How Large Companies Can Be Anchors for Lower-Income Communities

By Peter Eberhardt, Senior Research Analyst, Initiative for a Competitive Inner City, and Howard Wial, Senior Vice President and Director of Research, Initiative for a Competitive Inner City, September 2021

You are an executive with a large company that has a facility in or near a lower-income community in a small or medium-sized city.  Part of your job is to help your company improve its relationship with that community.  Perhaps you’re with the corporate foundation or are in charge of corporate social responsibility.  Or perhaps you’re the CEO.  Your company supports the general community by sponsoring community events, giving to local charities, and funding local cultural institutions.  But you want the company to be more engaged with the lower-income community.  You may think that doing so will improve the company’s reputation, benefit the business directly, show that the company is a good corporate citizen, or demonstrate the company’s commitment to “give back” to the people who live near the company.  You may be facing pressure from the low-income community or from younger employees who want to know that their employer is making a positive social impact as well as a profit.  Regardless of your motivation, you want to do more for and in partnership with lower-income residents.

A new report from the Initiative for a Competitive Inner City (ICIC), made possible by funding from the Robert Wood Johnson Foundation, provides some actionable recommendations that you can use to increase your company’s engagement with lower-income communities, The report, The New Anchors: Corporate Engagement with Lower-Income Communities in Smaller Cities, uses examples from Amarillo, Texas; Fort Wayne, Indiana; Richmond, Virginia; and Syracuse, New York to show how for-profit companies can become anchor institutions for nearby lower-income neighborhoods.  (Anchor institutions are (large or otherwise influential organizations that are rooted in their local communities and participate in activities meant to benefit those communities.). Although most people think about nonprofit universities and hospitals when they hear the term “anchor institutions,” for-profit companies can also be anchors.  In fact, they can often benefit more lower-income people than hospital and universities because they usually have more resources and are usually interested in the entire city or region where they operate, not only their own immediate neighborhood.

What can you do to position your company as an anchor for lower-income communities?  Or, if your company is already an anchor, how can it step up its game?  The report gives five recommendations.

• First, recognize that your company has a stake in the prosperity and health of lower-income communities where it does business and from which it may hire workers. Armed with that awareness, undertake community engagement activities to benefit those communities.

You’re already convinced that it’s important for your company to be a force for good in nearby lower-income neighborhoods.  But you may need to convince other executives and shareholders that the company should do so.  Explain to them that the community’s economic well-being, vitality, and health can have direct impacts on the company’s long-term sustainability and profitability. Economic prosperity, physical and mental well-being, and community assets can influence local demand for your goods and services, how much you must spend to attract and retain employees, and how competitive the company is able to be over the long-term. Like many corporations, you probably rely on infrastructure supported by local tax revenues to operate efficiently. A decline in the economic well-being of the community could lead to reductions in the quality or availability of this infrastructure (through decreased tax revenue and spending), reducing business efficiency, increasing costs, and lowering profits. Recent estimates indicate that poor worker health costs U.S. companies $575 billion annually, almost two thirds of the approximately $950 billion that employers spend on health benefits. This staggeringly high estimate likely understates the cost of poor health for businesses because unhealthy workforces are more likely to live in communities with poor health outcomes. Poor community health could result in lost revenues, productivity, or profitability you’re for your business. Through programmatic and business engagements with nearby lower-income communities as well as through its charitable giving, your company should recognize its stake in the health and well-being of those communities.

• Once you’ve convinced your internal stakeholders that engaging (or ramping up your engagement) with lower-income communities makes sense for the business, the report recommends that you should emphasize shared value approaches that align with your core business.

Shared value means making business decisions in ways that are both profitable for the business and good for other stakeholders, such as nearby lower-income communities.  Because they connect a business’s profitability with lower-income communities’ needs, strategies that both align with an anchor’s core business and are based on shared value may be the most sustainable ones for your company as it seeks to engage (or increase its engagement) with lower-income communities. In contrast, more traditional models of corporate philanthropy do not contribute to profitability and are, therefore, more susceptible to funding changes as a business’s profitability. Shared value strategies also allow your company to take advantage of its existing strengths rather than requiring it to develop expertise in a new area.

Our report gives some examples of companies that are putting the shared value approach into action in their relations with lower-income communities.  For Wayne Metals, a medical wire manufacturer in Fort Wayne, wanted to expand its business by opening a new production facility.  The company decided to open the new facility in a lower-income neighborhood of Fort Wayne and hire neighborhood residents to work there.  It purposely located the facility in that neighborhood to reduce transportation costs for workers from the neighborhood.  In Syracuse, Pathfinder Bank makes profitable loans and investments to support residential and commercial projects in lower-income neighborhoods.  Other banks typically fund those projects through charitable giving and don’t expect them to generate a profit.

