How Charities May Suffer After a Deal Slashed Budgets, Layoffs, and Relocation Often Mean Bad News for Grant Recipients

Perhaps one of the last considerations that merging companies have while they are hashing out details of the transaction is what the combined company’s philanthropic budget and programs will look like after the deal is done. Yet a merger or acquisition, which often includes cost-saving measures, layoffs, slashed budgets, relocation of headquarters to another area, and changes in a company’s focus, can have a significant impact on the charitable activities of a company and the community in which the firm is based. All too often, the changes in an organization’s corporate giving program following a merger mean bad news for charities, says Myra Alperson, Senior Fellow at the Center for the Study of Philanthropy at the Graduate School at the City University of New York. Although a budget cut is an obvious indicator that a company’s donations likely will dwindle, it’s not the only factor that can affect corporate giving programs. “When you hear about layoffs of employees following a merger or acquisition it also means that matching-gift programs and corporate volunteer programs will be smaller, because there are fewer employees to participate in those activities,” Alperson explains. In addition, postmerger downsizing and restructuring often result in the scaling back or loss of charitable leadership in a community. Work force reductions due to redundancy can lead to the loss of employees who are active in the philanthropic efforts in their communities, Alperson adds. For example, if a newly merged company doesn’t need two separate managers for its corporate giving program, it may end up laying off an employee who has been active in charitable affairs. Echoing Myerson’s opinion are grant recipients who responded to a recent survey by The Chronicle of Philanthropy on charitable donations. Many recipients of grant awards fear that mergers and acquisitions will lead to changes in the philanthropic priorities of the newly merged companies and a reduction in charitable donations by companies undergoing restructuring. They feel that mergers, which can include the relocation of headquarters to another city or state, will cause a decline in donations to charities in areas where headquarters are vacated because community involvement in those towns would be less of an issue for the relocated company. They also believe that m&a generally throws grant-making into flux while the deals are being worked out a process that can take more than a year for some deals. In the case of merger partners Citicorp and Travelers Group Inc., which are still working out their giving plans for the new company, one element of Citicorp’s philanthropy program that is not a part of Travelers’ corporate giving program is a policy of matching employee gifts. According to The Chronicle, before the merger announcement, Citicorp had planned for a 10% increase in spending on matching gifts in 1998 to an estimated $7 million. How the deal will affect the charitable donations of the combined firm remains to be seen. Although the news following a merger is often grim for charitable organizations, in some cases the newly combined company maintains the premerger philanthropic efforts of the merger partners, or even comes up with a program that dwarfs what the separate companies had done before the deal. The merger of Bell Atlantic Corp. and NYNEX Corp. is a good example of how merging companies often make compromises as they meld the two businesses into one. Before the merger, each company’s charitable foundation had focused much of its corporate giving efforts on the same cause helping charities acquire and use technology. NYNEX had donated about 1% of its pre-tax profits annually to charity, while Bell Atlantic gave 0.4%. According to the Bell Atlantic’s charitable organization, Bell Atlantic Foundation, the companies decided to settle on a middle ground when they merged aiming to give 0.7% of pre-tax profits to charity each year, reports The Chronicle. However, not all outcomes of mergers result in such compromises. According to The Chronicle, First Union Corp., which acquired CoreStates Financial Corp. in May 1998, more than doubled its charitable donations in 1998 to at least $38 million. First Union, which is based in Charlotte, N.C., had promised to maintain its own giving level as well as CoreStates’ for at least the next five years. CoreStates, a Philadelphia company, gave $17.8 million in 1997. First Union also agreed to provide $100 million to establish the First Union Regional Foundation in Philadelphia. One case in which one plus one ended up equaling three is the recent merger of Morgan Stanley & Co. and Dean Witter, Discover & Co. The merger partners each had a long history of philanthropic service, but they probably never could have created a corporate giving program the size of the one the combined company has been able to form as a merged company, notes Joan Steinberg, Community Affairs Director at Morgan Stanley Dean Witter, Discover & Co. The newly merged firm was approached by Colin Powell, founder of America’s Promise Alliance for Youth, about launching a public school-based program that provides resources for education and youth services. Steinberg says that her company’s role is to bring resources to the table, and she says that the firm has committed “financial, marketing, and employee muscle to the cause.” One of the largest components of the company’s new philanthropic program is a company-wide volunteer program called “What a Difference a Day Makes,” which encourages the company’s 45,000 U.S.-based employees to do at least 24 hours of community service to help at-risk youth. “Our company can offer over one million hours of employee volunteering due to the size of the employee base following the merger and our employees’ willingness to work in their communities,” says Steinberg. Another part of the new corporate giving program is cash-back bonus awards issued through the company’s Discover Card. Cardholders get a cash credit every time they use their card and they can either keep the cash or elect to donate it to one of several charities America’s Promise, the Make a Wish Foundation, or the Smithsonian. Steinberg says that the program raises its cardholders awareness about those charities, and she hopes that a good number of the 46 million cardhold-ers will donate their bonus awards to charity. “As companies grow and their presence increases, they look not only for ways to increase their prominence in a business sense but also to increase their prominence in the communities that they serve. We were very proud of this merger and of the size and scope of what we created, and I think that enthusiasm spilled over into philanthropy,” she remarks. She adds that one internal benefit of the merger was that for the first time the company did a full review of its philanthropic activities to determine exactly how much the separate companies and all their subsidiaries had been giving to charities. Steinberg says that they then were able to benchmark what they had been giving before the merger and what they have been donating since the merger. “We have been able to determine that we are now able to bring more resources to the community in terms of manpower and dollars,” she says.