprofit
+organizations can meet the mounting pressures they face from funders
+to demonstrate the effectiveness of their programs. They
+recount cases of several successful
+nonprofits journey from aspirations to impact and suggest that
+nonprofit and program leaders rigorously answer the following
+interdependent questions
+
+1. What are the results for which we will hold
+ourselves accountable
+
+2. How will we achieve them
+
+3. What will they really cost
+
+4. How do we build the organization we need to deliver
+these results.
+
+The classic article by John Sawhill and David
+Williamson (2001) of The Nature Conservancy provides another
+constructive account of the journey of a nonprofit organization toward
+developing its model for assessing mission success. For decades, The
+Nature Conservancy had measured advancement toward its goal conserving
+biodiversity by protecting the land and water that rare species need
+to survive by adding up the value of all charitable donations received
+and land acreage acquired. These indicators, known as bucks and acres,
+"enjoyed strong organizational support and quite frankly made us look
+good" according to Sawhill and Williamson, but there lurked a nagging
+question as to whether these input and output metrics represented
+actual progress. The Conservancy decided then to develop a new
+measurement system the centerpiece of which was a list of 98 leading
+indicators of state program performance. However when the Conservancy
+tried to implement a pilot test it collapsed under its own weight.
+Field staff and managers complained about the laborious record keeping
+and glut of information; moreover, they had no way of judging which
+measures were most important and felt that the system was biased
+against smaller resource poor programs. Lessons the Conservancy took
+away from this experience include
+
+1. Links among the mission programs and measures must be clearly
+defined and articulated in order to narrow the number of required
+indicators.
+
+2. The measures should be easily collectible and communicable.
+
+3. The measures should be strategically designed and applicable across
+the organization at all levels while also encouraging of operating
+units to focus on high level strategies.
+
+4. Above all the measures must address progress toward
+the mission and illustrate whether and how the organization's actions
+make a difference.
+
+The Conservancy settled
+on two impact measures that it believed could serve as surrogates for
+mission success: biodiversity health and threat abatement. The first was
+straightforward and could be assessed through regular evaluation of
+the organisms the Conservancy was trying to protect using existing
+scientific surveys as a point of comparison/ The second measure, which
+had to account for the inconsistent nature of biodiversity health and
+threats, assessed the extent to which the Conservancy identified and
+devised strategies to abate critical threats at each site. Grantees,
+nonprofit partners and corporate philanthropic programs are more
+likely to be successful if they address these questions at the outset.
+Developing a theory of change and explaining how the program will
+achieve its intended impact are critical components of this
+preparatory work. To consider a specific example: The use of bed nets
+helps reduce the transmission of malaria in endemic communities and
+Figure 1 illustrates a theory of change often also called a logic
+model for bed net distribution programs commonly applied in malaria
+prevention work
+
+Figure 1 Logic Model of Bed net Distribution Program
+for Malaria Prevention Source. Adapted from McLaughlin C Levy J Noonan
+K Ros que ta K February 2009
+
+To further clarify the language of measurement
+outcomes are those benefits or changes realized
+as a direct result of a program's activities and
+other outputs, while impact refers to long term
+results and ultimate social value. Ideally one could measure along the
+entire chain of results from initial activities through intermediate
+outcomes to final impact and prove that the program directly resulted
+in the changes observed. In practice, however, the rigorous evaluation of
+impact is complicated twofold. First it often takes along time before
+final impact can be observed and this involves a lengthy measurement
+process. Second one must establish statistically validated causality
+between services and observed impact in order to prove without doubt
+that the program in question is responsible. To gauge a grant s success
+corporate funders may use other assessment approaches that may be
+less precise but more timely and practical. Ranked from most to least
+precise common measurement approaches can be grouped into three
+categories.
+
+1. Formal impact evaluations: Commissioning formal program
+studies is often the only way to measure and prove the impact arising
+from a grant Many such impact studies are expensive and rigid
+requiring significant data and a control group, i.e. of participants who
+do not receive the program s treatments to be statistically reliable
+
+2. Outcomes measurement systems: Measuring intermediate outcome metrics
+maybe a practical alternative to formal impact evaluations. Monitoring
+near term outcomes can identify opportunities for mid-stream
+improvements. Applying the models and results of other already existing
+studies can project impact. Definitive causation and attribution are
+not formally proved but evidence from other similar treatments maybe
+sufficient to establish that a reasonable link exists between the
+measured outcomes and ultimate impact.
+
+3. Assessment of the organization's impact achievement potential:
+With respect to some grants corporate funders may choose not to
+be involved in the design or management of
+the program or measurement process relying instead entirely on the
+grantee organization's own metrics data and standards.
+
+In the social sector, evaluation experts have proposed standardized criteria for
+assessing an organization's
+potential for achieving measurable and improvable impact. Such
+assessment can increase confidence among funders that a nonprofit is
+effecting positive change according to its claims. High performing
+characteristics include capable leadership, clear objectives, diligent
+quality-data collection and analysis and the informed adjustment of
+processes to improve.
+
+Figure 2 Characteristics of Three Measurement Approaches.
+Measurement Approach.  Formal Impact Evaluation. Outcomes Measurement.
+Impact-Achievement Potential Assessment.
+
+What outcome metrics are measured? Long-term impact as well as
+intermediate outcomes. Intermediate outcomes. Outcome and/or output
+metrics, which rely upon the grantee organization’s own theory of
+change and measurement standards (funder assesses the organization’s
+potential to achieve impact according to its claims).
+
+How are outcome metrics designed and tracked? Draws from knowledge and
+experience of third-party domain-area experts engaged to collect
+(and/or supervise the collection of) data and then to conduct
+evaluation analysis. The corporate funder Self-reported by grantee
+participates in designing organization.  the program and its
+measurement process, partnering with grantee organizations. Domain-
+area experts may be consulted. Data is collected and analyzed in-
+house by the grantee with the corporate partner’s technological and/or
+management assistance.
+
+How is impact measured? Long-term impact results are measured and
+attributed. May be estimated by applying a model based on assumptions
+or other evidence about the expected effectiveness of the
+intervention. Estimates or actual measures of impact may be available
+from grantee’s measurement process.
+
+What serves as the counter- factual comparison?  (i.e., evidence of
+what would occur if not for the program) Typically, a comparison group
+is tracked, often using rigorous experimental design techniques such
+as Randomized Control Trials (RCTs). Externally collected national or
+regional datasets can be used to calculate comparison benchmarks with
+similar characteristics as the target groups. Grantee organization’s
+own research may provide comparable measures and demographics from
+external publications to proxy as benchmarks.
+
+To which programs should the approach be applied? 1. Reasonably mature
+programs that represent an innovative solution and wherein the funder
+and/or grantee seeks to prove to other funders or NGOs that it should
+be scaled-up. 1. Programs wherein the funder is involved in the
+program’s design and management and shares responsibility for its
+success. 1. Start-up programs in their early stages of maturity and
+stability.  2. Programs wherein the cost and risk of failure is high
+(e.g., those with highly vulnerable beneficiaries).  9 2. Programs
+wherein funders and grantees desire frequent and early indicators in
+order to make real-time adjustments to interventions and strategy.
+2. Programs wherein the funder is not involved in the program’s design
+or management.
+
+
+Choosing which approach or combination of
+approaches to adopt depends partly on how much confidence funders
+require in measurement precision and data quality.
+
+- The rigor of formal evaluation places the greatest demand on the
+quality of underlying data. It also requires the most time If grant
+makers need to make timely decisions it maybe more practical to choose
+and measure a proximate set of nearer term outcome indicators believed
+to be predictors of ultimate impact.
+
+- Programs that are not yet mature or stable may not be ready for
+formal evaluation as their theory and implementation are still
+evolving. In evaluations treatments cannot be changed without
+invalidating the test while control group participants cannot receive
+the program s services.
+
+- Other evidence such as the social science literature may already
+prove that similar types of interventions work well in certain
+contexts. Regarding programs designed largely around evidence based
+processes outcomes measurement and or impact potential assessment can
+reasonably demonstrate that they are on track.
+
+- Existing national and regional datasets can be
+identified to construct reasonable comparison benchmarks in lieu of
+formal control groups. For example, an extensive collection of regional
+and worldwide statistics on the prevalence of obesity by age, gender,
+ethnicity and other population characteristics already exists and
+therefore can inform an assessment of programs addressing the obesity
+issue.
+
+- For programs wherein the corporate funder is actively involved
+in design and management, it is worthwhile to implement outcomes
+measurement systems, or conduct a formal impact evaluation study when
+the program becomes more mature.
+
+- If the risk and costs of failure are
+high such as when beneficiaries are very vulnerable and the program
+untested a formal evaluation may make sense to ensure the program is
+not causing unintended harm.
+
+- When a program is innovative and stable and the funder is seeking to attract
+other funders or Non-Governmental Organizations (NGOs) in order to
+replicate or expand it it maybe time to generate independent proof and
+attribution as well as to measure the program s broader effects
+through formal evaluation.
+
+Figure 3 suggests a decision making map
+whereby program managers may choose the best measurement approach for
+them. Here the choice can be seen as depending on the motivation
+forgiving and on the confidence needed in the precision of results and
+quality of data.
+
+Figure 3 Measurement Approaches and Motivation for
+Grant.
+
+### Impact evaluation
+
+Formal impact evaluations seek to measure evaluation points along the
+result chain and prove whether the program under review has been
+effectual. Independent evaluators who possess domain and analytical
+expertise are usually engaged as they bring unbiased knowledge and
+credibility to the analysis. An evaluator designs the methodology
+forgathering and analyzing data taking into consideration factors such
+as sample sizes potential biases and how to establish a control group.
+Once implemented, the program collects data until a sufficient sample
+size has accumulated. Then sophisticated statistical tools analyze the
+data for evidence of attribution. Finally an evaluation report is drawn
+up and presented to stakeholders. The detailed quantitative analysis
+contained there in is designed to satisfy a high burden of statistical
+proof proof of positive impact in the treatment group and that is not
+found in the control group.
+
+Because formal evaluations employ the
+highest level of precision and rigor as well as the engagement of a
+credible external evaluator, they can be relatively lengthy, costly
+and/or complex. Planning and budgeting in advance is imperative. At the
+same time, formal evaluations are inherently retrospective, to an extent;
+after all results cannot be reasonably anticipated until a program is
+underway and often not confirmed until completion or long thereafter.
+Evaluations can be disagreeably rigid in many situations because there
+is little room if any for mid course methodology adjustment which
+could invalidate the data already collected.
+
+Formal evaluations remain a staple of the social sector when program
+effectiveness must be demonstrated meticulously. Requiring program
+stability and a high quality of data formal evaluations are more
+suited to mature programs.  Funders and grantees should discuss at the
+outset whether the evaluation's potential benefits will justify the
+expenditure of resources involved. Programs that strategically and
+innovatively address a social issue are good candidates for
+independent evaluations, because the evaluation can prove attribution
+and credibly demonstrate to additional funders or NGOs that the
+programs are worth replicating or expanding. Also good candidates are
+programs whose cost and risk of failure are high, such as when the
+targeted beneficiaries are extremely vulnerable. In such cases
+negative results that discourage continuing the program are of equal
+or even greater informational value than positive ones.
+
+### Outcomes measurement
+
+Outcomes measurement approaches track
+intermediate changes that are linked to ultimate impact. One example of
+the social sector's progress with this approach is United Way of
+America, which emphasizes the importance of outcomes and provides its
+own local chapters with advice summarized in a guidebook entitled
+"Measuring Program Outcomes: A Practical Approach and Focusing on
+Outcome". Another approach has been jointly developed by The Urban
+Institute and The Center for What Works (December 2006) to assist
+nonprofit organizations in developing new outcomes monitoring
+processes and or improving their existing systems. This approach
+consists of a general framework for identifying common outcome
+indicators and sector specific metrics applicable to fourteen program
+areas. Although outcomes measurement encourages a focus on results, this
+approach alone cannot declare definitively whether a program is
+actually effecting change. Outcomes measurement may involve before and
+after measurement techniques but not the randomized designs or control
+groups needed as counterfactual comparisons for formal proofs. Still
+whether the program is achieving its intended results can be
+determined to an extent according to the following logic:
+
+1. Existing national and regional datasets can serve as reasonable
+comparison benchmarks.
+
+2. Related evaluation studies or social science research
+offer corroborating evidence.
+
+3. There already exists a considerable
+amount of confidence in the quality of the program's theory of change.
+
+4. The measured data align with judgments suggested by close knowledge
+of the grantee and interactions with the program s beneficiaries.
+
+Outcomes measurement may generate information on a quarterly or more
+frequent basis thus providing funders and grantees with almost real
+time information about the project's progress. Used as part of
+performance management, this approach allows grantees to make mid-
+stream improvements to their intervention based on the latest data.
