To Found or to Fund? Comparing the Performance of Corporate and Noncorporate Foundations

Abstract

The implications of the organizational alternatives of corporate philanthropy are yet to be properly understood. This is particularly the case when contributions are channeled through corporate foundations, instead of going directly to nonprofit organizations independent from the firm. Data on the resources, undertakings, and effects of corporate foundations are scarce; conceptualization is poor; and their rationale has been mainly explored from the perspective of the potential benefits for the company. This study aims at contributing to conceptual debate and empirical research on corporate foundations from the perspective of how well they perform as nonprofits. The performance of corporate and noncorporate foundations is compared across three different productivity indicators, based on a survey to a representative sample of 325 foundations. Results of linear regression models suggest that, all else equal, corporate foundations have a greater capability to make resources available for charitable purposes with lower levels of human and financial inputs.

Keywords

corporate philanthropy charitable foundations corporate foundations nonprofit performance nonprofit efficiency

Introduction

Corporate philanthropy refers to a voluntary, unconditional, and nonreciprocal allocation by firms of some of their resources for charitable purposes (Godfrey, 2005). This phenomenon has gained momentum during the past decades in terms of growth, global visibility, and legitimacy in the eyes of society, despite notorious effects of recent economic crisis (Foundation Center [FC], 2014; Urriolagoitia & Vernis, 2012). It has evolved from suspicious exception to mainstream corporate practice, in the context of the increased popularity of corporate social responsibility (CSR), defined as the responsibility of enterprises for their impacts on society (European Commission, 2011).

Nevertheless, recent international reviews confirm that this phenomenon is yet to be properly understood. First, conceptual debate has been surprisingly scarce. Corporate philanthropy has been subsidiarily defined within broader CSR literature and increasingly portrayed as “an old-fashioned and ineffective operationalization of a firm’s corporate social responsibility” (Liket & Simaens, 2015, p. 285) or as the lowest engagement relationship between firms and nonprofits (Austin & Seitanidi, 2012). Second, literature on corporate philanthropy is highly fragmented. It has largely emanated from (and focused on) Anglo Saxon, developed countries (Gautier & Pache, 2015), with 70% of research focusing on a single level or analysis—individual, organizational, or institutional (Liket & Simaens, 2015). Third, the perspective of the firm has received the most attention, with a twofold focus on disentangling the altruistic versus self-interest motivations behind corporate philanthropy and on assessing its financial and reputational consequences for the corporate donor (Gautier & Pache, 2015).

Although it is reasonable to assume that the issue of how corporate philanthropy is organized has implications also for society, research gaps on its organizational alternatives and/or social effects are still numerous and relevant. On one hand, the “how” has deserved the attention of only 33% of recent academic literature on corporate philanthropy (Gautier & Pache, 2015). On the other hand, its effects on both recipient nonprofit organizations (NPOs) and end beneficiaries (individuals in need) are severely underresearched (Liket & Simaens, 2015). Another review has concluded that corporate philanthropy “was more likely to be viewed as a dependent instead of an independent variable,” with a specific gap regarding “the relationship between the vehicle through which philanthropy is practiced and the different outcomes” (Feliu & Botero, 2016, p. 134).

These gaps are particularly remarkable when corporate philanthropy is channeled through corporate foundations—a nonprofit that is legally independent from a company, but resource-dependent on it—given their increasing pervasiveness. U.S. corporate foundations, though only 3% of the population, amount to 11% of total foundation giving and one third of total corporate giving (FC, 2012, 2014). In the U.K. corporate foundation giving grew 1.4 times in real terms between 2010-2011 and 2014-2015, year-on-year growth rates outpacing those of the top 300 foundations (Pharoah, Jenkins, & Goddard, 2016). What is the rationale for founding, controlling, and/or funding a corporate foundation instead of directly funding independent NPO? The social effects of corporate philanthropy first depend on how well the organizations receiving corporate contributions perform. Are corporate foundations particularly efficient or effective vehicles?

After Harris (2012), we argue that nonprofit literature may offer a promising path to start addressing the aforementioned gaps and building a field of theorizing on corporate philanthropy that is autonomous from CSR literature. In this context, the first goal of our research is to contribute to the much-needed conceptualization of corporate foundations. Second, we discuss the distinct rationale and implications of this organizational alternative for corporate philanthropy. Third, we address the question whether corporate foundations perform better than noncorporate ones. To fulfill this goal, we review the challenges involved in nonprofit performance measurement and propose a set of indicators that allow for relatively assessing the productivity of foundations. Hypotheses are formulated and tested through an empirical analysis using a nationwide, representative sample of Spanish foundations. Finally, results are discussed, and conclusions and theoretical and managerial implications drawn. Limitations and suggestions for further research close the study.

Theoretical Background

Conceptualizing (Corporate) Foundations

The overriding barrier to foundation research lies in the scarcity of data. The proliferation of foundations around the world since the 1980s abruptly contrasts with the lack of systematic evidence on their resources, undertakings, and social effects, with the exception of the United States and, to a lesser extent, the United Kingdom (European Foundation Centre, 2008; FC, 2014; Hopt et al., 2009; Pharoah et al., 2016).

The second barrier to research is conceptual. Cultural, legal, and tax differences hinder consistent definition and categorization of foundations across national settings. In the United States and the United Kingdom, a charitable foundation has no distinct legal definition and is essentially understood as grantmaking NPO. In the United States, it is broadly defined as “a non-governmental entity that is established as a nonprofit corporation or a charitable trust, with a principal purpose of making grants to unrelated organizations, institutions, or individuals for . . . charitable purposes” (FC, n.d.); in the United Kingdom, as “charities with an independent and sustainable source of income that enables them to fulfil their purposes, usually by funding and supporting individuals or other organisations” (Pharoah et al., 2016, p. 2).

