Listed companies: should donate money to charity? In The Black
They should, shouldn’t they? Yes and no. It’s all a question of how much and how the money is given. Oh, and your economic philosophy. The king of Monetarism, Chicago economit Milton Friedman won the Nobel Prize in 1976 and once said that the social responsibility of business was to increase profits. And Nick Renton, founder of the Australian Shareholders Association, says on his website: “Shareholders should decide for themselves whether they want to make such donations and if so to which organisations and to what financial extent. They should not have such decisions made for them by a paternalistic board.â€
So why do companies give then? Because it makes some of them feel good and importantly it can make them look good. And this can be used as a marketing device to increase shareholder returns. Cynical yes, but true. For the best marketers and communicators in the country it is part of the corporate ethos to support the community it is part of. Think companies such as BHP and Westpac, which top the reputation indices. Or McDonalds, which uses charity, controversially, to raise its profile with a prime audience by helping sick kids with Ronald McDonald House.
What do company shareholders think of this? The current line of the Australian Shareholders Association’s CEO Stuart Wilson, is that giving is good in moderation as long as its part of a thought through strategy – a bit like McDonalds. Or Westpac. What the shareholders are against is giving money at the whim of the chairman’s wife – or elderly mother, for that matter. And remember this is big business. Nearly $1.5 billion is given by business each year in the form of donations, funding and sponsorship.
What about Tsunami donations? At the time ASA’s deputy chairman Stephen Matthews criticised companies for giving money. And the association’s switchboard was swamped with complaints. The ASA was forced to issue a retraction: it wasn’t opposed to giving money to the Tsunami victims after all.
Stephen Mayne, founder of crikey.com.au, and a otherwise a shareholder activist says: “The Australian Shareholders Association was right out of line in criticising companies for donating to the various tsunami relief efforts.
“Donations can work very well for companies in building staff morale, improving corporate reputations and building relations with stakeholders.”
What about political donations? Next you’ll want to talk about bribery. The shareholder line is that lobbying is okay but companies should not be supporting political parties. As Crikey’s Mayne says: “”I would far rather see charitable donations than political donations, although the amounts involved should not be more than 1 per cent of gross profit for a widely held listed company.”
