Like it or not, the single most used measure to compare one company’s community affairs programme with another is the annual cost. League tables are produced, invidious comparisons made. Driven by the need to produce a figure for the annual report larger than just charitable donations, companies sometimes approach the task belatedly and in an ad hoc fashion. Semi-autonomous subsidiaries, often overseas, with no line accountability to community affairs departments, complicate the task. Yet if the true extent of activities is under-recorded, it will certainly be under-valued.
However the process is complex and potentially contentious. Commercial and ‘community’ motives (rightly) overlap at times. Is time and money spent training someone who is then hired by the company a community contribution? Can sports sponsorship ever be counted? To address this problem, a group of expert practitioners from six leading companies – Pannell Kerr Foster, IBM, BT, United Biscuits, Allied Dunbar and Pilkington – studied the subject and produced recommended guidelines, published last year by the Per Cent Club(1).
The aim is to arrive at a figure which fully reflects the extent of community involvement activities, based on a fair estimation of cost to the company. The fact that some estimation needs to be made should not deter, rather should encourage a systematic and rational approach.
The first task is to decide what items are to valued and then to settle the basis for valuing them. The main categories, and the valuation methods, are:
Cash payments and donations: the full amount paid, including any element for the community group to publicise its activities;
Sponsorships: the test is the nature of the beneficiaries – sports sponsorship of a Special Olympics would count, as would most arts sponsorship; but if part of a sponsorship is purely for commercial gain with no community benefit and can be separately identified, it should be excluded;
Full- and part-time secondments, including development assignments: gross salaries or wages plus employer’s NIC plus any other employee benefit cost (eg car), calculated on a time basis;
Professional and technical advice and expertise: the direct cost, as for secondments, plus an element for overheads, therefore not at normal client charge-out rates;
Staff engaged full- or part-time in managing community activities, making donations, etc: their direct employment costs, time apportioned if necessary, as for secondments; the cost of publicity – usually to enhance corporate reputation – should not be included, unless it is genuinely to solicit applications from community groups;
Employee volunteering: as there is normally no direct cost to the company, this should not normally be included, but the cost of staff paid by the company (full- or part-time) to organise volunteering activities should be; if paid time off is taken for community activities and it can be readily quantified, then include it, costed as for secondment;
Gifts in-kind: the stock cost for products (not sales price): the cost (if new) or written down value (if second hand) for assets or equipment such as office computers; where assets are lent, count only the reduction in value during the period of loan, eg depreciation;
Use of accommodation: if for the longer term, eg office space, count the equivalent rental costs as a estimate of lost income; if short term, eg hire of a meeting room, take only direct additional costs, such as refreshments offered;
In-house facilities, eg printing: direct additional costs incurred, eg paper, ink;
Capital investment (eg loans to community projects): value the difference between commercial market interest rates and the actual rate charged; where the capital is not to be repaid, take the full amount invested.
It can be seen that, in general terms, the basis is the full direct cost incurred, rather than the actual marginal cost of each individual or activity. Where any charge is made for any of the above services, it should be deducted to arrive at a net cost figure. Alternative valuation methods, such as the real benefit to the community group or the cost if the service had been bought on the open market, are useful in assessing the effectiveness of the community affairs programme, but not for the purpose of recording the extent or volume of activity.
Having decided what to value and the basis of valuation, the next task is to collect the relevant data. This must be done in a regular, accurate, and systematic way. There are two main alternatives:
through existing financial reporting mechanisms, eg monthly accounting packages from subsidiaries to head office, or
a separate system via a network of community affairs contacts.
Each has pros and cons. The danger of trying to use both is that neither are relied upon. Whatever system is used – and it is a major practical problem in most companies – the key is to do it regularly, monthly or quarterly, not just annually. By the time annual statistics are needed, it is too late to iron out deficiencies in the system and memories are not long enough to reconstruct data. Only collect information that is really going to be used – otherwise word gets round that it is a useless exercise. Keep it simple.
This Best Practice guide only covers collecting the data, not reporting it to internal and external audiences. That is a separate and very important subject. The Per Cent Club can offer help and advice on that and on valuing community affairs activities. Others have also written on the subject(2). Only when community affairs activity is fully recorded and properly reported, will it be truly valued by business, government and the wider community.
(1) Reporting Community Involvement: guidelines for companies published by the Per Cent Club on 071 925 2899
(2) for example, Better Statistics on Companies Contributions to the Community by Michael Fogarty; published by Charities Aid Foundation RSU on 071 831 7798 price £3.95
Corporate Citizenship Briefing, issue no: 6 – October, 1992