The Australian Financial Review

By Geoff Allen
Chairman, Centre for Corporate Public Affairs

Late last year Harvard management guru Michael Porter breathlessly proposed to a Sydney business audience “a new way to look at business and society”. This was, he said, to pursue a “strategic integration of business needs and society’s needs on the basis of shared values and embedded business practice”.

Some executives in the audience were bemused because of the extent major Australian companies had been moving in this direction for a decade or so and the degree to which this is already collective wisdom in our leading companies.

A major manifestation of this has been shift from “cheque over the fence” philanthropy to strategic corporate community investment.

Ten to 15 years ago, boards of directors or chief executives would dispense largesse from a donations budget in response to letters of request by worthy causes. In addition, what is called pejoratively the “chairman’s wife syndrome” was common, reflecting an idiosyncratic response with corporate resources to personal interests by business leaders.

There was also the round-robin of mutual obligation between directors of different companies supporting each other’s favourite causes.

Today, major companies tend to eschew ad hoc and reactive philanthropy. The shift has been to community investment delivered in long-term partnerships with increasingly sophisticated non-profit organisations in fields relevant to the company’s business. The community investment is supported by a business case with reciprocal benefit to the business and its target community, and increasingly embedded in the business model. And it is usually not small bickies. BHP Billiton has joined other companies in pledging 1 per cent of pretax profits to community investment – more than $100 million a year.

Increasingly, external relations strategies are set and supported by a new breed of senior public affairs executives who monitor and help manage the corporate interface with its social and political environment.

The report, Corporate Community Investment in Australia, released by the federal government yesterday, documents the state of play following a survey of more than 100 large companies and conversations with about 30 CEOs. It was conducted by the Centre for Corporate Public Affairs with the Business Council and sponsored by the Prime Minister’s Community Business partnership.

The report noted that 93 per cent of top companies required some sort of business case to support their contributions and about a quarter required specific return on investment justification.

Why has this change occurred? International research has found that Australians more than any others expect large companies to “help build a better society “. Most companies in the study agreed that contributing to community wellbeing was part of their motivation, and some linked it to the need for business to rebuild trust.

Community investment is now seen as a competitive tool. Satisfying staff demands to work for socially engaged companies has become a major factor. Volunteering at all levels is the fastest growing aspect of corporate engagement.

Achieving general acceptance in communities is important for many companies. Apart from using resources to engage communities on common interests, the community investment dollar is used to work on common projects and break down negative stereotypes.

Issues are being addressed that are in close alignment with corporate strategic interests. This explains insurance firm IAG’s leadership on climate change and work on crime prevention, and the banking industry’s support for IT literacy in rural communities.

Several significant characteristics of community investment reflect the shift from the periphery to a deeply strategic approach. There is typically a deep alignment between the needs and specific competencies of companies and the activities they pursue. So banks are engaged in financial literacy, mining companies in environment and indigenous affairs, and pharmaceutical companies in public health.

Deeper engagement leads to fewer, better leveraged and more sustainable partnerships, negotiated with a focus on greater mutual accountability and obligation. The alignment between social engagement and business strategy puts paid to the Friedmanite injunction that companies should not so engage in the interests of shareholders.

Companies are at various stages in this journey, but if Michael Porter’s remarks reflect the American reality, the best Australian companies are in front of the curve.