By Melissa J. Anderson

Last Month, Matt Tonello, Director of Corporate Governance for The Conference Board, posted a detailed account of the strategic importance of Corporate Philanthropy on the Harvard Law School Forum on Corporate Governance and Financial Regulation.

The in-depth article discusses the importance of corporate philanthropy in helping a company grow its reputation and its bottom line. Tonello explains that while critics of corporate philanthropy bill it as a drain on company coffers or simply a means for management to boost social cache.

Nevertheless, he says, “Corporate giving programs can provide a competitive advantage when they are well designed and carefully executed.”

The company’s reputation, the communities in which it operates, its local effectiveness, and its ability to retain staff are all improved through corporate philanthropy. He explains:

“…charitable contributions can increase the name recognition and reputation of a brand or company among consumers. In addition, corporate support of local causes improves the quality of life in communities where the company does business. These contributions help managers build relationships with government officials and community leaders and can reduce regulatory and special interest group obstacles. … A commitment to philanthropy also facilitates efforts to recruit and retain talented employees.”

Tonello adds, “Finally, contributions can stimulate innovation as grants to universities and other organizations provide companies with new ideas, access to technical expertise, and opportunities for research and development collaboration.”

Similarly, corporate philanthropy can be a key part of employee engagement strategy, helping to attract high potential talent. Additionally, he writes, “As a result of corporate-sponsored volunteer experiences, current employees report higher job satisfaction and a greater commitment to their company.”

But these benefits can only be achieved under optimal circumstances – companies have to put in significant work up front to ensure its philanthropy work is truly effective. Here are Tonello’s three key insights into running a successful corporate philanthropy program.

1. Identify the strategic importance of the program.

Tonello says the most important step is establishing a program that is of strategic importance to the firm – that way it won’t simply be considered a pet project of the CEO or an example of greenwashing.

He writes, “it is not enough for corporate philanthropy to simply provide a ‘warm glow’ or ‘good feeling.’ Some return is essential for corporate giving to be able to continue in the long run. Thus, making a sound business case is extremely important.”

For example, technology companies tend to donate to educational programs, in particular higher education.

He explains, “This focus is consistent with their need for a well-trained workforce as well as their desire to access university research programs. Additionally, technology companies generally have a high proportion of college-educated employees who take advantage of programs that match gifts.”

By investing in the next generation workforce, as well as engaging their current talent, tech companies establish a strategic advantage by donating funds to educational initiatives.

2. Develop internal oversight.

Next, Tonello explains, companies need to establish oversight over giving initiatives. One reason is so that shareholders don’t “selfish intent” on behalf of management when it comes to corporate philanthropy. Additionally, he says, management gains as well. “It is easy to assuage shareholder concerns and justify giving decisions when contributions do, in fact, further the company’s long-term financial prospects.”

He suggests written policies “that define which charitable causes or recipients are allowable and set a maximum dollar amount of contributions that any one individual, business unit, or geographic region can make without additional authorization.”

Oversight policies can also guard against executives accepting inappropriate gifts. And, he says, if companies give executives discretionary philanthropic funds, they should limit them and evaluate their effectiveness as well.

3. Measure the program’s results over the long term.

Finally, Tonello points out that a good corporate philanthropy program is a long term project, and companies must measure that performance in the long term. He writes:

“Companies must demonstrate that their corporate giving programs increase shareholder value and social welfare. To do so, they must implement procedures to systematically measure and evaluate progress toward economic and social goals. The absence of any performance measurement signals the absence of accountability. Knowledge gleaned from the measurement process is helpful in determining whether to continue, revise, or terminate a particular giving activity and should improve the overall effectiveness of corporate philanthropy.”

By keeping track of progress, companies can ensure that philanthropy programs continue to do what they are supposed to – benefit the company while also benefiting society.