Developing a social investment strategy
What is corporate social investment?
Firstly, there are a range of terms for such initiatives that in a broad sense can at times be used interchangeably. Programmes may be seen to fit under the banner of CSR, or corporate social responsibility, or perhaps Community Engagement or more recently the more holistic phrase of ESG, or environment social and governance. Using this latter phrase both internal and external initiatives tend to fall into the S of ESG which is often referred to as the ‘poor cousin’ of environmental and governance. The reason for this is it there continues to be debate over whether it is legitimate for an organisation to invest in social programmes or whether this is a misuse of company funds.
Although the S extends to internal staff welfare programmes, the definition of social initiatives would typically consist of funding programmes outside the domain of the organisation’s own operations. These may take the form of donations of a financial nature or in-kind to not for profit organisations and could even involve direct participation by staff members in external programmes such as volunteering during company time or participation in raising funds for a charity partner through staff participation in charity walks or events such as during the CEO sleepout.
Why would we do this?
Prior to commencing the development of any corporate social investment programme, it is valuable to initially assess what our underlying motivations might be. There are a range of views on the value, or even validity of such programmes. It is important to understand all points of view and be prepared for these.
In the mid-70s Nobel Prize winning economist Milton Friedman famously stated that ‘the business of business is business’. He was completely opposed to profit making corporations, owned by shareholders who had invested funds in the company, contributing more broadly to society outside of complying with the law, paying wages and paying taxes.
This Friedmanite view was adopted by many companies for decades to come. Many years ago one of the directors of the Australian Shareholders Association, the peak body for representing shareholder interest was even quoted as saying that participation in these programmes was ‘shareholder theft’, Essentially the argument was that the directors of publicly listed companies had no right to give the companies money away, rather they should retain these funds, allow them to fall to the bottom line and be distributed as shareholder dividends. At that point the shareholders themselves could decide if they wanted to give their money away to support
These arguments may on the surface seem quite logical, and one can perhaps understand why they have been widely adopted. Others will be of the view that profit making companies have a responsibility to the whole of society beyond the payment of taxes. They would say that much in the same way that governments have a responsibility to all its citizens or charities have a responsibility to their clients or the specific group of disadvantage or in-need members of society that they serve, so too do companies.
In a local context we can point to the Australian Corporations Act (2001) which states that every company director is under a duty to “act in the best interests of the company’. One argument is that to divert funds to CSR projects lessens the shareholder dividend and is neither in the interests of the company nor the shareholder and that society more broadly should not be considered as a stakeholder group for profit making corporation.
Others would argue that a company’s responsibilities in gaining their licence to operate extend to other l stakeholders whose interests should be acknowledged, the shareholder? This view is known as shareholder primacy. Or does a company have a responsibility to other stakeholder groups?
However, there is a third viewpoint also, and a very fundamental point missed by the Friedmanites and that is that for profit making corporations to contribute more broadly to society, often through not-for-profit partnerships, will in fact contribute to the company’s standing in society and its profits and therefore shareholder returns in a variety of very tangible ways.
These divergent views therefore open up a broad debate that is often influenced by philosophical perspectives along with economic and even political considerations. It is not my intention to dive deeply into this debate at this point in time. I will instead mount an argument that corporate social investment programmes play an important role in improving company performance. So, in exploring the why of corporate social investment let's look at what some of these benefits to the donor corporation may be.
The Friedmanite view was very narrow and focussed on shareholder primacy. It saw the funding of what appeared to be gifts to a stakeholder group unrelated to the company as bad and well out of scope.
This view completely ignored the fact that not only do a number of stakeholder groups including staff members, investors, suppliers, government entities, and the public at large support corporate assistance for legitimate societal causes but that this view has now moved on to take on the form of an expectation, with potentially negative consequences for companies that do not participate in these programmes.
Studies have shown that the motivation for people to join an employer organisation is often based on that organisation’s reputation for contributing to society, well outside the particular products that they sell or the prominence of their brand. This same criterion applies to the decision of people to remain with an employer if that company has earned a high level of trust and respect. Similarly, when making investment decisions many people these days will assess the ESG credentials of an organisation before purchasing shares, or if held in a managed fund eg. a superannuation fund, will demand deeper knowledge of companies residing within their share portfolio from the fund manager
Commercial and government tenders also now often contain questions regarding a company’s ESG credentials which extends to internal assessments also such as initiatives to ensure gender parity on boards and in management positions, the creation of family friendly workplace policies such as parental leave and domestic violence leave and in general the commitment of an organisation to fairness and equity in all aspects of its business.
It is quite easy to mount an argument that the needs of people working within the company also need to be considered and strategies developed to ensure their health and wellbeing. This links to recruitment and retention strategies also. That is, how do you attract the best and brightest to work for your organisation and having done so how do you keep them.
Far from CSR practises being a drain on profits thereby reducing shareholder returns, in actual fact, it is evident did they contribute to these very things and to not develop programmes of this nature will in fact limit, or even harm the company's performance. This would suggest that any company directors who are not actively working to ensure that the organisation that they are stewards of, are actively developing policies that contribute to the wellbeing of these stakeholder groups is in fact not acting in the best interests of the company and therefore could in this sense be seen to be in breach of the Corporations Act.
So having established the legitimacy of corporate social investment strategies from a commercial point of view let's have a look at what programmes may in fact contribute and how best might they be implemented.
How do we implement? What would we include or exclude?
If the company is clear on why it is developing a social investment policy, then decisions need to be made around supporting this initiative. Will there be an internal, preferably high level, sponsor? The CEO? What funding will be allocated and from which budget. Is it seen as a marketing exercise, HR recruitment / retention strategy or is there a Sustainability Department that includes community engagement to name just a few possibilities?
What elements do we want to include in any initiative? Charity partners? Only local partners or overseas as well? Working in what sectors? Financial giving or in-kind? Staff volunteering days off? Salary matched giving? Unlimited or capped? Do we instal a giving platform on the company’s intranet? Do we have an opt in / opt out system for giving when a person joins the company?
There are no right or wrong answers here, however the choices should reflect who the company is, that is, what are their values and what do they stand for. Does the company want to be a fairly passive donor or an active participant or even engage in public advocacy for a cause? Does the company want to be strongly identified with a partner or cause? Who will be the face of the public company.
These choices and many others need to be workshopped thoroughly so a program can be implemented with confidence. Discussions undertaken and decisions reached should be documented with the same rigour and good governance that other critical decisions are made. Remember you want policies and programs implemented to outlive the current board and senior executives that were involved in their creation.
One key to successful social investment programs is regular reviews. These can be both internal and with partners. What were you hoping to achieve and did you achieve these goals? What needs to be changed or refined? Who undertakes the review? How do you maintain staff interest? Do you form a staff committee to oversee these programs and report back to the executive and board?
The most powerful compliments that I ever received from staff as a Chair or Managing Director were not to do with our IT products, or our financials, not our growth in market share or big contract wins but for our commitment to supporting vulnerable members of society through not-for-profit partnerships, and in our case our public advocacy for certain social justice and human rights issues. Along with the respect and loyalty our own staff expressed we were respected by members of a diverse range of sectors from government, NGO, academic and industry bodies.
I have never known of a more powerful way to transform a company than through seeking to treat our people well, do business in an honest and transparent way and to do good in society. Improvement in financial performance and increased shareholder returns don’t have to be the goal, and in fact probably shouldn’t be the focus, but irrespective it has been demonstrated time and time again that when a company does good the company will do well.
