Corporate Philanthropy: State of Play

17 March 2003

Speech by Katie Lahey, Chief Executive, Business Council of Australia to the Philanthropy Australia Conference

Thank you for the opportunity to speak to you today.

• With so much focus currently on negative corporate behaviour, it gives me some pleasure to focus on the potentially positive topic of corporate philanthropy.
• So what is the current status and perception of philanthropy and social responsibility within Australia’s corporate sector?
• It is a very good question.
• A survey into corporate and business giving by the ABS released last year estimated total business donations and contributions to the community at $1.5 billion a year
• A study conducted by the Centre for Corporate Public Affairs, in conjunctions with Business Council of Australia, two years ago, put the contribution of Australia business to community and social projects much higher - at over $2 billion a year.
• There are always difficulties in defining and measuring corporate giving. The quantum of in-kind contributions, by their very nature, is particularly hard to gauge.
• The fact that many businesses, for a variety of reasons, shy away from publicising or highlighting their philanthropic efforts means that even this $2 billion figure is likely to be conservative.
• While we have few high-profile corporate benefactors that approach the contributions of say, a Bill Gates, what is clear is that Australian business is making a sizeable monetary and in-kind contribution to a wide range, projects, activities and causes to communities throughout the country.
• As part of its research into what is clearly a significant business investment in the community, the Centre for Corporate Public Affairs study highlighted a number of interesting findings and trends in relation of corporate giving in Australia.
• These included:
• Increasing evidence that business is integrating and embedding philanthropy and other social responsible activities into their core business activities and strategic plans;
• An expectation among business that its role in community involvement, or at least community expectations of that role, will increase; and
• A strong view, and perhaps frustration, that Governments and the public do not recognise the extent and depth of their activities in relation to corporate giving.
• I think all these observations reflect a fundamental shift in Australia in recent years in how business views corporate social responsibility.
• This shift is being driven by a number of factors.
• The exit by Governments from traditional areas of activity through the privatisation of Government utilities and authorities has played a major role. Privatisation has afforded business many commercial opportunities in infrastructure development and service provision traditionally reserved for the State.
• Another factor is that we now live in a more participatory society.
• The community is better educated and more socially-conscious – hence they expect higher standards from business.
• This has translated into expectations for business to take a greater and more active role in social and community responsibilities.
• The formation by the Prime Minister of the Community Business Partnership in 1999 to encourage partnerships between corporate and community sectors is just one example of an expectation that business should increasingly focus on issues that go beyond corporate profits and markets.
• At the same time, corporate Australia is discovering that social responsibility can be good business, or at least, needs to be factored into their core business activities.
• In this age of increasing grass-roots activism – be it consumer, shareholder or community - companies are actively displaying their social and corporate consciousness as a point of differentiation from competitors.
• We only have to look at the rise of company reputation surveys to understand that stakeholder perceptions and sentiment are viewed by business as being close to, if not on a par with a company’s business fundamentals.
• Another key factor driving increased corporate consciousness is the recent backlash against both the reality and perceptions of corporate excess and failure.
• This is creating additional pressures and expectations on business to demonstrate community and moral leadership through good works and contributions.
• The BCA, my organisation, – as the peak group representing the interests of Australia’s corporate sector – is very aware of the need to promote corporate responsibility.
• It should be – at least in theory – a powerful offset to what has become a very negative environment in terms of perceptions of corporate Australia.
• As part of the BCA’s research effort this year, we plan to conduct and release of a major survey of our members into the scale, type and rationale for community giving.
• We believe it is important for the community to understand that Australian companies contribute immense value to the community over and above adding direct value to the Australian economy.
• So that’s the state of play from the corporate perspective on philanthropy and corporate social responsibility. At first glance it seems a rosy picture but, to mix my metaphors, there are clouds on the horizon in this painting.
• The last 20 years have seen a real shift in the influence and standing of Government and business.
• Numerous international surveys have tracked the steady erosion in respect for established leadership structures, including big business.
• In particular, a World Economic Forum survey released earlier this year found that only a third of the public trusted executives of large companies.
• Of course, with the Enrons and HIHs of recent times, business does not always display its best side when it comes to fostering community respect and standing.
• But the current climate of cynicism and distrust over the actions and motives of business goes way beyond the fall-out from what are, in the wider scheme of things, one-off corporate collapses and transgressions. A few bad apples have tarnished us all.
• Such is the level of this discontent and scepticism that even a clear majority of employees don’t trust or respect the company line.
• A recent study in the United States found that only a third of workers actually believed the statement – “I can trust management in my organisation to always communicate honestly”.
• This begs the questions – if companies are now finding it increasingly difficult to get their staff to hear and believe them, how hard must it be to engage with the broader community.
• Indeed, an almost perverse relationship exists between the amount of effort and money that some companies contribute to the community and the level of negative feedback, rather than positive acknowledgment they receive.
• Take Nike and McDonalds as examples.
• Each donates massive amounts of dollars to philanthropic causes.
• Yet few companies elicit greater levels of criticism or suspicion.
• Are the protesters outside Nike stores across the world familiar with the company’s spread of philanthropic programs targeting developing countries?
• These include programs to enhance access to sports for underprivileged youth in South America, new parks and recreational facilities for children in China, small business loans and enterprise skills for disadvantaged Vietnamese women, as well as health education in Thailand.