+Often results are managed in a kind of dashboard, e.g. an array of
+charts depicting the project's performance according to a variety of metrics over time
+and relative to targets. Giving even more
+structure to the process some performance
+management systems integrate quality
+control concepts already established by business management:
+these include the company wide experience
+"Balanced Scorecard" and "Six Sigma" in devising metrics principles.
+Corporate givers are especially apt to assist
+nonprofits in outcomes measurement because they
+can draw on drawing appropriate company wide experience in devising
+metrics, collecting data in a disciplined manner and drawing appropriate
+conclusions to recommend action.
+
+The specific logic model and performance metrics that should be
+implemented in an outcomes measurement approach are best developed
+jointly by the program's funder and grantees. The grantee
+organization knows its own infrastructure and local conditions and
+this knowledge is complemented by domain expertise and familiarity
+with the broader social sector. For the benefit of certain causes and
+strategies already well researched and evaluated NGOs research
+organizations and funders have collaborated to endorse a set of
+common core outcomes and impact metrics. Including the grantee in the
+process of devising a measurement framework contributes to a greater
+sense of partnership and leverages grantee domain expertise; sometimes
+grantees even take the lead in defining data collection and
+measurement design. Allowing the grantee this flexibility reduces the
+burden of responding to different funders who ask frequently for the
+same basic information. Moreover a partnership approach gives grantees
+a greater sense of ownership and makes their decision makers more
+likely to act on results. Throughout program implementation, the logic
+model maybe re-examined and modified based on the latest data
+available.  According to the W K Kellogg Foundation: "The process of
+developing a model is an iterative one. ... Gaps in activities expected
+outcomes and theoretical assumptions can be identified resulting in
+changes being made." As Sonal Shah, director of the White House Office of
+Social Innovation and Civic Participation, has said: "Just like business
+which sometimes needs to course correct nonprofits and social business
+should be able to course correct and
+make changes. They should only be considered a failure if they fail to
+correct the problem".
+
+Outcomes measurement tracks the social changes a
+program targets but the tracked metrics appear early along the results
+chain. To estimate ultimate impact, one can apply a model drawn from
+external evidence and adjusted to current local conditions pertaining
+to ultimate effectiveness. This external evidence includes quantitative
+data from prior studies and consultations with sector experts.
+
+To expand on the earlier example of bed net distribution for malaria
+prevention, Figure 4 outline show an estimate of impact results (e.g.
+number of child lives saved can be calculated by tracking a key
+outcome indicator). This indicator might be the additional number of
+children that now use bednets. Evaluators then make informed
+assumptions about the relevant demographics and anticipated
+effectiveness of treatment based on prior observations and studies
+adjusted for local conditions.
+
+Figure 4 Example of a Model for
+Estimating the Impact of Bed net Distribution Measure Estimate
+Estimate Estimate Estimate intermediate affected real world tool
+impact outcomes population conditions effectiveness. Change in x
+Predicted x Influence of x Protective Number of coverage number of
+human effect under child lives additional deaths and behavior ideal
+saved of children illnesses in conditions that use community bed nets
+from malaria e g 80 of x e g 13 5 1000 x e g bed nets x e g bed nets e
+g 3 5 1000 population rural children are used are 50 rural children
+use bed nets die each correctly effective saved after program year
+only 65 of when used the time correctly. Source: Adapted from McLaughlin
+C Levy J Noonan K Rosqueta K February 2009.
+
+### Assessing impact achievement potential.
+
+For grants in which the corporate funder is not
+involved in program design or management the funder may choose to
+rely on the grantees own measurement process standards and data. The
+funder typically asks grant ees to self report regularly on the
+following information:
+
+1. What results they are committed to achieve;
+
+2. What measurable evidence will be provided to verify success;
+
+3. What baseline results will serve as a point of comparison for the new data; and
+
+4. How the grantee will track results and adjust methodology mid-course.
+
+When results are
+self-reported, assessing impact achievement potential in a way that
+also measures general organization capabilities can increase funders
+confidence that the organization is achieving the outcomes it claims.
+As an example of standardized ratings criteria for assessing impact
+potential, the Alliance for Effective Social Investing has developed
+and proposed the Outcome Potential Assessment framework. Their
+framework assumes that regardless of what the nonprofit intends to
+achieve there are certain organizational characteristics that tell an
+investor whether the organization is likely to accomplish its goals.
+For instance, if an organization does not have a theory of change, or
+does not diligently collect quality data supporting its effectiveness,
+or does not use the data it does collect to improve the organization
+is unlikely to succeed. Using this framework, nonprofit organizations
+are rated according to their diligence and acumen in collecting
+interpreting and using data to improve services at the organizational
+level. Comparisons should be confined to organizations working toward
+comparable outcomes with similar
+populations. Charity Navigator, the largest charity evaluator in the
+country, is looking to adopt such an assessment framework so that
+its final ratings will not just evaluate a charity's financial
+performance but also take into account its potential to achieve
+intended outcomes. High impact potential organizations must invest in
+tools, training and operational resources needed for measurement.
+Corporate funders may rely on grantees own measurement processes
+but should also bear in mind that a quality measurement process is
+vital to achieving impact value and should always be budgeted at the
+source.
+
+Methodology for the Alliance for Effective Social Investing's
+Social Value Assessment Tool. To
+determine an organization s capacity and potential to deliver high
+social value, the Alliance for Effective Social Investing (2009) proposes
+that analysts use a Social Value Assessment Tool which comprises 26
+questions and scores organizations against six indicators:
+
+1. Diligence in collecting data;
+
+2. Possession of a clear set of outcomes and a logic
+model that together describe how the organization intends to achieve
+the desired outcomes;
+
+3. Relation of efforts outputs to outcomes to
+determine whether the organization's intervention is indeed producing
+the observed outcomes;
+
+4. Flexibility in adjusting the service approach
+given the latest data and changing circumstances;
+
+5. Substantiation of the
+value of the program through data collection and analysis;
+
+6. Capacity to
+deliver program services as they were designed.
+
+Source: Alliance for Effective Social Investing (2009).
+
+### Summary
+
+Activities and output metrics and targets are the most
+basic set of trackable performance measures/ In programs comprising
+short-term, one-off grants, activities and output metrics might very
+well be the only trackable measures. By themselves, however, output
+metrics offer little indication that social change is being achieved
+or unintended harm caused. The three measurement approaches outlined
+above summarize options for assessing the success of programs where in
+corporate givers are concerned about achieving social impact. Formal
+evaluations (approach 1) are the only way to prove rigorously that an
+impact is the result of an organization's efforts and therefore
+validates a logic model. Outcomes measurement (approach 2) focuses on
+nearer term changes that allow real-time adjustments to the
+intervention strategy and logic model in place, and provide indications
+that the program itself is causing the desired outcomes. Impact
+achievement potential assessment (approach 3_ helps to determine whether
+an organization has high-performing characteristics that will increase
+the likelihood that self-reported outcomes are being deliberately
+achieved. These three approaches are not necessarily exclusive; they can
+be combined. For example a young program may still be evolving
+strategically; its processes may not yet be stable enough to withstand
+outcomes measurement or formal impact assessment. The organization's
+potential for achieving impact should still be assessed, however, and as
+the program matures, it may become worthwhile to develop processes by
+which more precise measurement of actual impact may be applied as well.
+
+## Question 2: How to measure the return on social investment
+from grants and giving programs.
+
+Return on investment (ROI) is a highly favored business concept. Given a
+standardized ratio of financial benefits to costs, decision makers can
+gauge how well a project is performing overall, compare the project's
+efficiency to alternatives and even aggregate ROIs across multiple
+projects.
+
+There has also been enthusiasm particularly among
+sophisticated private foundations for applying ROI techniques to
+measure the social efficiency of philanthropic programs. In a study
+commissioned by the Bill Melinda Gates Foundation, Melinda Tuan (2008)
+performed a critical review of eight selected approaches for
+integrating cost into the measurement of social value creation, and
+noted that all of these different methodologies essentially reflected
+one concept: expected return. Expected Return = (Outcome or Benefit) times
+Probability of Success divided by Cost.
+
+A major difference among methodologies is
+whether benefits are monetized. Methodologies in which benefits are
+monetized are classically described as cost-benefit analysis.
+Methodologies in which benefits are not monetized are called cost-effectiveness
+analysis. Measurement ratios based on cost-effectiveness
+are easier to implement and require fewer data assumptions because
+they sidestep the challenge of having to convert different aspects of
+program benefits into common monetary units. However they can only
+account for one area of program impact at a time since impact for
+different program causes may be measured only in their programs'
+respective natural units (e.g. lives saved as in the bednet/malaria
+example).
+
+As for comparing and aggregating impact across multiple grants:
+A key challenge here is that diverse grants in dissimilar program
+areas seek different outcomes. Corporate givers who choose to focus
+high value grants to just one cause issue are likely to be able to
+quantify impact in a common natural unit and achieve measurable impact
+linked back to these grants. For programs such as these, cost-effectiveness
+analysis is most appropriate. By contrast, cost-benefit
+analyses assume that grant benefits can be monetized and therefore
+the analysis is potentially applicable to aggregating the value of
+grants applied to many different issues.
+But cost-benefit analysis makes greater demands on data, funders'
+assumptions and value judgments. Funders must collect the data needed
+to estimate monetary benefits arising from the program and,
+additionally, make many subjective judgments about the relative worth
+of the different social outcomes achieved by different program types.
+When corporate funders would prefer not to engage on this level (e.g.
+because they do not have the expertise to collect and calculate the
+necessary data or make the essential value judgments, or both) the only
+practical alternative maybe to aggregate common output units such as
+number of activities organized, products distributed or beneficiaries
+served.
+
+Figure 5 summarizes this decision framework for guiding the
+choice of measurement approach. The choice of ROI analysis, if any, to
+consider depends on the relative focus of the giving programs in
+question as well as on the expertise of the funders to calculate and
+use monetized benefits. The options themselves are discussed in more
+detail below.
+
+Figure 5. Approaches for Comparing and Aggregating Social
+Impact Results Across Corporate Grants.
+
+### Cost-effectiveness analysis.
+
+Cost-effectiveness analysis features the calculation of a ratio of
+costs (i.e. total contributions to the program) to a non-monetary benefit
+or outcome. In other words it indicates a project's bang-for-the-buck.
+Program impact is measured in natural units such as number of children
+graduated or beneficiaries' life-years saved. This comparative analysis
+requires programs to pursue the same domain
+area and hence will be more applicable to corporate
+giving programs that focus fewer high value grants on a single program
+area. One cost-effectiveness approach to calculating ROI is that of the
+Center for High Impact Philanthropy at the University of Pennsylvania
+The Center has been developing its cost per impact methodology since
+2006. The purpose of its analysis is to provide philanthropists with an
+answer to the question: "How much does change cost?: The example below
+features a project by the Children s Literacy Initiative (CLI) to train
+pre-kindergarten through third-grade teachers in effective literacy
+teaching techniques. 
+
+Methodology for University of Pennsylvania Center
+for High Impact Philanthropy's Cost per Impact.
+
+- Step 1. Project future cost or take actual cost from previous
+implementations. Example: Based on prior experience CLI estimated that
+teachers would need three years of training to effect sufficient
+change and lasting impact. The estimated cost to train twenty teachers
+for three years is 1000000
+
+- Step 2. Obtain empirical results from past implementations of the model
+and use those to project the impact of current implementation. Example:
+Based on national studies and prior experience, the Center and CLI
+estimated an average kindergarten teacher's tenure to be fourteen
+years. Since three of those years would be given over to training the
+average teacher, tenure post-training would be eleven years (14 minus 3).
+In an evaluation performed in White Plains NY, 49 of kindergarten
+students met literacy benchmarks before the CLI training was provided
+to teachers. Post training. the proportion increased 32 percentage
+points to 81. Based on an average class size of 25, 25 x 20 teachers = 500
+students who would be touched by the project each year. Given an
+average teacher tenure of eleven years, 500 students per year x 11
+years = 5,500 students touched. The incremental number of students
+meeting benchmarks would then be 32% x 5,500 students = 1,760 students.
+
+- Step 3. Divide cost obtained in Step 1 by results obtained in Step 2 to
+produce cost per impact. Example: Dividing the cost of 1,000,000 by the
+1 760 additional students meeting literacy benchmarks yields a cost
+per incremental student or cost per impact of $568.18. As discussed one
+advantage of quantification is that it allows comparison with other
+projects. Hence a grantor could use the above cost per impact figure
+to determine which grantee would provide the most bang for the buck.
+Alternatively, a grantor could use this figure as a benchmarking tool
+to identify effective trends and then work with his or her own grantee 
+to improve their own ratio overtime. Source: Rhodes H J, Noonan K, 
+Rosqueta K (December 2008).
+
+### Cost-benefit analysis.
