You need to have a good think before setting up a corporate foundation. There are lots of ways to structure one, all of which have benefits and drawbacks. But what are they? The corporate foundations working group* at the SwissFoundations association offers practical tips.
If a company is keen to get involved in philanthropy, there are lots of ways for them to do this. They can make donations, say, or support their staff in giving their time to social projects. This kind of internal solution can be the best option, depending on the company’s size and how involved they’d like to be. Often, though, these activities are dependent on a particular individual: if the manager who’s been driving them forward leaves the company, the project dies, too. In years where money is tight, the budget for donations shrinks as well. In these instances, the sustainable philanthropy we should be striving for fizzles out.
Foundations can help here. ‘But don’t just think about your own foundation,’ advises Curdin Duschletta, Executive Manager at the UBS Foundation for Social Issues and Education. ‘For SMEs, in particular, getting involved in an umbrella foundation can be a better bet. You can also outsource the implementation of a philanthropic project to a partner.’ Professional advice is crucial, with many teams of lawyers and bankers now specialised in foundations and philanthropy.
‘If you do opt to set up your own foundation, there are some decisions you’ll have to make,’ comments Denise Brændgård, General Manager of the Novo Nordisk Haemophilia Foundation in Zurich. ‘The main ones are the type of financing, your proximity to the company and the composition of the board of trustees.’
Potential financing models include investing the foundation’s assets, which does help somewhat with planning. ‘Sometimes, we’re a bit jealous of foundations that have a cushion like that,’ admits Paul Castle from the Syngenta Foundation for Sustainable Agriculture. ‘We need to apply for a budget every year, which is a tricky business, as all our commitments run for several years. But it does keep you disciplined!’
The Basel-based Syngenta Foundation also accepts external funding for its programmes. Third-party funds of all kinds are among the other financing sources for corporate foundations. ‘Many also rely on donations from group employees,’ says Kristian Tersar. He’s Executive Director at the Lucerne-based Osteology Foundation, Geistlich Pharma’s corporate foundation. ‘As with volunteering, making financial donations can also help employees identify more with the foundation,’ adds Tersar. ‘But it requires a huge amount of organisation.’
Donations of time and money like this are an aspect of the second key question: the foundation’s proximity to the company. ‘Decisions on employee engagement can wait while you’re in the process of setting up the foundation,’ says Denise Brændgård. ‘But you can’t put off the fundamental questions.’ This includes the foundation’s purpose, above all. Should it work in a similar area and, say, be active in healthcare if it’s a foundation set up by a pharma company? Or should it do something completely different? ‘There are good examples of both approaches,’ explains Kristian Tersar. ‘That said, my foundation is happy to be working on a similar topic: it means we can share our expertise and discuss the content of our projects on an equal footing.’ Having a purpose similar to the company’s field of activity is primarily beneficial when a foundation runs its own projects; if it simply makes grants to others, having a shared topic plays a somewhat lesser role.
Governance and taxation
‘When we’re talking about a foundation’s proximity to a company, the composition of its board of trustees is a central topic,’ emphasises Curdin Duschletta. Often, several of a company’s managers serve on its board of trustees – sometimes without any external members alongside them. If this is the case, it does have the perk of getting the sensitive topic of compensation off the table, but, in turn, it limits the breadth of expertise available and prevents the board from having an outside perspective. ‘Our founder merely appoints the chair, with all the other trustees independent,’ notes Paul Castle. ‘I think this is pretty much the perfect combination.’
Many corporate foundations are currently busying themselves with one particular topic: the new VAT law. In simple terms, this impacts them because of its provisions for the taxation of non-financial support. Many corporate foundations use infrastructure and services provided by ‘their’ company. Alongside offices, for example, they might call on the services of HR and IT departments. The new law threatens to charge VAT on this, which might lead to sizeable bills for them. It remains unclear how exactly the law will be applied. ‘But it is very important that the company and foundation put a clear, written agreement in place,’ emphasises Denise Brændgård, ‘A service level agreement can be used to document the support to be provided.’
‘Corporate foundations are curious creations,’ stated a recent academic publication.1 That may well be the case; in any event, they are a unique type of foundation. If you want to establish one, you need to take into account even more aspects than if you were setting up a family foundation or public foundation. The SwissFoundations working group would be happy to provide further reading on request.
To the authors: The working group is available to all corporate foundations within SwissFoundations. It meets several times a year to discuss topics of relevance to the group, and its leadership (Denise Brændgård, Curdin Duschletta, Kristian Tersar and Paul Castle) would be delighted to be joined by further active members. Info and contact: swissfoundations.ch/themen/corporate-foundations
1 Handbook on Corporate Foundations, Roza/Bethmann/Meijs/von Schnurbein (eds.), Springer Nature 2020, ISBN 978–3‑030–25758‑3 oder eBook 978–3‑030–25759‑0.