The easy and popular vice of corporate philanthropy

Because citizens and shareholders alike should be wary of efforts to treat them as geese to be plucked, the National Community Business Partnerships Week (19–23 July), which is part of building the “social coalition” of the future, gives cause to focus our minds.

In case the fanfare had passed you by, Community Business Partnerships are a creature of Prime Minister Howard.  He represents them as being a practical expression of cooperation between government, business and the welfare sector. They are a manifestation of his belief that companies are obligated to contribute to community development and that a greater philanthropic tradition needs to be cultivated in this country.

Unlike motherhood however, business philanthropy is not a virtue. Corporations should reject the siren call of the Prime Minister that “more of them should give” and stick to their knitting, which is the running of a profitable enterprises in an ethical and honest fashion.

In 1970, Milton Friedman, a Nobel Prize Laureate in Economics, argued that the social responsibility of business was to increase profits. In doing so he distinguished between companies owned by an individual proprietor, which faced no restrictions on how profits should be spent, and public corporations, the directors and management of which act in trust.

In the case of public corporations, before they sign on with the Prime Minister and harvest that wholesome inner glow, they should ask: On what basis and according to what criteria should the money of shareholders be given away? Friedman nailed the problem clear enough: directors and executives have a responsibility to shareholders and must act in their interests and according to their wishes.

Grants of charity by executives do not advance the interests of shareholders. This means, for example, that the $500 million and the 500,000 staff hours spent on social and community programs by member companies of the Business Council of Australia in 2001-2 is money and time not well spent.

The first problem arises because executives cannot replicate the charitable disposition of shareholders. As a result, donations are made on the basis of executive preference, which shareholders should regard as a dubious basis for the expenditure of profits. For example, it is not certain how atheists would regard donations to religious organisations; other shareholders might object to profits being made over to, say, the Centre of Independent Studies; a third group could resent earnings being syphoned off to the Australian Conservation Foundation.

Donations to build the “social coalition” – an amorphous social interest - must result in the dissipation of shareholder profits.  In effect, business philanthropy results in the imposition of a new tax on shareholders, which is then administered according to executive whim. 

Even if we were to grant company executives an in-principle right to levy a tax on profits, there remains the problem of ignorance.  However capable Australian executives are in the running of public companies, they have no special insights in wider social, cultural or environmental matters. That they can claim no expertise means that the costs to shareholder of philanthropic acts cannot be justified.

Aside from these inherent difficulties, a second issue should give corporations reason to pause before giving.  It goes to the role of government and the efficient provision of social services.

Equity and justice are not matters left to the mercy of efficient markets. Properly, we make them the concern of governments and the province of legislation. To make society fair and just we fund a public service that provides expert advice and administers programs, sometimes efficiently and well. Taxes are levied so that social priorities can be addressed.

Of course, all government and bureaucracy and tax is madness but within this madness is furled a systematic method and purpose.  And this method and purpose provides greater benefits than those generated by random acts of corporate philanthropy.  If we are to create a society in which social needs are satisfied, as opposed to the wants and prejudices of philanthropists, then a full government engagement is required.

Does this mean that charity has no place in this nation?  Or that men and women working in, for example, asbestos or tobacco companies, or as lawyers and accountants, should abjure a civic engagement?  Not a bit of it. It is just that they, and all of us, should share and give what is exclusively our own – our own money and our own time.

Does this mean that corporations are unconstrained in the pursuit of profit? Not a bit of it. A corporate wage does not vanquish ethical considerations of honesty, probity and duty of care.

At the present time, the government is showing on our television screens just how easy it is to be generous with someone else’s money. It is an example that does not bear following. In the case of corporate philanthropy, the message is clear: companies should not do what the government does and they should not do what the Prime Minister says.