+
+Cost-benefit analysis is advantageous in that it allows
+comparison of the social value of diverse programs, much as one can
+compare the financial ROIs of different companies. Benefits need not
+come from the same cause and type of outcome but can capture a range
+of individual and societal benefits across different program areas.
+However two recent reviews by Melinda Tuan (2008) and Lynn Karoly (2008)
+have noted that the methods for valuing cost benefits are not yet
+mature or standardized. Attributing common dollar values to 
+non-monetary results requires subjective value judgments. It is also
+difficult to achieve consistency in assumptions or applied
+methodologies such as (1) the timeframe over which benefits are
+recognized, (2) the discount rate used to reflect the declining value of
+money overtime periods distant in the future, (3) the methods used to
+project future outcomes based on early outcomes, and (4) the range of
+social benefits to be captured. Proponents of cost benefit concepts
+like the Social Return on Investment (SROI) acknowledge these
+challenges but also note that the very virtue of cost benefit analysis
+lies in human assessors who are brutally open about such subjective
+valuations and submit assumptions to sensitivity analysis and
+intuitive assessment. This process can help clarify the extent to which
+certain projections or judgments are overly optimistic or incomplete.
+To consider an example, The Robin Hood Foundation has developed a
+benefit-cost ratio methodology to capture collective benefit estimates
+of its anti-poverty grants in four areas: jobs and economic security,
+education, early childhood, and youth and survival. The benefit-cost
+ratio seeks to translate the outcome of diverse programs into a single
+monetized value. The example below features a grant to an
+organization called Helpful Housing, which provides housing to the
+economically disadvantaged. Since part of the project involves
+providing supportive services such as medical care, mental health
+counseling and employment training, the calculation also accounts for
+those benefits. 
+
+Methodology for Robin Hood Foundation Benefit-Cost Ratio.
+
+- Step 1. Estimate the program s direct impact. The most direct and
+tangible benefit provided by Helpful Housing is housing. Therefore to
+calculate its value: Example: Based on data from the Federal Housing
+and Urban Development Department, Robin Hood found the fair market
+prices for New York City apartments to be approximately 11,700 per
+year. Helpful Housing provided 672 housing units over the last yea.r
+It is believed that the people served by Helpful Housing would have
+remained homeless if Helpful Housing did not exist. Thus the full
+market value of the housing provided would represent a net gain to
+residents of 672 housing units times 11,700 average per year equals
+0.78 million. Helpful Housing also provided housing only (i.e. without
+supportive services) in the form of two bedroom apartments valued at
+13,600 per year to 75 low-income families. Residents are required to
+contribute only 30% ($2,400) of their annual income toward rent. Robin
+Hood estimates that 10 of these families would have found housing
+anyway even in the absence of Helpful Housing's assistance. So 75
+families times (13,600 minus 2,400) times 0.9 (to account for those
+families that found housing only as a result of Helpful Housing's
+assistance) equals $760,000.
+
+- Step 2 Estimate the additional impact of the program, i.e. benefits
+from supportive services like medical care, mental healthcare,
+employment training, etc. It is common for health improvements made by
+health and human service projects to be expressed as Quality Adjusted
+Life Years (QALYs) which measure the number of years of life added by
+an intervention, adjusted for the quality of life in those additional
+years. By definition, an extra year in perfect health would be
+assigned a QALY value of 1 while an extra year added in less than
+perfect health would be assigned a QALY value of between 0 and 1 based
+on the extent of the disability. A commonly accepted guideline
+proposed by Robin Hood and used here is to assume each QALY to be
+worth $100,000.  Example: Referrals to Medical Care. Helpful Housing
+provided medical referrals to 672 residents. However it is estimated
+that 30 of those residents would have sought medical care
+anyway. External consultants estimate that each medical referral is
+worth a QALY of 0.07. 672 residents times 100,000 per QALY times 0.07
+QALY times 0.7 (to account for the referral) times 0.7 (to account for
+only those residents who would not have sought medical care were it
+not for Helpful Housing) equals #2.3 million per year. Similar
+methodologies were used to calculate other additional annual benefits
+such as Mental HealthCare ($1.9 million), Employment Training
+($800,000), Quality of Life Issues ($0.3 million), Case Management
+($2.9 million), Reduced Hospitalizations and Medical Emergencies ($1.9
+million).
+ 
+- Step 3. Calculate lifetime impact and discount to present value. Where
+the benefit is annual and occurs throughout the lifetime of the
+individual, calculate the cumulative impact over the individual's
+lifetime and discount to present value. Example: Robin Hood estimates
+the average age of residents at Helpful Housing to be 40 years old and
+calculates employment-related returns to age 55 and health-related
+returns to age 65. It is assumed that the real growth rate is 3% and the
+discount rate is 5%. Total Present Value = $31 million.
+
+- Step 4. Estimate
+the proportion of the program's successes truly attributable to Robin
+Hood's grant, aka the Robin Hood factor. This calculation typically
+begins with a figure based on the percentage of a grantee's program
+cost covered by Robin Hood's grant. This approximate starting point is
+adjusted up or down depending on other factors that lead Robin Hood to
+believe the grant exerts disproportionate positive or negative
+influence on group outcomes. Example: Robin Hood's grant was for $450,000.
+the program cost $12 million in total. That yields a Robin Hood factor
+of $450 000 divided by 12 million equals 4%.
+
+= Step 5. Calculate the Robin Hood benefit. Sum
+all benefits and scaleby the Robin Hood factor. Example: 31 million times 
+4% equals $2.89 million.
+
+- Step 6. Calculate the benefit cost ratio. Divide the Robin
+Hood benefit by the cost of the program. Example: $2.89 million divided
+by 450,000 equals 3:1.
+Grantors may use this benefit cost ratio as one important
+piece of information with which to rank grants (i.e. compare the impact
+of similar and dissimilar programs) and as part of their diagnostic
+toolkit with the goal of improving grantees' performance, thereby
+raising the projects benefit-cost ratio overtime. However the ratio
+should not be the only criterion for making grant decisions nor should
+it be used as a report card.
+
+Source: Weinstein M (2009) 
+
+To translate
+diverse outcomes into a single monetized measure of poverty fighting,
+Robin Hood's program officers rely on social science research
+estimates from academic consultants. close knowledge of their grantees
+and an injection of reasonable assumptions. Over time, they expect
+continually to improve their metrics and reduce guesswork. Additionally
+Michael Weinstein (2009), Chief Program Officer of The Robin Hood
+Foundation, described how the Foundation has addressed a number of
+other implementation challenges. While benefit-cost ratios provide
+Robin Hood with a systematic and transparent tool for comparing 
+impact across different
+program types on its mission, their adoption should not be undertaken
+except by experts knowledgeable of its careful usage.
+
+### Estimating leverage effects.
+
+So far this report has discussed measuring the direct
+social impact arising from a funder's contribution to a giving
+program. A funder can also leverage its reputation and/or other 
+non-monetary capabilities to support a program, thereby multiplying the
+social impact achieved from both their and other funders' monetary
+donations. These leveraging effects should be considered part of the
+total merit of a grant or program:
+
+1. Attracting other funders. A funder seen to have expertise in a
+certain domain could highlight the severity of a social cause by
+endorsing it and attracting other funders to the same cause. For
+example, a major pharmaceutical company with a reputation for
+innovative research might become the first to make significant
+philanthropic commitments to, and educate other funders about the
+AIDS pandemic in Africa. Evaluating the results achieved by pilot
+strategies also helps to communicate the credibility and viability of
+these programs and draw additional support.
+
+2. Capacity building. Grantors can also create social value indirectly 
+by improving the performance of high potential granees, maybe by 
+building their operational or leadership structures.
+Companies can multiply the positive
+effects by contributing internal expertise
+technological assistance and access to
+training opportunities and other non-cash
+relationships. For example, enhancing performance measurement
+systems provides practical real-time data that supports learning and
+allows nonprofits to adjust their services efficiently, thereby
+maximizing the impact of not just one particular project but of
+projects across the entire organization.
+
+Leading users of ROI
+methodologies consider such leverage effects in their calculations. The
+Hewlett Foundation estimates the portion of success with which 
+the Foundation could be credited based on a
+combination of dollar amount invested and the influence of those
+dollars. The Robin Hood Foundation also estimates similar measures (the
+Robin Hood factor) as the proportion of program success truly
+attributable to the giver's intervention. This figure is often based in
+part, but only in part, on the ratio of the grant to the grantee's
+total program cost. 
+
+Estimating credit for leverage effects requires a
+combination of subjective judgments and quantitative data. One approach
+is to reduce this analysis to that of assessing the most likely
+alternative scenario had the catalytic funder not intervened. Once all
+subjective and observational inputs have contributed to this
+hypothetical scenario, the subsequent calculation of leverage effect
+is straightforward. 
+
+Suppose a corporate funder provides a catalytic
+gift of 2 million towards a health program. The gift raises the program's
+profile and attracts another 3 million in gifts from other funders
+for a total budget of 5 million. This number generates an impact
+equivalent to 100 QALYs. The corporate funder through consultations
+with the grantee and members of the social sector believes that
+without its gift only 2 million (2/5 th's of the actual amount) would
+have been raised. In this scenario, only 40% or 2/5 th's of the actual
+100 QALYs would have been achieved. Therefore the total impact for
+which the funder could take credit is the difference 100 - 40 = 60 QALYs.
+This number, 60, comprises 40 QALYs from direct funding in proportion
+to the 2 million grant being 2/5 th's of the total budget and a
+balance of 20 QALYs credited to the leverage effect.
+
+Consider another
+example: Suppose a health program with a total budget of 5 million from
+other funders (i.e. excluding the funder whose leverage is to be
+measured) delivers 100 QALYs in program impact. Now, the leveraging
+funder can make a capacity-building grant of 1 million which increases
+the program's effectiveness such that its impact rises to 150 QALYs.
+The leveraging funder also estimates, based on consultation with the
+grantee and other social sector experts, that there would have been
+only an 80% chance of another capable funder stepping in with a
+similarly effective capacity building investment. Thus the most likely
+and beneficial alternative scenario is 80% x 150 + (100% - 80%) x 100 = 140 
+QALYs. The leveraging funder's capacity building grant can therefore be
+viewed as achieving 10 QA LYs in leverage effects, in addition to 23.3
+QALYs of direct proportionate impact, because 1 million represents 1/6
+th's of the total program cost which delivered 140 total QALYs in the
+best likely alternative.
+
+### Summary 
+
+The attractiveness of these ROI methods for calculating
+corporate philanthropy's social returns is in bringing businesslike
+quantitative frameworks to evaluating and comparing the effectiveness
+of diverse social programs, and aggregating their social impact. However
+these sophisticated methodologies place heavy demands on data
+collection assumptions and value judgments underlying the analysis. 
+Funders must assemble data and calculations on the program's monetary
+benefits and make subjective judgments on the relative value of
+different types of social changes. Corporate funders need to be
+knowledgeable and thoughtful about these limitations and typically
+should not rely solely on ROI when evaluating grants. Proponents of
+these methods note that the benefits of ROI analysis lie more in
+encouraging funders to lay bare the assumptions and trade-offs that
+may already be involved in their grant making decisions. 
+
+Corporate funders who focus their giving on a small number of program
+areas can define and measure impact using the same natural unit. These
+results can be analyzed more easily with cost-effectiveness
+approaches, which sidestep the larger uncertainties associated with
+cost-benefit analysis and reducing benefits across different program
+areas to a common monetary unit. 
+
+Some ROI models also seek to take into account the leverage benefits
+the funder may generate if its grant has a catalytic or capacity
+building effect. Corporate givers are increasingly committing to
+capacity building initiatives recognizing that the internal expertise
+training opportunities product and other company resources generate
+benefits beyond cash grants. Estimating leverage value inevitably
+requires subjective input. One method for improving a value estimation
+of leverage is to try to assess and judge what would have resulted
+from the best likely alternative scenario.
+
+For example, The Foundation Center and
+McKinsey Company have undertaken a project an online database of Tools
+and Resources for Assessing Social Impact (TRASI) identifying 150
+different approaches currently used to measure the social impact of
+programs. 
+
+
+# CONVERSATION TWO. Between the Chief Giving Officer (CGO) and 
+Chief Executive Officer (CEO).
+
+According to research by McKinsey and CECP (2008), 86 of surveyed CEOs
+consider both business and social concerns when funding corporate
+philanthropy programs, and 55 believe business concerns should be
+given equal or greater weight than social ones. When advocating
+significant commitments to philanthropic initiatives, CGOs are often
+asked to make a business case for those initiatives, to present a
+persuasive picture of how they create long-term financial value for
+their companies in addition to using the social impact assessment
+frameworks described above to communicate societal accomplishments
+
+## Question 3. How to measure business benefits and make a business case.
