Pros and Cons of Setting up a Foundation

PROS AND CONS OF CORPORATE FOUNDATIONS

A summary of information many RAG executives and Albert Ruesga provided in answer to the following question from Jane Ellen of Rochester Grantmakers Forum:

What are the pros and cons for having a corporation set up a foundation in addition to or rather than doing thoughtful corporate giving?

Pros:

*        They can pay matching gifts out of the foundation and won't have to follow up for acknowledgments from nonprofits for IRS purposes.  

*        A company-sponsored foundation can in some cases (depending on how it's set up) insulate management from criticism about funding decisions.

*        For IBM, which has both a foundation and a corporate giving program, the foundation money was used exclusively for IBM's support of public education reform initiatives.  Corporate giving programs throughout IBM's major sites allowed local management to make the decision as to what was right for their communities and their own public relations needs.  So the corporate program gave them much more flexibility and did not require the strict adherence to a specific giving strategy.  Having both is ideal where there are several sites.

*        A corporate giving program is much more flexible, and can be changed at the management's whim in terms of what to fund and to what extent.

Cons:

*        There is no privacy and the corporation is subject to the private foundation disclosure laws.  Also there is no ability to co-mingle marketing and philanthropy dollars giving the corporation much less flexibility in its giving.

*        The rules and regulations on private foundations.  Corporate foundations are subject to pay out, public disclosure and self-dealing rules and other rules that all private foundations are bound by.  The self- dealing especially can be problematic for corporate foundations.  If for example a corporate foundation buys a table at a charity fund raising event it cannot send corporate employees to sit at the table without technically violating the self-dealing rules.  These kinds of situations can be handled by having the corporation buy the table, not the foundation.

*        The hassles of setting up and maintaining any kind of private foundation: filing incorporation papers, keeping records, filing 990PFs etc.  There's no reason, however, why a company-sponsored "foundation" can't take the form of a donor-advised fund at the local community foundation (or other public charity).  The Polaroid Foundation, for example, is really a component fund of the Boston Foundation.

*        A corporate foundation would need its own bylaws, staff, regular grant cycles, giving guidelines and mission.  They also follow a 5% pay out rule.

*        A corporate foundation has the same rules as any foundation of giving only to 501 (c)(3) groups or exercising expenditure responsibility.  A direct corporate gift can go to any type of entity since it is a marketing or promotion type of expense.

*        With any foundation you have extra paper work.  Also corporations may not want to have to publicly disclose where their contributions go, which is required of a foundation but not corporate giving.

References:

*        Why Corporate Foundations Make Sense, Dottie Johnson, 1985, for the Michigan Chamber of Commerce.

...