Mendoza School of Business

Charity vs. profit

Published: September 4, 2005 / Author: ANGELA News

After a disaster, corporate America is eager to help – to a point

When disaster strikes, corporate America is among the first to offer aid to victims and their families.

Computer companies donate laptops and set up wireless networks. Banks waive ATM fees. Hotels offer rooms at discounted rates.

But at some point, business must get back to business: making money.

In the coming weeks and months, as Hurricane Katrina’s fallout is addressed, companies will face tension between wanting to do the right thing and needing to do right by shareholders.

Employees and customers are important, too, said Patrick Murphy, co-director of the Institute for Ethical Business Worldwide at the University of Notre Dame.

“If customers and potential customers have a more favorable view of the company because they went the extra mile, that benefits the company in the long term.”

But for every compliment, there’s a contrarian viewpoint.

“Corporate charity is almost an oxymoron,” said Mike Davis, an economist at Southern Methodist University. “You’re spending somebody else’s money.”

Executives should not be doling out corporate funds to a particular cause, he said. Instead, “I’d much rather have them … let me decide what charities I’m going to support.”

Given that Katrina’s aftermath will linger longer than other natural disasters, such deliberations will probably be taking place in corporate boardrooms for months.

How long should wiped-out companies continue to pay employees? Can rental companies reject customers who want to take equipment into affected areas?

Just how generous should businesses be?

The response was quick following the Sept. 11, 2001, attacks on the World Trade Center – the heart of American capitalism. Though it incurred substantial losses of its own, Verizon Communications Inc. gave away thousands of cellphones to residents and businesses with no service.

Most famously, the head of bond firm Cantor Fitzgerald, which lost two-thirds of its employees in the attack, tearfully described the rending of his corporate family. Four days after the attack, the firm drew fire when it stopped issuing paychecks, saying it needed cash to survive.

“They should do as much as they can for as long as they can,” said Father Oliver Williams, director of the Center for Ethics and Religious Values in Business at the University of Notre Dame. “But not to the extent of putting themselves out of business.”

Balancing act 

It’s a balancing act, agreed John Davis, chief executive of Pegasus Solutions Inc., a Dallas-based hotel reservation-booking systems company.

He has money at his discretion to spend on relief efforts but would consult Pegasus’ board of directors if the commitment becomes significant.

“Trust me, I’m not crazy,” he said. “You don’t want to put your own business upside down.”

Unable to gauge the impact of losing 28 hotels in tourist-friendly, convention-heavy New Orleans, Pegasus decided to freeze invoices for clients in the hurricane-ravaged region anyway. It’s also holding commission checks for affected travel agents until it can verify their whereabouts.

Wall Street understands that corporate motives occasionally move off of the bottom line, said Tina Sivinski, Electronic Data Systems Corp.’s executive vice president for human resources.

“Our shareholders know we’re the kind of company that steps up,” she said.

Travelocity spokesman Dan Toporek said financial concerns have to take a back seat to customer needs.

“In a disaster, you have to modify your policies,” he said. “When you treat your customers well, you’ll benefit financially over the long term.”

The Southlake-based company has contacted about 30,000 customers with travel itineraries in hurricane-affected areas and offered to waive any change or cancellation fees.

Airline approaches

Seattle resident Rob Remington had hoped Continental Airlines Inc. would be as accommodating.

Mr. Remington had a trip planned to New Orleans for a friend’s bachelor party the weekend of Sept. 9. The party was moved to Dallas, and Mr. Remington tried to exchange the ticket.

“They offered to waive the change fee of $100 but not a break on changing airfare,” he said.

Buying a ticket to Dallas today costs an additional $500, he said.

“They didn’t really explain why they’re being so inflexible,” he said. “The thing that irritates me is that another person flying [on another carrier] is not having to pay anything. They just rerouted him – no problem.”

But Dave Messing, a Continental spokesman, said the extra charge is “only logical” for a ticket to a new destination.

“Do they want us to let him change the ticket to go to Paris instead and not pay the differential?” he asked.

Continental is giving a credit for the amount of the original ticket, he noted, and has a policy that’s similar to those of other carriers. He declined to comment about whether the carrier’s financial pressures are affecting its policies during the disaster.

American’s parent company, AMR Corp., says it did consider the cost burden when evaluating its refund policy. The Fort Worth-based carrier has lost more than $7 billion in the past four and a half years and is looking at deep losses the rest of the year because of high jet fuel prices.

