Jonathan G. Katz, Secretary U.S. Securities and Exchange Commission 450 Fifth Street, NW Washington, D.C. 20549 November 12, 1997 Via E-Mail Re: File Number S7-26-97 Dear Secretary Katz: The National Committee for Responsive Philanthropy, a nonprofit research and public education organization, has been actively involved in research on corporate grantmaking for the past twenty-two years. During the last seven years, we have had an ongoing project researching corporate grants for Racial/Ethnic populations. In this capacity, we would like to comment on H.R. 944, requiring disclosure of corporate charitable contributions by publically-held companies. We strongly support the passage of H.R. 944 with one major contingency: the exemptions for contributions to educational institutions and local charities. First the reasons why we support H.R. 944 (1) According to the Conference Board, in the top 300 corporations, less than 40% of corporate largesse is awarded through the corporate foundations. According to their projections, this proportion is sinking fast and perhaps within five years, will be under 30%. Thus, currently, corporate disclosure of charitable contributions is decreasing at a rapid pace, not increasing. Something must replace this under- used, but unique research tool. (2) The National Committee's own study shows that corporations DO NOT respond to request for information on their corporate grantmaking. In 1996 we asked 174 corporations with foundations to provide very basic information on their grantmaking programs and only 27% (47 corporations) of the 174 corporate foundations we surveyed responded with concrete data on their grantmaking practices. As dismal as this response was, corporations with foundations were much more accessible than those without foundations. Of the 30 corporations we surveyed that do not have foundations: 2 corporations provided all the information requested, 1 corporation provided partial information, 23 corporations did not respond at all, 4 corporations provided guidelines but would not furnish grant lists. In short, corporations may appear eager to provide information on their charitable practices, but two years of evidence strongly indicates they are not. Even when the law required full disclosure of grantmaking activities, nearly three-fourth of corporations with foundations did not comply. When not required by law, 90% of corporations did not disclose any charitable grantmaking activities. (3) The IRS fared no better in providing corporate grantmaking data. Researchers made 257 requests to the IRS for copies of corporate foundation tax returns. Of these 257 requests, only the IRS could respond positively to only 87 requests. And of these 87, 67 were filled after the 2nd or 3rd request. (4) Timing is also a problem. Corporate foundations are obliged to file returns with 5.5 months of the end of their fiscal year (or 11.5 months with full extensions). Of the 138 corporate foundations which provided data on their filing deadlines (as required by IRS regulation): 12 (8%) filed before the deadline 46 (33%) filed on the 15th day of the fifth month after the end of the fiscal year 55 (39%) filed during an extension time, ranging in time from six to 11.5 months 22 (15%) filed on or near the 15th day of the 11th month after the end of the fiscal year 3 (2%) filed more than 11.5 months after the end of the fiscal year In practical terms, this means 87% of corporations reported their giving 17.5 months or more after they started making grants, at the beginning of their fiscal year. (5) According to the Interfaith Council on Corporate Responsibility, shareholder resolutions regarding corporate grantmaking were among the five most common issues in non-management related stockholder resolutions. Some resolutions (no numbers are available) were related to the recipients of corporate giving, but many resolutions were about increasing/decreasing the amount of overall corporate charitable giving, and still other stockholders requested the corporate full disclosure of all charitable giving. Stockholders clearly want to know who is receiving corporate contributions. (6) During the period of July-September, 1997, at least 19 Fortune 100 corporations placed full page (or more) display ads in major periodicals (such as, Ebony, Time, Hispanic Business, GQ, Seventeen) demonstrating their corporate largesse. However, of these 19, only eight provided actual data on their grantmaking activities and then only in summary and sample data. Corporations which use their generosity as a sales-pitch should be required to back-up their sales-pitch to those who own the company. For example, according to its most recent 990PF, Nike Corporation, which uses its PLAY foundation as a major advertising focus, awarded absolutely no grants through the PLAY foundation. Recently, on the day Nike released a new athletic shoe, Chicago Police reported 22 violent crimes in connection with the shoe. Thus, Nike's "sterling corporate citizen" advertising focus effects not only their sales, but also effects crime rates. Yet, neither private nor public agencies have the data necessary to adequately question these less than sterling corporate practices. (7) Corporate charitable practices clearly have an impact on other central business practices. In 1987, Dayton Hudson Corporation was able to fight off an unfriendly take-over bid by Dart Corporation on the strength of its generosity to nonprofits in its home state, Minnesota. Without a generous and widely disclosed record of