Sometimes the most revealing details emerge at the end of an interview. We were speaking with the president and program officer of a major bank’s corporate foundation about their structure and goals. As expected, the conversation brought to light a number of strategies that they were advancing in partnerships to

empower underserved communities. But as they shared their reflections from the conversation, the program officer gave us a deeper understanding of their work. “It’s never been as challenging,” she said. “It’s a hard job.”

She referred to the murder of George Floyd and the Covid-19 pandemic. She talked about the balancing act of being “too woke or not woke enough.” She lamented that the bank’s CEO was expected to take a public stance on everything, from climate news to Supreme Court decisions. The right way to respond to these rising expectations was far from obvious. And there seemed to be pitfalls in every choice.

The New Landscape

Over the past year, we’ve conducted some 40 interviews with heads of corporate foundations and other key executives in corporate philanthropy in an effort to understand how this space is changing. And it is undergoing a transformation. In 2020, the racial unrest in the United States and the Covid-19 pandemic acted as “a catapult,” according to the head of global philanthropy at another major bank. “The pace has changed,” another corporate foundation president told us. “We’ve never been busier.”

These leaders are responding to a new consensus that corporations should be actively working to solve perennial societal problems – a shift that seems to correspond to a breakdown in trust in other cornerstone institutions. In 2021, 2022 and 2023, the Edelman Trust Barometer, a global survey that measures social capital across the globe, showed that business was the most trusted societal institution. In 2023, 62 percent of Edelman’s respondents expressed confidence in business to address major challenges, compared to 59 percent in nonprofits and 50 percent in government and media. It appears that as trust has dropped elsewhere, both consumers and younger employees increasingly expect the companies where they shop or work to address issues previously seen as the province of public policy or independent philanthropy.

These issues include racial injustice, the transgender rights movement and, particularly after the 2021 Dobbs decision at the U.S. Supreme Court, abortion rights. How companies are supposed to weigh in on such issues, particularly in a fractured political environment, is not always clear. Bud Light’s lighthearted embrace of a transgender activist in 2023, for example, caused a major uproar among its blue-collar consumer base – along with massive sales losses.

At many of the world’s largest corporations, CEOs are turning to their philanthropy teams to help navigate this uncharted terrain. More and more often, heads of corporate foundations are acting as shared-value counselors to the C-suite, advising on how to enter marginalized markets, how to communicate about issues of advocacy and controversy and how to design long-term sustainability strategies – including what harmful practices to stop.

What’s the Bottom Line? Also, how dare you?

Of course, not everyone believes corporations should be in the philanthropy game. There are two main lines of attack to the concept of corporate philanthropy, each revealing partial truths, but perhaps not the whole truth.

On one end, some argue à la Milton Friedman that business benefits society most effectively by sticking to creating jobs, making and distributing products people really want and maximizing profits for shareholders who can then give to charity if they choose. This view is alive and well among many investors and executives. For instance, as activist investors targeted Salesforce last year, they brought a critical eye to all the activities of management, including Salesforce’s well-known philanthropic efforts. The question that investors wanted answered was, “how is this generating profits?” And their view was that when there was no clear answer to this question that applied to the short term, those activities should be jettisoned. This skepticism extended to the philanthropy engagements at Salesforce, in spite of the long-term importance of philanthropy to the company’s founder and culture.

On the opposite end of the skepticism spectrum are those who see corporate philanthropy as simply reputation-washing or, more sinisterly, as maintaining systems of injustice that benefit few and harm many. Robert Reich, the secretary of labor in the Clinton administration, made this case in a conversation with the author and philanthropy critic Anand Giridharadas about corporate giving during the pandemic. “Those who have more and more wealth and power,” Reich said, “have a greater and greater stake in disguising their wealth and power or in appeasing everybody else through their philanthropy or through corporate social responsibility.”

Elsewhere in the conversation, Giridharadas called the donation of tens of millions of dollars in medical equipment during Covid- 19 “performative corporate gestures.” In this discussion and elsewhere, he argues with conviction, and often with great clarity, that corporations should pay their taxes and behave more responsibly toward their workers and the environment, instead of engaging in what he sees as PR-driven giving.

So corporate philanthropists are facing compelling challenges from two directions. And while both lines of thinking have merits, they both fall short in important ways.

