How corporate foundations can help give life to a purpose-driven business’ impact goals

Do you want to create greater positive impact that goes beyond your business? If you do, you might want to think about setting up a corporate foundation.

In the UK, corporate foundations are usually registered charities set up by a commercial company. A corporate foundation works in long-term partnership with the business, maintaining a level of strategic alignment with the organisation to help further the foundation’s mission for public benefit. Often, partners and funders like working with registered charities, and this allows corporate foundations to reach opportunities and networks that commercial organisations cannot.

Corporate foundations can help you to provide financial and non-financial support on social and environmental initiatives that align with your purpose and values. They can also be a great way to promote cross-sector partnerships that have an opportunity to lead to systemic change. For certified or aspiring B Corps, collaboration with a corporate foundation may help contribute to meeting some of the requirements of B Lab’s anticipated new certification standards, such as under the proposed “Government Affairs & Collective Action” impact topic, which encourages businesses to take collective action on social and environmental issues.

As a purpose-driven business, your aim to create positive social or environmental impact through your activities is more likely to readily support alignment with the objectives of a corporate foundation. This focus on positive impact should help to ease potential tensions that can sometimes arise between the approach of a traditional company without a purpose-beyond-profit, and a foundation’s charitable purposes.

While corporate foundations are often grant-making, they have a range of options open to allow them to create positive impacts. For example, they can provide financial and non-financial support to scale promising social and environmental solutions, help with ecosystem building, or deepen impact on a particular community.
If you think a corporate foundation might be the answer for amplifying your social and environmental impact, we list some of the key points to consider here.

What legal structure would be best for the charity’s purpose and activities?

There are a few different structures suitable for charities in the UK. Charitable incorporated organisations (CIOs) and charitable companies limited by guarantee (CLGs) are often popular for new charities, as they are incorporated organisations with a legal personality of their own. There are other structures which can be explored (such as unincorporated trusts), but the key incorporated structures are:

• CIOs, specific corporate vehicles created for charities
• Charitable CLGs, companies limited by guarantee that are also registered as a charity

Both of these can be great options. We can advise on the differences between the two structures and which would be right for you.

Once the structure has been decided you will want to identify the foundation’s charitable purpose and how it will create public benefit. (What is it set up to do? Who will it help, and why? Where will it operate?) The purposes of the foundation must exclusively be objects that are charitable under UK law.

There are several broad areas of charitable activity, including (for example) the prevention or relief of poverty and the advancement of education. Within these areas, the foundation’s objects will need to describe its aims and activities to demonstrate that it has specific purposes that are recognised as charitable. Operating in multiple jurisdictions can add further registration considerations and ongoing regulatory requirements to consider.

How will the business share resources with the foundation so it has what it needs to function well?

Usually, the business provides the foundation with resources (start-up capital, staff, IP licenses, back-office services, premises, etc).

Have a ‘Framework Agreement’ in place to set out how the two organisations will work together and how the foundation will be resourced by the business. For example:

• Terms of the licence of the business’ brand to the foundation (IP).
• Who will run the foundation and how will trustees be appointed?
• To what extent will the business contribute to funding the charity, and how?
• What services will the company provide and on what basis?
• What are the accounting and tax implications?

Who will the trustees and members be?

Many charities (including CLGs and CIOs) have a two-tier governance structure of members and trustees. Trustees direct how the charity is run and are ultimately responsible for it. Members have various powers, such as determining the constitutional rules that govern the entity and holding the trustees to account.

The business will usually (but not always) be the sole member of the charity and it is likely to want rights to make decisions in relation to the foundation, such as the appointment and removal of trustees. The business can be given certain rights but it’s important that the charity maintains its independence and can, for example, manage conflicts of interest. Measures relating to key aspects of the charity’s governance should be reflected in its constitution.

• Ensure there are some trustees (the Charity Commission for England and Wales is likely to require at least 2) who are independent of the business and can take decisions when there are conflicts of interest. Arrangements should be reviewed regularly to make sure they are in the charity’s best interests. This might be reflected in the quorum requirements for trustee meetings. Developing a conflicts of interest policy at the outset, to set out how conflicts between the business and the charity will be managed, is a good place to start.
• Recent case law has confirmed that the members of a charitable company will owe fiduciary duties when exercising certain membership rights, acting in good faith for the benefit of the charitable company and not for their own benefit. Again, having worked out clear policies and procedures at the outset will help manage this relationship and set expectations for how the sole member will make decisions.

How will the business maintain a good working relationship with the charity, as well as supporting the charity’s independence?

The charity must retain its identity as a separate organisation and the Charity Commission expects that to be real, practical and documented; the business must understand this and support the foundation’s independence on an ongoing basis.

• Any private benefit that accrues to the business from the charity must be incidental to the charity’s pursuit of its charitable purposes. This could apply to fees paid for services provided to the foundation, or how the corporate is allowed to talk about the foundation’s work to enhance the business’ reputation.
• Consider how the relationship between the two will be managed to maintain a good working relationship over time. Drifting apart or disagreement could lead to reputational damage for both organisations. The most effective corporate foundations are usually those which have a strong relationship with the business, with close alignment to the business’ impact goals. Purpose-driven businesses will have a good understanding of working to create positive social and environmental impact, which can make them particularly well-placed to work with a corporate foundation and help mitigate some of the tensions that can arise between the approach of a traditional company, without a purpose-beyond-profit, and a foundation’s charitable objectives.
• See Charity Commission guidance on how to manage the relationship between charities and non-charitable entities(https://www.gov.uk/guidance/guidance-for-charities-with-a-connection-to-a-non-charity)

Alternatives to setting up a corporate foundation

If setting up a corporate foundation isn’t the right option, you could consider creating organisations like impact funds, accelerators and social enterprise subsidiaries, depending on the aims of the business’ impact strategy. For example, IKEA created IKEA Social Entrepreneurship to support social entrepreneurs, as well as setting up the IKEA Foundation. Virgin created The B Team, a not-for-profit that promotes doing business in a way that furthers the wellbeing of people and planet, as well as Virgin Unite (which includes The Virgin Foundation).

Donor Advised Funds are charities that receive donations and apply them for charitable purposes, usually taking into account the donor’s request as to how the funds should be allocated. They usually charge fees for administration of the funds.

If now is not the right time to set up a corporate foundation, the business could deliver on its social purpose objectives by working with unrelated, existing charities and social enterprises in other ways. For example, through corporate social investment and philanthropy, or sponsorship and commercial partnerships, or other kinds of collaboration that support the business’ corporate advocacy strategy.

If the business’ aim is to provide support for the benefit of its current and former employees and their families in difficult times, a ‘Hardship Fund’ may be a suitable option. Charity law allows for charities that provide financial support to a defined group of beneficiaries where this activity is specifically aimed at relieving (or, in some cases, preventing) poverty.