Corporate philanthropy could keep the NFP sector above water
NFPs depend on the philanthropic activities of corporations to work. But smaller budgets and bigger needs have shifted the focus towards more strategic giving, writes Adam Courtenay in the Australian Institute of Company Directors Magazine.
Sarah Davies AM MAICD, chief executive of Philanthropy Australia, is sure of one thing: among the best organised big givers, no-one ever misses out. The twin crises of COVID-19 and Australia’s 2019–20 bushfires had little impact on long-term donor strategies.
“I have not seen any instances where they have suspended or stopped existing programs and pivoted towards supporting response and recovery to COVID-19 or the bushfires,” says Davies. “They haven’t taken money away from people, projects and long-held causes — they’ve tended to stick to existing commitments and simply added to them as these crises arrived.”
It’s something the Macquarie Group and BHP foundations both agree on — that they can maintain their favoured projects while reacting to new and unexpected disasters. “We are still giving to our regular grant partners and have increased our financial support to those that need it,” says Macquarie Group chair Peter Warne FAICD. “We’ve provided an automatic extension of funding for grants finishing this year. We’ve also loosened restrictions on our grant funding, as non-profits had to pivot their programming.”
With the bushfires, the response was immediate and widespread. It was all about basic necessities: rescue, shelter, firefighting facilities, food, water and medicine, as well as some longer-term “strategic” donations to improve fire education and community mental health. A review of more than 100 of our top companies — public and private — revealed a contribution of more than $88m towards bushfire relief, according to Jarrod Miles, co-founder and director of Strive Philanthropy, which conducts corporate giving research in Australia and produces the annual GivingLarge report on corporate philanthropy.
Coping with COVID
The COVID-19 response has been far larger in dollar terms, but from far fewer respondents. Of the $160m recorded by Strive as of August 2020, more than 84 per cent came from just six companies. BHP established a $50m Vital Resources Fund to help support regional Australian communities in its areas of operation. Next came donations from Rio Tinto ($25m), Newcrest ($20m). Macquarie ($20m), South32 ($10m) and Woodside ($10m).
“Only about 20 of our top 100 companies have committed publicly to significant cash donations amounting to around $160m,” says Miles. “Understandably, not all companies are able to secure extra funds to donate to the community, given the significant economic impact to some industries.”
Simon Mordant AM, known variously as an investment banker, philanthropist and art collector — as well as executive co-chair of Luminis Partners in Sydney — says he understands why it’s hard for companies to know how and where to help in this arena. “The places you can channel financial support for COVID-19 are less clear — maybe medical research, but not much else,” he says. “I’ve not seen non-foundation companies actively engaged with this situation. But I have seen it in spades when there are bushfires, floods and national disasters.”
Miles says it is happening on a micro level, which the statistics miss. It can be expressed through companies forgoing revenue on fees, products and services for the community benefit. This might include supermarkets donating food or energy companies donating gas and electricity to families in need. “It could be real estate donating space or dropping leases, banks offering interest-free loans or freezing fees and interest,” he says. “Telcos might be offering free telecommunication. These are not included in the $160m, but do represent a significant contribution from companies.”
It’s true that giving during COVID-19, especially while the effects are still being felt, has been more strategic. The WA Chamber of Minerals and Energy brought together more than 20 state mining companies and raised over $9m to help a number of charities fight the pandemic. The beneficiaries of this corporate largesse include the University of Queensland, for its research into a vaccine, and The Peter Doherty Institute for Infection and Immunity.
The Macquarie Group Foundation’s $20m response to COVID-19 has been lauded for its size relative to the bank, and its mix of short- and long-term forms of community relief. Macquarie’s 2020 community investment (one per cent of its profits) was twice that of 2019. It has contributed to the Doherty Institute, as well as the Burnet Institute’s study into quarantine and physical distancing.
Non-profits such as the Royal Flying Doctor Service, Lifeline, Foodbank Australia and The Smith Family have all received donations to support their COVID-19 relief work.
Codes of ethics
There are probably two factors driving corporate philanthropy around the world: the carrot and the stick. One of the best-known stick wielders is Larry Fink, CEO of global investment company BlackRock, who sends out an annual letter to CEOs, setting out the ethical standards he demands of the companies his firm invests in. “We will be increasingly disposed to vote against management and board directors when companies are not making sufficient progress on sustainability-related disclosures and the business practices and plans underlying them,” wrote Fink in his 2020 letter.