Still, it decided to refund even nonrefundable tickets to New Orleans booked through Sept. 30, and normally unrefundable travel to surrounding cities will also be refunded or given back as a voucher for future travel. American will also waive its $100 rebooking fee.

Different roads

Some companies are taking heat already.

John Phillips of Dallas said he was “appalled” when U-Haul refused to rent a truck to a friend who needed to take generators, fuel and other supplies back to Hattiesburg, Miss.

“We weren’t going to lie and say we’re going to use it locally,” he said. “They said that corporate had told them that no equipment goes into the affected states.”

Amber Heule, a U-Haul spokeswoman, said the company did deny rentals that were headed into storm-ravaged areas. “We were worried about the safety of our customers,” she said. “There was no gas, no drop-off locations … no roadside assistance.”

Others waded right in.

Even before the storm struck, FedEx sent in 120,000 pounds of emergency supplies to American Red Cross stations throughout the Gulf Coast region.

On Friday, it flew a plane from Newark to the Astrodome in Houston filled with 45 tons of supplies for relief efforts, including 5,000 cots.

“We are doing simultaneous work for FEMA, the Department of Homeland Security and the American Red Cross at our largest center in Baton Rouge,” said Gary Kusin, chief executive of Dallas-based FedEx Kinko’s. “We are their disaster headquarters. We are full-tilt producing things for them and doing it at no charge.”

He says he’s been part of dozens of senior management calls, and the question of profitability has never once come up.

“I know we haven’t thought twice about this at FedEx. It’s real easy. It’s doing right by doing good.”

‘Getting overwhelming’

Since Katrina hit the coast, hotel companies have been inundated with evacuees. Some are already voicing concerns about how long they can sustain the effort

At a Motel 6 in southwest Dallas, nearly half of 128 rooms in the motel are filled with 80 families of victims.

To accommodate them, the company cut its rate to $28.79 a night. The lower rates and staff overtime are already eating into the motel’s bottom line.

“The motel business is taking a loss in this,” said manager Mary Long, adding that there’s an emotional toll as well. “It’s kind of getting overwhelming here.”

Other Dallas-based hoteliers are also responding. Wyndham International Inc. and La Quinta Corp. are continuing to pay salaries and trying to find jobs within their companies for employees displaced by Katrina.

Wyndham will pay two months’ salary for its 850 affected employees and then re-evaluate, said Mark Solls, its general counsel.

Irving-based La Quinta sent chartered buses to the affected areas and filled them with employees and their families. The company gave them rooms at its 350-room Arlington property near the Six Flags Over Texas amusement park.

Along with supplying food and shelter, La Quinta distributed Wal-Mart gift cards, clothing and other necessities to victims, and it’s working to find jobs for the evacuees at its other hotels.

But spokeswoman Teresa Ferguson said she isn’t sure how long the company can maintain such support. The company has about 250 employees in New Orleans alone.

“We’re still trying to get a feel for the situation,” she said.

Offering concessions

In many cases, it’s easy for businesses to offer concessions such as fee wavers and payment extensions.

After all, there is no mail service to deliver bills and checks. Online paying services are useless when personal computers and checkbooks are underwater.

Indeed, most of the major automakers’ credit divisions are deferring monthly payments for victims – some on a case-by-case basis, others for 90 days.

Financial institutions are offering temporary reprieves on ATM fees, mortgage payments and car loans.

“We recognize that cash is vital for people in the affected areas,” said Tim Deighton, spokesman for Alabama-based Compass Bancshares Inc. “Our objective is to help individuals and communities get back on their feet as possible.”

But SMU’s Mr. Davis said such actions are a “false charity.”

“It’s nice that they made the announcement … but it’s also an acknowledgment of the reality that they aren’t going to get paid anyway,” he said.

Verizon Wireless spokesman Jimmy Duvall acknowledged the futility of sending bills to customers left in Katrina’s wake.

Still, he said, the company wants to help.

“We’re going to worry about the bottom line later,” he said. “Anybody who’s had a phone working the day they left, they’ll have a phone when they get back.”

Staff writers Ieva M. Augstums, Terry Box, Maria Halkias, Cheryl Hall, Crayton Harrison, Suzanne Marta, Terry Maxon, Bob Moos, Karen Robinson-Jacobs and Eric Torbenson contributed to this report.


Topics: Mendoza