Develop a Grantmaking Strategy for a Successful Corporate Foundation
A corporate foundation is a philanthropic organization created and financially supported by a corporation. It can raise brand awareness, increase employee engagement, provide flexibility and control over giving, provide tax benefits, and allow an organization to give back to the community.
Grantmaking is one of the most important and common functions of a corporate foundation structured as a private nonoperating foundation. Private nonoperating foundations are required by the IRS to make qualifying distributions each year. These qualifying distributions typically include grants. Grants are made to public charities and exempt operating foundations that aren’t controlled by the grantor foundation.
Establish a successful grantmaking strategy for your organization’s corporate foundation with the following key considerations.
Make a Spending Plan
Determine how much the foundation is legally required to distribute and make a spending plan. A corporate foundation can create a spending plan based on minimum distribution limits set by the IRS, including minimum required distribution and minimum investment return. Also consider expected investment returns, operational needs, and foundation goals in crafting the spending plan.
Start with Strategy
Define and articulate the corporate foundation’s mission, vision, and values within a strategic plan that can serve as the foundation’s roadmap, provide a framework for decision-making, and guide the foundation’s approach to grantmaking. A grantmaking strategy should identify funding priorities and target outcomes that fulfill your foundation’s mission.
Robust strategic plans can empower foundation leaders to prioritize grantmaking decisions that align with the foundation’s core values. A strategic plan shouldn’t be a rigid document, but a dynamic tool that sets long-term strategies and is responsive to emergent needs.
When a corporate foundation is one mode among several modes of corporate philanthropy, align a corporate foundation’s grantmaking strategy with overarching corporate giving strategy.
Communicate Clear Guidelines
A corporate foundation should establish clear guidelines for identifying grantees and making grants that align with the foundation’s grantmaking strategy and overarching corporate giving strategy. Where possible, the criteria for grantmaking should be quantitative, as this reduces risk and increases transparency in the grantmaking process.
Corporate foundations may work with prospective grantees to create grant proposals or may accept grant applications, such as through the foundation’s website. Clear guidelines, which communicate a corporate foundation’s strategies and interest to grantees, can result in grantee applications and proposals that are well aligned with the giving goals of the foundation.
Consider Due Diligence Requirements
Foundations are often surprised to learn that their grantmaking has incurred taxable expenditures. This scenario often happens when foundations grant funds to entities that aren’t qualified public charities such as:
- Private foundations
- Section 501(c)(4) or (c)(6) organizations
- Section 509(a)(3) nonfunctionally integrated supporting organizations
- Foreign nongovernmental organizations (NGO)
- Public charities that lost tax-exempt status before the grants were made
Corporate foundations can avoid surprises by approaching expenditure responsibility as part of grantmaking due diligence. Performing proper due diligence can help a foundation identify and address grantmaking to nonqualified charities before funds go out the door.
Establish a Grant Review Committee
Corporate foundation board members may have multiple high priority responsibilities. It can be difficult to engage board members to contribute meaningfully to strategic and grantmaking discussions. A board that isn’t fully engaged can’t provide the ideal oversight to support effective and compliant foundation operations.
Establishing a grant review committee chaired by a board member to conduct grantee rating and selection can reduce risk of fraud by increasing oversight. A grant review committee can also increase board engagement in the grantmaking process.
Additionally, including staff of the corporation on the grant review committee can increase employee engagement in and understanding of foundation strategy, selection criteria, and how funding decisions impact grantees. A grant review committee can also be an opportunity to engage members of the local not-for-profit community in the foundation.
Increase Ongoing Engagement
Efforts to increase connections between the corporate foundation and grantees should be a regular part of foundation operations, so that board members and foundation staff can observe the impact of the foundation’s grantmaking. Board members and foundation staff can conduct site visits to grantee offices and programs. Press events and other public relations opportunities for grantees can involve board members. In addition, grantees can be invited to present on program outcomes to the foundation’s board.
Measure and Report on Success
A corporate foundation should require annual outcomes reporting that correlates with the foundation’s grantmaking strategy. To reduce reporting burden on grantees, consider requesting only the information that will be used, accept financials in their original format, and align reporting schedules with the grantee’s year end.
Grantmaking outcomes should be communicated regularly to the corporate foundation’s board. Provide board reporting monthly or quarterly and consider expanding reporting on grantee outcomes to include a grantee spotlight.
Reporting on outcomes in relationship to grantmaking strategy allows the board to understand the impact of grants and assess how well corporate foundation grantmaking aligns with the corporation’s overall giving strategy. Using storytelling tools in reporting, such as a grantee spotlight, can help to make the foundation’s impact tangible.
Outcomes in grantmaking and grantee spotlights can be a powerful tool to share with corporate leadership and staff, as well as with the broader community of the corporate foundation.
We’re Here to Help
To learn how your organization can leverage grantmaking strategies in its corporate foundation, contact your Moss Adams professional.