MPR: Sharing the Wealth - Small Companies, Big Bucks

Sharing the Wealth: Small Companies, Big Bucks
By Mark Zdechlik
September 9, 2000

When people talk about charitable giving and business, the emphasis is often on large corporate-funded foundations. But the vast majority of businesses in Minnesota, as around the country, are small companies. Research suggests that - employee-for-employee - small companies are much more generous than their larger counterparts. Small businesses will often pay for projects that benefit the community and boost their standing with neighbors and customers.

Detroit Lakes business owner Mike Herzog and his wife have pledged $100,000 to a community center.
(MPR Photo/Mark Zdechlik)

THE BLUEPRINTS for Detroit Lakes' proposed community center map outline what has been a dream for many in the small northwestern Minnesota town. Mayor Larry Bulboltz is an enthusiastic supporter of a plan to transform an abandoned high school into a sprawling municipal facility packed full of services and activities.

"This is everything from a day care center for very very young people, to a senior citizens center and everybody and everything in between," he says. "Pools, gymnasiums, racquetball courts, teen centers, a redone complete theater."

And it's going to be expensive - more than $7 million. That's a lot of money in a town of 7,000. All but several-hundred thousand has been raised, half of it locally, with most of the Detroit Lakes area contributions coming from small businesses.

"We attempted to raise $1 million dollars in one day," says Arlen Kangas, head of the Midwest Minnesota Community Development Corporation, which is overseeing the project. "And indeed we raised $1.2 million in that particular day, just going from one business to the next all over town."

There's a dearth of research about small business philanthropy, compared to the reams of studies about large corporate giving. Ten years ago Oregon State University Professor of Accounting Pat Frishkoff studied small businesses charitable giving for the Small Business Administration.

Frishkoff found small companies give proportionately more than big ones and their money usually targets local projects.

"If you look at giving in terms of the variety of forms of gifts, not just cash on a per-employee basis - so you are breaking it down and taking away the size bias - small businesses given significantly more on a per-employee basis than any large businesses do," says Frishkoff.

Frishkoff looked at 182 business of varying sizes in four Oregon cities, most of them businesses with fewer than 100 employees. Fifteen were large companies with at least 500 workers.

Organizers hope to transform an old school (top photo) into a community center (bottom photo). They hope to start work in the fall of 2000.
(MPR Photo/Mark Zdechlik)

She found small companies gave dramatically more in cash and in-kind contributions than their larger counter parts on a per-employee basis - nearly $800 a year, compared to about $335. She also found the smaller the company, the more likely that one person - the owner - makes giving decisions. That's a major contrast to large businesses which typically enlist professional staff to direct philanthropy.

"It's very quick. The decision making is very centralized. And it's rooted in the values of the owner. If the owner believes in the cause the owner can write a check. Going to foundation is just a whole different game they do have fairly strict guidelines. I certainly think it's easier to get a million dollars from the owner of a business than it is a foundation," said Frishkoff.

Arlen Kangas of the community development corporation agrees, especially when comes to no-frills local projects.

"We see foundations more and more being like social engineers. They have an idea and a plan and they effectuate that plan using non-profits as a vehicle. It's not like the plan we have where we come up with an idea and we want people to fund it. We are our own social engineers," says Kangas.

In a workshop just outside of Detroit Lakes, two of Herzog Roofing's 40 employees feed large sheets of metal into a long machine which bends it into commercial roofing components. Owner Mike Herzog and his wife have pledged $100,000 to the community center. He's proud of the contribution but is not boastful as he talks about his reasons for giving. For Herzog, and many small-business owners, it's important that philanthropy benefits the local community.

"I think it's easier in a smaller community and with a smaller business to be more hands-on and have a greater impact on certain needs in a smaller community," Herzog says. "It's easier to see where your money has an impact locally than it would on a state level to a national level."

Herzog likes the community center for several reasons, including the possibility it will attract more people to Detroit Lakes; for him, that's more potential workers.

The trend in major corporate philanthropy is to link charitable giving with marketing, in sophisticated efforts to bolster business. The research that exists about small business charity suggests their philanthropy most often comes without strings attached.

"They will give with out getting anything in return as long as the gift does the good that they intended," says researcher Pat Frishkoff. However Frishkoff says small businesses want their customers to know they support the community.

"Assuming they don't give anonymously, they don't necessarily need to have the newspaper have their picture on the front page, but they would like the community in general to understand that they are a good citizen."

Detroit Lakes small-business owner Bruce Imholte, another contributor to the community center project, says he regularly donates time and money locally.

"Whether it's the high school or the elementary school or some senior project, we get that everyday."

Imholte says he doubts most people realize just what a large role small business plays in covering the cost of community projects.

"This is coming to you from a person who was chairman of the local Chamber of Commerce for a year. We have businesses that do a lot for the community and yet when I hear somebody driving 50 miles away because they think they can save $2 on a purchase and that business that they are buying from doesn't do anything for the community, that bothers me."

And Imholte says as small businesses are replaced with larger chain stores, charitable giving declines. And he says the remaining locally-owned shops come under increasing pressure to make up the difference.

"There was a family-owned company on the Oregon coast that had an owner that routinely gave to one of the youth service organizations in town," recalls researcher Pat Frishkoff. "(It) routinely $1,000 a year. He sold the company and he just assumed that company he sold to would continue, and the next year I think the company (contribution) was $100."

Frishkoff says as corporate foundation giving evolves, she expects small businesses will continue doing what it's doing: giving close to home, supporting projects owners believe in.

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