In continental Europe, conversely, varied and detailed legal definitions suggest a functional approach based on the lowest common denominator: An independent organization, which has no formal membership, is supervised by a State supervisory authority, serves a public benefit purpose, and for which a founder has provided an endowment and determined its purpose and statutes (Hopt et al., 2009, pp. 13-14). Moreover, a considerable portion of foundations operate their own programs and provide services, rather than purely making grants to other NPO or public benefit institutions. Thus, a foundation is largely understood as a nonmembership NPO with an endowment, although the size of the latter varies broadly.

The same lack of a consensual or legal definition applies to corporate foundations. They tend to be identified by who funds or founds them: as a private foundation whose income comes from a for-profit company or from its employees (Alberg-Seberich, 2010) or as a separate legal entity that receives its assets and/or annual gifts from a (generally listed) company, thus remaining closely tied to the supporting firm (FC, 2012). However, in continental Europe, conceptualization should encompass shareholder or industrial charitable foundations—those controlling businesses as their major or only shareholder and receiving dividends from them. Different from the United States, almost all countries—including Germany, France, Spain, Italy, Switzerland, Denmark, or Sweden—allow these controlling foundations to exist (Hopt et al., 2009; Prophil, 2015).

Furthermore, definitions based on the origin of monetary resources may limit ex ante our understanding of corporate foundations. A more thorough conceptualization should acknowledge the following distinct features: (a) the complex connectedness of the corporate foundation to the company beyond monetary resources, (b) its hybrid organizational nature, and (c) the instrumental role that results from resource dependency.

First, although self-governed and legally separate, the corporate foundation is both formally and informally connected to the company across multiple dimensions, that is, governance (board control), financial (be it a “pass-through” of annual corporate contributions or endowed with business shareholdings), intangible assets (e.g., corporate brand name), management (filtering of managers and other staff members and administrative support from the firm), activities deployed (with variable strategic alignment with the business), or values (corporate culture; Rey-Garcia, 2012).

Second, corporate foundations are hybrid organizations that “incorporate elements from different institutional logics” (Pache & Santos, 2013, p. 972), specifically from the business and the third sector (Cooney, 2006). They are nonprofit from a legal or tax perspective (organizational form), and their purpose is charitable (organizational goals), but they are created and/or funded by one or several profit-maximizing, private-benefit purpose entities (organizational governance and revenue sources).

Third, resource dependence theory stresses the pressures that stem from those who control scarce resources that are strategic for the organization and predicts that NPOs that depend heavily on one or few strategic resource providers are likely to be more constrained in dealing with uncertainty and scarcity pressures in their environment (Froelich, 1999). Resource dependency of a corporate foundation results in a subordinate role regarding the firm. The firm is not only the founder and/or main funder but also becomes the “dominant coalition” that controls its governance, thus articulating its strategic purposes (Brown, 2010).

Building on previous discussion, we categorize as corporate those foundations (organizations with nonprofit status, own legal personality, and no members) that are governed under corporate control and/or obtain the majority of their resources from the firm.

Corporate Foundations as a Tool for Corporate Philanthropy

Emerging academic research on corporate foundations has focused on determining their characteristics, economic relevance, and effects on the reputation, earnings, CSR activities, and taxation of the firm (Petrovits, 2006; Thomsen & Rose, 2004; Westhues & Einwiller, 2006). Thus, the rationale for using corporate foundations as a vehicle for corporate philanthropy has been mainly explored in terms of the potential benefits for the company.

Two different sets of benefits have received the most attention. First, from an external perspective, it has been argued that corporate foundations improve the competitive environment of the firm. They entail mechanisms for structural changes in the marketplace beyond episodic interventions; signal a visible, long-term, institutionalized manifestation of the discretionary philanthropic commitment and ethical orientation of the firm; provide legitimacy by fulfilling company’ role as a good corporate citizen toward stakeholders and the community in a way independent from business dynamics; and satisfy peer pressures, in emulation of other corporate founders (Fundación Promigas & Fundación DIS, 2012; The SMART Company, 2007; Westhues & Einwiller, 2006).

Second, it has been argued that corporate foundations may boost the internal governance of the firm. Along this line of thought, they serve to protect the entrepreneurial legacy of the owner or founder; accommodate significant structural change within the company—that is, merger, acquisition, family succession, demutualization, or initial public offering; provide a complementary governance structure for corporate giving at “arm’s length” independence; and facilitate family control and long-term business commitment (Bethmann & Von Schnurbein, 2015; Prophil, 2015; The SMART Company, 2007; Thomsen & Rose, 2004). More specifically, they serve to improve the internal governance of corporate philanthropy in terms of both formalization of a stable, long-term, focused commitment to give by the company beyond business-cycle ups and downs and personal preferences of owners and top executives, and professionalization and continuity of philanthropic activities by the entrepreneurial family (Fundación Promigas & Fundación DIS, 2012; Pedrini & Minciullo, 2011; Petrovits, 2006; The SMART Company, 2007).

