Executive summary
A variety of views exist about the role of companies in the community. These range from the view that the sole purpose of business is to make profit for shareholders to the view that the interest of shareholders should rank alongside other ‘stakeholders’ without necessary precedence.
The majority view in corporate Australia is, however, that responding to community needs and social pressures is not inconsistent with, and when performed appropriately is conducive to, long-term returns to shareholders.
The concept of Corporate Social Responsibility (CSR) has moved to centre stage in recent years, generating much public discussion and academic debate. Despite this increasing focus, there is a lack of clarity in the language around CSR which can further heighten disagreement between various perspectives and lead to a mismatch of expectations.
This report explores one aspect of CSR in contemporary Australia: namely current thinking and practice concerning community investment in the large corporate sector.
In 2000, the Centre for Corporate and Public Affairs, in conjunction with the Business Council of Australia, was commissioned by the Prime Minister’s Community Business Partnership to undertake a study to investigate trends within corporate community investment and provide an overall assessment of how business conceptualised, managed and implemented corporate community investment.
This significant work, which assessed the views and practices of more than 100 Australian leading companies, found a significant shift from ad hoc grant making and philanthropy disconnected from corporate interests and capacities. It found corporate community investment was increasingly embedded into business policies and strategies, supported by pre-established criteria and proactive decision making.
The Community Business Partnership commissioned this study in 2006 to update the 2000 report and to provide greater understanding and clarity about community investment at a time when different practices and competing theories continue to emerge and the role of business in society continues to be debated.
This report, again based on a study of more than 100 large Australian companies, demonstrates that business commitment, scope, focus and diversity of corporate community investment activities in large Australian companies continues to increase and deepen. The trends identified in the 2000 report are accelerating and corporate community investment continues to progress from an activity on the periphery of business to a core business activity.
We have deliberately described this form of business engagement with the community as ‘corporate community investment’ (CCI), reflecting the move toward core business activity, and the fact that it is accorded the strategic importance and is shaped by the same business disciplines as other core business practices, such as risk management and corporate governance.
The major findings of the report are as follows:
Reasons for engaging in corporate community investment
The business case is now the predominant driver for companies to engage in corporate community investment. Most companies now see it as ‘an integral component to strategy and the corporate business model’.
Only 7% of the major companies surveyed for this report said they required no business case in determining whether to invest in the community. Of the 93% of companies that believed some sort of business case was needed, 24% required a focussed business case with some specific return on investment justification.
While CEOs and senior executives cited generalised reasons for corporate community investment including ‘building a better society’ and ‘promoting public benefit’, significantly this is not seen by companies as inconsistent with contributing positively to corporate sustainability and long-run financial return.
Other motives included winning and maintaining community trust and consequent ‘licence to operate’ and building and maintaining positive reputations, particularly through using corporate community investment as a demonstration of corporate values. Research noted in this study suggests customers can be influenced to support companies with a strong record of CSR, including community investment.
At a time when individual businesses are positioning themselves as employers of choice, expectations of staff, especially young people, now form a major and growing driver of corporate community investment activity. One trend reflecting this is the increasing prevalence of volunteering and matched giving.
Most companies felt that broadening the understanding and the perspectives of managers and staff was also a factor influencing companies to engage in these activities. This led many senior executives to participate in governance and offer technical assistance in organisations they supported.
An increasing number of companies also use community investment initiatives to build relationships with key stakeholders, including corporate critics.
Nature of corporate community investment activities and engagement
A major characteristic of current corporate community investment is the more rigorous identification and selection of activities or not-for profit partners connected to particular attributes or needs of an industry or business. This assists companies to pursue greater mutuality of interest, address specific concerns and better utilise the available company skill sets and technologies. Only 9% of companies now report that their corporate community investment activities are not aligned at all with specific business or industry interests.
The study found some companies are actively pursuing community investment activities as a competitive reputational differentiator. At the same time companies will work collaboratively or in a consortium with other companies to deliver corporate community investment programs more efficiently, or to build scale in their activities.
In line with this more strategic approach, companies are becoming less reactive in their corporate community investment activities. Less resources are now being allocated to ad hoc or unsolicited requests for cash or in-kind donations. Nearly 60% of companies surveyed allocate 20% or less to requests for cash or in-kind donations, while only 3% allocate upwards of 80% of their community contribution to such requests.
