Founded in 1952, the Caterpillar Foundation is the philanthropic arm of Caterpillar Inc., a 501(c)(3) not-for-profit organization funded by the company to do philanthropic work all over the world. It has long been—and continues to be—a generous donor to charitable organizations in central Illinois. 

iBi sat down with Will Ball, manager of Social Responsibility Initiatives, and Caterpillar Foundation Manager Jennifer Zammuto to discuss the winds of change in the not-for-profit and philanthropic world, both here and around the world.

How has the Foundation’s mission—and the focus of that mission—evolved in the last couple of years?
ZAMMUTO: In the past, the mission was contributing where our employees live and work. It was simple and broad. In the last few years, we’ve changed that focus—it’s more narrow now. It says that we make sustainable progress possible in our communities through sustainable humanity, which is basic human needs and self-reliance; sustainable educational initiatives; and sustainable environmental initiatives.

Our board of directors dictates how much of our budget stays within the U.S., and how much goes outside. As of three years ago, it was 20 percent outside of the U.S. This year, that number is at 40 percent—and that’s with a shrinking budget. So while the budget is getting smaller, the percentage outside the U.S. is getting bigger, because it needs to mirror where our employees are around the world.

BALL: We worked really hard to get a process that was aligned to the Caterpillar corporate strategy, and a new mission that helped us to define who we are and how we work philanthropically. We also wanted to share that with our employees and with others around the world. So, now we know with clarity those things that we contribute to based on our mission.

ZAMMUTO: Additionally, we’re focused on outcome-based investing now. All of these organizations do good work. How do you decide…without it being an emotional decision? You have to look at their goals and how they are going to reach those goals. Through what programs? What are the outputs? Who are they going to serve? What are the outcomes? How is someone’s behavior or knowledge different from having received that service? And so, a philanthropic return is our focus. That has been a significant, permanent change for us; that’s what we want folks to understand. This isn’t a change because the economy went down. It’s a better way to do business and to be more efficient with the dollars that we have. We should be doing that no matter what the economy is doing.

BALL: It’s a better way to help more people. This isn’t a new message. If there’s only one takeaway from our conversation, it will be that the message we communicate today is consistent with a message that started in 2007 when our former director of public affairs, Tim Elder, sent a letter out to the [Peoria-area] community. The goal of that letter was to help the community understand that, while this is our headquarters community and we will always value this community and be generous here, we have many communities around the world where Caterpillar employees work and live every day. If we are to be a company that is values-based, and we respect and value all of our employees globally, we have to live by our corporate values.

Our Values in Action, Caterpillar’s Worldwide Code of Conduct, talks very specifically about the behavioral expectations for all Caterpillar employees globally, and how we will live our values in our communities around the world. It states:

“We are proactive members of our communities. As individuals and as a company, we contribute significant time and resources to promoting the health, welfare and economic stability of our communities around the world. We encourage all employees to participate in community activities that promote the common good. We believe that our success should also contribute to the quality of life in, and the prosperity and sustainability of, the communities where we work and live.”

Notice that the word “communities” is plural, not singular. I think that over the last three years, through the power of the 6 Sigma process, we are more effective and efficient as a philanthropic organization, and doing a far better job of living these values that we share with our employees globally. We are now living these values in a manner that’s consistent with what our leaders and employees expect in our communities worldwide.

Describe some of the changes resulting from the 6 Sigma project that helped guide the Foundation’s transformation.
BALL: When I came on board three years ago, one of the things that I learned very quickly was that the Foundation had done tremendous good in this community. And it would be extraordinarily valuable if we could find ways to take that success to other communities around the world and live more consistently with what we say in Our Values in Action.

I realized that I would need a lot of help quickly, so I reached out to our 6 Sigma organization. Having worked in prior areas of the company, [I know that] 6 Sigma is a very, very successful methodology. We use it in our factories, we use it to help realign office processes—it does an extraordinarily effective job. This was the first time we tried to lay that template on the philanthropic space, and frankly, it was a bit of a challenge. We had a global team from all over the world, we engaged them very early, and we set the parameters for what we were trying to accomplish philanthropically. We were able to put together a set of guidelines and metrics that help us understand the value of the philanthropic investments we are making.

We also wanted a fair, open and transparent process so no one individual or organization felt as though it was valued because of its geography, or because of its affiliation with someone in that organization. So, it’s not who you know or where you’re located, but it is a fair, equitable and open process available to anyone.