In parallel, some potential disadvantages of corporate foundations have also been identified. From a business angle, the risk of losing effectiveness when decisions are managed by a centralized foundation rather than at local sites near the marketplace, coupled with greater start-up, personnel, and administrative costs, has been highlighted (Petrovits, 2006). From a nonprofit viewpoint, conflicts of interest, the risk that the foundation is exploited by the firm for commercial purposes and its independence hindered, limited strategic involvement in steering the foundation according to its mission, limited professionalization of foundation management, and reputational risks from the association to the firm have been emphasized (Bethmann & Von Schnurbein, 2015; Westhues & Einwiller, 2006).

Some empirical works have attempted to examine in further depth the relationship between the firm and its foundation. Results suggest that business interests significantly impact the nature of that relationship, which, in turn, strongly influences the foundation’s governance structure, model of operations, and areas of activity (Bethmann & Von Schnurbein, 2015; Pedrini & Minciullo, 2011). A couple of recent works empirically assess the capacity of corporate foundations to perform as NPO, that is, their efficiency or effectiveness toward accomplishing charitable goals. Minciullo and Pedrini (2014) use self-reported data from a survey to 50 Italian corporate foundations to illustrate how different knowledge transfer mechanisms from the firm to the foundation influence the orientation to effectiveness of the latter. Orientation to effectiveness is measured across three factors, after Ostrower’s (2006) typology: proactive orientation, capacity building, and social policy/advocacy. Koushyar, Longhofer, and Roberts (2015) compare the fund-raising and giving patterns of corporate and noncorporate (“independent”) for a matched sample of 471 U.S. grantmaking foundations between 2005 and 2009. They conclude that corporate foundations raise more funds and make grants with lower overheads but are more disperse in their grantmaking, while experiencing lower grantee, officer, and trustee continuity relative to independent ones. This latter work directly connects with our research question on whether corporate foundations perform better than noncorporate ones. However, before addressing it, it is necessary to acknowledge the relevant challenges entailed in measuring foundation performance.

Measuring (Corporate) Foundation Performance

Performance is a broad concept that can be defined as the functioning of the nonprofit relative to any specific dimension across the social value chain (Liket, Rey-Garcia, & Maas, 2014). Scholars have proposed a broad set of measures, including internal and external, objective and perceptual, and efficiency and effectiveness related (LeRoux & Wright, 2010; Sowa, Coleman Selden, & Sandfort, 2004). Efficiency measures evaluate the relationship between inputs (resources) and outputs (results obtained from deploying them), whereas effectiveness “is most often associated with the achievement of organizational goals, and in particular, goals that relate to the organization’s public benefit mission” (Liket et al., 2014, p. 174). For an NPO, the ultimate effectiveness measure is the extent to which its public benefit mission is accomplished, that is, its social impact. However, although general definitions of impact are too ambiguous to serve as a useful indicator, the lack of a unique model of effectiveness for all NPOs hinders comparison (Mitchell, 2012; Ostrower, 2006). Effectiveness is difficult to measure, depends on the perceptions and values of multiple stakeholders, and may be impossible to attribute to the intervention of the organization, as cause and effect relations are difficult to establish under conditions of social complexity (Nicholls, 2009). As a result, social impact measurement remains largely unresolved in practice for NPO (Liket et al., 2014).

Because of the complexity and limitations of effectiveness measurement, we will use instead a set of efficiency measures linked to productivity, defined as a ratio of outputs to inputs, to assess foundation performance. Four reasons advise this approach. First, we can expect that effectiveness in achieving social effects consistent with the public benefit goals of the foundation (social impact) will be facilitated by high performance on an ample set of more specific (and comparable) intermediate performance measures, including efficiency (Sowa et al., 2004). Second, productivity measures, reflecting the capability of the organization in generating output with the available resources, gain importance as performance indicators in an increasingly competitive environment. In this scenario, “if nonprofits could be equally savvy about how they spend their existing dollars—that is, if they could increase their productivity—they could get more bang for their buck” (Neuhoff & Searle, 2008, p. 33). Third, measures based on objective data help prevent the risk of desirability bias inherent to self-reported performance assessments in NPO (Vaidyanathan, 2008). Fourth and last, businesses care about economic rationality and will tend to consider efficiency a key issue when considering corporate foundations as philanthropic channels (Vahlpahl, 2011).

Regarding productivity indicators, there exists a wide range because there are different alternative measurements of both outputs and inputs in NPO. In our research, we propose the following foundation efficiency indicators: (a) the ratio of total program expenditures to total number of paid employees and volunteers, (b) the ratio of total program expenditures to total assets, and (c) the quotient of total assets to number of beneficiaries served during a year.

The ratio of total program expenditures to total number of paid employees and volunteers is a labor productivity indicator, as it measures the capacity of foundation’s personnel to make more financial resources available to public benefit purposes. As for the ratio of total program spending to total assets, it is a proxy of the optimized use of capital, measuring the efficient use of assets in the generation of mission-related expenses. Thus, higher values of both ratios mean that, ceteris paribus, the organization’s capability to spend in charitable purposes is greater.

Regarding the quotient of total assets to number of beneficiaries served during a year, this indicator builds on the “cost per impact” approach that defines “impact philanthropy” as “the process by which a philanthropist makes the biggest difference possible, given the amount of capital invested” (The Center for High Impact Philanthropy, 2007, p. 1). It is thus composed of (a) cost, as measured by the investments made to realize the impact, and (b) social impact, as measured by specific, objective criteria for success. Acknowledging the difficulty to obtain objective social impact measures, we calculate the quotient of the foundation’s total assets (a measure of the value of all the tangible resources that support its activity) and the number of individual beneficiaries reached during a year (a basic but objective output measure). Along the lines of the cost-effectiveness analysis performed by Lim (2010), the lower the value of this ratio, the greater the social effects would be for the assets deployed, ceteris paribus.