+
+CEOs surveyed by
+McKinsey and CECP (2008) cited frequently that corporate philanthropy's
+business goal should be enhancing the company's reputation or brand,
+followed by addressing employee concerns such as refining leadership
+capabilities and building retention and recruitment. The study also
+reported that efficient philanthropists, defined as respondents who
+felt their companies were effective in achieving both business and
+social goals, tended more than other respondents to view the goal of
+their philanthropic programs as creating business innovation and
+building new market knowledge.
+
+These findings, combined with a review
+of the scholarly literature, suggest four strategic pathways by
+which philanthropic initiatives can contribute to business value:
+
+1. Enhance employee engagement. Companies engage employees through group
+volunteer programs and awareness of their philanthropic initiatives
+which raise employee motivation productivity and a sense of
+identification with the organization.
+
+2. Build customer loyalty.
+Especially in consumer oriented industries, a company's commitment to
+communities and certain philanthropic causes enhances brand perception
+customer loyalty repeat business and word of mouth promotion.
+
+3. Manage downside risks to the company's reputation.
+Philanthropic initiatives
+provide companies with a fresh opportunity to prioritize and address
+stakeholder risks (i.e. ways in which the company may not be meeting
+public expectations)
+
+4. Contribute to business innovation and growth
+opportunities. Philanthropy also provides access to new relationships
+and opportunities, whereby the company can find test and demonstrate
+new ideas technologies and products.
+
+### Employee engagement
+
+Today's competitive business environment emphasizes quality and innovation.
+Accordingly CEOs recognize that human capital is a more critical asset
+than physical capital in creating substantial value for the firm and
+its shareholders. A highly engaged workforce is more likely to exert
+extra effort and have lower turnover rates. Some studies even show a
+link between individual employee motivation and company wide financial
+performance. Compensation is a motivator only up to a point, beyond
+which employees are motivated by non-pecuniary factors like 
+self-esteem and recognition. The accepted wisdom seems to be that a paycheck
+may keep someone on the job physically but not emotionally.
+Psychological studies have shown that calling attention to
+extrinsic (especially monetary) rationales for behavior can diminish
+performance and intrinsic motivation. Perceiving that they had to be
+externally and financially induced to carry out a task, employees come
+to believe that there must not have been any other motivation for
+performing it. This finding highlights the 
+importance for companies to focus not merely
+on monetary and other extrinsic rewards alone.
+
+Economists have documented that companies with motivated employees,
+a category that
+overlaps considerably with Fortune Magazine's 100 Best Companies to
+Work for in America, enjoy better financial performance. The Best
+Companies list was first published in a book by Levering, Koskowitz
+and Katz in March 1984 and was updated in February 1993. Beginning in
+1998, it has been featured in Fortune each January. Two-thirds of the
+total score comes from employee responses to an anonymous 57 question
+survey created by the Great Place to Work Institute in San Francisco.
+The survey provides an extensive evaluation of the level of trust
+employees have in their management, the level of pride in their work
+and company, and camaraderie within the workplace. The remaining one
+third of the score comes from the Institute's evaluation of factors
+such as a company's demographic make up, pay and benefits packages. 
+Olubunmi Faleye and Emery Trahan (2006), researchers from Northeastern
+University, examined several dimensions of operating performance and,
+even after controlling for prior financial performance in their
+econometric analyses, they found measures of valuation profitability
+and productivity for the Best Companies to be about 15-20% higher than
+for the Best Companies' peers. Separately Alex Edmans (2008), a professor
+of finance at the University of Pennsylvania's Wharton School, found
+that on average, the Best Companies achieved higher than expected
+future profits, particularly for earnings far into the future. A
+portfolio of Best Companies stocks based on only prior released
+rankings and rebalanced annually outperformed other similar companies
+by 4% per year over a 22-year period from 1984 through 2005. Edmans
+suggested that, because the results of an intangible investment like a
+motivated workforce may not completely manifest intangible benefits
+for several years, the market appears not yet to have fully accounted
+for the link between employee satisfaction and company value. 
+
+To raise
+employees' internal motivation, HR managers endeavor to improve those
+employees sense of status, prestige, belonging within the work group and
+organization, and emotional rewards inherent in their work. A number of
+studies have found that corporate philanthropic initiatives can
+provide a new channel for fulfilling a number of
+employees' emotional needs and increasing their sense of identification
+with a company. These initiatives can also help employee recruitment.
+According to the 2004 corporate community involvement survey by 
+Deloitte LLP, 72% of employed Americans trying to decide between two jobs
+offering the same location job description pay and benefits would
+choose to work for the company that also supports charitable causes.
+Although it is not easy to validate answers to a hypothetical question,
+companies are often able to document their success in attracting
+certain top candidates based on those candidates exposure to the
+company s philanthropic causes and therefore can claim some legitimate
+credit for the philanthropy's role in successful recruitment. 
+
+A model for measuring the influence of corporate philanthropic initiatives on
+employee engagement.
+
+When devising philanthropic activities for
+employees researchers from management and social science disciplines
+suggest that the key objective companies should target and measure is
+an increase in an employee's sense of organizational identification
+Identification is a psychological concept that in this context
+reflects the extent to which employees feel that their sense of self
+overlaps with that of their employer An anecdotal measure of
+identification is the use of we statements by employees who identify
+strongly with their company i e who have internalized the distinction
+between we insiders and people outside CB Bhattacharya, Sankar Sen
+and Daniel Korschun (2008), researchers from Boston University and
+Baruch College, found that employees who identify strongly with their
+company view its success as their own and exhibit higher performing
+job behaviors to ensure that success. Caroline Bartel (2001) from New
+York University and David Jones (2007) from the University of Vermont
+reported field evaluations whereby they measured both attitudinal
+and work behavior changes of employees who participated in the
+irrespective company s community outreach programs Their research
+supported the finding that employees involved in philanthropic
+initiatives showed a statistically significant increase in their sense
+of identification with the irrespective companies This improvement in
+employee attitudes towards their companies was in turn correlated to
+an improvement in job performance.
+ 
+Through awareness of and participation in their employer s
+philanthropic activities employees can also fulfill several
+fundamental emotional needs The studies noted that the range of
+emotional needs is quite diverse and companies often do not understand
+them well 
+
+1. Collective self esteem Employees want to feel positive
+about their company and want others to view the company positively as
+well 
+
+2. Self development Employees can use philanthropic opportunities
+both to express a personal sense of community responsibility and to
+learn specific career advancement skills Several major pharmaceuticals
+and companies in other industries for example maintain programs 16 in
+which top professionals apply their skill sets to work with external
+nonprofit partners sometimes in remote foreign locations and this
+experience hones those skill sets Pfizer 17 has made available an
+evaluation of the impact of its Global Health Fellows Program on
+recipient organizations along with a toolkit that other companies can
+use to measure their own international corporate volunteering programs
+
+3. Improving work and personal life integration Employees interpret
+employers philanthropic behavior as an indication that the employer
+values personal life as much as the employee does particularly when
+the philanthropy benefits the employee s own social communities.
+
+4. Building a bridge to the company Employees who work in satellite
+locations view philanthropic initiatives as a means for the company to
+demonstrate a bond among employees regardless of location This is
+especially important as work forces become increasingly globally
+dispersed 
+
+5. Creating a reputation shield Corporate philanthropy can
+help employees combat negative public feedback about a company by
+giving them material with which to educate external audiences about
+the company score values and efforts To measure the impact of
+corporate philanthropy on employee engagement companies can use
+internal surveys to assess the extent to which the philanthropic
+program is meeting employee needs and creating a greater sense of
+identity between employee and employer This assessment should take
+into account the relative importance that different employee segments
+attach to different intrinsic needs.
+
+Drawing from
+the research studies reviewed Figure 6 summarizes the causal
+relationships between employees emotional needs and job related
+outcomes Companies able to understand the needs and attitudes of their
+employees and to design programs that fulfill those needs are often
+rewarded with greater employee identification and a multitude of other
+pro company outcomes Figure 6 A Framework for Measuring Employee
+Engagement and Corporate Philanthropy Source Adapted from Bhatt
+acharya C B Sen S Kor s chun D 2008 and Bart el C 2001 Positive job
+related behaviors include objective metrics such as reduced
+absenteeism lower employee turnover and greater efficiency More
+subjective outcomes generally assessed in performance reviews include
+enhanced work effort (i.e. greater dedication to excellence and a
+willingness to expend extra energy), advocacy (i.e. a greater tendency to
+make suggestions for improvements and innovation) and co-operative
+conduct.
+
+Figure 7 Representative
+Metrics and Survey Instruments from Research Studies in Employee
+Engagement Employee Attitude References Metrics and Survey Instruments
+or Job Behavior Collective self L uht an en Survey completed by
+employees with eight item esteem Crocker 1992 scale to reflect a
+member s personal evaluation of the group private collective self
+esteem as well as his or her assessment of how non members evaluate
+the group public collective self esteem 1 I feelgood about working for
+X 2 I often regret that Iwork for X 3 Overall I often feel that
+working for X is not worthwhile 4 In general Iam glad to bean employee
+of X 5 Overall X is considered a good company by others 6 In general
+others respect what X stands for 7 Most people consider X on average
+to be less effective than other companies 8 In general others think
+that X is not a good company to work for Identifies with Bag ozz i
+Berg ami Survey completed by employees Survey instrument company 2000
+Tr opp is a combination of a visual and verbal report in the Wright
+1999 form of aVen n diagram to assess the degree of cognitive overlap
+in attributes that an individual uses to define him or herself and the
+organization Employees indicated the pair of overlapping circles that
+best represented their perceived relationship to the organization from
+no overlap to complete overlap The Ven n diagram is supplemented with
+a second item that asked members to report the degree of overlap
+between their self image and their image of the organization Retention
+Phillips 2005 Voluntary Turnover Absenteeism Phillips 2005 Days absent
+per year Efficiency Phillips 2005 Sales per employee Co operative
+McAllister 1995 Survey completed by managers with ten item scale
+behaviors to reflect affiliation co operation and assistant co
+operation behaviors 1 Takes time to listen to other people s problems
+and worries 2 Rarely takes a personal interest in others 3 Frequently
+does something extra that won t be rewarded but which makes co
+operative efforts with others more productive 4 Passes on information
+that might be useful to others 5 Willingly helps others even at some
+cost to personal productivity 6 Rarely takes others needs feelings
+into account when making decisions that affect others 7 Tries not to
+make things more difficult for others at work. 