• McDonalds last year released it first-ever social corporate responsibility report to specifically answer charges that it, among other things, destroys local cultures and forests, exploits young workers and effectively trades in obesity.
• The lengthy report outlined the company’s efforts in the community, environment, people and the marketplace. This included $300 million in funds raised since 1984 and spent on improving the lives of children and their families in neighbourhoods worldwide.
• It also outlined the massive contributions the world-wide food chain makes to improving education and job skills for young people, as well as numerous community development programs it has pioneered in a number of developing countries.
• Similarly, our banks are often viewed as takers from rather than givers to the community, with heaps of negative criticism about quality of service, branch closures and interest rate gouging. Some of this criticism is of course justified.
• However, Westpac recently produced a 45-page report detailing its contributions to the community.
• It is not just – as some cynics will inevitably claim - a fluffy PR exercise.
• Rather it is a succinct and accurate accounting of the breadth and depth of the company’s philanthropic roots into the community.
• They range from supporting rescue services, environmental programs, building literacy and numeracy skills and programs to develop life skills.
• Even with these substantial records of corporate giving, companies such as these continue to be on the receiving end of scepticism, and in some cases, outright vilification.
• Certainly in this day and age, big is not seen as beautiful.
• Within this environment, companies could be forgiven therefore for asking themselves the obvious question.
• What is the rationale for business – both in a commercial and moral sense - to contribute large amounts to communities which reciprocate in such a way?
• I think the finding in the BCA study, which detected a clear unease among business over the lack of acknowledgment it receives from community giving, is an issue for concern.
• There is now hard evidence to suggest that Australians are more distrustful of the corporate sector and corporate leaders than those of other countries, say the United Kingdom and the United States.
• The tall poppy syndrome is alive and well.
• I can’t provide a succinct formula as to how we might break the spiral of distrust toward the corporate sector – a cycle which has undoubtedly worsened with the high-profile corporate collapses and misdeeds I referred to before.
• But I fear that unless both parties manage to find ways to re-connect, the rationale and motivation for business to build and maintain bridges through good works will erode. If the corporate sector retreats into its shell it will see corporate social responsibility go backwards. And that will inevitably impact on the level of contributions and otherwise admirable work that the business community has, and is already undertaking.
• So at a time when shareholders and investors are demanding increased accountability, transparency and returns for their investment, how does a company continually justify unacknowledged and unloved corporate giving programs?
• It is true that many businesses become involved in corporate philanthropy and good deeds in the hope of improving their reputations.
• At a generic level this clearly hasn’t worked.
• So does this mean that companies will pull back or will they redouble their efforts? Or will community trust only be restored when business changes its behaviour? No amount of public relations, corporate social responsibility, philanthropy can paper over corporate misdeeds.
• The second area of tension I see, the second cloud on the horizon for business in this whole debate, is the growing short termism among business and investors.
• Recent research by the BCA points to the average tenure of a CEO being approx 4 years. This coupled with the increased corporate turbulence with takeovers, mergers, collapses, means that corporate focus is more and more on the short term, bottom line. However, successful community and stakeholder relations more often than not involve more than a one-off contribution or donation. They usually occur within the context of stakeholder strategies that take months, if not years, to bear fruit. Long term partnerships are difficult to nurture in a short term environment.
• We are in an age where returns on investment are expected within shorter timeframes. So how does a long-term program of corporate giving, which may or may not deliver bottom line benefits, survive intact under these sorts of commercial pressures?
• While I am not suggesting that the combination of community discontent and commercial pressures will result in withdrawal of business investment from the community, I am highlighting a conundrum for the business community. A conundrum that will require organisations like Philanthropy Australia to work with us to resolve.
• A recent study by Corporate Good Works - an Australian consultancy which facilitates partnerships between the corporate sector and the community - found that the top 10 Australian companies contribute almost 60 per cent of total corporate funds to community and social causes.
• I think it is of concern that, within the context of the potential constraints on community giving that I have already outlined, a relatively small number of companies contribute the lion’s share of funding.
• One only has to look at the recent Ansett experience to understand the potential impact that the loss or withdrawal of a major sponsor of community projects can have.
• I’d like to finish today by briefly mentioning one further dilemma for business when it considers its contribution to corporate social responsibility or philanthropy.
• We’ve read a lot today about the triple bottom line becoming the quadruple bottom line - financial, social, environmental and now governance reporting. The current debate in and outside of business on governance is simply huge.
• The scale and detail involved in the debate, as well as demands from the market, shareholders, Government and the broader community to quickly address concerns over governance may result in companies taking some of their focus away from social and environmental responsibilities.
• CEOs and other senior managers will need to spend much more of their time and energy establishing a whole raft of new governance structures and processes such as audit committees and corporate ethics statements and policies. As a result, they will probably have less time to spend on ‘non-core’ or ‘optional’ good deeds.
• While the governance issue and other issues I have referred to are definitely problematic for business, I must stress that the will and intent within Australia’s corporate sector to deliver meaningful philanthropic outcomes for the community remains strong.
• The fact that we are here today to share our experiences and views on the subject is a positive and constructive sign.
• So congratulations to Philanthropy Australia for taking such an effective leadership role in this area.
• Thank you again for the opportunity to speak to you today.