Some cautions must be adopted, however, when this quotient is used to compare highly diverse foundations. Different types of foundations not only serve different numbers and profiles of beneficiaries, who require dissimilar volumes and types of resources, but tend to utilize disparate organizational models (operating or mixed in continental Europe vs. grantmaking in the United States/United Kingdom). For example, a foundation that provides long-term care for beneficiaries with severe medical problems will probably present a higher ratio compared with one that makes grants to an online educational program reaching thousands of students. Simply comparing both ratios will lead to a wrong conclusion that the performance of the first foundation is much worse than the second one. Therefore, to alleviate this problem, it is necessary to control for the type of foundation, considering the whole range of characteristics that can lead to differences in both the number of beneficiaries attended and the structure and volume of resources required (areas and model of activity, type of beneficiary, etc.).

Furthermore, it should be emphasized that the ratio of assets to beneficiaries does not measure the effectiveness of the foundation anyhow. A foundation can reach hundreds of individuals without accomplishing its mission (e.g., because it provides insufficient resources to each beneficiary). We agree, “it’s not cost per output (such as a youth served) that provides a window into productivity, but rather cost per outcome (a youth who achieves the results targeted by the organization)” (Neuhoff & Searle, 2008, p. 34). However, we argue that the assets-to-beneficiaries ratio can be a relevant efficiency indicator in a context when high intra- and intersector competition for resources is coupled with substantial growth of the population in need.

Research Hypotheses

The strong links between corporate foundations and their founding firms, as well as the ongoing, sustained, and repeated interactions between them, may foster communication flows and widen the opportunity to transfer knowledge between both organizations (Minciullo & Pedrini, 2014; Westhues & Einwiller, 2006). This implies that it would be easier for the corporate foundation to adopt businesslike instruments from the for-profit world, encouraging a stronger “managerial identity.” Compared with the “volunteer identity” prevalent in most NPO—linked to a nonmanagerial logic in which integration, democratic participation, and freedom of action are more important than productivity—managerialism is based on formalization, specialization, and efficiency (Kreutzer & Jäger, 2011). Moreover, in corporate foundations board members, staff, and volunteers tend to come from the firm, this further encouraging the managerial logic.

In corporate foundations, not only is focal attention paid to reducing costs and/or improving revenues but also no fund-raising expenses, those of personnel included, are needed to secure a stable and unearmarked flow of resources. Besides regular monetary contributions committed by the firm, “it may be reasonable for administrative and management tasks (finance, law, project management) to access corporate resources” (Bethmann & Von Schnurbein, 2015, p. 6). Along those lines, access to other nonfinancial resources such as in-kind donations, facilities and equipment, and firm’ reputation, brand image, and social capital would be also facilitated. Thus,

The greater financial surpluses, enhanced marketing and administrative capabilities, and cross-subsidization with excess human and technical resources . . . allow corporate foundations to be both more effective at raising funds and more efficient at administering them with lower overhead expenses. (Koushyar et al., 2015, p. 584)

Therefore, we posit that

Hypothesis 1 (H1): Being corporate is positively related to labor productivity.

Hypothesis 2 (H2): Being corporate is positively related to an efficient use of capital.

Regarding the quotient of total assets to number of beneficiaries served, it is reasonable to assume that corporate foundations will opt for a grantmaking model to a larger extent than noncorporate ones, distributing monetary or in-kind donations to NPO, rather than directly serving end beneficiaries—individuals in need (FC, 2012). Thus, corporate foundations will tend to intervene through a longer channel, leveraging their capacity to reach larger beneficiary populations for a given asset volume. Evidence for U.S. grantmaking corporate foundations shows that they not only distribute smaller grants than noncorporate foundations but also tend to spread their funds across a larger number of grantees (Koushyar et al., 2015).

Therefore, we posit that

Hypothesis 3 (H3): Being corporate is negatively related to the assets-per-beneficiary ratio.

Method

Sample Description and Data Collection

The empirical study was conducted in Spain, where foundations are estimated to amount for approximately half of registered NPO; public utility associations being the other alternative to incorporate charitable organizations under nonprofit tax status. Foundations are defined by law as charitable-purpose, nonmembership entities with their own legal personality, that do not distribute profits, comply with a minimum initial endowment of €30,000, are officially registered, and are of a private nature and basically subject to private law (Rey-Garcia & Alvarez-González, 2011).

To test the hypotheses, we gathered data from different sources, as a means to avoid the common method bias (Podsakoff, MacKenzie, Lee, & Podsakoff, 2003). First, we considered the census of 9,050 Spanish foundations identified by the Institute for Strategic Analysis of Foundations (INAEF; Rey-Garcia & Alvarez-González, 2011) according to the key descriptors of the sector (year of legal constitution, founders, area, model and geographical scope of activities, type of beneficiaries, and size). We randomly selected the proportional number of foundations in each descriptive category (see the details in Table 1) to generate the initial representative sample of 525 foundations.

Table 1.

Sample Description (I and II).

