Charitable Giving Maximizes Shareholder Value

Corporations, Securities & Antitrust Practice Group Newsletter - Volume 3, Issue 1, Spring 1999

May 1, 1999

Douglas L. Foshee

I would like to state at the outset of my comments this afternoon that I believe charitable contributions are a part of our corporate purpose. My company, Nuevo Energy, is headquartered in Houston, which is the energy capital of the world. We draw on and depend on the resources of that community every day. I feel that we have an obligation to give back in order to maintain the vitality of what, for at least our industry, is by far the largest labor market in the world.

We also have operations in many small communities, both inside and outside the United States, where we represent a significant portion of the local economic base. I believe our contributions in these communities help ensure that they remain attractive places for our employees to work, live and raise their families.

I view our corporate contributions as another in a long list of employee benefits. Our employees take pride in knowing that our corporate giving dollars go to causes that are important both to them and to our company. Our corporate contributions help to make us an employer of choice in an industry that has lost over 750,000 skilled workers in the last 15 years, making the attraction and retention of qualified professionals among our most important strategic objectives.

I view each of these three points, dedication to our home city as the center of our industry, contributions to better other communities that we have become part of and making contributions that identify our company as one with which its employees are proud to be associated as being completely consistent with maximizing shareholder value. To speak directly to the issue of the shareholders' right to know, I do believe that disclosure is appropriate. Three things should be disclosed to the shareholders: the company's giving philosophy, the amount of charitable contributions above some threshold and a description of any potential conflicts resulting from those charitable contributions. Just as the Board expresses in proxy materials its philosophy and objectives with regard to the use of the corporation's resources for executive compensation, so they should with regard to charitable giving.

I believe that shareholders have a right to know the magnitude spent on charitable giving. Furthermore, beyond some threshold amount, large individual contributions should be disclosed. Finally, if Nuevo Energy makes a large contribution to Rice University, my alma mater, as a result of which I'm appointed to the Board of Trustees of Rice University, my shareholders have a right to know that because I am the CEO. Shareholders also have a right to challenge what role that contribution played in maximizing Nuevo Energy's share price.

It is my understanding that two primary objections have been raised to disclosure. First, some have complained that the reporting itself would be unduly burdensome on the reporting companies. This seems to me to be a particularly weak argument, given that we already track in some detail our charitable contributions for tax reporting purposes. According to our accounting staff, the additional effort required to report and generate this information would be nominal. Similarly, disclosure opponents assert that more time would be required at the Board level to craft a policy statement on charitable giving, if one does not already exist. Again, in my estimation, this would not be unduly burdensome on the Board. In the end it is the Board's responsibility to explain to our shareholders how charitable giving contributes to the corporate objectives.

The second main argument I hear is that disclosure would result in a decrease in overall charitable contributions. To this argument I have only one data point, Nuevo Energy. For our part, we would not change any of our charitable giving patterns based on the proposal that we make those contributions public. We already disclose them to our employees. In fact, we're proud of the causes to which we contribute. I do believe, however, that some so-called "pet charities" of companies, where contributions have more to do with the social standing of the CEO than some goal of the corporation, will suffer. I do not believe, however, that this represents a majority of corporate charitable giving.

Like so many issues in corporate governance, disclosure of charitable contributions seems to me to be just good common sense. What possible harm could result from disclosure? And if the cost of disclosure is nominal, what possible justification is there for not disclosing? Disclosure will provide to investors another means by which to differentiate among a host of investment alternatives.


Mr. Foshee is Chairman, President, and CEO of Nuevo Energy Company, a Houston, Texas based energy company traded on the New York Stock Exchange. Nuevo primarily engages in the acquisition of and exploration for crude oil and natural gas and has operations in the U.S. and Africa. Mr. Foshee received his B.B.A at Southwest Texas State University and his M.B.A. at Rice University. He currently serves on the Boards of Small Steps Nurturing Center, Goodwill Industries and the Texas Business Hall of Fame Foundation, and is a member of the National Petroleum Council, the Council of Overseers at the Jesse H. Jones Graduate School, Rice University, and the Young Presidents' Organization. This article is adapted from remarks given by Mr. Foshee at the Federalist Society's Conference on Corporate Governance, held in New York City on September 18, 1998.