Shared value strategies aren’t something you can use in all your work with lower-income communities.  They work best when they are aligned with your company’s core business strengths.  A manufacturer such as Fort Wayne Metals can use a shared value approach to create jobs in a lower-income neighborhood but it would have more difficulty using this approach if it wanted to support the construction of affordable housing in that neighborhood. If you want to engage directly with lower-income communities in focus areas outside of your company’s expertise, you should continue to rely on charitable giving.

• If your company is expanding, it should consider locating new facilities in lower-income neighborhoods and hiring local residents.

Both Fort Wayne Metals and Syracuse-based TCG Player purposely located new facilities in lower-income neighborhoods of their respective cities. They decided that they needed to expand for business reasons and that locating in those neighborhoods would enable them to achieve their business goals by hiring neighborhood residents. If your company is contemplating expansion, it shouldn’t overlook lower-income communities as places to do business.  It may also find that locating a new facility in a lower-income neighborhood and hiring neighborhood residents makes business sense and benefits residents. This type of shared value decision is a natural extension of the efforts that some companies already make—and that more could make— to hire lower-income residents. In addition to hiring residents for existing jobs (located either in or outside of lower-income neighborhoods), your company may be in a position to create new jobs in those neighborhoods and hire their residents.

The report’s final two recommendations say that your company doesn’t have to go it alone in designing and implementing strategies to benefit lower-income neighborhoods.  Those strategies will be better if they include other local partners.

• Consider the perspectives and insights of key external stakeholders, including policymakers, practitioners, and other local experts, in designing and implementing community engagement strategies.

These stakeholders may provide broader perspective on the needs and challenges of nearby lower-income communities. For example, if you want to create jobs in or hire from those communities, local experts may be able to improve your effort by informing you about the most important barriers to employment in those neighborhoods.

These individuals and organizations may also be good community partners who can help your company implement and maybe even improve its engagement and outreach strategies in lower-income neighborhoods. Some of the companies we profiled in our report have community-based partners (such as local nonprofits, community colleges, and other community-based organizations) that have informed or supported the outreach and recruitment strategies for their workforce development initiatives. These community-based partners have usually developed trust and legitimacy within their communities. Your company should consider engaging these types of organizations as intermediaries between the company and the community it wants to support. For example, these partners may be better positioned to collect honest feedback from new employees who live in lower-income neighborhoods. If your company has or is considering a workforce recruitment or training program for lower-income residents, this information could help it improve the program.

• Consider partnering with community organizations, nonprofits, and/or local government to engage with lower-income communities.

During the interviews we conducted for the report, we heard from several interviewees who were involved in long-term collaborations between their company and one or more nonprofits, community organizations, and/or local governments. These types of collaborations can enable the company to make a larger impact on a lower-income community challenge for which it might not have experience or insight. The nonprofits, community organizations, and local governments involved in these collaborations benefit from the business expertise and resources of for-profit companies. In our interviews, we frequently heard that developing a true partnership (rather than a transactional relationship) was important to the success of these initiatives.

If your company operates in a place where there is already an organization that brings for-profit companies together with other organizations to address broad local needs, then joining or working with that organization can be an easy and fruitful way to tap the expertise of and build relationships with those organizations.  In Syracuse, for example, CenterState CEO is a member-based nonprofit regional economic development organization whose members and board consist of corporate and nonprofit leaders.  CenterState helped create two successful initiatives in which for-profit companies collaborated with nonprofits to benefit lower-income communities: a multi-employer workforce development collaborative and a mixed-income, mixed use real estate project that is also an incubator for locally owned food-related businesses in a lower-income neighborhood.  But even if there is no established organization to help for-profit companies collaborate with other organizations, companies can build such collaborations on their own on a smaller scale.  In Richmond, for example, the major national bank Capital One has partnered with the city government and local nonprofits to create a workforce development program that guarantees jobs at Capital One to young people from lower-income neighborhoods who complete a six-week internship program.

Read the full report: The New Anchors: Corporate Engagement with Lower-Income Communities in Smaller Cities

Support for ICIC’s research was provided by a grant from the Robert Wood Johnson Foundation; however, the views expressed in the report do not necessarily reflect the views of the Foundation.