Descriptors	Spanish foundation sector (N = 9,050)	Sample (N = 325)
Year of legal constitution^a
<1994	34.7%	31.6%
1995-2002	31.5	34.8
>2002	33.8	33.5
Founders
Natural persons	52.6	45.9
Public legal persons	31.3	31.3
Private legal persons	55.3	55.3
Geographic scope of activities
Local–provincial	28.3	24.9
Regional	34.7	35.4
National	23.3	24.9
International	13.6	14.8
Area of activity (ICNPO)
Culture–recreation	46.5	42.9
Education–research	52.0	54.9
Health	21.0	24.7
Social services	35.3	36.1
Environment	13.5	12.7
Development–housing	27.7	31.8
Law–advocacy–politics	6.2	8.0
International	12.7	18.2
Religion	3.7	2.8
Business/professional associations–unions	1.6	3.4
Model of activity
Grantmaking	31.9	33.1
Operating own programs	74.6	78.6
Advocacy	18.6	18.0
Operating own establishments	15.3	18.6
Type of beneficiaries
Legal persons	54.2	57.4
Natural persons	96.0	96.6
Size
Small and medium sized (revenue <€2,400,000)	88.4	83.1
Large and mega (revenue >€2,400,000)	11.6	16.9

Variables	Description	M	SD
ENDOWMENT	Foundation’s endowment (€)	1,008,348.72	4,184,064.37
REVENUE	Total annual revenue (€)	3,646,591.65	22,430,057.58
ASSET	Total assets of the foundation (€)	4,493,204.23	12,558,496.25
BENEFICIARIES	Number of beneficiaries	38,491.21	243,660.13
NUMBEREMP	Number of employees	26.71	86.33
NUMBERVOL	Number of volunteers	39.68	320.83

Source. Rey-Garcia and Alvarez-González (2011), foundation registries, and other public sources.

Note. ICNPO = International Classification of Nonprofit Organizations.

These thresholds correspond to the first Spanish Foundation Law of 1994 and the current Spanish Foundation Law of 2002.

Second, an emailed questionnaire served to collect data about the corporate character of foundations. Corporate foundations are not legally defined in Spain and must comply with the same requirements as noncorporate ones. To operationalize our definition, the person responsible for daily decision making was asked to identify the foundation as corporate whenever it complied with at least two of the following features: (a) It was (co)founded by one or several firms; (b) its board is controlled by owners, directors, or top managers from one or several firms; (c) it obtains the majority of its operating income from donations originating in one or several firms, meaning it does not fund-raise either regularly or significantly; and (d) its endowment includes controlling or dominantly influencing shareholdings of the equity of one or several companies. We obtained 325 valid questionnaires (sample error is ±5.34% at a 95% confidence level). Of the 325 foundations, 99 (30.46%) claimed to be corporate in accordance with the aforementioned features.

Because we used a survey-based methodology, we employed several procedures to assess the possible existence of nonresponse bias (Armstrong & Overton, 1977). First, we compared the profile of our final sample of 325 foundations with the descriptors of the sector as a whole (Table 1). Overall, there are no statistically significant differences between both the descriptors of the sample and those of the population. It is mostly composed of young organizations; small or medium sized; active in culture/recreation, education, research, or social services; local or regional in scope; operating rather than grantmaking; targeting individual beneficiaries; combining donations and subsidies with fees per service; and of a private origin. Second, we compared early versus late respondents. The estimation of a two-sample (independent) t-test showed no statistically significant differences between both groups in any of the key constructs of the model available at this stage.

Finally, we collected data about the components of the productivity ratios of the 325 foundations in the sample from registries, annual reports, and other public sources. Moreover, as Spanish foundations are extremely diverse, we also collected data about their key descriptors (see again Table 1) as control variables in our model.

Measuring the Variables

A dichotomous variable measures whether the foundation is a corporate foundation (our independent variable). Regarding the first two performance ratios, we use total revenues as a proxy for program-related expenditures: first because of unavailability of data on the money spent in charitable purposes and second because Spanish foundations are obliged by law to spend at least 70% of revenues (net of administrative costs) in mission-related programs. Thus, the variables used in our model to measure foundation performance are the following: (a) the ratio of total revenues to total number of paid employees and volunteers, (b) the ratio of total revenues to total assets, and (c) the quotient of total assets (both current and fixed) to number of beneficiaries served during a year. Due to disparity of data, the logarithms of each of the three ratios analyzed were used as dependent variables.

Regarding the control variables, four basic categories of models of activity were used: (a) operating own programs, (b) grantmaking, (c) advocating for public awareness and civic participation, and (d) operating own establishments. The International Classification of Nonprofits Organization (ICNPO) was employed to measure the areas of activity. As for the type of beneficiaries, we used the consensual categorization by the Spanish Ministry of Health, Social Services, and Equality, which distinguishes between (a) legal persons (NPO, firms, or public institutions) and (b) natural persons (society in general or specific groups of individuals: minors, elderly people, families, women, students, researchers and teachers, etc.). Finally, we included the geographical scope of activities (local, provincial, regional, national, and international), and the endowment, defined by the 2002 Foundation Law as the set of goods and rights of any kind provided by the founders to the foundation at the time of its constitution, or those contributed subsequently by the founders or third parties, for the specific fulfillment of statutory purposes.

Results

As the ratios analyzed were continuous variables, to test the three hypotheses, we estimated three linear regression models (Tables 2 -4) using IBM SPSS Statistics 22 software. To test for multicollinearity, we analyzed the variance inflation factor (VIF) values; all of them are below 3 and, therefore, within and acceptable range.

Table 2.

Multiple Regression Model 1: Total Revenue / Number of Paid Employees and Volunteers.

