Step forward the smart-trousered philanthropists

US multinationals aren't donating enough cash to the markets they bestride, says John Quelch
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Last week, Bill Gates went to Mozambique to announce he was donating some $165m (£100m) to the fight against malaria. The Microsoft boss has vowed to give away his entire fortune before he dies, prompting comparisons with the philanthropic steel magnate Andrew Carnegie. But his commitment to good causes worldwide is not matched by others in US business.

American multinationals dominate the world stage. The US accounts for 23 per cent of world GDP, and 105 of Business Week magazine's top 200 companies in market capitalisation are American. This domination accelerated during the 1990s as US corporations built their global market shares by expanding rapidly into emerging markets. For example, 14 per cent of WalMart's sales are now made abroad, compared to zero almost 10 years ago. And at Procter & Gamble, foreign sales have gone up from under 40 per cent of the total to more than 50 per cent.

The increased importance of foreign markets as sources of sales and profits has not been matched by proportionate increases in overseas philanthropic giving by these multinationals, which still make most of their mainstream donations in the US, leaving country managers abroad to decide whether and how much to give to local causes. The result of this approach has usually been a series of small gifts to a broad range of charities, amounting to the minimum one can get away with to avoid criticism.

US multinationals speak frequently in their annual reports about giving back to their communities. Matching the "give" and the "get" is more important than ever as their manufacturing and employee bases move offshore.

However, it's time these multinationals started to walk the talk internationally. They need to win the hearts and minds of their customers around the world. No longer does a US brand automatically command a price premium. In some countries, such brands may now be tagged with a price deficit. The chances of attracting and retaining the right employees overseas can be boosted if a company shows it is serious about helping local communities.

Furthermore, if they allocated more philanthropic effort overseas, US companies would be setting high standards of corporate social responsibility that local firms might start to emulate. The end result of such efforts could be to make a company's stock more attractive to the growing band of socially responsible investment funds.

So what's going wrong? First, corporate dealings with charities tend to be based on local personal relationships, often involving senior executives of a company sitting on local non-profit boards. Value- for-money performance measurement is not that rigorous, so it's harder than it should be to discontinue support of a charity from one year to the next. Second, many chief executives still see the charity budget as their private piggy bank. They're most likely to spend the money disproportionately in the communities around their HQs to boost their social stature. Third, non-executive directors and governance experts have shown little interest in corporate giving practices, since the sums involved are often viewed as too small to be material.

Then there are the implementation concerns. Executives at leading multinationals say that their country managers aren't trained in public diplomacy, that they prefer to keep a low profile, and that they don't want to risk offending local politicians or business people by flashing too much money or trying to shape civil society. Then it's argued that the tax breaks, sound performance measurement and tradition of volunteers which encourage giving in the US don't exist in many other countries, developed or developing.

However, these challenges have not deterred IBM. Under Lou Gerstner, the computer giant focused its philanthropy on "Reinventing Education", a technology programme that now reaches 10 million children and 65,000 teachers worldwide. IBM learns a lot about how consumers interact with computers in different cultures, while for many governments in emerging economies - which are, or may become, important customers - the effort has credibility because it leverages IBM's expertise. Last year, more than 30 per cent of the corporation's global contributions of $127m were invested outside the US.

Smaller companies may argue that they lack the resources or local knowledge to do the right thing. So how about a partnership with a non-governmental organisation (NGO)? French building materials group Lafarge works with the World Wildlife Fund, and coffee chain Starbucks with Conservation International on projects to ensure flows of raw materials that are produced in ways that strengthen the environment.

Multinationals need to conduct a global audit of current charitable giving and match the results against the share of sales and profits and the proportion of employees in each country. This will allow them to work out how to correct big discrepancies.

Identifying an initiative that is universally important and fits in with the company's strategy and image is a good idea. Education is an example. Focus is essential if companies are going to have a global impact with their programmes.

The brave approach is to remove philanthropy from the profit and loss account by setting a fixed percentage of sales or profits for business unit managers to allocate to discretionary charitable giving. This approach helped Citigroup disburse $16m in 2002 outside the US.

Many companies have successfully shifted their mindsets from charitable giving to strategic philanthropy. But this requires a global perspec-tive as well as a corporate vision. Big US groups could learn from Anglo-Dutch companies like Unilever and Shell, which devote around 1 per cent of after-tax prof- its to community giving. Importantly, they allocate this money across regions in proportion to turnover.

Philanthropic giving is now less about being the new Andrew Carnegie than showing that multinationals are good corporate citizens. Charity begins at home; it needn't end there.

Professor John Quelch is co-author of 'Ethics in Marketing' and former dean of London Business School.