corporate giving, neither the state legislature nor many of Dayton Hudson's institutional stockholders would have supported legislation which virtually eliminated any unfriendly take-overs. (8) Furthermore, publically disclosed corporate contributions are commonly used as evidence of corporate compliance with other federal and state regulations. The Community Reinvestment Act (CRA) which impacts community banking practices includes, as evidence of "good community banks," charitable grants awarded for community improvement and development. By its own account, charitable giving by urban banks has nearly quadrupled since the passage of the CRA more than twenty years ago. It should be further noted that any grants which a bank claims to bolster its case as a qualifying community bank must be disclosed in local CRA statements. If banks are permitted to use charitable gifts as evidence of community support, then such giving such become part of the public record. (9) Similarly, the insurance industry has invested hundreds of thousands of dollars tracking insurance company grants to all types of charitable organizations and used the industry's giving record in litigation, legislative arenas and in community advertising campaigns, as evidence the industry fully supports the communities in which they do business. If the industry uses charitable giving as legal evidence, then such giving should become part of the public record. (10) In the past three years, two telecommunications companies which were accused of paying insufficient attention to Spanish-speaking customers both cited contributions from their corporate foundations and their marketing departments as evidence of adequate support for the Hispanic/Latino community. If telecommunications companies believe their charitable activities have an effect on regulatory action, then the grants upon which they base these beliefs should be part of public record. (11) Ten years ago a major American oil company was publically accused of devastating a natural landscape. As part of the subsequent court settlement, the company agreed to set up a charitable trust which would award grants to nonprofit charities. If oil companies agree to establish charitable trusts in settlement of damages to natural areas, then the activities of such trusts should be public. (12) Two years ago, the Chief Executive Officer of another major American oil company announced to a public gathering of the press and researcher that henceforth all corporate grants would be firmly evaluated on their positive impact on corporate profits. If oil company officials believe that charitable grants should and can directly effect profits, then such grant should become public information. (13) Finally, corporate grantmaking and charitable practices have become fully integrated into corporate life: inventory, employee time, marketing, and even litigation. Stockholders of these corporations must become more aware and better educated about the use of charitable giving as a business practice. Without mandatory, full disclosure of corporate grants, neither the public nor stockholders will never become adequately informed of the ramifications and potential uses of corporate charitable giving. Regarding, our one problem with the pending legislation: H.R. 944 should be defeated if the educational institutions and local organization exemptions are retained Why? (1) According to the Conference Board, more than 30% of corporate giving is awarded to educational institutions. Our own studies show that this proportion is even greater for Racial/Ethnic communities. Hiding 30% or more of corporate giving rips the guts out of H.R. 944 and makes it virtually useless to those who want to know how and how well corporations use their largesse. (2) If educational institutions and local organizations are exempted, corporate donors may be persuaded to give only to educational institutions, avoiding the paperwork which we have already shown is a major problem for corporations when filing IRS Form 990PF. If such funding shifts to education and local organizations, several human service, public service and arts/cultural organizations will suffer dramatic, perhaps even fatal decreases in corporate giving. Worthy organizations such as the Christian Childrens Fund, UNICEF, and Amnesty International will be hurt the most. (3) Furthermore, if gifts to educational institutions and local organizations are exempted, almost all organizations will be forced to declare themselves educational or local institutions, thus further confusing and damaging efforts to regulate charitable organizations. If organizations must become local organizations to receive corporate dollars, the administrative overhead of national organizations will skyrocket in response to the need to open local offices. This will severely damage charitable intent and cause terrible confusion and frustration on the part of real local organizations. (4) Finally, exempting educational institutions defeats one of the central reasons for creating H.R. 944 in the first place: to assure shareholders and others that corporate giving is being used not as business leverage but with true charitable intent. Thank you for your attention in this matter. If you have questions about this statement please do not hesitate to contact me. Steven Paprocki National Committee for Responsive Philanthropy/Minnesota 2058 James Avenue Saint Paul, Minnesota 55105-1720 612-690-2520 (voice) 612-699-0944 (fax) ncrp@primenet.com Sincerely, Steven Paprocki Associate Director