THE NEW WORLD OF GIVING

By Daniel Kadlec

Just inside the Flynn Theater in Burlington, Vermont, Ben Cohen and Jerry Greenfield stand aside as twentysomethings stream by to find seats at a rare hometown concert by the rock band Phish--a treat the ice-cream magnates have sponsored to raise money to clean up nearby Lake Champlain. A girl recognizes Ben. "Could I, like, make a suggestion?" she asks. "It'd be really great if you could make a marshmallow for us vegetarians."

You have just entered the socially conscious zone, where certain ice-cream lovers expect Ben & Jerry's Homemade not only to clean up the lake but to rid marshmallows of their faint animal by-products too. And, whoa. In this case, anyway, Ben & Jerry's had the answer: it uses a substitute for marshmallow gelatin, which comes from bones. Voila, a loyal customer.

Caring capitalism such as that long practiced in seeming isolation by Ben & Jerry's and a handful of others is boardroom gospel these days. Companies' motives aren't exactly holy. There's plenty in it for them. So just about everyone is giving do-goodership a spin. American Express is feeding the hungry. Alarm company ADT gives away personal-security systems to battered women. Avon Products is helping fund the fight against breast cancer. Kimberly-Clark is building playgrounds in poor neighborhoods. Barnes & Noble promotes literacy. Coca-Cola is sponsoring local Boys and Girls Clubs. Nike, Wal-Mart, Home Depot, BellSouth, MCI and Starbucks all have pet social causes, as do countless other companies big and small. There are some 800 companies belonging to a San Francisco-based group called Business for Social Responsibility.

In Philadelphia this week Colin Powell and his congregation of Presidents are embarked on a well-publicized effort to turn corporate responsibility into a duty. His summit on volunteerism will raise the bar for what passes as a socially responsible corporation. But savvy corporate chieftains began linking their companies to social causes a decade ago, seeing that as a way to stand out in a world of look-alike products. The strategy has generally worked, and now "companies are aligning furiously with nonprofits," says Lesa Ukman, president of the Chicago-based marketing firm IEG Inc. "In 1997 you can't make a decent profit unless you're socially responsible."

That is a zealot's stretch. But the trend toward "strategic philanthropy"--giving in a way that benefits the corporate bottom line--is unmistakable. In the lean and mean 1990s, companies are taking a close look at where every penny they give away goes. More and more, they are focusing on areas that resonate with their customers. So Whirlpool, whose main customers are mothers, concentrates on funding things like child care and job training for women.

Closely related to this strategy is the movement toward "cause marketing," which is the fastest-growing segment in advertising. Companies will pay more than $500 million this year for the rights to sponsor various social programs, from research on AIDS to support for local fire departments. Typically, such sponsorships come with expensive marketing campaigns that promote the company while promoting the cause. By raising public awareness, these ads will help generate some $2.5 billion for the causes they champion. The sum should double in three years, according to IEG.

So much money is being raised through corporate marketing efforts that traditional philanthropists--nonprofit groups that rely on corporate giving--are beginning to feel threatened. "They worry that if companies are spending marketing dollars this way, they will be reluctant to spend philanthropic dollars as well," says Jerry Welsh of Welsh Marketing, who pioneered cause marketing at American Express in the 1980s.

There is some basis for that concern. Even though corporate charitable contributions have climbed to record levels in dollar terms, they have fallen to about 1% of pretax profits from more than 2% a decade ago. That's partly explained by a combination of tax-law changes, today's soaring profits and a shift to product donations in lieu of cash. Still, it's the kind of thing that makes traditional nonprofits sweat. And the latest bout of merger mania makes them even more uncomfortable. When two big companies--each with its own foundation--become one, only one foundation is likely to survive.

It doesn't help that many nonprofits have been torn by scandal and are perceived to be bloated with overhead. In March, New Era Philanthropy founder John F. Bennett Jr. pleaded no contest to charges of defrauding hundreds of charities and nonprofits of $135 million and siphoning off more than $3.5 million for his own use. Meanwhile, cash-strapped governments are no longer able to shoulder a broadening social agenda. If business wasn't stepping forward, despite its profit motive, where would the money come from to, say, restore the Statue of Liberty? American Express raised $1.7 million for that purpose in the early '80s in what is regarded as the first cause-related corporate-marketing effort.

Though individuals still account for the great bulk of giving (private donors gave 80% of the $144 billion raised by charities in 1995), some are worried that charities that aren't sexy enough to attract business support will suffer. Where would that leave relatively unpopular causes such as mental illness? "Ninety percent of the charity universe doesn't benefit from the hundreds of millions of dollars generated through cause marketing," notes Robert Bothwell, president of the National Committee for Responsive Philanthropy.

And how far into public-works budgets do we really want business to wade? Already, some local police and fire departments have official sponsors. In St. Clair County, Illinois, sheriff's department squad cars carry the logo and phone number of Barcom Electronics, a local alarm company. Barcom pays $6,000 a year to the county, which uses the money for a drug-awareness program. "Obviously, I get instant credibility," says Barcom executive Mark Bartle. But there's a danger too: if the department should come to rely on private funds for needs like vehicle maintenance, it could have to scramble to keep its fleet roadworthy if the sponsors drive off.

