A strong foundation Article icon


The board of Friends Provident, the financial services group, knew it was betraying its heritage. The company was founded in 1832 to provide life assurance for Quakers living in Yorkshire. If the members of that religious community could have looked forward 169 years, they surely would not have approved of Friends Provident's decision to list on the London Stock Exchange.

To this unostentatious religion that believes in thrift and fair distribution of wealth, flotation would appear little different from gambling. Thus, in order to maintain the spirit of its Quaker tradition, Friends Provident established a charitable foundation.

This separate entity, funded by the company, hands out grants to worthy causes; Friends Provident gave its foundation a £20 million endowment in 2004. Through investments in equities and bonds, this generates between £800,000 and £1 million a year, which is then given to charities that tackle social exclusion, an issue close to the religion's heart. Centrepoint, the homeless charity, is one of the foundation's better-known beneficiaries.

'When we demutualised we created a lasting legacy,' comments Ashley Taylor, a trustee of the foundation and a senior manager at Friends Provident. 'We thought we would be reflecting [the beliefs] of our forefathers, even though Quakers generally wouldn't be in favour of the stock market.'

Taylor concedes that the group's brand also benefits from being associated with good causes. Cynics might argue that this is the whole point of corporate charitable foundations: rather than just write out a cheque to a charity, a company can set up a foundation and get the added bonus of great publicity. This may be too simplistic, but it does help explain the increasing number of these foundations - there were 126 registered in 2006, up 25 percent on 2003, according to research by Smart, the corporate responsibility consultant.

Spread the love

Susan Mackenzie, the director of charity adviser Philanthropy UK, confirms that the trend is continuing. 'We have been getting an increasing number of queries from companies exploring the idea of setting up charitable foundations,' she says. 'We've been giving out a lot more information over the past year.'

Mackenzie argues that companies have started to think 'more strategically' about their charitable giving, and foundations offer benefits over more traditional methods of donating. Because they are independent, foundations employ charity professionals, so allocation of grants is not farmed out to CSR departments, thus eating into their time.

It also helps with recruitment, as new graduate appointees become increasingly convinced by the need for companies to give a little back to society. A charitable foundation sounds 'authentic, not just like marketing,' Mackenzie points out.

Vodafone, the telecoms giant, has one of the best known foundations, having invested £100 million in projects since 2002, with a further £24 million set aside for 2007-2008. Foundation director Andrew Dunnett says establishing the body 'gives an identity' to Vodafone's charity work, which would otherwise be difficult to communicate to the company's 60,000-plus staff.

One example is Vodafone's foundation in New Zealand - the company has 24 foundations in all, including the umbrella group in the UK - where a survey indicated that 92 percent of staff members in the country are aware of its charity work. In New Zealand this involves seconding four people a year to work with non-government organisations of their choice. There are 300 applicants per place, drawn from both staff and the local community.

Dunnett also points out that foundations are a tax-efficient way of giving. The advantages are no longer as great as they once were, because the introduction of Gift Aid in 2000 allowed tax benefits to be clawed back on virtually all corporate and personal giving, but foundations do get tax breaks on overseas donations.

Finding the funding

Vodafone's board sets an annual budget for the foundation to help meet three-year funding commitments, with the next allocation to be determined in March. This is one of three main methods used to fund foundations. The endowment method used by Friends Provident is another, but perhaps most popular is to set aside a proportion of pre-tax profits. For example, Lloyds TSB, Britain's fifth-largest high street bank, gives one per cent of profits every year to its four foundations.

This appears incredibly generous given that pre-tax profits were £4.25 billion in 2006. But this last method has a downside: should a company make a loss, the foundation will struggle for funds. The foundation set up by Northern Rock, the beleaguered Newcastle-upon-Tyne-headquartered bank, is one obvious casualty. The company allocates 5 percent of annual pre-tax profits, but last year's infamous run on the bank means the foundation will soon suffer.

The Northern Rock Foundation's website points out that it has received £190 million since it was established in 1997 when the former building society converted to bank status, and has sufficient funding to meet current commitments. But it also concedes that it is cutting some of its programmes: 'We will not be taking forward any more pending applications under the programmes we are closing.'

'Northern Rock Foundation has had to cut back significantly because it doesn't know what funding it will get in the future,' explains Mackenzie. 'If something befalls a company and the funding source suddenly disappears, that's a real issue for foundations.'

Not all altruism

A Northern Rock Foundation spokesperson declined to comment, but a look at its history demonstrates how charity can be used to further a business' interests. When Northern Rock listed ten years ago, part of the proposition was that the foundation would get a 15 per cent stake in the company should it be taken over. This was widely seen as a 'poison pill' to deter potential predators. Until last year's problems, which sparked a rescue auction and raised the spectre of part-nationalisation, the arrangement was a very effective way of warding off any bids that would destabilise the business.

But using foundations for self-interest is not necessarily a bad thing. Take the Ove Arup Foundation, established in 1989, the year after the death of the renowned Anglo-Danish engineer from whom it takes its name. Its stated mission is for 'the advancement of education directed toward the promotion, furtherance and dissemination of knowledge of matters associated with the built environment.'

Arup Group, the engineering firm that endows the foundation, has spent more than £2 million in grants since its inception, most of which have been used to promote the construction industry in general and engineering profession in particular. For example, the foundation helps fund courses in building physics at the universities of Cambridge, Bristol and Sheffield.

Inevitably this also benefits Arup as many students want to join what has become the most famous name in consultant engineering. But whether or not the graduates end up at Arup, these courses encourage more people into construction, an industry renowned for its skills shortage. 'The foundation is looking for the next big things in engineering,' explains Peter Klyhn, the foundation's secretary. 'It's about not resting on our laurels.'

Arup's foundation is also an example of how these groups are often established in tribute to the memory of influential business people. The Laura Ashley Foundation was set up in 1986 following the legendary designer's death, and uses its grants to fund projects that would have interested her. These include a £6,000 scholarship at the Chelsea College of Art & Design in London and a £10,000 award to the Royal Welsh College of Music & Drama in Cardiff.

The common thread to all the foundations seems to be a genuine desire to give something back. 'I'm not sure we did it from a brand-image perspective,' admits Robert Eggleston, chairman of the foundation set up by Syscap, the independent IT provider. 'Our market is technology finance, so we are fortunate to be doing fairly well. Setting up the foundation was just a conscious decision to do something for people as a business.'

For its first year, the Syscap Foundation has set what Eggleston calls 'a modest target' of £10,000, and two employees are running the London Marathon. Employees also decided the charity it would give money to: Express Link Up, which provides technology to sick and disadvantaged children, will receive 75 percent of the funds.

Syscap might think £10,000 is modest, Friends Provident might have set up the foundation to ease its conscience, and Northern Rock might have used its charitable arm to help combat takeovers - but all the companies have ultimately done the right thing.