+
+Figure 7 Representative Metrics and Survey Instruments
+from Research Studies in Employee Engagement continued Employee
+Attitude References Metrics and Survey Instruments or Job Behavior 8
+Goes out of his her way to help co workers with difficult assignments
+9 Offers to help others who have heavy workloads 10 Covers for absent
+co workers Work effort Van Dyne Survey completed by managers with ten
+item scale Graham to measure work effort and willingness to expend
+Dienes ch 1994 energy on the organization s behalf 1 Rarely wastes
+time while at work 2 Produces as much as is capable of at all times 3
+Always comes to work on time 4 Regardless of circumstances produces
+highest quality work 5 Does not meet all departmental deadlines 6 Is
+mentally alert and ready to work when he she arrives at work 7 Follows
+work rules and instructions with extreme care 8 Sometimes wastes
+departmental resources 9 Keeps work area clean and neat 10 Sometimes
+misses work for no good reason Advocacy Van Dyne Survey completed by
+managers with seven item participation Graham scale to assess advocacy
+participation behaviors Dienes ch 1994 indicative of innovation
+maintaining high standards and making suggestions for change 1 Uses
+personal judgment to assess what might be right wrong for the
+department 2 Encourages management and co workers to keep knowledge
+and skills current 3 Encourages others to speak up and participate in
+meetings 4 Does not push co workers to establish higher standards at
+work 5 Keeps self well informed where his her opinion might matter 6
+Helps co workers think for themselves 7 Frequently gives co workers
+creative suggestions for ways of accomplishing tasks Figure 7 lists
+the metrics and survey instruments whereby respondents are asked to
+score on a numerical scale used in representative studies Bart el s
+2001 study posed survey questions to employees and their supervisors
+both before and after the employees participated in the company s
+community outreach program To form a control group supervisors were
+also asked to evaluate a group of non participants Comparing
+differences in pre and post program survey reports Bart el found that
+participation enhanced the collective self esteem of employees In turn
+those employees also perceived a 
+statistically stronger level of identification with the company For
+employees whose organizational identification became stronger their
+supervisors reported higher interpersonal co operation and work
+related effort whereas the supervisors reported no statistically
+significant changes in any work behavior by the control group Bart el
+also measured and controlled for other factors that might have
+influenced her results such as employee characteristics like length of
+tenure prior community outreach experience and job responsibilities To
+quantify the financial value of improved employee behavior one can
+estimate a statistical regression model of how much employees
+organizational identification correlated to productivity value The
+underlying data supporting such analysis needs to come from linking
+employee survey results to HR data such as performance reviews and
+productivity metrics Relative employee performance rankings efficiency
+attendance retention and other employee attributes then must be
+translated to relative dollar values 18 To improve the model s
+statistical validity and to justify this performance proxy other
+control variables must be accounted for such as job definition
+location training age and company tenure Given the overlap of this
+analysis with broader H Revaluations it is sensible to integrate this
+exercise into HR s systematic procedures Designing and implementing a
+centralized form of measurement reduces survey fatigue and ensures the
+consistency and comprehensiveness of surveys data and approach Figure
+8 outline show once a general model is built and calibrated financial
+returns can be estimated by applying the model to employees survey
+scores Researchers in HR management 19 have noted that many senior
+company managers maybe more pragmatic about what H Revaluation can
+measure and do not need to quantify the financial benefit from HR
+programs they believe it is Figure 8 Model to Estimate the Influential
+Value of Corporate Philanthropic Initiatives on Employee Productivity
+Measure increase in level Estimate dollar value of Estimated value of
+of employees x increase in productivity employee productivity
+identification with from employees with company greater identification
+with company e g analysis of pre and post activity surveys e g
+estimate regression model statistically from study where data from
+employee surveys have been linked to performance ratings and
+productivity metrics sufficient to measure that
+individual employees motivational needs are met and their emotional
+attitudes towards the organization improved Customer loyalty Marketing
+managers have long recognized that securing customer loyalty is a
+valuable goal partly because retaining customers tends to require
+fewer marketing resources than recruiting new ones Moreover customer
+loyalty consistently shows high correlation to sales growth and
+profitability Loyal customers demonstrate several pro company
+behaviors they tend tore purchase the company s product or service
+commit a higher share of their category spending to the company and
+are more likely to recommend the company or brand to new customers 20
+Traditional marketing strategies often focus on customer loyalty
+scores and on improving loyalty by enhancing customers perceptions of
+the product s quality and value The perception of a company s values
+through its philanthropic programs also matters of course All else
+being equal a consumer is more likely to choose a product made by a
+highly responsible company than one made by a less responsible one
+Geoffrey Heal 2008 of Columbia Business School recounted the customer
+research experience of a consumer goods company The company had built
+a customer loyalty model based on a composite of its customers
+responses to seven survey instruments whether they 1 ask for the brand
+2 re purchase the same brand 3 recommend the brand 4 use other
+products by the same brand 5 overrule a salesperson pushing another
+brand 6 will only buy the brand and or 7 switch stores for the brand
+Passionately loyal customers are defined as those who answer
+affirmatively to atleast four of those seven questions The company
+estimated that a one percentage point increase in their brand s
+Customer Loyalty Index CLI the percentage of all customers who are
+passionately loyal translated into a nearly 5 increase in sales
+Furthermore the company s research revealed that its customers
+emotional motivations were twice as important as product
+considerations in driving brand loyalty Out of about fifty touch
+points tested social responsibility was among the top five important
+factors to consumers in terms of loyalty Accordingly the company
+learned that it could increase its emotional connection with consumers
+by tying its brand to the company s commitment to a social cause.
+
+A model for measuring the influence
+of corporate philanthropy initiatives on customer loyalty Customer
+loyalty scores are typically measured by surveys that ask consumers to
+rank their intention store purchase or recommend a product according
+to a numerical scale Measuring customer intentions rather than actual
+purchasing behaviors provides companies with a more timely and
+operable loyalty assessment Researchers may implement different
+proxies however ranging from a composite survey that measures multiple
+customer intentions to a single best metric like the Net Promoter
+Score 21 which is based on customers intention tore purchase Companies
+periodically validate intentions by following upon customers actual
+behaviors This more involved validation exercise also allows the
+company to calibrate how much sales growth can be expected as a result
+of increased loyalty Because marketing managers have a company's
+traditionally focused on product or service philanthropic involvement
+performance as drivers for customer loyalty can lead customers to the
+attention has long been on customer feel a deeper sense of
+satisfaction and trust in the brand But identification with the
+customer awareness of a company s company and develop a philanthropic
+efforts is an additional more positive evaluation channel by which
+loyalty can be achieved of the company s Presenting the findings of a
+telephone abilities survey conducted among a national sample of 1033
+adults the 2004 Cone Corporate Citizenship Study reported that eight
+in ten Americans agree that corporate support of a cause wins their
+trust Moreover 86 said that if the quality and price of a product are
+equal they would be likely to switch brands in order to help support a
+cause Field research studies have shown that a company s philanthropic
+involvement can lead customers to feel a deeper sense of
+identification with the company and develop a more positive evaluation
+of the company s abilities and that this results in product purchases
+However these studies have also found and emphasized that the pathway
+from customer awareness of corporate philanthropy to loyalty is less
+straightforward than hypothetical marketplace polls and surveys
+suggest Victoria Smith and Peter Langford 2009 from Macquarie
+University in Australia and CB Bhattacharya and
+Sankar Sen (2004) from Boston University and Baruch College document
+that customers perceptions and expectations can be complex when
+confronted with a company s corporate philanthropic record and suggest
+that this affects how much philanthropic initiatives actually do
+translate into increased loyalty and purchases Consumers lack of
+awareness about philanthropic initiatives is often a major limiting
+factor in their ability to respond At the sametime disingenuous
+attempts by the company to sell philanthropy can backfire
+Philanthropic initiatives are more likely to lead to positive customer
+behaviors when the cause is perceived to fit well within a company s
+overall strategy Consumers view companies that base their business
+strategies around socially responsible principles more positively than
+companies that attempt social responsibility as an add on action
+Consumers maybe skeptical when a company with a negative reputation
+becomes involved in causes closely related to its business Different
+personality traits result in different responses to corporate
+philanthropy efforts what works for one consumer segment may not work
+for another Individuals who personally support the issue central to
+the company s initiatives are more likely to be persuaded to purchase
+its products Companies perceived to have distinguished themselves on a
+corporate responsibility platform generally enjoy a loyal following
+among a certain segment of customers Consumers generally do not like
+to be asked to pay a premium for philanthropy nor do they want to
+sacrifice product quality Perception of a company s capabilities in
+other areas also modifies how consumers respond to philanthropy
+Researchers have identified a strong statistical relationship between
+consumer satisfaction and companies philanthropic record only when
+companies are perceived to have strong product quality and innovation
+capabilities and or operate in consumer oriented industries 22
+Designing a measurement framework for loyalty should begin with an
+assessment of the perceptions customers have already developed as a
+result of a company s corporate philanthropic initiatives and whether
+these perceptions are
+contributing to higher loyalty scores Figure 9 suggests such a
+framework based on the literature reviewed Figure 9 A Framework for
+Measuring Customer Loyalty and Corporate Philanthropy Source Adapted
+from Bhatt acharya C B Sen S 2004 and Smith V Langford P 2009 A
+company s marketing department is likely already to have implemented
+its own customer loyalty metrics in which case it is sensible to
+leverage these along with customized deliberate customer research It
+is imperative that the additional factors affecting loyalty scores e g
+customer perceptions of product quality and value also betaken into
+account Figure 10 proposes representative survey instruments that
+companies may adapt.
+
+Figure 10 Representative
+Metrics and Survey Instruments from Research Studies in Customer
+Loyalty Customer References Metrics and Survey Instruments Perceptions
+Fit between Becker Olsen Survey with four item scale company and Hill
+2005 1 There is a low strong fit between the company philanthropic and
+philanthropic initiative initiatives 2 There is dissimilarity
+similarity between company and philanthropic initiative 3 There is
+inconsistency consistency between company and philanthropic initiative
+4 The company and philanthropic initiative are complementary not
+complementary Company s Du Bhatt acharya The company supports this
+philanthropic initiative motivation is Sen 2007 because it is
+genuinely concerned about being intrinsic socially socially
+responsible motivated Company s Du Bhatt acharya The company supports
+this philanthropic initiative motivation is Sen 2007 because it feels
+competitive pressures to engage in extrinsic profit such activities
+motivated Beliefs about Du Bhatt acharya 1 This company brandis a
+socially responsible company s social Sen 2007 company brand
+responsibility 2 This company brand has made a real difference through
+its socially responsible actions Customer Becker Olsen My sense of who
+Iam i e my personal identity identification with Hill 2005 overlaps
+with my sense of what this company company represents Customer loyalty
+Bone Ellen Survey with three item scale assessing customers intention
+to 1992 intention to purchase re purchase 1 What is the probability
+that you will use X s services 2 What is the likelihood of you
+choosing X the next time you contract a service 3 The next time I
+purchase a service will be with X Customer loyalty Reich held 2003 How
+likely is it that you would recommend X to a intention to friend or
+colleague recommend CEOs have a keen interest in quantifying the
+financial value of loyal customers A statistical model of the expected
+lifetime value of customer loyalty reflecting the profits likely to
+arise from re purchases and word of mouth recommendations is a helpful
+indicator as to the returns from loyalty enhancement Attributions of
+customer loyalty can be further broken down statistical techniques
+such as conjoint analysis 23 can be applied to customer surveys to
+assess how much a customer s perception of corporate philanthropy
+contributed to his or her loyalty score Figure 11 outline show
+companies can then estimate financial returns from corporate
+philanthropy s influence on customer loyalty .
+
+Figure 11 Model to Estimate the Influential Value of
+Corporate Philanthropic Initiatives on Customer Loyalty Estimate
+Measure number of Estimate lifetime Estimated value of proportion of x
+loyal customers x value of loyal customer loyalty customer loyalty
+derived from customers score attributed to customer loyalty
+perceptions of scores in surveys e g follow up corporate with
+customers to philanthropy validate their actual purchase behavior e g
+statistical and assign dollar analysis such as value to expected
+conjoint analysis of profitability from customer surveys re purchases
+and recommendations Managing reputation al risk A strong and positive
+reputation is invaluable to a company How external stakeholders see a
+company as good rather than bad reinforces the company with better
+human capital goodwill legitimacy and a license to operate in the
+communities it serves and seeks to enter However as Benjamin Franklin
+once said it takes many good deeds to build a good reputation and only
+one bad one to lose it Managing downside reputation al risk before a
+crisis strikes is critical much less can be done after the crisis has
+occurred Researchers have documented how a record of community based
+initiatives creates goodwill that can mitigate stake holder sanctions
+ranging from mild e g casual bad mouthing to severe having one s right
+to do business revoked when negative events arise Paul Godfrey Craig
+Merrill and Jared Hansen 2009 of Brigham Young University point out
+that the severity of such sanctions may depend on both the negative
+effects of the action and the perceived intentions of the offending
+company In other words punishments are more severe when bad acts are
+committed by bad actors Moreover long accumulated goodwill trust and
+familiarity can moderate the negative reputation al effect of a
+company blunder as these traits often encourage stakeholders to
+attribute the negative event to a singular managerial mistake rather
+than an intentional course To test this idea Godfrey Merrill and
+Hansen collected and examined stock price reactions for a large sample
+of companies that experienced negative legal or regulatory actions
+Such negative events to the extent that they are unanticipated or
+partially anticipated should generate negative stock price reactions 
+as investors expect negative long accumulated
+stake holder reactions However goodwill trust and commitment to
+community initiatives could familiarity can moderate serve as a signal
+to investors of the goodwill the negative reputation al and positive
+perception of management effect of a company character enjoyed by the
+company and blunder which may temper possible sanctions The
+researchers examined 160 companies that appeared from 1991 to 2002 in
+a data set maintained by the research firm KL D Analytics The data set
+contains analysts assessments of the companies social participation in
+community and diversity initiatives The researchers also reviewed Wall
+Street Journal articles published between 1992 and 2003 looking for
+negative events such as the initiation of a lawsuit against any of the
+companies by a customer third party or competitor or the announcement
+of regulatory action e g investigation fines penalties etc by a
+government entity The announcement events were grouped into either
+integrity based actions such as discrimination claims fraud
+accusations false claims dishonesty pension or investor obligation
+claims or bribery allegation and competitive or health safety actions
+including competition conspiracy anti trust claims patent
+infringements price fixing accusations consumer medical injury issues
+product safety problems quality control issues and environmental
+pollution indiscretions The researchers reported that companies
+participating in social initiatives preserved greater share value
+adjusted for market wide price movement around these negative
+announcements than those who did not participate in social initiatives
+However the data does not reveal the relative severity of the negative
+events hence the study was unable to control for the possibility that
+the missteps done by good companies simply were not as bad as those
+done by the companies less socially engaged The value effects were
+strongest surrounding those events categorized as integrity related In
+a back of the envelope calculation the researchers estimated that
+companies not engaging in social initiatives lost on average 72 4
+million per negative event while socially engaged companies lost only
+22 8 million relative to the average market capitalization of 32 6
+billion for all companies on the days preceding the events.