Variables	Standardized coefficient	Collinearity statistics (VIF)
Corporate foundation
CORPORATE	0.125*	1.218
Control variables
Model of activity
Grantmaking	0.182**	1.653
Operating own programs	−0.101	1.672
Advocacy	−0.298***	1.419
Operating own establishments	−0.105	1.312
Area of activity (ICNPO)
Culture–recreation	0.043	1.765
Education–research	−0.119	1.529
Health	0.062	1.847
Social services	−0.119	2.164
Environment	0.115	1.212
Development–housing	0.050	1.509
Law–advocacy–politics	−0.015	1.340
International	−0.011	1.642
Religion	−0.072	1.159
Business/professional associations–unions	0.079	1.205
Beneficiaries
NPO	−0.143*	1.538
Firms	0.047	2.102
Other private organizations	0.076	1.603
Public institutions	−0.023	1.821
Other legal persons	−0.003	1.159
Society	0.151*	1.428
Minor	0.076	1.461
Elderly people	−0.084	1.394
Families	0.034	1.540
Women	−0.018	1.347
Students	0.030	1.597
Researchers–teachers	−0.011	1.744
Employees–professionals	−0.030	1.303
Managers–employers–entrepreneurs	0.228***	1.521
Unemployed	−0.023	1.396
Sick people	−0.053	1.448
Disabled people	−0.057	1.581
Groups at risk of exclusion	0.009	1.485
Addicts	0.026	1.249
Migrants	−0.012	1.349
Prisoners–ex-prisoners	−0.012	1.415
Geographical scope of activities
Local	−0.050	1.448
Provincial	−0.043	1.709
Regional	0.004	2.855
National	0.042	2.729
International	−0.024	2.456
Endowment
logENDOWMENT	0.365***	1.395
Dependent variable: log(total revenue / number paid employees and volunteers) R² = .456; adjusted R² = .259; F = 2.313; significance = .000

Note. If the ratio of total revenue to number of employees is used as the dependent variable (i.e., without considering volunteers), the standardized coefficient associated with “corporate foundation” is 0.181, and the significance is .019. ICNPO = International Classification of Nonprofits Organization; NPO = nonprofit organization; VIF = variance inflation factor.

p < .10. **p < .05. ***p < .01.

Table 3.

Multiple Regression Model 2: Total Revenue / Total Assets.

Variables	Standardized coefficient	Collinearity statistics (VIF)
Corporate foundation
CORPORATE	0.222***	1.218
Control variables
Model of activity
Grantmaking	−0.020	1.653
Operating own programs	0.018	1.672
Advocacy	−0.089	1.419
Operating own establishments	−0.130*	1.312
Area of activity (ICNPO)
Culture–recreation	−0.123	1.765
Education–research	−0.067	1.529
Health	0.004	1.847
Social services	−0.017	2.164
Environment	0.001	1.212
Development–housing	−0.028	1.509
Law–advocacy–politics	0.035	1.340
International	−0.034	1.642
Religion	−0.019	1.159
Business/professional associations–unions	0.052	1.205
Beneficiaries
NPO	−0.044	1.538
Firms	0.037	2.102
Other private organizations	−0.022	1.603
Public institutions	0.089	1.821
Other legal persons	0.069	1.159
Society	0.053	1.428
Minor	−0.063	1.461
Elderly people	0.085	1.394
Families	0.005	1.540
Women	0.037	1.347
Students	−0.010	1.597
Researchers–teachers	−0.041	1.744
Employees–professionals	0.042	1.303
Managers–employers–entrepreneurs	0.028	1.521
Unemployed	−0.062	1.396
Sick people	−0.048	1.448
Disabled people	−0.130	1.581
Groups at risk of exclusion	0.170**	1.485
Addicts	0.030	1.249
Migrants	−0.006	1.349
Prisoners–ex-prisoners	−0.061	1.415
Geographical scope of activities
Local	−0.082	1.448
Provincial	−1.128	1.709
Regional	−0.097	2.855
National	−0.206*	2.729
International	−0.130	2.456
Endowment
logENDOWMENT	−0.382***	1.395
Dependent variable: log(total revenue / number paid employees and volunteers) R² = .355; adjusted R² = .176; F = 1.989; significance = .001

Note. ICNPO = International Classification of Nonprofits Organization; NPO = nonprofit organization; VIF = variance inflation factor.

p < .10. **p < .05. ***p < .01.

Table 4.

Multiple Regression Model 3: Total Assets / Number of Beneficiaries.

Variables	Standardized coefficient	Collinearity statistics (VIF)
Corporate foundation
CORPORATE	−0.022	1.218
Control variables
Model of activity
Grantmaking	0.055	1.653
Operating own programs	−0.025	1.672
Advocacy	−0.165*	1.419
Operating own establishments	−0.047	1.312
Activities (ICNPO)
Culture–recreation	−0.221**	1.765
Education–research	−0.018	1.529
Health	−0.079	1.847
Social services	0.068	2.164
Environment	−0.006	1.212
Development–housing	−0.094	1.509
Law–advocacy–politics	−0.050	1.340
International	0.089	1.642
Religion	−0.010	1.159
Business/professional associations–unions	−0.080	1.205
Beneficiaries
NPO	−0.073	1.538
Firms	−0.268**	2.102
Other private organizations	0.252**	1.603
Public institutions	−0.136	1.821
Other legal persons	−0.040	1.159
Society	−0.041	1.428
Minor	0.041	1.461
Elderly people	−0.189**	1.394
Families	−0.018	1.540
Women	−0.032	1.347
Students	−0.037	1.597
Researchers–teachers	0.096	1.744
Employees–professionals	−0.075	1.303
Managers–employers–entrepreneurs	0.127	1.521
Unemployed	0.061	1.396
Sick people	−0.163*	1.448
Disabled people	0.139	1.581
Groups at risk of exclusion	−0.163*	1.485
Addicts	−0.020	1.249
Migrants	−0.071	1.349
Prisoners–ex-prisoners	0.111	1.415
Geographical scope of activities
Local	−0.125	1.448
Provincial	0.092	1.709
Regional	−0.105	2.855
National	−0.097	2.729
International	−0.169	2.456
Endowment
logENDOWMENT	0.482***	1.395
Dependent variable: log(total revenue / number paid employees and volunteers) R² = .563; adjusted R² = .318; F = 2.301; significance = .001

Note. ICNPO = International Classification of Nonprofits Organization; NPO = nonprofit organization; VIF = variance inflation factor.

p < .10. **p < .05. ***p < .01.

