Mergers: Implications for Corporate Philanthropy and the Community

A CEBC Report Summary

It would be unwise to simply assume that Minnesota’s great legacy of corporate citizenship will be sustained easily given the rapid and massive changes in the economic and corporate landscape. How have mergers and acquisitions, one of many changes, affected corporate giving, business leadership on community issues, and the nonprofit and civic sectors in Minnesota? This is the summary of a discussion paper prepared by CEBC with the partial support of a $3500 grant from the Minneapolis Foundation. It invites further discussion about how this special Minnesota gift – what some call the "Minnesota Way" and others call the "Minnesota Difference" – can be nurtured for the future.

There were 332 business mergers valued at $1 million or more in Minnesota in the year 2000, up from 82 in 1992. One reason mergers are important is they involve many of the state’s largest companies and corporate grantmakers. In the last three years, 14 of Minnesota’s 20 largest companies acquired, merged with or were acquired by out-of-state companies. More than half of the largest corporate grantmakers have been involved with major mergers or acquisitions. Fourteen of the state’s largest 25 corporate grantmakers appear on the Minnesota Keystone Program^SM lists of companies giving 2% or 5% of their pretax income to charitable causes. By contrast, the national average for corporate giving is 1.2% among major corporations. It is this gap between national and state averages that is one cause for concern.

Some nonprofit, community, and corporate leaders have expressed concern about real and potential effects of mergers which, if left unattended, will have a negative impact on the nonprofit sector and the quality of life in Minnesota. They identify three primary areas of concern:

• Loss of financial revenues and volunteer support which compels some nonprofits to adapt to changes that arise when corporate funding priorities shift, giving programs are consolidated, or volunteer support is diminished,

• Loss of executive leadership from business, and

• Threats to the state’s national prestige and the "Minnesota Way" – a local convention that creates the expectation that business and business leaders will be actively engaged in giving and in community and civic affairs.

The corporate perspective on the impact of mergers and acquisitions, as expressed by some of the state’s "best practice" giving officers and corporate leaders, is far more positive.

• Mergers and acquisitions have played a role in economic growth and prosperity and have increased the financial capacity of some major corporations to make charitable gifts.

• Giving levels in the wake of a merger usually have been sustained and in some cases increased.

• New, young, and energized business leaders have emerged to replace those who have moved from Minnesota or retired.

• Acquired businesses, such as IDS (with American Express) and Pillsbury (in the Grand Metropolitan merger), have been revitalized and given a fresh start because out-of-state companies acquired them. And many of the state’s leading corporate citizens do the same for the companies that they acquire here and across the nation.

• Corporate grantmaking, overall, has increased substantially over the past decade. In 1990, sixteen companies gave $1 million or more, but by the end of the decade that number had increased to 33.

Corporate giving officers also point out that overall giving practices have changed substantially over the past two decades for a variety of reasons, but not principally because of mergers or acquisitions. Today’s competitive environment places new demands on corporations and their executives. As a result, giving and community involvement practices have changed.

Nevertheless, some corporate executives face significant challenges that are merger related:

• Business leaders and giving officers are challenged by new owners or new partners in the "other half" of the merger to justify high levels of giving and to connect that giving more directly to the bottom line.

• Others address the issue of "picking up the slack," i.e., filling funding gaps created when corporations depart or change priorities.

• Some executives have seen their decision-making latitude and their support from top leadership erode as control and policy making shifts to distant owners.

The nonprofit and corporate perspectives captured here reflect very different viewpoints. The discussion paper is the product of interviews with sixty-three corporate and nonprofit leaders in Minnesota and across the US. These conversations and related background research elicited a number of insights on impacts (real and potential), trends and changes in giving practices, best practices and models developed by grantmakers, and issues for future investigation and discussion. However, it is important to note that resource and time constraints precluded developing detailed quantitative data on changes and impacts.

The paper is intended as a catalyst to frame issues and focus discussion among Minnesota business, nonprofit, civic and media leaders about the impact of corporate mergers and acquisitions on giving practices, corporate leadership in the community, nonprofit organizations, and the quality of life in Minnesota.

Questions that merit further research and discussion can be grouped under five headings:

• Impact

How do mergers really affect the nonprofit and civic community – both positively and negatively? Gaps in the data on giving and the ways that data on giving is collected and reported make it difficult to assess how giving in Minnesota changes as a result of a merger. Further, no data is collected that would reveal changes in community engagement by volunteers or executives. Rigorous case studies and quantitative analysis would provide a more comprehensive and accurate picture of the affects of mergers and acquisitions, both positive and negative, on the nonprofit, civic and corporate communities.

• Sustaining Resources

What strategies could be developed to sustain corporate funding resources, volunteerism and corporate leadership for the civic and nonprofit sectors?

• Adapting to Change

What community strategies and dialogues can be developed to assist the nonprofit sector in adapting to economic change and to overall changes in corporate giving and community involvement, only some of which are merger-related?

• Corporate Best Practices

What best practices and models from Minnesota and around the nation will assure that mergers and acquisitions are handled smoothly, impacts are mitigated, and corporate leadership support for the practice of giving and community involvement is sustained?

• Creating the Next Generation

How can Minnesota inspire and grow new corporate givers – the next generation of leaders in corporate citizenship?

These questions provide important opportunities for constructive dialogue and cooperation that will benefit both the corporate and the nonprofit/civic communities.

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