We’ve got 4,000 requests [for funding] that will come in from six continents this year. The real challenge is to know which ones are the right investments in the communities in which Caterpillar has a presence. 6 Sigma helps us make those decisions by using objective criteria to determine the value of the philanthropic return—the return on the communities, the return on the programs, the return on the lives of people in those communities. We want every dollar that we invest to help as many people as possible.

What is changing—or has changed—about the grant evaluation process for nonprofit organizations?
ZAMMUTO: Now, the outcome-based investing process that we’re talking about requires organizations to do a little bit more work and share more details with us. So if your goal is to alleviate hunger in the community, then we need to know what kind of service you’re going to provide. If you say, “We’re going to serve meals to hungry people,” we'll ask, How many people are you going to serve? “100 people, Monday through Friday at lunch.” Okay, that’s great. A lot of times it would end there.

But now we want to know: What is the outcome? Because you served those meals, is the community any better off? If people are not hungry, they can go get jobs and pay attention in school. It’s very hard, if you’re hungry, to be a productive member of society. That’s a basic human need that has to be fulfilled before you can do anything else. So that’s what we want to see—show us that outcome.

Then, how are you going to measure whether or not you are successful? How efficient and effective are you with those dollars? If one organization is doing it at a cost of $1,000 a person, and another organization can do exactly the same thing for $100 a person, wouldn’t we be better off making the investment here versus there? We’re simply trying to be the most efficient and effective that we can be, because we want to help the most people. 

We get requests all the time from programs in Chicago that are really doing a great job to help people who are homeless, for example. But we have to say to them: you’re not meeting our criteria. The criteria states that you are in an area in which we have a high concentration of employees, and we don’t have a high concentration of employees in downtown Chicago. Therefore, we end up saying no to those organizations. We cut 216 organizations off of our books completely last year, simply because they didn’t align with our values or our mission and vision as a foundation.

BALL: Before 2009, we were reactive; we were charitable bankers. Requests came in, and we reacted to what we got. Now we’re thinking proactively about being strategists and solving broader community problems here locally and in communities around the world.

We also had a lot of relationship-based giving, where someone was able to achieve support from the Foundation even if the project had no alignment to Caterpillar or there were no metrics to demonstrate its value. They just knew somebody at Cat and got money. Those days are over. Now we’re strategically aligning our work with the vision for the company, and we have documented processes that measure metrics and outcomes so we know that for the dollars invested, we’re helping people. That’s what this work is truly about: helping as many people as you can by making sure that you’re returning value to their lives.

We were really focused on central Illinois, and the overwhelming majority of our dollars landed here. Again, we love this community, we’re generous here, and still, the majority of our budget is here, but we also have global strategic initiatives where we’re focused on supporting those communities around the world where our employees live, based on what we told them we were going to do in Our Values. So, at a high level, those are the biggest changes that we’ve made.

ZAMMUTO: And these are permanent changes—that’s really critical. We’re not just doing this for a couple of years until the economy gets better. It’s the right way to operate no matter what.

BALL: We have to be good fiduciary stewards of the resources we’re entrusted with. It’s a fundamental paradigm shift. It is a change in the way that we operate—requesting goals, metrics and outcomes—that’s something new for some organizations. Fortunately, the United Way started way before we did, and our metrics are not as stringent as theirs are today, but for organizations that are working with us and need help, we spend a considerable amount of time coaching, guiding, mentoring and leading organizations through the new process, to make sure they understand what the expectations are, so that hopefully—if they have the right goals, metrics and outcomes, and they’re aligned with Cat and our mission—we are able to support them.

ZAMMUTO: Another difference for organizations is starting next year, we will be using an online program to accept grants. I think that, in the space of outcome-based investing, we’ve been a little bit ahead of the curve in terms of other philanthropic organizations, but we’ve been behind the curve when it comes to technologies that go along with that, so finally we’re going to catch up.

We’re not accepting mail anymore, starting January 1st. If you have a proposal for Caterpillar, you’ll have to go through our website, which is cat.com/foundation. You’ll be asked a series of questions to see if you qualify initially. Once you pass all of those questions and tell us more details about you, then we can look at the proposal. What this will do is free our very small team up to focus on the strategy behind it as opposed to reading the mail and spending time on groups that will not even qualify. That time can be used so much better.