Results provide support for H1 (Table 2) and H2 (Table 3). Once the effects of the diversity of foundations’ characteristics are controlled, the fact of being a corporate foundation (CORPORATE) positively and significantly influences the value of both the ratio of the foundation’s total revenues to total assets and the ratio of the foundation’s total revenues to number of employees and volunteers (although in this case, the level of significance is 90%). It is worthy of mention that if the ratio of total revenues to number of employees is used (i.e., without considering volunteers), the standardized coefficient associated with “corporate foundation” is 0.181, and the significance is .019.

Regarding the control variables, it is noteworthy that some models of activity that usually involve a great amount of resources (monetary and human) show a significant negative coefficient. This situation occurs with foundations focused on advocacy (negative effect over “total revenue / number of paid employees and volunteers”) or on operating their own establishments, for example, hospitals or educational centers (negative effect over “total revenue / total assets”). By contrast, the coefficients are significantly positive for foundations grantmaking to individuals or other nonprofits, as they need relatively fewer human resources.

H3 is not supported (Table 4). As far as the “assets-per-beneficiary” ratio is concerned, the effect of being a corporate foundation (CORPORATE) is not significant, although the coefficient shows the expected negative sign. It is interesting to note that foundations focusing on advocacy or cultural and/or recreation activities, or benefitting firms, elderly or sick people, or groups at risk of exclusion are associated with negative and statistically significant coefficients, probably reflecting that the type and scope of their activities involve larger beneficiary populations.

Finally, because the volume of assets is positively related to the foundation’s endowment, the effect of this variable (ENDOWMENT) is negative regarding the “total revenue / total assets” ratio but positive with regard to the “total assets / number of beneficiaries” quotient.

Discussion, Conclusions, and Implications

A pioneering literature review for corporate philanthropy in the United States (Vaidyanathan, 2008) signaled the need for further conceptualization, better data, and empirical studies that overcame measurement and other methodological flaws preventing comparative work. In this work, we have conceptualized corporate foundations, discussed the grounds and implications of this organizational alternative for corporate philanthropy, and proposed a set of indicators to objectively and comparatively assess foundation efficiency. Although previous literature has emphasized the benefits that corporate foundations might entail for the external and internal governance of the founding/funding company, our research adopts a nonprofit performance perspective with the potential benefits for society in mind. As any other NPO, foundations increasingly depend on having stable and sufficient resources and efficiently deploying them to accomplish their mission, particularly when competition and social needs escalate. According to our results, corporate foundations outperform noncorporate foundations in their capability to generate revenue that is available for program-related expenses with lower levels of human and financial resources. Therefore, if more efficient resourcing of philanthropic activities were the overriding priority, firms should found and support their own foundation, rather than directly fund an independent NPO.

It could be rightly argued that firms design corporate foundations with productivity as the primary goal in mind. However, we suggest that the potential efficiency advantage of corporate foundations can be split up into two different components. The first component, which could be considered as “built-in productivity,” is inherent to the way corporate foundations are defined, that is, as those depending on the company for their only or main source of income. Corporate support translates into a more reduced need for fund-raising expenses and human resources structure; combined with the stability that philanthropic contributions tend to have within larger corporate budgets, despite eventual adjustments to the business cycle. By definition, corporate foundations tend to have a more concentrated revenue structure relative to noncorporate ones. Our insights are consistent with recent evidence suggesting that revenue concentration is positively associated with a growth in nonprofits’ financial capacity, particularly when measured as total revenues. Nonprofits with highly concentrated and specialized forms of revenue benefit from lower administrative and fund-raising expenses (Chikoto & Neely, 2014; Frumkin & Keating, 2011).

The second component of the potential efficiency advantage of corporate foundations is contingent on how the corporate foundation is governed and on its working relationship with the company. On one hand, the degree of dependency of the corporate foundation may vary along different variables (board, staff, management systems, information systems, funding model, or visibility). On the other hand, the activity of the foundation can be more or less aligned with the core business of the company. Those factors may determine the extent to which knowledge transfer between the two organizations, and the ability by the foundation to access a variety of off-balance resources of corporate origin are facilitated, so that social challenges are more efficiently addressed. A recent multiple case study of corporate foundations from Switzerland (5), Germany (2), and the United Kingdom (1) suggests that when it comes to assessing the ability of corporate foundations to achieve social impact, “strong relations and support are desirable” in some core areas. For example, when the corporation provides in-kind support, expert knowledge on the board, and entrepreneurial CEOs and/or knowledgeable staff, or when clear and transparent communication about the relation between the corporation and the foundation takes place so that the latter is able to build its own credible identity in a productive way (Bethmann & Von Schnurbein, 2015).