+
+A model for measuring the value of
+corporate philanthropy in terms of managing reputation al risk Many
+companies already have in place a strategy for managing reputation al
+risk This strategy typically includes identifying events that may lead
+to reputation al damage assessing the likelihood and severity of
+damage and preparing plans to manage these risks 24 The first step in
+assessing these risks is to identify key stakeholders internal and
+external such as customers suppliers and regulators understand their
+expectations vis vis the company s current reputation and develop a
+master list of risk events A starting point for identifying reputation
+al threats is a list of stake holder groups and their corresponding
+threats as analyzed by Charles Fo mb run Naomi Gard berg and Michael
+Barnett 2000 of New York University and summarized in Figure 12 To
+quantify stake holder expectations and reputation al risks a company s
+Enterprise Risk Management or Public Relations department may conduct
+a reputation assessment often applying one or more of the following
+techniques 1 analysis of media hits and stories 2 interviews with
+front line employees 3 consultations with stakeholders and industry
+executives 4 focus groups and 5 public opinion polls 25 Precise
+valuation of reputation al insurance against these threats is
+difficult When litigation community protests and other crises are
+successfully avoided costs will never be recorded and the resulting
+impact on profits or share prices goes unobserved However these costs
+can be real and significant Scenario analysis is a tool commonly used
+in addressing such problems and estimating the potential cost of these
+risks Each potential event needs to be assessed in terms of the
+likelihood that it will occur and the severity of the potential
+reputation al damage as suggested in Figure 13 Companies can perform a
+quantitative assessment of the impact of reputation al damage in terms
+of reduced operating revenue or increased compliance operating or
+capital costs This may involve simulation techniques to map out
+numerous scenarios and estimate average frequency and loss severity
+The company can then prioritize these risks and decide whether and how
+they can be eliminated reduced or accepted.
+
+Figure
+12 Identifying Stake holder Groups and Reputation al Threats Stake
+holder Threats Examples Community Withdraw license Companies seek to
+dampen community protests to operate and threats to the legitimacy of
+their operations Regulators Regulatory action Companies seek to create
+greater trust and familiarity between themselves and the local
+community and regulators reducing the likelihood and costs of
+regulatory actions Customers Misunderstanding Companies want to convey
+favorable images of themselves and reduce the chance that customers
+misunderstand their business behavior and ethics Partners Defection
+Companies want to reduce the risks of disruption to crucial flows of
+manufacturing inputs products services and resources Employees Rogue
+behavior Companies want to strengthen the bond between employees and
+the corporate culture and avoid actions taken by employees in their
+self interest that can create negative publicity for a company or even
+bring it down Investors Share value Companies want to assure investors
+of their future prospects for growth stability of profitability and
+quality of management Activists Boycotts Companies are more vulnerable
+to activists if their actions or in actions can be perceived as
+damaging to social values or communities Media Negative exposure When
+a crisis arises a company can be vulnerable to negative media exposure
+both if the company is too quiet or too vocal visible The company can
+reduce this vulnerability by nurturing a positive corporate image and
+appropriately familiarizing the public with its business employees and
+activities Source Adapted from Fo mb run C J Gard berg N A Barnett M L
+2000 Figure 13 Quantitative Assessment of Reputation al Risk Events
+Regulatory Action Example x Risk Cost Types Costs Likelihood Expected
+Loss Legislative adjustments Lost revenues that change the rules
+Increased taxes and of the game tariffs Source Adapted from Epstein M
+J 2008 Figure 7 3.
+
+Positioning
+corporate philanthropy either internally or externally is not
+straightforward Companies need to be wary that stakeholders might
+cynically perceive these initiatives as just empty claims or public
+relation devices Corporate philanthropy needs to represent and be
+embedded in a natural extension of the company s values and operations
+NGOs and nonprofit partners who speak on companies behalf bring more
+credibility At the sametime the bigger a company s reputation and the
+larger the gap between perception and reality the more vulnerable the
+company is to reputation al attacks Innovation and growth
+opportunities Innovation which is key to sustaining a competitive
+business advantage often emerges from creative problem solving Rosa
+beth Moss Kant er 1999 of Harvard Business School has suggested that
+companies can view community need as a business opportunity to develop
+ideas demonstrate technologies find and serve new markets and solve
+longstanding social problems Companies can further their capabilities
+by applying their best people and core skills to advancement that
+benefits both business and community Kant er even goes s of aras to
+suggest thinking about these efforts not simply as charity but as a
+strategic business investment Jane Nelson and Beth Jenkins 2006 of
+Harvard University reviewed several examples of companies looking to
+their philanthropic community investment and employee volunteering
+programs as sources of innovation for the company its partners and the
+communities and countries in which it operates Sarah Holmes and Lance
+Noir 2007 access to a diverse from Cranfield University in the U K
+range of external partners studied innovation s role in companies
+becomes increasingly collaborative relationships with nonprofit
+valuable to companies organizations As drivers of innovation wishing
+to generate disperse beyond traditional company and be associated with
+boundaries access to a diverse range of new ideas external partners
+becomes increasingly valuable to companies wishing to generate and be
+associated with new ideas Nonprofits offer companies access to a dense
+network distinct from the companies own corporate sphere as well as
+afresh view of the modern marketplace NGOs for example lead social
+movements and can give early warning about shifts
+in public tastes and values. They may also possess unique technical
+expertise and influence on public legislation resources that corporate
+partners are likely to find advantageous when exploring new markets As
+suggested by a Boston College Center for Corporate Citizenship and
+McKinsey Company 2009 review of practices among twenty companies
+philanthropic activities could have a demonstrable impact on corporate
+growth through several pathways New markets Philanthropic activities
+expose companies to new markets and increase market share through
+exposure New products Philanthropic activities can involve the
+creation of products that meet social needs and increase
+differentiation New customers Philanthropic activities engage new and
+existing consumers and contribute to a greater understanding of
+consumer expectations and behavior New technologies Philanthropic
+activities can lead to the development of cutting edge technologies
+and innovative products also applicable to business use patenting and
+proprietary knowledge The financial impact arising from these
+philanthropic activities ranges from profits increased directly
+through sales or indirectly through goodwill or savings related to
+risk avoidance or operating efficiency gains Models for measuring the
+value of corporate philanthropy in terms of innovation and growth
+opportunities There are three standard financial valuation methods
+that can be applied to measure the value of corporate philanthropy as
+an opportunity for business innovation and growth I Market based model
+The market based approach is the most straightforward It relies
+however on being able either to observe a market price for the project
+in question or comparisons to the market values of other similar
+projects or assets For example innovation may result in a new patent
+which has a market price when put up for sale to other companies
+
+Another example if other similar businesses already
+have a market price then the project can be
+valued by applying the same financial multiples e g price to book
+value or price to earnings ratios of those comparable s II Cash flow
+model The income or cash flow based approach is often used instead of
+the market based model because market prices are not readily available
+particularly for unique projects or projects that cannot easily be
+isolated and assessed as stand alone entities All future cash flows
+are estimated and then discounted to arrive at their net present value
+The three steps comprising the cash flow based approach are 1 Estimate
+future cash flows including revenues and expenses This captures the
+enhanced revenues or savings the innovation has effected 2 Determine
+the time period over which these cash flows are earned 3 Apply an
+appropriate discount rate which reflects the time value of money and
+the relative risk or uncertainty of cash flows III Real options
+analysis model Innovations can also provide companies with the
+potential to create cash flows that will exist in the future but do
+not exist now For example a company may develop a new commercial
+technology as a residual benefit from sustained efforts tackling a
+social sector objective This technology may not be financially viable
+today which is why the company does not commercialize it and does not
+enjoy any current cash flow owing to its existence Nevertheless the
+technology may have considerable value to the company because it can
+be developed in the future Financial scholars including A swath
+Damodar an 2006 have noted that such examples of intangible assets
+maybe undervalued on a traditional cash flow basis and are best valued
+using the real options approach Charles Fo mb run and his co
+researchers 2000 have also suggested that were firms to view
+citizenship through the real options lens they might overcome these
+myopic tendencies to under invest in it To illustrate the valuation
+concepts underlying the real options approach consider a hypothetical
+example of a company gaining access to a newmarket 26 through exposure
+from its philanthropic programs. Small medium sized enterprises S MEs
+in an emerging market country can form a sizable customer base for their 
+products. However start up costs for a
+business venture are substantial and business revenues though
+potentially large are still highly uncertain So an established company
+funds a philanthropic initiative that helps SME owners to develop
+their business knowledge and capabilities This initiative not only
+improves the company s access to potential customers but overtime also
+allows it to develop and gauge market opportunities for its commercial
+products The company can choose to enter the market itself if and when
+it is determined financially viable or it may choose not to in which
+case it has protected its downside financial risk all the while
+contributing to improving socio economic conditions In practice
+calculating real options values requires sophisticated numerical
+techniques and should be undertaken with business units in the firm to
+ensure consistent assumptions are used Nevertheless its intuition can
+be illustrated by adding some numbers to this stylized example Assume
+a company s cost of capital is 10 Start up costs in a newmarket are 60
+million while market size maybe drawn from three equally likely
+scenarios annual revenue streams of 3 million 6 million or 12 million
+Using the cash flow based approach the expected i e probability
+weighted average discounted value of these perpetual revenue streams
+is 70 million Therefore the net present value subtracting start up
+costs is 10 million However suppose the company is able to narrow this
+uncertainty after engaging in those philanthropic initiatives The
+company would decide togo ahead only if it knew that the market
+presented the highest revenue scenario where the company would likely
+earn 120 million 60 million 60 million The discounted probability
+weighted average profits would be 1 10 x 1 3 x 60 million 18 million
+since one would not proceed in the other two cases Only the real
+options approach allows a company the flexibility to wait and see if
+commercialization is viable This flexibility can protect downside risk
+and is financially most valuable to the company when 1 There is
+greater uncertainty about the size of the market 2 There is
+substantial investment needed for infrastructure 3 There are
+significant barriers to entry for competitors Even when a leading
+company cannot keep competitors completely at bay unlike with a patent
+protected by law it can still reap a disproportionate share of
+benefits by being the first to build a superior reputation and
+relationships in the newmarket 
+
+### Summary 
+
+CGOs can make a more persuasive business case by articulating
+clearly the strategies by which they expect philanthropic initiatives
+to contribute towards strategic business needs such as improved
+employee engagement customer loyalty reputation al risk and growth
+opportunities These pathways are often not straightforward To realize
+meaningful benefits philanthropic involvement cannot be treated as
+just another check in the box Companies must understand the mechanisms
+by which they expect these business benefits to be achieved Related
+business disciplines have developed a body of evidence and measurement
+approaches that can be applied When benefits to the business are long
+term or intangible modeling approaches for valuing future cash flows
+analyzing scenarios and calibrating expected monetary profits linked
+to the behaviors of loyal customers and engaged employees can be used
+to estimate financial value as well as to clarify assumptions
+Intermediate metrics can help programs deliver those business benefits
+by enabling managers to make mid course adjustments as necessary
+Companies who find natural innovative opportunities to commit abroad
+array of company product expertise and capabilities beyond cash grants
+can multiply the business and social returns that their philanthropic
+initiatives achieve These opportunities are more likely to arise when
+companies establish meaningful long term relationships with nonprofit
+partners aligned with the company s priority areas When corporate
+donations are disbursed without strategy the benefits will be greatly
+limited Heike Bruch and Frank Walter 2005 When corporate from the
+University of St Gallen in donations are disbursed Switzerland
+distinguish companies as being without strategy the market or
+competence oriented in their benefits will be greatly philanthropic
+focus Endeavoring to live up limited to stake holder expectations
+these market oriented companies are likely to care most about
+measuring competitive advantages such as improved marketing
+capabilities and better stake holder relationships By contrast
+competence oriented companies focus on internal skills when deciding
+on the nature of their charitable involvement and for such companies
+measuring value from employee engagement and business innovation is
+more important than for market oriented companies.
+The best approach would seem to be a balanced combination of an
+external market and internal competence orientation which would be
+more likely to maximize business and social benefits concurrently 13
+This review focused on studies that concentrated on companies social
+and community behavior which for many companies begins with corporate
+philanthropy the charitable donation of dollars products services and
+employee volunteer time Some of these studies also considered a
+company s broader corporate citizenship performance beyond social and
+community engagement and included other aspects of corporate social
+responsibility CSR such as governance structure and environmental
+impact 14 Known in the psychology literature as the motivation
+crowding theory See FreyJegen (2001) and Weibel, Rost, Osterloh (2007).
