Williams had consistently invested in the community since the 1920s, during fat and lean times, and Tulsa residents repaid the favor when Williams needed it most. Its track record of community citizenship acted like an insurance policy when this crisis hit; local residents drew upon the psychological goodwill generated over years of investment, and helped the company by providing a morale boost to employees and a strong vote of confidence in Williams’ underlying reputation.

Any company can capture this insurance-like benefit through effective philanthropy programs. However, corporate leaders have to make sure they buy both the right type and amount of insurance by finding the best beneficiaries of corporate giving and determining the appropriate level of community investment. Insurance is based on a simple, intuitive principle: buy enough to cover the real costs of potential damages at a price that reflects the risk of loss. Executives should begin by asking what can go wrong, and what do we stand to lose?

Risk of Loss. Decision makers need to think about their company’s exposure to potential negative events and the resulting losses stakeholders would likely incur. Stakeholder losses become company losses when affected groups punish the company by devaluing intangible assets–reduced customer reputation, employee loyalty, reduced trust among suppliers or investors, less legitimacy with government regulators. Executives need to identify their stakeholders and the type of negative, company-generated events that would harm interests dear to these groups.

Philanthropy’s insurance value assumes that firms already eliminate or mitigate known risks; philanthropy provides little protection when the company appears negligent. However, community investments will provide protection–in the form of goodwill–against pure risks, those that cannot be foreseen, eliminated or mitigated.

Potential Damages. The goodwill engendered by philanthropy helps protect intangible assets such as employee loyalty, supplier and investor trust and community legitimacy. A beginning measure of companywide intangible assets is the company’s market-to-book ratio. Decision makers should focus on more precise measures of intangible assets, however, to determine the appropriate level of philanthropic giving: brand equity, differential employee productivity versus competitors (loyalty), the number of supplier inclusive development projects or alliances (trust), or freedom from government oversight (legitimacy).

The individual and combined value of these intangible assets creates a company’s loss profile. Goodwill must be built up among the relevant interest groups in proportion to their contribution to intangible asset value. For example, if brand equity represents a large portion of intangible assets, then philanthropic activities aimed at customer goodwill should loom large in giving.

Where to engage. When potential risks and losses are clear and executives have an idea of how much to spend, they can determine where to spend by answering this question: Does the company’s unique stakeholder set share a common set of values, or does it have a diverse set of sometimes conflicting values?

The point is to match giving programs to the values of stakeholders. Outdoor-equipment maker REI targets giving toward trail, river and wilderness preservation because those issues are vital to its customers and suppliers. Communications giant Qwest, with a diverse set of stakeholders, spreads giving across a number of causes, from K-12 education to local economic development initiatives.

Through the successful use of philanthropy, executives and the firms they lead can provide shareholders with added protection of important intangible assets at the same time they advance causes and values dear to stakeholders.

Paul C. Godfrey is associate professor of strategy at the Marriott School of Management at Brigham Young University.