Large institutional investors increasingly expect companies they invest in to behave ethically. In 2019, BlackRock — with US$6.8 trillion under management — voted against or withheld votes from 4800 directors at 2700 companies for failing to reach its expected standards of corporate citizenship.
Of course, giving isn’t a given. The amount given by companies varies from year to year. It always revolves around current profitability, where and how they operate (and their need to earn a social licence) and whether the corporate gift fits in with their commercial and social strategy and culture. They may have other priorities including salaries, balance sheets and shareholder gains, but Strive’s Miles says it is all about balance.
“Our largest corporate givers are not choosing philanthropy over returns to shareholders or paying workers,” he says. “It’s a strategic choice where they allocate a portion to the philanthropy bucket to support the community they operate in. A strategic reasoning is easy to comprehend. It’s a prioritisation exercise,” There is now good evidence around corporate giving benefits to corporate culture, employee morale, reputation, alignment with conscious consumers and shareholder value. The ability of investors such as Fink, who put pressure on companies to give, is also a strong part of this equation.”
A company like BHP will consistently alter its community goodwill according to circumstances. When 2016 pre-tax profits dropped considerably, its “community investment” lagged and fell the year after — although it never dropped below $100m per year. By contrast, its community investment in 2020 will be over $200m.
Coles and Woolworths consistently contribute over one per cent of pre-tax profits. This makes sense, given both are consumer facing brands with a need to build a culture between themselves and their customers and stakeholders. But they, too, are prioritising as circumstances allow.
Interestingly, CSL has been the country’s biggest percentage contributor to philanthropic causes, often making gifts of between 1.5–2.5 per cent of pre-tax profits. “It’s all the same trend,” says Miles. “When business is flourishing, they are prioritising more to the community. Building goodwill in good times makes plenty of sense.”
These days, a major ASX company simply can’t afford not to be a philanthropist. The big industry funds representing teachers, nurses and the media, for example, demand that the companies they’re investing in give back. So, major ASX players (which rely on super money for capital) need to have a social agenda.
Whatever the motivations, there’s little doubt that giving is getting bigger and more complicated. Well-intentioned (but thoughtless) largesse is out. Smart giving with strategic intent is in.
Fires, flood and natural disasters are one thing; the social and economic problems wrought by COVID-19 are quite another. Some problems have to be fixed now, others are systemic and need time. Big corporate donors tend to be oriented towards big issues and systemic problems, but they’re also fatalists. To deal with the recent crises, they need to give big and give fast. They know catastrophe is always around the corner.
In early 2020, the Edelman Trust Barometer, revealed that none of the four societal institutions the barometer measures — government, business, NGOs and media — has particularly high trust numbers. By April–May, that had radically changed. Government trust amid the pandemic surged 11 points to an all-time high of 65 per cent, making it the most trusted institution across the world for the first time in 20 years of study.
But only 43 per cent of respondents believe that companies are protecting their employees sufficiently from COVID-19, while 46 per cent do not believe business is helping smaller suppliers and business customers stay afloat. CEOs fare even worse; only 29 per cent of respondents feel CEOs are doing their bit during the COVID-19 crisis, with scientists (53 per cent) and government leaders (45 per cent) outstripping them.
Putting it out there
Mordant says many businesses support and sponsor events — the arts and sports usually — but that’s often where it ends. “Publicly listed corporations generally don’t want to get involved outside these sponsorship areas,” he says. “They’ve historically had a clear perception that profits belong to shareholders and have been nervous about being involved in philanthropic endeavours.”
He says companies need to have a clearer understanding of their purpose. “When you build a more sustainable business, then the business becomes naturally more comfortable supporting the community.” he says.
According to Ben Neville, an associate professor in management and marketing at the University of Melbourne, many corporations don’t understand the new compact. “They’ve been arguing for smaller government and reduced taxes with the promise that business and market forces would solve everything,” he says. “But the problems are still there and often getting worse. This is where corporate philanthropy needs to step in. As your profits grow, so does your responsibility.”