+A recurring statistical criticism of such empirical studies is How
+can one disentangle the possibility that companies for whom employees
+enjoy working might simply be financially valuable in the first place
+Researchers attempt to mitigate this problem by including in their
+regression models a slew of control variables such as measures of past
+financial performance More rigorous statistical tests require
+controlled experiments and field studies that are more complex to
+undertake 16 Hills Mahmud 2007 17 See http www pfizer com
+responsibility global health global health fellows jsp 18 One can turn
+to the HR measurement field for calculation and estimation approaches
+to convert outcomes from an HR program to monetary values although no
+standard approach exists For example Phillips 2005 provides a review
+of HR measurement strategies and describes pp 182 183 how a large
+financial institution RB S developed and used an employee engagement
+model to link HR information to key business indicators enabling the
+business to measure the impact of HR initiatives on business profits
+19 In a survey of HR managers and corporate executives who sponsor
+executive education programs Charlton Osterweil 2005 found that
+while respondents agreed that measuring ROI was important people may
+mean different things when they talk about ROI The researchers
+conclude that sponsors may not be as wedded to proof of financial ROI
+as many HR professionals assume 20 Reichheld Sasser 1990 21 Reich
+held 2003 22 Luo Bhatt acharya 2006 and Lev Petrov its Radhakrishnan
+2009 23 Conjoint analysis is a statistical technique that originated
+in mathematical psychology and is applied to marketing and survey
+analyses See Green Srinivasa n 1990 The technique uses statistical de
+compositional methods to quantify consumers relative preferences given
+their overall evaluations of a set of alternatives which in turn are
+specified as levels of different attributes 24 Christi a ens 2008 25
+Eccles New qui st Schatz 2007 26 To illustrate the potential role of
+philanthropic programs this hypothetical example was adapted from the
+field of international business management For example Li Rug man 2007
+investigated how to apply real options analysis to foreign direct
+investment decisions made by multinational enterprises The focus of
+their paper was on only traditional market entry modes such as exports
+licensing and wholly owned subsidiaries 
+
+# CONVERSATION THREE. Between the Chief Executive Officer CEO and
+investor community.
+
+The investor community tends to pose two
+contrasting questions about corporate giving On the one hand
+shareholders want assurance that philanthropy adds to or atleast does
+not detract from shareholder value On the other hand a growing number
+of investors place increasing emphasis on the demonstration of
+corporate responsibility A large body of literature already exists
+seeking to demonstrate the business value of corporate philanthropy to
+both groups Merely for ease of distinction here we will distinguish
+these two investor groups as traditional and responsible 
+
+## Question 4. How to measure the value of corporate philanthropy 
+for traditional investors.
+
+Scholars have long searched for a link between corporate
+philanthropy and premiums in company profits or stock prices They
+believe that if this link can be proven statistically it could offer
+definitive financial justification for companies to behave as good
+corporate citizens Textbook accounting frameworks reveal that a
+company s share price multiple the premium that a company s share
+price may be worth over its book value of identifiable company assets
+can be driven higher through two financial levers 27 1 a lower cost of
+capital or 2 higher expectations of how much future profitability
+exceeds the company s cost of capital The share price premium that a
+company enjoys over its cost of identifiable financial and physical
+assets is attributed to intangibles which can comprise a significant
+portion of a company s intrinsic value 28 Empirical evidence on share
+price valuations and profitability Baruch Lev and Christine Petrov its
+at New York University and Sure sh Radhakrishnan 2009 at the
+University of Texas collected a large data set of charitable
+contributions made by public companies from 1989 through 2000 They
+applied a statistical methodology known as Granger causality which
+distinguishes causation from association and found that charitable
+contributions increased the subsequent revenue growth of their donors
+This causal relationship was found only in industries highly sensitive
+to consumer perception and for these consumer oriented companies
+within their sample period a basic calculation suggests that giving
+500 000 caused net profits to rise by almost 800 000 The researchers
+could not detect a relationship between charitable giving and profits
+nor sales growth in non consumer industries such as industrial
+companies A study by Ray F is man and Geoffrey Heal of Columbia
+Business School and V in ayN air 2007 of the Wharton School used a
+different data set to explore similar hypotheses They collected
+financial data from 1991 to 2003 to calculate profitability and price
+to book ratios for individual companies and also collected information
+about average advertising intensity for different industries
+Philanthropy ratings came from the SOCRATES database maintained by KL
+D Research and Analytics Similarly to Le ve tal these researchers
+found a positive statistical relationship between philanthropy and
+company financial performance as measured by profitability and price
+to book ratios only in advertising intensive industries such as
+consumer oriented companies However the economic magnitude detected
+was not large Joshua M argolis Hillary Elf en be in and James Walsh
+2007 from Harvard Business School University of California and
+University of Michigan respectively conducted a review of 167 similar
+scholarly studies They concluded that after thirty five years of
+research the preponderance of scholarly evidence suggests a mildly
+positive relationship between corporate social performance and
+corporate financial performance and finds no indication that corporate
+social investments systematically decrease shareholder value 29 More
+critically they and other
+researchers have acknowledged a the preponderance of number of
+weaknesses in the methodologies scholarly evidence and data comprising
+these studies Even suggests a mildly positive when such economic links
+exist flaws such relationship between as these would reduce the power
+of corporate social statistical tests to prove them performance and 1
+There is wide variation in how corporate financial companies are
+assessed on their performance and finds no corporate social
+performance Many indication that corporate studies use observer
+perceptions or social investments insiders self reported impressions
+that systematically decrease may suffer from biases e g the halo
+shareholder value effect Others use third party audits that are often
+not transparent or open to validation Simple metrics like contribution
+amounts do not reflect how effectively donation dollars are actually
+spent 2 Much of the business value of corporate philanthropy can be
+classified as contributing to the intangibles of a company which may
+only show up in profits several years later and many studies do not
+examine the impact on profits over a sufficiently long timeframe There
+is also mixed evidence on how efficiently stock markets price
+companies whose intangibles makeup a large proportion of their value 3
+Some studies measure financial performance as positive market adjusted
+stock price returns These results can be sensitive to the sample
+period chosen Ideally a study would observe along period that
+effectively smoothes out the high variability in stock price movement
+and spans full economic cycles Even more critically care must betaken
+when interpreting the hypotheses supported by such tests If
+philanthropic companies are successful in attracting more investors
+and raising capital at a lower cost one would expect the stock price
+multiples of these companies to be higher and average stock returns
+lower than for less philanthropic companies When stocks are priced
+efficiently the lower cost of capital required by investors in
+philanthropic companies should match the lower average returns they
+subsequently earn overtime as a result of holding those stocks
+Research by Harrison Hong and Marcin Kac per c zyk 2007 from Princeton
+University and the University of British Columbia Traditional
+investors respectively illustrates such a relationship with tobacco
+companies To date the tobacco industry represents the most prevalent
+negative screen applied by socially responsible investors Over the
+past three and a half decades tobacco stocks consistent with losing
+access to capital from a class of investors 30 have been priced at
+lower multiples their price to book multiples were 15 lower than non
+tobacco stocks At the sametime consistent with having to deliver a
+higher return on capital average stock returns from these s in stocks
+outperformed other comparable stocks by approximately 2 4 a year 4
+Many studies are in explicit about the direction of causality Can
+companies afford to be more philanthropic because they have performed
+better financially rather than the other way around Studies also must
+control for other company characteristics that drive financial
+performance but maybe correlated to philanthropic spending such as
+industry risk size research and development and advertising
+expenditures 5 Across companies the relationship between corporate
+philanthropy and financial performance is quite complex Researchers 31
+have found the relationship to be nonlinear and show decreasing
+returns to scale after all corporate philanthropy cannot be expected
+to increase financial performance in perpetuity The relationship has
+also been found to be weaker among companies and industries that are
+less advertising or innovation focused Summary M argolis Elf en be in
+and Walsh concluded that research must reach beyond simply assessing
+the magnitude of the corporate social and financial performance
+relationship it must now show how corporate social performance comes
+to bear upon corporate financial performance Put another way It is
+time to study mechanisms more systematically Addressing the hypotheses
+posed in both these scholarly studies and by traditional investors
+requires measuring and understanding the operational drivers of
+business value business value derived from increased employee
+engagement customer loyalty reputation al capital and opportunities
+for innovation 
+
+## Question 5. How to attract responsible investors.
+
+A company's cost of capital is
+the price it pays investors to supply capital for its business
+activities It is the rate of return that investors require for
+investing in a company If a company attracts a larger pool of
+potential investors it can raise capital at a lower cost than its
+peers earn a wider profit margin and enjoy a higher stock price
+multiple Effect on cost of capital and share prices Socially
+responsible investing SRI the practice of investors who think
+ethically and socially about which stocks to buy sell or avoid
+altogether has along history In its earlier forms SRI was regarded as
+a niche investment style In the first wave of SRI strategies investors
+applied negative screening and excluded entire sectors or groups of
+stocks based on a set of ethical criteria The next wave of strategies
+using positive screening was introduced by benchmark providers such as
+the Dow Jones Sustainability Index DJS I This selected only the
+companies that rated highest on a broader set of environmental social
+and governance ES G responsibility criteria The total amount of money
+invested in traditional SRI is still considered to be relatively small
+and volatile In the 2008 Report on Socially Responsible Investing
+Trends in the United States The Social Investment Forum estimated that
+approximately one in every ten dollars of assets under institutional
+management in the U S an estimated 2 3 trillion out of 24 trillion was
+invested in companies that rate high on some measure of social
+responsibility Analysts generally estimate that SRI presently makes up
+no more than 5 10 of all stock market investments A far more important
+factor will depend on how much mainstream investors start to recognize
+and reward performance incorporate social responsibility CSR
+Increasingly investors are recognizing that responsible corporate
+performance when combined with traditional financial analysis in forms
+their assessments about whether companies are good financial
+investments This also removes the issue of personal values based
+preferences which can be a slippery slope to navigate particularly for
+professional money managers European institutional investors appear to
+be leading and adopting this movement more widely For example Swedish
+and Norwegian pension funds representing close to 1 trillion of
+combined assets recently signed on to the
+Sustainable Value Increasingly investors are Creation Initiative S VC
+to influence recognizing that companies to improve the social and
+responsible corporate environmental aspects of their operations
+performance when which they believe reduce risks and costs combined
+with traditional while harnessing and developing business financial
+analysis in forms opportunities 32 their assessments Researchers from
+the University of about whether companies British Columbia and the
+University of are good financial Vienna 33 created a model of stock
+market investments prices to examine how social investors materially
+affect those prices This model determined whether a growing class of
+socially concerned investors would create incentives for companies to
+act in a more socially responsible manner by lowering their cost of
+capital In their book Investing for Change August in Landi er and Vi
+nay Nair have applied this model to estimate a back of the envelope
+relationship between stock price valuation and the proportion of
+socially responsible investors in the market For example if the amount
+of SRI capital switches from 10 of the total available capital to 15
+in three years the cost of capital of responsible companies maybe
+lowered by more than 0 8 Such a drop from say a 10 0 return required
+by investors to 9 2 could increase the valuation of these companies by
+as much as 11 34 Other researchers have approached this question by
+examining how substantially stock prices have moved based on SRI
+motivated capital flows SRI funds often track membership in certain
+specialized benchmarks to identify which companies to invest in These
+benchmarks are maintained by index providers such as Dow Jones or FTSE
+often in collaboration with ES G research firms As companies are
+included or dropped from such indexes one would expect SRI linked
+capital to flow into or out of those stocks These are potentially
+abrupt events if SRI flows are material enough they could drive stock
+prices of companies entering indexes to rise atleast temporarily and
+those exiting to experience a drop Researchers have collected large
+datasets of these events and examined the average stock price changes
+accounting for broader market movements and other factors typically
+controlled for in event study methodologies. In recent working papers
+from the Federal Reserve 
+Bank of Atlanta and Bank of Finland 35 researchers looked at the price
+performance of all stocks between 1990 and 2004 on the announcement
+that they were dropped from the Domini 400 Social Index They found
+that the exiting company experienced a significant abnormal stock
+price drop of about 3 Another research team 36 at the University of
+Calgary studied additions and deletions of North American stocks to
+the Dow Jones Sustainability Index from 2002 to 2007 They found that
+inclusion in this index was valuable for a company measuring a boost
+in market value of about 2 compared to stocks that were dropped
+Mainstream responsible investing Contrary to earlier and more
+traditional approaches of SRI which was driven largely by investors
+personal values the case for mainstream institutional investors lies
+in recognizing that responsible corporate behavior is a proxy for the
+quality of company management and the extent to which that management
+is forward looking and adaptable Responsible investing RI is
+characterized by the incorporation of social and environmental factors
+within traditional investment decision making processes based on the
+rationale that such a combined investment framework is more effective
+for assessing the financial value of companies particularly over the
+long term The growth and influence of responsible investing will be
+determined more by the interest of mainstream investors than by
+traditional SRI funds In April 2006 former UN Secretary General Kofi
+Annan launched a global initiative centered on a set of voluntary
+values and guidelines for asset owners and professionals The PRI
+Report on Progress 2008 reported that as of May 2008 approximately 300
+financial institutions representing a total of 15 trillion in
+professionally managed assets have subscribed to these UN Principles
+for Responsible Investment The six principles listed below are not
+prescriptive but they provide a framework according to which investors
+can organize and integrate ES G criteria into mainstream investment
+analysis and ownership practices Although subscription to these
+principles does not necessarily mean that all funds already fully
+comply with them funds are nevertheless expected to pursue compliance
+and to report to the UN Secretariat on their progress.