Twenty years ago, Michael Porter and Mark Kramer unpacked and rebutted two underlying assumptions behind Milton Friedman’s stance – namely that economic and social impacts are disconnected and that shareholders are better positioned to make philanthropic contributions than the companies they own. First, Porter and Kramer made the case that social and economic outcomes are highly interrelated through what they called the “competitive context,” which is the quality of the overall business environment. “Using philanthropy to enhance context,” they wrote in the Harvard Business Review, “brings social and economic goals into alignment and improves a company’s long-term business prospects.”

Second, Porter and Kramer made the case that companies – due to their “financial, managerial and technical expertise” – can have outsized impact dollar-for-dollar, compared to individual donors, foundations or even governments in some circumstances. They concluded that strategic corporate philanthropy can and should improve the social conditions that contribute to a prosperous economic context. “If systematically pursued in a way that maximizes the value created,” they wrote, “context-focused philanthropy can offer companies a new set of competitive tools that well justifies the investment of resources. At the same time, it can unlock a vastly more powerful way to make the world a better place.”

We believe that one of Giridharadas’s conclusions – that corporations should give up on giving, focus on paying their taxes and avoid doing harm – misses a key strength of philanthropy: its ability to act as an important complement to government. As we see time and time again through our own advisory work, philanthropy – through funding research and pilot programs or empowering local-level actors – often spotlights solutions that are overlooked by policymakers or that would be arrived at too slowly in government deliberations. As Beth Breeze of the University of Kent argues in her book In Defense of Philanthropy, philanthropic “risk capital” plays a necessary role in “generating new ideas to improve the lives of individuals and the wider community that, once proven, can be picked up and taken over for delivery by the government or market.” That corporate philanthropy could contribute – and in ways that enhance the contributions of individuals or noncorporate foundations – seems hard to deny.

The Answer is Impact

Economists and social theorists are best placed to analyze the further implications of challenges to corporate philanthropy as well as the potential academic ripostes to each. On a practical level, though, we believe the most powerful response to both lines of attack comes down to a single word: impact. As one president of a corporate foundation told us, “Our license to operate depends on doing our job better and having real impact.”

Impact here has two interrelated meanings. First – and absolutely foremost – it means improving lives. Corporate foundations, as the head of philanthropy for one of the world’s most recognizable brands told us, must serve the public good above any other priority. As another philanthropy lead at a major pharmaceutical told us, “philanthropy for philanthropy’s sake” should remain a guiding principle.

In the corporate space, impact also means that executives can have confidence that their giving contributes to an overall improvement in the operating environment in their sector, along the lines of what Porter and Kramer advocated. Otherwise, why would business leaders divert tens of millions of dollars into the corporate foundation when the capital could be put toward other, business-first priorities such as R&D or simply paying dividends to investors?

Many of the leaders we interviewed believe – and we agree – that these two visions of impact can and ought to be pursued in lockstep. Contributing to communities that thrive, protecting the planet, addressing market failures – this is the essence of shared value. And as communities benefit from strategic, catalytic philanthropy, they will go from skeptics to advocates for the approach that corporate philanthropy is advancing. Along the way, the wider business environment should improve as well, helping to create the conditions for sustained economic growth.

Five Principles for Impact

While impact is essential, it can also be elusive. How can corporate philanthropies get there?

We have consolidated the breadth of insights gathered through our interviews into five principles. While these don’t cover all the good ideas we heard during our conversations, the five came up again and again. And, importantly, they seem to be working not just as concepts, but in real-world practice.

The first principle – and, yes, the sequence matters here – is to design a deliberate, consistent strategy in consultation with communities. The days of reactive, one-off, PR-driven grantmaking should be winding down. Achieving impact requires a narrow focus, a deep understanding of the issue and a plausible theory of change. To this end, one of the major shifts we are seeing in corporate philanthropy is to have multiyear strategies focused on a limited number of signature issues. “The narrower the better,” one chair of a corporate foundation told us. Having a clear strategy, she said, is a good reason to say no to both external and internal giving requests that fall outside the scope.

Importantly, though, to achieve impact requires designing these narrow, multiyear strategies in close consultation with the company’s stakeholders – employees, shareholders, customers and the people who live in the communities where the company operates. A philanthropy lead at one of the world’s largest retailers told us that this process begins by posing better questions. “Instead of asking, ‘What issues do you care about?’” she said,“you have to ask, ‘Where do you expect the company to make a difference in your community?’ Or, ‘What are the social and environmental issues you expect the company to improve?’”

