Should they donate money to charity?

Listed companies: should they donate money to charity?

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They should, shouldn’t they?

Yes and no. It’s all a question of how much and how the money is given. The king of monetarism, Chicago economist Milton Friedman, a Nobel Prize winner, once said the social responsibility of business was to increase profits. Nick Renton, founder of the Australian Shareholders’ Association (ASA), 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.”

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 of which they are part. Consider companies such as BHP and Westpac, which top the reputation indices. Or McDonald’s, which controversially uses charitable institutions such as Ronald McDonald House to raise its profile among a prime audience by helping sick kids and their families.

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 it is part of a thought-through strategy – a bit like McDonald’s. 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 of the disaster, 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 www.crikey.com.au and 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?

The shareholder line is that lobbying is okay but companies should not be supporting political parties. “I would far rather see charitable donations than political donations,” Mayne says, “although the amounts involved should not be more than 1 per cent of gross profit for a widely held listed company.”

Copyright CPA Australia Aug 2005

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