Nevertheless, the second main contribution of this research is to show that optimism should be moderated, as corporate foundations do not necessarily outperform noncorporate foundations across all types of efficiency indicators. Corporate foundations are better in deploying staff and volunteers to generate revenues. However, when it comes to their ability to actually reach larger beneficiary populations with a given asset volume, other factors might come into play that influence this particular productivity indicator in a direction contrary to what would be expected. Previous literature has found that the capacity of an NPO to reach more beneficiaries with a lower level of inputs can be negatively affected by the loss of “volunteer identity” among both paid and unpaid personnel as a consequence of increased managerialism (Kreutzer & Jäger, 2011). “Volunteer identity” encourages the motivation derived from feeling connected to beneficiaries in need, from the perceived impact of the foundation’s work on society, and/or from the identification with the foundation’s mission and values.

Along these lines, we can conclude that corporate foundations might be better equipped to overcome several traditional barriers to nonprofit productivity signaled by the literature, such as (a) the lack of funding for nonprogram expenses, that is, investments in technology and training, evaluation, and planning; (b) the little commercial pressure; or (c) the difficulty of achieving economies of scale or the failure to sustain activities long enough to decrease their cost or improve their success rates (Neuhoff & Searle, 2008; Productivity Commission, 2010). However, as hybrid organizations, corporate foundations not only benefit from resorting to the resources of the companies that control and support them but also are constrained by their additional market-based motivations (Koushyar et al., 2015). There is also a downside to corporate foundations, as, on one hand, they may be afflicted from diminished “volunteer identity,” and, on the other hand, they can suffer from “specific structural limitations that classical foundations do not face” (Bethmann & Von Schnurbein, 2015, p. 24). They may lack some of the connatural advantages of being an independent, endowed foundation, such as the autonomy from external resources, the ability to take risks, or the capacity to reach out to different social groups. Consequently, if more efficient reaching of beneficiary populations were a main concern, these potential drawbacks of corporate foundations should be also factored into the corporate dilemma whether to found or to fund.

Limitations and Further Research

The three productivity ratios proposed are just a first step toward a systematic assessment of foundation efficiency that can pave the way for further comparative research on both corporate philanthropy and nonprofit performance. We have calculated them based on available aggregated information. However, disaggregated data about other sector control variables and/or the organizations’ labor and economic magnitudes would be necessary to increase the explanatory capacity of the models (we are aware that the adjusted R² is modest, for the large number of independent variables included).

Regarding control variables, it would be very interesting to have reliable data about the percentage and volume of revenue across different sources (private donations, public subsidies, fees for services, and returns from the real estate and/or from financial assets), and/or the influence of different types of founders in the governance of foundations (natural persons, public legal persons, or private legal persons), to the extent that they could affect their revenues and assets structure.

Regarding labor and economic magnitudes, it should be first noted that the number of employees and volunteers were the only data available, but we neither had information on the number of hours worked nor could distinguish between full-time and part-time employees. Second, we used revenues as the only available data for the estimation of the efficiency ratios, although it would have been more appropriate to use spending data to control the impact of administrative costs, as proposed in our theoretical section. However, we lacked information on program expenditures. Spanish foundations report their spending data in accordance with the financial criteria of the NPO Accounting Plan and not according to operational criteria of application of funds to each of their programs.

Finally, another limitation is inherent to efficiency assessments, as they do not say anything about the effectiveness in accomplishing charitable goals, not to mention the social impact. So, future research should advance in the measurement of the efficiency and effectiveness of corporate philanthropy in general and in the comparative assessment of its different organizational alternatives. Using better data and complementary sector control variables and considering other types of independent NPOs rather than foundations would be necessary to address key pending questions such as the following: How does the mix between grantmaking and operating affect the productivity of corporate foundations? How do the outcomes of each organizational alternative for end beneficiaries compare? Which way of organizing corporate philanthropy is more transformative for society?

Footnotes

Acknowledgements

Marta Rey-Garcia thanks Prof. Anne-Claire Pache and Arthur Gautier from the Chaire Philanthropie de l’ESSEC for the opportunity to work on this article as visiting scholar to ESSEC Business School in Paris and for their valuable comments to a previous version presented at the ARNOVA Conference.

Declaration of Conflicting Interests

The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Funding

The author(s) disclosed receipt of the following financial support for the research, authorship, and/or publication of this article: The authors acknowledge funding provided by the Spanish Ministry of Economy and Competitiveness, as part of its R&D Plan (2013–2016), for the project entitled ‘‘Marketing and Social Innovation. Consequences of business-nonprofit partnerships on social well-being’’ (ECO2013-46391-R).

ORCID iD

Marta Rey-Garcia

Author Biographies

Marta Rey-Garcia, associate professor of Marketing at the University of A Coruña (UDC)-Spain, and director of the Inditex-UDC Chair of Social Responsibility and Innovation. With professional background in nonprofit management, her research on nonprofits and philanthropy is published in leading international academic and practitioner journals. She has participated in EU-funded research projects.

María José Sanzo-Perez, full professor of Marketing at the University of Oviedo (Spain). Her research, mainly related to relationship marketing and nonprofit management, is published in leading international academic journals. She has been PI of several research projects funded by the Spanish government. She has held management positions at the University of Oviedo.

Luis Ignacio Álvarez-González, associate professor of Marketing at the University of Oviedo (Spain). His research, focused on nonprofit management, is published in leading international academic journals. He has participated in EU- and Spanish government-funded research projects. He was director of the Master’s degree in International Cooperation Organizations Management of the University of Oviedo.

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