The new philanthropy: Latin America Inc. turns to foundations as a strategy for serving social ends.

For decades now, U.S. and European companies have been creating corporate foundations in order to take advantage of government incentives while meeting the goals of their own social responsibility programs. Latin American companies are following in their footsteps--even though the incentives are much less for them to do so.

"My grandfather believed that the beginnings of equal opportunity lie in education, and that education is the most valuable asset a person can have," says Denise Aguiar, president of Fundacion Bradesco, Brazil's largest corporate foundation, referring to Amador Aguiar, the Brazilian banking giant's founder. Aguiar remembers her grandfather only made it through elementary school, even though he went on to create Bradesco, which has assets today of US$94 billion.

Amador Aguiar started Fundacion Bradesco in 1956. Given his interest in education, the foundation started out by building schools for the children of his employees, then extended to provide services to the poorest Brazilians. Aguiar transformed the longstanding model for Latin American philanthropic projects, which were once often organized by rich society women, by creating a more institutionalized vision of social action. It would not take hold among Latin American corporations until three decades later.

The 40 schools built by Fundacion Bradesco have graduated more than 620,000 students. Another 108,000 currently study free of charge. According to Denise Aguiar, some schools--like the Formoso do Araguaia, in Tocantins state--are in rural areas where the nearest city is 140 kilometers away, leading the institution to create a part-time boarding format. In all of the schools, both rural and urban, the foundation provides students with uniforms, books, food and even medical attention.

According to Aguiar, her grandfather made sure the foundation was economically viable. Although initially financially dependent on the bank, today it is sustained in part by dividends from its 45% stake in the holding company that owns the bank. Its annual budget is $80 million, with assets of nearly $3 billion. "Things now cannot be as they once were, when you had a tea party benefit and passed a hat to get donations," Aguiar says. "A serious foundation has to be run like a business."

Fundacion Bradesco has become a model for private investment that benefits the public in Brazil. Like any institution in the country, it has to turn over annual reports and financial statements to the Public Ministry, an arm of the Justice Ministry in Brazil that regulates companies, as well as other regulators at the federal, state and municipal levels.

"As an incentive, we are exempt from capital gains taxes and from social security matching for the 2,600 employees of the foundation," says Jefferson Romon, administrative and financial manager for Fundacion Bradesco, and an alumnus of its schools.

Nevertheless, the incentives are relatively few, although there are bills in the Congress to increase them. According to Eduardo Pannunzio, a legal advisor to the Grupo de Institutos, Fundaciones y Empresas (GIFE), an organization with 100 corporate affiliates, companies can deduct 100% of their donations to cultural projects, up to 4% of taxes on earnings owed to the government. The same incentives, however, are not available for donations to educational or environmental projects.

Leadership. "Brazil is the most advanced country in Latin America in terms of corporate organization when it comes to social issues," says Fernando Rossetti, secretary of GIFE, whose member companies include well-known corporate leaders such as Bradesco, Companhia Vale do Rio Doce, Roberto Marinho, Gerdau, Odebrecht and Itau, among others. "Between 1996 and 2002, the number of foundations in Brazil grew by 157% and this is going to continue because the social focus of Brazilian companies is increasingly important for the businesses themselves."

A study by the Instituto de Investigacion Economica Aplicada in Brazil showed that companies support social projects whether there are incentives or not. According to the study, just 2% of companies with social-action programs in Brazil made use of government incentives. Forty percent felt that social programs by companies had little value, 16% didn't qualify for exemptions and 15% said they didn't know such benefits existed.

In Argentina, benefits are equally hard to come by. "Today you can only deduct up to 5% of earnings in just four areas, one of which is to back political foundations," says Enrique Valiente Noailles, president of Grupo de Fundaciones de la Argentina (GDF), which represents the 18 largest corporate foundations in the country of which 80% focus on education. "We estimate that the annual volume of donations in the country is $10 million. It's a drop in the bucket, but if there were more incentives it would increase significantly."