The Role of Boards
David Clarke AO, the late co-founder and chair of both Macquarie Bank and its foundation, once said that as the bank is a member of the society in which it operates, it follows that “one of its important duties is to work in a multitude of ways for the betterment of society”. He added: “In the long run, this is consistent with a company’s duty to its shareholders.”
Clarke, known for his great love of wine and support for worthy causes, believed — well ahead of his time — that goodwill was an integral part of the corporate package.
And yet the elephant still in the room in the 2020s is that too often the company’s business side and the work it does for social good exist at removes from each other. The cure, as Clarke would no doubt have advocated, is to embed philanthropic thinking into the boardroom, where all the hard decisions are made.
“If I only ever eat doughnuts, I’ll have heart disease. But if I’m surrounded by people who say I need protein, vegetables and good carbohydrates, there will be a different outcome,” elucidates Sarah Davies from Philanthropy Australia.
The management of social policy in combination with profit policy is still in its infancy, she says. “We’re not even halfway there. What has come out of the banking Royal Commission is a critical issue for boards: economic health can’t happen without social and cultural health. Why concentrate on one-third of the picture for success when you really have to concentrate on the whole picture?”
Simon Robinson, a director at Corporate Citizenship — a global consulting firm that benchmarks companies’ social and community investment — says there are many businesses ignoring this area, not least because they think that social good cannot be measured.
“It’s seen as an afterthought and it never ceases to amaze me. Most organisations will have measurement processes for everything except this. They have yet to learn that if you can measure and be transparent about what you’re doing on the social front, you can manage it,” says Robinson.
The problem is the Janus-like nature of corporations; they are looking both ways.
Westpac Foundation has been variously described as among the most progressive and best-organised foundations in the country — and yet Westpac as a business is suffering severe reputational damage in the wake of the banking Royal Commission and more recent revelations relating to systemic money laundering.
Rio Tinto, another company with a large and well-resourced community budget, was heavily criticised in August for its decision to blast two 46,000-year-old Aboriginal rock shelters so it could access $135m of iron ore in Western Australia’s Juukan Gorge — against the will of the traditional owners.
In September, Rio sacked three senior executives as penance for destroying the site. But shareholder and Indigenous groups now expect a major overhaul of the way all mining companies operate in the region.
One of the country’s biggest super funds says the departure of CEO Jean-Sébastien Jacques, head of iron ore Chris Salisbury and corporate relations chief Simone Niven won’t be enough to restore investor confidence. HESTA, which has $52b under management, is demanding an independent review of all current agreements between the miner and traditional owners, and says it’s talking to major global investors to join them in lobbying the Rio Tinto board.
Rio’s original decision to “dead bat” all questions on board and management consequences of Juukan — and to hold fire until an internal investigation is completed — did not go down well. The public knows nothing of the company’s good deeds and largesse.
“Philanthropy has to be integrated and authentic all the way through the business,” says Davies. “It’s not enough to have the ‘good works’ hanging off the side. It needs to be embedded into the culture and values of the whole organisation.”
The BHP way
If anyone should understand this, it’s Charles “Chip” Goodyear, CEO of BHP (2003–07) and now BHP Foundation chair. He insists that the foundation — which has been in existence for six years — and BHP must be kept distinct, even though the two arms must have an ongoing conversation.
“The BHP bulwark is aware of the foundation and its overall social value platform, but it does not impact on the foundation’s decision-making,” he says. “We are completely independent.”
BHP the company is in charge of community welfare in the areas that it works in, explains Goodyear, but the foundation’s work is far more strategic and global — and, he’d argue, even entrepreneurial in nature.
“They fund us,” he says. “The decisions about our investors and programs are made by the foundation board, not the BHP board. We’re closely related and we keep an eye on what they do, but the things we do can’t directly impact or benefit the company.”
BHP Foundation CEO James Ensor realises no charitable entity wants to be in a situation where there’s a perceived dissonance between its work and the practice of the donor; for example, BHP (the corporation). Ensor admits that if the business were acting unethically, the foundation would have trouble working with the states, governments and NGOs it needs to form relationships with.
“If BHP itself wasn’t demonstrating leading practice around disclosure and transparency around corruption and those issues, the [kinds] of organisation that the foundation is able to work with would be much less likely to help,” he says.
There must be no dissonance, he adds. “When we get this right, the voice of the company can be a powerful advocate for the sort of reforms these NGOs and others are pushing. Congruence is really important.”