BALL: This is an extraordinarily dynamic environment for not-for-profit organizations. It’s tough for any of us to predict what the future will look like with confidence. So now is the time to sit down as board chairs and CEOs with your boards and do some really hard strategic planning work. Think about what may happen if you have a drop in revenue of five percent, 10 percent, 20 percent. How might you respond to that? Be proactive about planning for that in this dynamic environment. Please have those discussions early, because we truly don’t know what the future holds.
 
How is the criteria for Caterpillar’s matching gifts program different from grant programs for outside organizations?
ZAMMUTO: It’s a little different. There are certain types of organizations that qualify for matching gifts: arts and cultural organizations, two- and four-year accredited colleges and universities; and trade, public policy and environmental organizations. If employees give between $50 and $2,000, those monies are matched, and they don’t have to go through the outcomes process—we’ve pre-vetted those organizations. If it’s important for an employee to make a donation to an organization that falls into one of those categories, then it’s worthwhile to us as well.

Most health and human service organizations are covered through our United Way campaign—that’s our one corporate-approved solicitation. That means we don’t go to employees throughout the year soliciting for anything, outside of our annual Caterpillar Employee United Way appeal. That’s why those organizations are not covered in our matching gifts program—because we offer a match through our United Way campaign.

You’ve already hit on a number of significant trends in the not-for-profit world. Beyond what we’ve already discussed, what trends do you see ahead?
BALL: Well, you know the old phrase, “The only constant is change.” I think we’re always going to be looking internally for improvements and to make sure that we are calibrating the work we do to ensure consistency with our corporate vision, our new corporate strategy and making sure that all of the work we do is consistent with Our Values in Action.

We’re likely going to see flat U.S. budgets. That trend will continue, and it’s consistent with the message that we’ve been communicating for quite some time. I think it’s critical that the community understand that we’re still extraordinarily generous in central Illinois, and we will continue to be very supportive of organizations here, but any growth in the budget is not going to happen in the U.S. 

In terms of a broader philanthropic perspective, there was a very good article in The Chronicle of Philanthropy recently that noted an 11-percent drop in philanthropic contributions across the board in the U.S. I think that with the economy performing as poorly as it has been, and with the State of Illinois and the federal government having significant budget deficits, there’s going to be increasing pressure on philanthropic organizations to find ways to serve their client bases—who desperately need their help—with fewer resources.

There’s another really powerful, dynamic trend that’s occurring. We’re members of an organization called The Conference Board, and one of the areas in which we engage with them is on their Contributions Council, which focuses on philanthropic entities for large Fortune 500 companies. We are finding that many of these organizations are also focused on moving from a model of philanthropic giving to the model of outcome-based investing that we’ve discussed.

A lot are giving money away now. In very short order, they’re not going to be giving money away; they’re going to be requiring goals, metrics and outcomes. It’s going to take a Herculean effort to make sure that philanthropic organizations know what changes are coming and how to prepare for them. So by communicating this message early, hopefully organizations will understand that they need to get with their boards, they need to focus on strategic planning, and they need to make sure that they’ve got the right skill sets on their boards to lead them through this powerful wave of change. Doing this work well will get everyone ready for the next economic cycle that will inevitably come at some point in the future.

ZAMMUTO: There’s going to be a lot more collaboration, I think, as well. Foundations are working together more. Agencies are working together more. Everyone has got to be more creative with the time and money we have so that we can solve some of these big problems. Another part of that is really finding out the cause of some of these major issues around the world and how we can help adjust that, as opposed to, maybe, just stop-gapping all the time. Working together, for example, to answer: What’s really causing poverty? Not that we shouldn’t be putting food in food banks, but how do we really address the main problem here? Is the problem that there’s not enough work? Is the problem that people aren’t educated? What is the problem? And then, let’s fix that problem. So I think we’re going to see more collaboration and more root-cause problem-fixing moving forward.

BALL: That’s a great point. I think a lot of large investors in the philanthropic space are moving to a model where they’re almost requiring collaboration now. They’re asking the right questions to try to make sure that they’re efficient programs that help as many people as possible. And those organizations that are “siloed”—that really have high walls around them—they’re going to find it extraordinarily difficult to survive in the next cycle. The organizations that are isolated are going to find a really, really tough time. Our goal is to get as many people educated as possible so that they are successful. And understand that this is not just a Caterpillar message—this is a much broader message that we’re seeing on the horizon. iBi