There are those who prefer not to take the tax benefits, as little as they are. Fundacion Arcor, part of the $1.30 billion-a-year Argentine candy maker Grupo Arcor, has a policy of not taking any exemptions for its social programs. The foundation is focused on education and has an annual budget of $600,000.

"They say a foundation shouldn't have costs in excess of 5% of its assets; we keep our spending to 0.001% of assets," says Arturo Elias Ayub, general director of the $1.20 billion Fundacion Telmex, in operation since 1996 and part of the telecom company run by Mexican mogul Carlos Slim. "There are incentives, but that is not what drives us. Fundacion Telmex is funded 100% by money from the company and this money, well invested, has made the foundation grow." Fundacion Carso, also part of the Slim empire and operating since 1980, just got a $2.50 billion injection from Slim.

In Venezuela, Fundacion Cisneros, part of the group run by billionaire Gustavo Cisneros, supports cultural and educational programs with strong emphasis on art. Its professional development for teachers effort, known in Spanish as Actualizacion de Maestros en Educacion (AME), is the flagship program and was created in response to a lack of training opportunities for teachers in Latin America.

"With AME we wanted to contribute to achieving the [United Nations] Millennium Development Goals, especially when it comes to universality of primary education," says Irene Hardy, the program's director. The program has offered training to more than 6,000 teachers in Argentina, Colombia, Costa Rica, Ecuador, Guatemala, Mexico, Panama, Peru, Dominican Republic and Venezuela.

AME has a budget of $300,000. Hardy says government incentives have no bearing on the program and its implementation. "For us, social responsibility is what you do to improve your community, beyond whatever the law prescribes," Hardy says. To meet its goals, Hardy recommends that corporate foundations have clear goals, concentrate their programs and continually reevaluate those programs.

Passionate Conviction

Grupo Polar, Venezuela's largest brewer and food company, created Fundacion Polar 29 years ago to support projects that would improve the quality of life of Venezuelans. The relationship between the company and the foundation is very close. Leonor Gimenez de Mendoza is not only president of the foundation but also mother to the company's current president, Lorenzo Mendoza, who spoke with Latin Trade Mexico Correspondent Marisol Rueda about corporate social responsibility.

How do you measure the impact of the foundation's activities?

We work closely with the communities, and the initiatives we undertake are based on the needs of the people. Each program is measured differently; there is a follow-up process and our bylaws [in Grupo Polar] establish monetary support in specific intervals to back these programs.

How can one do good deeds without inadvertently causing problems?

One should put a lot of focus on people's needs. For instance, we have infant nutritional centers, where we focus not only on the nutritional needs of children but we try to teach mothers to understand the best way to feed their children with the limited resources they have. They think food is very expensive, and it's not true. We explain to mothers what they should do in order to avoid malnutrition, and it's on the mothers that we focus because it is precisely they in Latin America who are charged with this responsibility. To support these plans, we have a network of expert volunteers on these matters. But if a child reaches a point of severe malnutrition, we send them directly to a hospital since we are not a medical institution.

What is the secret to having a successful foundation?

It's true that corporate social responsibility is fashionable lately, and this is a good thing, I think, but one has to carry it out with conviction. If it's not part of your DNA it won't work. We have it inside us. It has to be in your blood. Fundacion Polar has been in operation for many years and it's logical that our objectives have changed with the passage of time, but our passion has not. The foundation makes a difference wherever it goes. We don't arrive in a tactical way with a lot of media just to leave soon after; we stay. Many people talk about social responsibility, but we need to understand that, at an individual level, we need to live up to it.

MARGARIDA O. PFEIFER * SAO PAULO MARISOL RUEDA * MEXICO CITY 

Payment Plan

Fees, more than private and public sources, drives the region's
services organizations.

                   fees     philanthropy  government

Argentina           61%         23%           16%
Colombia            62%         25%           13%
Peru                67%         15%           18%
Brazil              69%         16%           15%
Mexico              75%         18%            7%
Global survey       43%         30%           27%

Totals include cash revenues and value of volunteer labor

SOURCE: John Hopkins Comparative Non-profit Sector Project

Global survey = 32 countries (all figures rounded)

Note: Table made from pie chart.