In the corporate sector, 2023 is a year of mass layoffs, belts tightening, and a sense of unpredictability. This reality has hit social impact teams particularly hard. As many corporate leaders shuffle priorities, corporate social responsibility too often slides to the back burner.
If they didn’t grasp it before, CSR professionals now have a profound understanding of how important it is to future-proof their work. Though the nature of corporate giving means that some aspects of corporate philanthropy will always be contingent on corporate profits, there are measures CSR teams can take to insulate social impact work from the market volatility that can undercut their efforts.
Setting up a foundation to disburse corporate grants is one way CSR teams can insulate a company’s social impact mission from the natural unpredictability of the corporate world. But setting up a foundation takes time (and a fair amount of red tape). It’s not the right thing for every business. However, every company that has a CSR program should consider how a corporate foundation might fit into its mission. Even if you aren’t ready to launch a foundation right now, it’s worth considering whether a corporate foundation should be in your long-term plans.
What is a corporate foundation?
A corporate foundation is a separate legal entity from the corporation. It’s a nonprofit, tax-exempt 501(c)(3) private charity, as opposed to a public charity. Operated and financially supported by the corporation, the foundation’s activities align with and help fulfill the company’s philanthropic and social responsibility initiatives.
The tax-exempt status of a corporate foundation obliges it to distribute a certain percentage of funds at least annually. Foundations typically award corporate grants and scholarships, match employee donations and volunteering time off, provide goods and services, and/or offer disaster relief.
For instance, the Firehouse Subs Foundation provides lifesaving equipment, public safety education and scholarships, and disaster relief, donating over $73 million so far.
A corporate foundation bolsters your CSR work
Setting up a corporate foundation is not about pivoting away from the social impact work you’re already doing. It’s about deepening that commitment and building more formal infrastructure that will support your community investment and ESG efforts over the long term.
Solidify your mission for the future
One of the tricky aspects of corporate giving without a foundation is that the social impact mission of a company has the potential to shift with the winds of the business. In some ways that provides agility. But that agility comes at a cost.
Social impact happens at a much different pace than other corporate programs. It doesn’t operate on the same timeframe as quarterly returns. To make a meaningful difference, CSR programs require a long-term, sustained commitment. If a company continually pivots to new causes based on market trends, they will likely struggle to make a real impact.
Plus, there’s no way to know what the future holds. If a new CEO steps in who doesn’t value corporate social responsibility, the internal CSR team might find their resources dry up.
As a separate entity with its own leadership, a foundation can solidify a social impact mission for the long term. That way when business priorities change or leadership turns over, social impact programs stay intact. And the foundation can still be agile, but rather than responding to market fluctuations, they can be more responsive to community needs.
Tip: Whether or not you form a foundation, make an effort to clearly articulate what your social impact mission is now and how it should change and/or stay the same over the next five, ten, and fifty years.
Create a team focused on philanthropy first
A corporate foundation has its own distinct leadership and staff. These professionals are not employees of the company, they are employees of the foundation, which means their focus can be purely philanthropic.
Freedom from the corporate sphere allows the foundation staff to set priorities around community needs and prioritize sustainability and longevity. Rather than taking direction from a CEO, foundation leadership is in conversation with them, but they make their own decisions. They are focused on the health and wellbeing of the foundation and don’t have to consider the business.
An in-house CSR team can focus on giving back to the community, but they will always be beholden to corporate leadership and their measures of success. This duality can hamstring a CSR team’s ability to be effective. It can force them into frameworks that don’t fit social impact work and discourage them from experimenting and innovating.
Tip: Don’t see foundation staff vs. CSR team as an “either-or” question. A foundation staff will still need support on the inside so they stay connected to employees and in conversation with leadership. Think about a structure that leverages both.
Strengthen relationships with nonprofits
When you create a foundation, you aren’t just insulating your internal CSR programs from the volatility of the market, you’re also helping to insulate your nonprofit partners. This consistency goes a long way for them.
Creating a foundation shows nonprofits that you’re in this for the long haul. You’re not looking to throw some cash at a cause and then move on. Investing in a foundation shows a commitment to your mission that is hard to replicate. Nonprofits take notice.
The very nature of a corporate foundation provides stability. For foundation leaders and staff members, longevity and stability are a central goal. In fact, their jobs depend on it. So they make strategic decisions that ensure that the foundation can stay stable over the long term. This might mean that they keep a reserve of funds to tide programs over should that business pull back support in lean years. Or making a funding plan that covers five to ten years rather than one year at a time. This long-term planning helps nonprofits know what’s coming and plan accordingly.
Tip: Think of the nonprofit partners you work with as strategic partners who can help you fulfill your social impact mission whether or not you create a foundation.
8 steps to set up a corporate foundation
Setting up a corporate foundation requires some of the same strategic decisions and administrative details as launching a company.
- Select leadership
Appoint a board composed of leaders and employees representing different functional areas, levels of the organizational chart, and affinity groups. It’s essential to get a range of diverse perspectives.
- Loop in employees
Make a plan for gaining employee support for foundation activities. As board members, employees and leaders together drive the decisions and direction of the foundation, but only after soliciting ideas and feedback from the company’s staff. The foundation’s mission must be aligned with employee interests and passions. Encourage employee support with donation match programs.
- Define your mission
Your foundation’s mission is not only aligned with your company’s mission but also its values, strategic direction, and CSR strategy. The foundation’s mission serves as its North Star, keeping foundation leaders and staff focused on the right activities to pursue. The mission is important to the IRS too since they grant your tax-exempt status based on the foundation’s expressed charitable purpose.
The foundation’s mission guides the board and staff’s decisions concerning:
- Which projects to support
- Whom you will serve
- How you will serve them—scholarships, grants, or skills-based volunteering
- Where you will serve them—locally, nationally, or globally
- Team up for compliance
Hire a professional advisor and/or legal team to help you set up the foundation and keep it in compliance with federal and state laws. Make sure your company’s legal and finance teams are involved from the start.
- Take care of the paperwork
Submit paperwork, including Articles of Incorporation, to establish the foundation as a legal entity with the state. Make sure to file for tax exemption with the IRS. Allow at least six months for approval (IRS determination letter). You can check the IRS’s current wait time here. You’ll also want to craft bylaws and a conflict-of-interest policy to guide your internal practices.
- Solidify your strategy
Identify goals for the coming year and beyond. Define and set up processes to track success metrics so you will know how well you’ve achieved those goals. Create guidelines and policies that align with your mission such as:
- Asset management and distribution guidelines
- Investment policy statement
- Grantmaking guidelines
- Scholarship policy
- Gift acceptance policy
- Select the right technology
Select and implement technology, like a grant management system, to help you design and manage the grant application and application review processes. Be sure to choose solutions that work for your program in the short term while giving you the support you need to grow and evolve over time.
- Workshop your pitch
Refine your elevator pitch for employees, industry partners/vendors, and other groups whose support and participation you seek. Be clear and concise about the social impact you plan to make and how you will do it.
Build a foundation alongside your CSR efforts
If you determine that a corporate foundation makes sense for your company, that doesn’t mean you have to abandon your CSR efforts and relaunch once the foundation is in place. In fact, you should keep your CSR programs running while you get the foundation set up and then decide which programs fit under the foundation and which should stay under the corporate umbrella.
For instance a community grant program would likely be housed in a foundation. But an employee volunteering program might still make sense as an internal initiative. No matter how you structure them, you want all these programs to stay connected.
If the steps to setting up a corporate foundation seem overwhelming, simply start like we did at Submittable with a corporate grant program and then grow from there. As you grow, continue to think about how you build the right infrastructure to support the future of your CSR programs.