A deeper concern is that American business, which is now the envy of the world for its profitability and ruthless efficiency, could fall off that pedestal if it takes on too many social issues. "Business exists to make a profit," says John Hood, president of the John Locke Foundation, a North Carolina-based public-policy think tank. "When you lose sight of that, you lose the unique benefits that come from being highly focused in a competitive market."

Cost-cutting CEOs like Al Dunlap would certainly agree. "Chainsaw Al" wiped out a $5 million annual philanthropy budget when he took over at Scott Paper a few years ago. Now, at Sunbeam, he's eliminated that company's $1 million-a-year giving program. "The purest form of charity is to make the most money you can for shareholders and let them give to whatever charities they want," Dunlap says.

But that's not how a lot of folk see it. "You can't have the biggest force in society, business, concerned only with maximizing profits and still have a socially responsible society," says Cohen of Ben & Jerry's. Says partner Greenfield: "When it's just trying to maximize profits, business lobbies for laws that would be most helpful, even if it means polluting the environment. That's not exactly in the best interest of society."

Socially responsible companies tend to occupy one of three tiers:

OPEN HANDERS At the highest level of corporate conscience are companies such as Ben & Jerry's and Tom's of Maine, a maker of toothpaste and other personal-care products. Ben & Jerry's gives away a stunning 7.5% of its pretax profits and goes to great lengths to buy from minority or disadvantaged suppliers. (The company's earnings fell last year as sales of superpremium ice cream dipped; for the recent first quarter, Ben & Jerry's reported a $1.06 million loss.) Detractors call such contracts posturing and note that Ben & Jerry's has been fighting a lawsuit by a minority supplier that claims to have been dumped. Still, Ben & Jerry's--which sets forth its philosophy in a newly published book, Double-Dip: Lead with Your Values and Make Money Too--has an unusually intense focus on social activism. Each year the company conducts a "social audit" to gauge how well its social agenda is being met.

Tom Chappell, CEO of Tom's, shuts down his factory four times a year at a cost of $100,000 each time, to ensure that all employees attend meetings that frequently center on the environment and other social issues. He and like-minded leaders view profits as a product of doing the right thing. Interestingly, such executives tend to be onetime idealists in their late 40s or 50s. In the 1960s they might have been at sit-ins for social justice. Today they have enough success to apply practical ways to achieve their goals.

PRACTICING WHAT THEY PREACH On the next level is what marketing expert Carol Cone, CEO of Cone Communications, calls "passion branders." They are companies with a long-term commitment to a cause. They not only raise money but also walk the walk of deeply interested parties. If they sponsor environmental awareness, you can be sure they also recycle. McDonald's, for example, has a clear interest in kids and local communities. Its Ronald McDonald House for the families of seriously ill children is one of the country's best-known charitable tie-ins.

IMAGE BUILDERS The third tier contains the most companies, and they number in the hundreds, and possibly thousands, of firms. This is the level of pure-cause marketing, where a company is apt to adopt a cause as a way to brighten its own corporate image. For example, insurance giant Prudential, battered by years of negative publicity surrounding its agents' sales practices, last year began sponsoring a national youth-volunteerism campaign. Spokesman Robert DeFillippo acknowledges that the campaign is helping rebuild Prudential's image. But "you can't tie them directly," he says. "We're 120 years old and have a long tradition of youth programs." Still, such image building invites the most criticism because it's seen as largely self-serving.

Purists fret that nonprofits are too eager to take easy money from corporations and that such handouts leave philanthropic groups vulnerable to a whimsical change of heart or a downturn in profits. Irving Warner, author of the book Art of Fund Raising, recently wrote that "the growth of joint-marketing ventures involving business and charities is a sign of real weakness in the fund-raising profession."

But there's probably nothing that Warner or anyone else can do about these trends. Strategic philanthropy and cause marketing are hot because they serve business well while raising billions of dollars for worthy causes. It's a classic win-win. A recent survey by Cone Communications and the Roper Group found that 76% of consumers would switch to a corporate brand or product that supports worthy causes, provided that the price and quality were on a par with other goods. That's up from 66% in a 1993 study.

It is surprising just how far things have come. We're well beyond such hucksterish practices as the renaming of San Francisco's Candlestick Park as 3Com Park and Cincinnati's Riverfront Stadium as Cinergy Field after corporate sponsors. That's pure commercialism that helps pay for stratospheric ballplayer salaries and gives companies gigantic billboards. Backing social causes, on the other hand, moves corporations onto a moral plain. You may not like profit-minded ceos deciding which charities get all the loot. But in an era of shrinking government responsibility for the welfare of its citizens, somebody has to pick up the tab.

--With reporting by Bruce van Voorst/Washington

With reporting by Bruce van Voorst/Washington