Australia: Businesses must do more for the Community by Richard Pratt The Age 9:27am 25th Jan, 2004   January 25, 2004.    It is a commonly held belief - at least among business people - that successful businesses are good for communities. What is not always so well understood is that successful communities are good for business. Smart companies have always known this. They know that by putting back into the communities in which they operate they are investing in the long-term future of their business.    My own views about this were inherited from my parents, who taught me that those who have achieved a degree of success have an obligation to put back into the community from which they draw that success.    A more academically based theory of this concept is that a business draws its licence to operate from the community, and, therefore, has an obligation to that community. Or, as Harvard Business School's Michael Porter puts it, "The economic and the social are not separate". And yet the debate about corporate philanthropy continues to rage.    There remain plenty of people who argue that a business's only responsibility is to make profits and create wealth for its shareholders. They say supporting the community is something best left to governments and welfare agencies. I am not among those people. For me, the case for corporate philanthropy has been amply demonstrated, and not just in my own experience.    Most companies that are active in corporate philanthropy can point to many advantages. These include increased recognition by customers and consumers, better employee recruitment and retention, higher staff morale and innovation, wider networking possibilities, better access to government investment funds and increased community support for local development.    Yet, despite these advantages it would appear that only about half of Australia's largest companies are active in corporate philanthropy. A recent survey of Australia's 100 most profitable public companies, shows 55 gave a total of about $120 million to community groups in 2001-02. The other 45 gave nothing, or refused to give details.    The $120 million was part of an estimated total of $5.4 billion (including sponsorships) that is donated each year by companies, foundations and individuals. In comparison, the amount donated by US companies, foundations and individuals each year is more than $300 billion. Of the 55 Australian companies that gave, the combined total represents an average of 0.6 per cent of profits. In the US the figure is well over 1 per cent.    At the risk of oversimplification, the US economy is some 20 times larger than Australia's, but charitable donations there are almost 60 times greater. You could argue that US citizens, foundations and companies are roughly three times as generous as Australians.    But it is not that simple. Indeed, I firmly believe that when presented with a cause such as a drought, bushfire or flood, Australians are among the most generous people in the world. It is partly for this reason that I have long wondered why so few public companies ask shareholders their attitude towards corporate philanthropy.    I feel sure that a resolution suggesting that about 1 per cent of a company's profits should be put aside for donations would be well supported by shareholders. Those arguing against such a course of action say that shareholders - not companies - are best placed to know what they want to support. This ignores the power of collective action. People sometimes think their own contribution will have no impact. As owners of a company voting on allocating a percentage of profits to community causes, they would feel in a much more powerful position to make a real difference.    In calling for more corporate involvement in communities, I do not wish to imply that there should be a lesser role for government. Indeed, the responsibility for a healthy community rests with all of us - government, the business sector, welfare agencies and individuals.    And that is why, as we prepare to celebrate Australia Day, I would like to propose what I will call an "Australian communities compact". The compact would involve the three tiers of government, the corporate sector and the community in a "win, win, win" situation. It would do good for communities, it would help business to be more profitable and more sustainable, and it would enhance government's effectiveness and standing.    The compact would have two specific carrots for business: a purchasing incentive, and a taxation incentive. It would aim to encourage companies to increase their corporate philanthropy and social engagement in return for getting something back. It would appeal to their enlightened self-interest.    For their part, community groups should also welcome it. They would benefit from the extra money for services that governments of all persuasions are either cutting or privatising. As well as money, profitable and well-managed companies can also offer the community sector invaluable expertise and resources.    At the same time, the compact would encourage all governments to back up their proclamations about partnerships with the private sector and be more equitable about distributing taxpayers' and ratepayers' money. The operating principle is simple: communities and corporations working together can usually be far more successful in tackling social issues than governments alone.    The first carrot recognises that governments are by far the largest procurers and purchasers of goods and services from the corporate sector. So it would require all three tiers of government to adopt a uniform code of tendering. While remaining bound by issues of price, competence, and past performance, the code would give significant weight to philanthropy and community engagement.    A few governments, particularly at municipal level, already have such tendering guidelines. But for the most part, price alone rules. This means that companies often have little business incentive to launch community partnerships or, when they do, to maintain them. An Australian communities compact would make a real difference in this area.    The second carrot entails a somewhat unfashionable return to tax incentives of the kind that once applied to research and development. Despite well-documented flaws and some rorting - which more determined governments could have tackled - the basic idea of tax incentives was sound. Moreover, if corporate funds were applied to communities, there would be fewer opportunities to abuse the tax system.    Thus a corporate tax rebate, say 130 per cent of the donated amount, would go only to companies that donated at least 1 per cent of their annual profits to community groups. Properly set up, it could avoid many of the earlier scheme's pitfalls. If the rebate included a sunset clause so that companies would lose it after five years of donations, it would help create a culture of philanthropy that would become self-generating, while encouraging new companies to enter the field.    Australia certainly needs new corporate donors. And it needs those that are already giving to do more. Lifting the bar to 1 per cent of profits is hardly a radical proposal by global criteria, and it would be a start. It would not need a separate new bureaucracy, and it could be implemented fairly quickly.    A communities compact would have at least one other benefit: it would breathe life into the "social" element of the much discussed, but still not widely implemented, idea of triple-bottom-line reporting.    According to this concept, a company should be increasingly measured not just by its financial performance but by its social and environmental performance as well. My companies have been informally operating on such principles for many years, but we still have a great deal to achieve.    Although quite a few Australian companies have lifted their environmental games over recent years, progress on partnering communities and developing social capital has been less impressive. In our enlightened self-interest, it is time we caught up, and fast.    (Richard Pratt is chairman of Visy Industries).
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