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Improprieties by Some Contributors Cause Concern Among Nonprofits

Philanthropy: Bad publicity and the prospect of returning 'unclean' donations could compound effects of a slow economy.

October 07, 2002|LAUREN WEBER | REUTERS

Good corporate deeds suddenly aren't looking quite so good.

Recent disclosures about the charitable giving habits of L. Dennis Kozlowski, the former Tyco International Ltd. chief executive who has been accused of stealing company funds to make $43 million in personal donations, have thrown corporate philanthropy under a harsh spotlight.

The charges against Kozlowski have brought nonprofit groups into the swirl of scandal that is plaguing corporate America.

As a result, some executives at nonprofit organizations worry that corporations will tighten their charitable belts out of concern that their every move will be scrutinized. This anxiety comes at a time when corporate donations have already been hit hard by recession and the swooning stock market.

"Directors of companies are shaking in their boots," and they may be reluctant to make large gifts, said Dick Bennett, executive director of development at the Weatherhead School of Management at Case Western Reserve University in Cleveland. "Everyone's looking over their shoulders."

For nonprofit groups, the specter of bad publicity and the possibility of having to return "unclean" contributions can create internal crises and derail important projects.

Now experts on philanthropy are asking how companies can prevent the kinds of abuses that prosecutors say took place at Tyco.

"Self-regulation doesn't appear to have worked very well, especially in the CEO office," said Dwight Burlingame, associate executive director of the Center on Philanthropy at the University of Indiana. He suggests that companies send out annual reports on corporate social responsibility, detailing their giving: "It creates some transparency."

CEOs frequently have significant influence over corporate giving, but systems of checks and balances are needed so that donations don't simply become ego-gratification vehicles for status-conscious executives, Burlingame said. Philanthropy "should be a shared responsibility with a corporate contributions committee."

Warren Dennis, a corporate governance lawyer at Proskauer Rose, says most companies already have systems to make sure donations are clean. The test is the financial statements: "If it's legitimate," he said, "it's in the books."

Experts agree that corporate donations should benefit the company--and, by extension, the shareholders--and not individual executives or directors.

"We expect that corporate contributions are in the interests of stockholders rather than in the interests of the board," said Paul Hodgson, senior research associate at the Corporate Library, a corporate governance watchdog group.

Hodgson and others, including nonprofit groups, say the whiff of impropriety and the resulting scrutiny won't have a long-term effect on charitable giving. And they agree that Kozlowski's alleged behavior probably is atypical.

Even so, "there'll be a temporary cautiousness on the part of CEOs," said Ed Morgan, president of the Bowery Mission, a homeless services organization in New York. "But it's going to be very, very temporary and very mild."

This could be bad news for organizations whose budgets already have been hurt by the recent economic slowdown.

"I think the screws will be tightened down even further because of the governance issues," said Bennett of Case Western's Weatherhead School.

Weatherhead recently moved into the Peter B. Lewis Building, a facility mostly financed by the chairman of Cleveland-based auto insurer Progressive Corp. Lewis gave 60% of the funding for the $61.7-million building.

Bennett said he was confident that Lewis' money, and that of other corporate donors, came from clean and appropriate sources. The Lewis donation came from the executive's personal foundation and a foundation in his parents' names.

Still, many executives at nonprofit organizations stress the economy as more of a concern than the remote possibility that donations are tainted by scandal or that donor companies will collapse.

Even Bennett cites economic concerns when discussing a campaign Weatherhead launched this year to increase the school's endowment to $200 million from $80 million. Corporations are a major part of that goal, he said.

"I'm feeling it's a stretch goal, but I'm also an optimist," he said. "I think eventually things will turn a bit on the economic side."

Joe Ptacek, a fund-raiser with Mercy Housing, a national builder of affordable housing, said: "The Tyco issues and the corporate philandering won't affect giving. It'll be the economy at large."

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