Saturday, May 03, 2008

In hard times, will business lose its heart?, by Natalie Craig - The Age - 25th April 2008

Those who can least afford to give, give most. It's a cliche, but one that charities' account books support: individuals donate more than twice as much as businesses in Australia.

So are businesses inherently stingy? If so, what will happen to business donations if the global credit crunch forces a reduction in spending?

BusinessDay spoke to charities, business leaders and research groups — and most said the credit crunch would reduce business donations. But many also insisted that how much less would depend heavily on the entrenchment of "corporate social responsibility" and on the take-up of employee-giving and volunteer schemes.

Mirvac chief executive Greg Paramor, a director of not-for-profit organisations including the Garvan Institute of Medical Research and the National Breast Cancer Foundation, said he had already noticed a fall in company contributions.

"You hear anecdotally … everyone's saying 'Gee, so and so's cut their contribution'. Companies suddenly go, 'No I think we can cut that out. I know we gave last year but we won't this year'."

GiveWell Australia, which researches the not-for-profit sector, is warning charities to expect less corporate giving.

"I have started telling not-for-profits not to ratchet up fund-raising and financing expectations," said GiveWell director Michael Walsh. "Financial services companies have been big givers. They are cutting their discretionary budgets, and that's likely to include sponsorships and giving to charities."

In 2005, the last major government-funded research into the not-for-profit sector, the Giving Australia report, found that of $11 billion donated in 2004, $7.7 billion was donated by individuals, while businesses donated only $3.3 billion.

GiveWell Australia's statistics date back only to 1997, so there is no reliable evidence to indicate how Australian charities will fare in a prolonged economic downturn. Mr Walsh believes corporations have been increasing their share of giving, although this increase is likely to stop.

There have been early warning signs that business donations will decline. Coles Group has suspended its grants program indefinitely pending a "strategic review". Unsurprisingly, there are serious doubts about the ongoing benevolence of subprime victims such as Centro Properties Group, MFS and Allco. And the profits of the financial services sector, traditionally one of the biggest corporate givers, are expected to be hit hard by bad debts and the drying up of credit.

ANZ's annual profit is expected to fall well below last year's $4 billion, after a dismal interim results announcement on Wednesday. National Australia Bank, St George and Westpac, which will deliver their half-year results in the next three weeks, are also likely to curb spending and make provisions for bad debts.

This could mean a significant drop in donations. Westpac is committed to donating 1% of its pre-tax profit, and NAB says it is moving towards the 1% target. Last financial year, Westpac donated $52 million, or 1.3% of its profit; NAB donated 0.47% or $25.9 million, although the company expects to lift that to 1%, notwithstanding the credit crunch. The other big banks have extensive giving programs, but no profit-based commitment. ANZ said it valued "outcomes" over dollars, and subscribed to the London Benchmarking reporting system. It gave $17.8 million last year and had "a similar level of commitment" around strategic programs this year.

Tying donations to profit is now regarded as somewhat old hat; integrated community programs are preferred. A survey of 155 of Australia's top 1000 companies by Pro Bono Australia found that 29% had workplace giving programs and another 7% planned to introduce them soon.

Workplace giving schemes allow employees to make before-tax donations through their payroll. The employer can match these donations dollar-for-dollar. (Only a third of companies surveyed by Pro Bono match employees' donations dollar-for-dollar). This means a $10 donation can cost an employee $5, but be worth $20 to a charity.

Employee volunteering is surging. Melbourne Cares, which has programs linking businesses with disadvantaged schools and other groups, has noticed a marked increase in its network in the past year.

"We're not expecting a decrease in volunteers if the credit crunch gets worse," said Melbourne Cares director Leah Sertori.

"I think tough times make people more charitable. I also think when the pressure is on in the corporate environment it can be really rewarding for individuals to step outside of that sector and have a different experience in their work."

Mark Watt, director of White Lion, which supports young people in the juvenile justice system, agrees that the generosity of individuals and business leaders will increase as the credit crunch worsens.

"They are looking for meaning in their lives, some sort of engagement," he said. "They just want to get a balance."

So keen are business leaders to do their bit, more than 50 have this year volunteered to spend a night in the Old Melbourne Gaol to raise money for White Lion. Michelle Powell, managing director of Melbourne procurement company Waivestar, needs to raise $10,000 before she breaks out on May 31. She has two teenage children and wants to empathise with "disconnected youth".

"We all are so busy with our lives," she said. "I want to see what it's like to be locked up in jail. My staff are threatening not to bail me out. I reckon, great, it'll be a holiday for me."

Charities are confident that the generosity of people such as Powell, and the popularity of workplace giving, will give them a buffer against the effects of the credit crunch.

Walsh agrees formal corporate social responsibility programs, employee engagement and public relations nous will protect charities against a fall in discretionary donations by businesses.

"I think even though companies do experience pressure on their profits, they want to look after their staff and they want to continue to maintain their good image in the community," he said. "In fact, many see downturns as an opportunity to strengthen their image." Several corporations were at pains to stress increased participation and donations through these programs.

Coles Group refused to commit to its previous level of giving. Last year it gave about $1.3 million in grants to charities.

A spokesman said the review was because of Wesfarmers' takeover of Coles last year, and the businesses were working through their budgets for corporate giving for the next financial year.

But he said: "All the businesses that comprised the former Coles Group remain committed to supporting and partnering with a range of community and charity groups."

Philanthropy Australia chief executive Gina Anderson said the situation for not-for-profit organisations would worsen, but was not all "doom and gloom".

"Traditionally when things get tight, there's a pull-off on discretionary spending," she said. "I think any time there's an industry sector under pressure, companies will pull back on going to functions, donating to charities." She added that many companies had foundations that were separately funded legal entities.

Kim Madden, senior research fellow at the Australian Centre for Philanthropy, said corporate giving was increasingly linked to good staff relations.

"What has been rather surprising in my research is just how connected the giving is to human resources," she said. "They really do see the benefits for staff to become involved with the partnerships the companies have with non-profits. They are very serious about including it as a budget item."

But will corporate donations drop as individual generosity increases? Madden said that while US research had linked sharemarket declines to falls in corporate giving, there was not enough data to say what would happen in Australia.

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