by Elias Davidsson

The W. K. Kellogg Foundation, Battle Creek, Michigan, was founded by W. K. Kellogg, also founder of the Kellogg Company, largest and most profitable breakfast cereals manufacturer in the United States.

Before analyzing the role Kellogg Foundation plays in the long-term strategy of the Kellogg Co., a summary description will be given of the Foundation’s declared purpose and of its size, using the Foundation’s annual reports as source documents.

According to the Foundation’s Annual Reports, it

“numbers among the 10 largest philantropic organisations in the nation (…) [It] is committed to the application of knowledge to the problems of people in the areas of health, education and agriculture.”

Guidelines published by the Foundation give an insight into the criteria the Foundation uses in choosing programs to be supported. These guidelines are reproduced in Exhibit 1.

The Foundation’s financial resources are very great: As of August 31, 1976, closing date of its financial year, its assets were valued at $965 million (market value), 29 percent higher than a year earlier. The largest part of these assets consists of common shares in the Kellogg Co., or $918 million.

The largest chunk of the Foundation’s income ($33.0 million at end of fiscal year as defined above) is composed of Kellogg Co. dividens. In fact, the Foundation’s expenditures in support of its recipient programs, $31.7 million for the same fiscal year, just about exceeded its income from Kellogg Co. dividens, $30.7 million.

The Foundation’s disbursements for fiscal years 1974-1976 are shown, distributed according to geographical and functional areas, in Exhibit 2. It is important to remember that these classifications are in some extent misleading, as they hide to a great extent the real distribution of program monies (some countries receive very much, for example, and other countries in the same area – nothing).

Discussion

In attempting to find out whether the Foundation’s grant-making activities are part of an overall strategy of the Kellogg Co., three questions must be answered:

1. Who covers the Foundation’s expenses?
2. Who managses the Foundation?
3.  Can a relationship be shown between Kellogg Company’s vested interests and the Foundation’s program support?

The first question has received its answer in the introductory section. The Foundation is totally dependent upon Kellogg Co. profits. Because the Foundation owns about half the outstanding shares of the Company, one may expect some people to think that the Foundation is the controlling party and the Company is the controlled one. This assumption would, or rather could, eventually be sensible if it weren’t for the fact that the Company and the Foundation share the same management. This answers the second question, that of control. To highlight the extent of management interlocks, Exhibit 3 has been provided.

The parallel interests of the Foundation and of the Company implies furthermore that it can be safely assumed that the Foundation supports actively the Compny by furnishing reports, identifying potential markets and advising in the elaboration of strategies.

In this sense it is not important to distinguish the role of the Foundation from that of the Company: They both have sympathetic aims, namely to increase profitability. And indeed, the profitability of Kellogg Co. has been documented as the highest one within the cereal industry. According to Paul D. Scanlon, from Antitrust Law & Economics Review, Inc., the Kellogg Co. has averaged an after-tax return on equity of over 20 percent year-after-year, or double the competitive norm. Kellogg’s market share is furthermore estimated at 40 percent, the highest among the three large cereal firms.

According to analysis of monopoly capitalism, one of the channels to which “superprofits” of large corporations are channelled is long-term investment in “social responsibility projects”., Private foundations are one of the means to carry out such investments (see also this article’s conclusion).

Although the second question has already been answered by referring the reader to Exhibit 3, mention should be made that all those who serve both the Foundation and the Company are members of key committees of the respective boards.

The third question needs careful analysis, of which only a modest attempt will be made here.

This analysis can and should be made at different levels and with different perspectives. In this case, a comparison has been made between those Latin-American countries hosting Kellogg Co. manufacturing facilities and those countries receiving Kellogg-Foundation grants. Exhibit 4 shows a significant parallelism between these countries.

Those six Latin-American countries (population 158 million), hosting Kellogg Co. manufacturing facilities have been recipient to $12.5 million while those 18 countries (population 80 million) that do not host Kellogg manufacturing facilities received in total only $1.4 million. In only one country – Argentina – there is a manufacturing facility of Kellogg Co. and no evidence for a Kellogg Foundation grant. It should, however, be added that some of the Foundation’s monies are disbursed by third parties. Their ultimate destination and use cannot be traced by reading through the Foundation’s annual reports.  The amount of these indirect payments is however modest in relation to the total amount disbursed to Latin-America and can, therefore, be disregarded in this overall analysis.

Another way of analyzing the Foundation’s grant-making strategy (as distinct from its declared guidelines), would be to study the mode of development it promotes. In most cases there is a deliberate emphasis put on advanced technology and corporate management techniques, both of which tend to favor the overall interests of multinational corporations. A point is also made in consolidating educational environments (universities, youth activities, etc.) that would curtail the formation of national-liberation concepts as well as class conscience.

Other ways of analyzing the Foundation’s grant-making strategy, would be to study it, country by country through time, identifying reasons for excluding some large countries, identifying Kellogg Co. markets and sources of raw materials as well as the Company’s diversification plans into other food branches. It would also be useful to correlate the Foundation’s emphasis on youth projects with the fact that Kellogg Co. is largely catering to young people.

Conclusion

Conclusive evidence exists that Kellogg Foundation works in close harmony with the Kellogg Corporation in furthering each other’s aims. The Foundation is totally dependent upon corporate profits and its management interlocks with that the corporation.

If the “free enterprise system” is meant to include leading oligopolists, such as Kellogg Co., General Foods and General Mills – together accounting for approximately 85 percent of the cereal foods industry total sales, and if the meaning of “social benefit” can be defined safely and without prejudice by vested corporate interests, then the neatest definition of the relationship between Kellogg Co. and the Kellogg Foundation may have been given by the Foundation’s president in the 1975 Annual Report:

“Private foundations are but a small part of the private voluntary sector, simply a legal mechanism by which the results of the free enterprise system can be systematically directed to social benefit through private voluntary initiative.”