In designing their philanthropy strategy, the bank discussed at the beginning of this article conducted 50 online listening sessions, with roughly 20,000 potential beneficiaries logging in. The staff recorded the questions asked during the sessions as well as all the comments made in the chat and responded to each individually in the weeks that followed. It was tedious work, but it helped to create a rigorous and effective strategy. The head of philanthropy at a top European fashion brand undertook a similar process, calling it “the co-construction of projects” in partnership with potential grantees and end-beneficiaries.

The second principle is to view the parent company’s core expertise and scale as essential to the corporate foundation’s impact strategy. As many of the leaders we spoke to emphasized, aligning business and philanthropic investments – and seeing them as working in partnership to achieve broader goals – is what distinguishes the impact potential of corporate philanthropy from the broader philanthropic ecosystem. A bank, for example, can expand lending to a neglected community while its foundation targets grantmaking in that community to strengthen social and physical infrastructure. A media company can lend its storytelling expertise to grantees to help them reach a wider pool of funders or to showcase an intervention that is having real impact.

The key throughout, as one head of a corporate foundation told us, is to act with coherence, consistency and clarity. A CEO of a publicly traded fashion company noted some- thing similar when it comes to aligning giving and business strategies. “Authenticity,” he said, “is based on reason: does this makes sense or not?” The less coherent the relationship, he argued, the less impact there will be.

Along these same lines, our third principle is to harness another of corporate philanthropy’s distinguishing advantages: access to talent. One of the challenges facing corporations is integrating highly energized young people with an activist mindset who are entering the workforce. These younger employees want to see society change, and they think their company should be part of it. As one corporate foundation president asked us, “What do you do with that energy?”

One answer is to put passionate, energetic employees with a vision for change to work. This can take the form of asking them to help shape the philanthropy strategy or to be volunteers applying their specific skills. Since 2016, for example, Goldman Sachs has held an annual competition for analysts who pitch ideas for giving to a panel of judges chaired by the CEO. The winning team gets $250,000 to direct to the nonprofit of its choice.

Likewise, volunteering programs can have outsized impact for corporate-giving beneficiaries, but only if they leverage the professional skills of employees. One corporate foundation head in the UK told us, “We have a ‘no shovel’ rule.” He meant that they do not send skilled employees off to do manual labor. Instead, his foundation matches internal talent with grantees to build organizational capacity within the nonprofits they fund – everything from improving accounting practices to working on long-term planning. A recent study from the Ares Foundation finds these kinds of volunteer programs have lasting benefits for the company as well, contributing to employee satisfaction, retention and leadership development.

Fourth, to maximize impact for communities and for the broader competitive context, the philanthropy team needs a seat at the table when it comes to for-profit corporate strategy-making. This could mean that the head of the foundation also has a position on the core executive management team, or that the philanthropy team is regularly engaged in an advisory capacity before corporate strategy is finalized.

The leaders we interviewed emphasized that the team can play an important searchlight function for the business. This involves identifying long-term risks that may require stopping harmful practices as well as focusing on opportunity areas that need a thoughtful grantmaking strategy if they are to fully emerge. But the searchlight is useless unless the philanthropy team is empowered to weigh in on strategic decisions.

The fifth principle follows naturally from all the above: corporate foundations need to build talented teams that can deliver on this more strategic approach. As the leader of one of largest corporate foundations in the United States told us, she needs a team “that combines the skillsets of corporate strategists with those of foundation program officers.” And both sides of that talent equation, several others stressed to us, are essential.

The philanthropy team increasingly needs to understand the core business and competencies of the company and to be able to communicate in a language that is persuasive to the C-suite. At the same time, it needs to understand the world of nonprofits and the time, effort and tools required to achieve sustainable impact. Building this unique kind of team can be challenging, but the most effective corporate foundations today are led by people who know how to bring the right talent together to this end.

Creative Leadership

In 1979, Kenneth Dayton, who guided his family business in Minneapolis (Dayton Hudson) through a massive national expansion that eventually created Target, gave a lecture titled, “The Case for Corporate Philanthropy.” Many of the worries and challenges that face modern companies were present back then. “The problems that face our society and the problems that face business in America today are one and the same,” Dayton argued. “The question becomes: what can we do about it? Will we meet the future with inaction – or reaction – or with creative leadership? I hope it’s the latter.”

Half a century later, the question remains: what will business leaders do to respond to current challenges? In our view, the companies that tap into the creativity and talents of their philanthropy teams – and that empower those teams to deliver impactful giving strategies – will set themselves up for long-term competitive success. Just as importantly (if not more so) they will also contribute to making the broader society more equitable and prosperous.