+The Six UN Principles for Responsible Investment are 1 We
+will incorporate ES G issues into investment analysis and decision
+making processes 2 We will be active owners and incorporate ES G
+issues into our ownership policies and practices 3 We will seek
+appropriate disclosure onE SG issues from the entities in which we
+invest 4 We will promote acceptance and implementation of the
+Principles within the investment industry 5 We will work together to
+enhance our effectiveness in implementing the Principles 6 We will
+each report on our activities and progress towards implementing the
+Principles The potential impact of responsible investing on how stocks
+are revalued and corporations behave is huge If just a third of
+subscribers implement these principles in their investment process the
+combined size of investments linked to some corporate responsibility
+criteria would triple However the range of screening criteria and
+rating assessments is wide in contrast to simple early SRI approaches
+like tobacco industry screens Professional managers and analysts cite
+a general view broadly consistent with recognizing ES G performance as
+a proxy for management quality insofar as it reflects the company s
+ability to respond to long term trends and maintaining a competitive
+advantage 37 Much of their specific analysis ultimately relies on the
+subjective judgment of individual analysts and on proprietary
+frameworks rather than standardized metrics A review of the ratings
+processes of major ES G research firms confirms that while their
+general principles share much overlap they do apply subjective metrics
+and proprietary rating schemes These ratings generally consider not
+only the level of philanthropic contributions but also attempt to
+account for other factors such as the innovative quality of giving and
+the measurement processes involved In 1999 Dow Jones Company launched
+the first global indexes tracking the stock price performance of
+leading sustainability driven companies worldwide According to the Dow
+Jones Sustainable Indexes 2007 Annual Review asset managers in sixteen
+countries collectively managed about 6 billion based on the DJSI. 
+Inclusion within the index is
+based on criteria that are weighted approximately equally for economic
+environmental and social performance though actual weights differ
+among industry groups In order to apply for inclusion in the DJS I
+companies must complete a questionnaire an extensive survey that
+incorporates both generic as well as industry specific questions This
+information is supplemented by company and third party documents
+personal contact between analysts and company representatives and
+additional information from media and NGOs Companies are ranked within
+their industry groups and selected for the indexes if they are among
+the top 10 of sustainability leaders in the irrespective industry
+sectors Although a significant commitment of costs and efforts maybe
+required for collecting the information and completing the survey
+companies see the DJS I label as an important mechanism for
+establishing a reputation in sustainability The general section of the
+survey questionnaire is comprised of 51 sets of questions covering
+economic environmental and social issues Accounting for 3 5 weight in
+the company s overall score corporate philanthropy is assessed based
+in part on responses to these questions 38 1 Does the company have a
+system in place to measure the business social and reputation stake
+holder impact of its contributions in order to improve andre align its
+philanthropic social investment strategy 2 What is the estimated
+monetary value of its philanthropic contributions voluntary social
+investments in cash employee volunteering and product donations Two
+other prominent social ratings firms are 1 KL D Research Analytics Inc
+KL D has conducted research into the ES G performance of listed
+companies since 1988 Based on KL D s rating indicators the Domini 400
+Social Index was the first socially responsible stock benchmark in
+America In 2008 FTSE agreed to co brand KL D s suite of ES G
+benchmarks KL D s research database SOCRATES contains ES G reports and
+ratings one very Russell 3000 and S P 500 company and is a widely used
+measure of corporate social responsibility for industry and academic
+research 2 In no vest Strategic Value Advisors is another global
+provider of extra financial and sustainability based investment
+research institution ally recognized since
+1995 Its Intangible Value Assessment IV A model combines performance
+ratings on 120 sustainability practices categorized into four major
+areas stake holder capital relationship with local community as well
+as partnerships supply chain and human rights human capital employee
+development labor relations and health and safety strategic governance
+overall strategy adaptability product development and safety and
+environment overall environmental impact including strategy governance
+management systems opportunity and risk In 2009 the Risk Metrics Group
+a leading provider of financial risk management products and services
+to global institutions announced its intention to acquire In no vest
+and KL D and to integrate their sustainability research capabilities
+into its suite of financial risk management offerings Responding to
+its clients indicated belief 39 that ES G performance is a critical
+benchmark of companies risks and long term value Risk Metrics has
+committed to make ES G analysis an integral part of mainstream
+investment research An important effort to standardize corporate non
+financial reporting was initiated in 1997 by The Coalition for
+Environmentally Responsible Economies CERES The Tellus Institute and
+The United National Environment Program The Global Reporting
+Initiative GRI which these entities launched through consultation with
+multiples take holder groups publishes periodically revised reporting
+guidelines However the GRIn either assesses whether company reports
+conform to those guidelines nor verifies their accuracy thus
+potentially reducing the reports value to investors Moreover the
+growing length of reports may complicate financial analysts ability to
+use them effectively 40 The current set of guidelines entitled G 3
+includes performance indicators that fall into one of the following
+categories economic 9 indicators environmental 30 labor practice 14
+human rights 9 society performance 8 and product responsibility
+performance 9 Companies are required to update this data annually 41
+The G 3 indicator for community impact SO 1 obliges companies to
+report the nature scope and effectiveness of any programs and
+practices that assess and manage the impact of operations on
+communities including entering operating and exiting In a review of 72
+company reports the GRI found that the majority of G-3 reporters claim
+to be reporting in accordance with the G-3 Guidelines SO-1 indicator
+however in reality only 11 of the G-3 reporters fully report according
+to the SO-1 indicator
+protocol 42 The reports examined were found to focus mostly on
+reporting their own performance as opposed to what changes or benefits
+occur as a result of their activities and to emphasize positive
+community impact without mentioning any negative ones Summary A high
+quality measurement process is If the criteria applied by social
+rating firms a critical input for good seem inconsistent and
+subjective this may management and be as much a result of the
+unevenness and demonstrates that a ambiguity of what many companies
+company recognizes how disclose It is also unclear to what extent its
+philanthropic strategies criteria and disclosures are linked to can be
+successful in financial value There is a significant creating long
+term opportunity for companies to lead the business value industry in
+developing standards or differentiating themselves to the investor
+community through their disclosures about philanthropic efforts
+Documentation of the measurement process should bean important part of
+establishing quality disclosures and standards A high quality
+measurement process is a critical input for good management and
+demonstrates that a company recognize show its philanthropic
+strategies can be successful in creating long term business value The
+Dow Jones Sustainability Indexes questionnaire also asks if the
+company has in place a measurement system although it does not provide
+guidance about what Dow Jones considers to be a good system The review
+and findings summarized in this report suggest that companies could
+berated on at least the following criteria 1 The company has
+documented high quality logic models or understanding of the process
+by which its various types of philanthropic initiatives achieve
+business benefits 2 The company has defined business related outcome
+metrics measures them and has in place a rigorous process to improve
+or re align its various philanthropic strategies 3 The company
+systematically tracks social outcomes and compares these to targets or
+benchmarks by which it can monitor whether its philanthropic
+investments are effective overall. A
+general formula for the Residual Income Model commonly used inequity
+valuation reduces the relationship of price to book multiples to cost
+of capital r profitability as measured by Return on Equity ROE and
+growth g P B 1 ROE r r g 28 Lev 2001 29 M argolis Elf en be in Walsh
+2007 p 22 30 The researchers found that tobacco companies enjoyed 14
+21 lower ownership by institutional investors and 15 lower coverage by
+brokerage analysts 31 For example Wang Choi Li 2008 and Lev Petrov its
+Radhakrishnan 2009 found a decreasing rate of return to philanthropic
+spending in their sample of companies while Luo Bhatt acharya 2009
+found in their sample that companies enjoy a stronger link between
+measures of financial and social performance if they are heavy
+investors in advertising and research and development 32 See Swedish
+AP funds join sustainability initiative I PE 2009 September 11 33 He
+in kel Kraus Ze chner 2001 34 The perpetual growth model is often
+represented by the following formula which assumes a constant long
+term growth rate of earnings P earnings r g Substituting an assumption
+of 10 normal cost of capital and 2 long term earnings growth g and
+modeling a drop in the cost of capital r to 9 2 shows an increase of
+11 1 in stock price valuation See Landi er Nair 2008 35 Bec chet ti
+Cici r etti Has an 2009 36 Robinson Kleff ner Bert els 2009 37 The
+report by the Asset Management Working Group of the United Nations
+Environment Programme Finance Initiative and Mercer October 2007
+surveyed the frameworks of several major sell side research firms 38
+SAM Research 2009 Corporate Sustainability Assessment Questionnaire 39
+See press release Risk Metrics Group Announces Acquisition of KL D
+Research Analytics Inc 2009 November 3 Retrieved from http www risk
+metrics com press R MG a quires KL D 40 Vogel 2005 41 Global Reporting
+Initiative 2006 42 See Global Reporting Initiative University of
+HongKong and CSR Asia 2008.
+
+# Conclusion 
+
+Philanthropic initiatives provide novel channels through
+which companies can meet core business goals and create long term
+financial value by increasing employee engagement customer loyalty
+reputation al capital and market opportunities These improvements are
+most effective when corporate giving teams work in concert with
+existing company operations However some companies do not target or
+measure the business benefits of their philanthropy possibly because
+these benefits are intangible or not easily associated with short term
+financial profits Measurement frameworks can be introduced by
+leveraging models and evidence developed by related business
+disciplines they can also help identify key intermediate outcomes that
+if targeted can ultimately yield desired business behaviors and
+benefits Scholarly studies have found that these links are not always
+straightforward however It is hoped that the analysis in this report
+will spark additional research measurement and understanding of these
+mechanisms For example it will be instructive to study how companies
+test and validate the effects of volunteer programs and other
+philanthropic activities on employee engagement and behavior It will
+also be useful to learn from companies experiences with estimating
+cash flows probabilities discount rates and other model parameters
+that affect the valuation of growth opportunities arising from
+philanthropic projects Many companies already possess related data and
+valuable examples There is much room for those companies to conduct
+and share thoughtful analyses of methodologies and frameworks without
+disclosing proprietary business information This work is not merely
+academic it provides actionable research based evidence in support of
+measuring value and promoting more effective alignment of
+philanthropic programs with core business goals A wide range of social
+impact assessment frameworks is available in the social sector many of
+these frameworks have been put forth by sophisticated private
+foundations reflecting their unique needs and goals Given the
+diversity of missions that nonprofit organizations and f under s
+pursue there appears to be no single quantitative or qualitative
+methodology against which performance of all grant types can be
+evaluated Which approach a corporate giver should apply will depend on
+the motivation and focus of its philanthropic program.
+
+For example, the appropriate measurement strategy will depend on
+whether a company seeks to meet communal obligations build a signature
+partnership make a few high value grants to one cause make many one
+off grants addressing multiple causes or a combination of these
+Nonprofit organizations face mounting Measurement is not an pressure
+to demonstrate the effectiveness of unnecessary burden or their
+programs Because they can call on un recoverable cost if it internal
+relevant skills and experiences adds value companies are in an apt
+position to help grant ees emphasize and take advantage of measurement
+both to communicate and improve performance Measurement is not an
+unnecessary burden or un recoverable cost if it adds value Its value
+is maximized by organizations that harness it to build and learn from
+data over time In a challenging economic period when organizations
+seek to reduce overhead expenses of any kind it is particularly
+important to distinguish good from bad overhead and to maintain
+funding dedicated to the ongoing improvement of philanthropic bang for
+the buck The investor community increasingly esteems companies with
+strong community records Investors reason that such behavior
+represents the quality and foresight of management Investors and
+analysts appreciate disclosures about philanthropic commitments that
+are comparable material and financially relevant Absent effective
+industry standards companies have an opportunity to distinguish
+themselves in their conversations with the investor community by
+proposing standards of their own Part of such a proposal may include
+detailed insights into the related measurement process which can help
+demonstrate understanding of what drives long term business success
+quality of management and superior potential to create financial value
+The value of corporate philanthropy is measurable as with many
+elements of business however it cannot always be measured as precisely
+as we would like 43 What gets measured gets managed goes the old adage
+indeed measurement plays a crucial role in enabling companies to reach
+their full potential both philanthropically and as more successful and
+sustainable enterprises overall.