Local community programs attract more resources than any other corporate community investment activity, and are particularly prevalent in heavy industries, and around remote facilities. More than a third of companies spend between 20% and 39% of their corporate community investment resources on local community programs.
Companies are also increasingly engaging NGOs and ‘influencers’ in part to breakdown negative stereotypes and win influential support as well as to gain a better understanding of community values.
Volunteering is growing rapidly, reflecting both the increased desire for companies to engage with their staff and to attract talented employees. More than 60% of companies now provide between one and three days a year paid work time for volunteering. Nearly a third of companies now have a full-time member of staff to manage employee volunteering.
Considerable resources are now spent on sponsorships that have the dual purpose of building corporate or product brands and investing in community welfare. Related to this is shift to cause-related marketing, particularly for fast moving consumer product companies, who align good causes with revenue generation.
Research partnerships, such as those with universities, and in areas such as areas of health, environment and education, are also common. While 55% of companies surveyed support research partnerships, most do so with a small percentage of their community investment resources.
While there is a long history of company foundations in Australia including a significant number created since the turn of the century, only around a third of the major companies responding to the survey currently have a foundation.
Management issues
(a) Decision making
Consistent with the overall finding that corporate community investment is increasingly becoming a strategic business activity, the report found around 60% of CEOs or boards in the large company sector are now involved in determining broad strategy in this area, though they are less likely to be involved in its development, or in determining specific initiatives. Management and deployment of corporate community investment programs are now the domain of an increasingly specialised cohort of corporate community investment and public affairs practitioners.
While strategy and implementation is determined at a senior level, more than 50% of companies consult their staff on specific corporate community investment activities. Staff are most frequently involved in selecting the destination of matched giving and in volunteering where their own resources are most directly deployed.
External consultants or selected stakeholders are sometimes employed to assist in developing corporate community investment policy and implementation (formally or informally). Some companies have established a formal advisory body with external members to help determine priorities and shape their practice. While a variety of approaches are taken by companies to centralise control and delegation, there has been a tendency to seek cohesion across companies within a given overall corporate framework.
(b) Budget and measurement
Almost half of companies, through their boards, CEO or executive Committee, now set a fixed amount of resources for community investment in the annual budget cycle. Only 5% of companies resort to ad hoc spending. A small but increasing number of companies are establishing a fixed percentage of some metric, most commonly pre-tax profit.
To ensure their investment is deployed effectively, an increasing number of companies are establishing performance indicators in arrangements with community investment partners and are seeking increased transparency and accountability in the use of resources.
At the same time, measurement of performance for both business and social impact has been judged difficult. Only 9% of companies said they were very accomplished in measuring business benefits. A further 55% said they were moderately accomplished in this area.
A major long-term trend has been to develop fewer and deeper partnerships with not-for-profit organisations, and to a lesser extent with government agencies. Increasingly, these partnerships are being established with clear agreements or contracts that ensure mutual benefits, clarity in roles and relationships, and specify exit arrangements.
Future trends
The report finds that current trends will continue that in the future. Specifically:
- an increasing number of companies will catch up with current leading practice and those exhibiting current leadership will seek more creative ways to meet corporate objectives by community engagement;
- large companies are likely to expand resources devoted to community investment, and continue to build it into corporate strategy;
- companies will continue to build closer relations with not-for-profit partners. Innovative developments in building the capacity and financial base of selected partners are likely to be more common;
- staff engagement, including volunteering, will continue to be an area of major growth; and
- companies will increasingly address the issue of accountability and stewardship of applied resources and seek better ways to measure returns for business and for the community.
Conclusions
With corporate community investment becoming an increasingly strategic and core business activity, this study encourages all large companies to develop cohesive rationales for corporate community investment activities, based on clear business drivers.
The study also concludes that business and government can and should assist in the development of strategic corporate community investment within the small business sector.
Finally, the study highlights the need for more intellectual and policy infrastructure aimed at promoting best practice, skill transfer and information sharing in what is an increasingly important area of business activity. With this mind, the study recommends that business schools and other management courses place greater focus on corporate community investment education, and that business and government explore the possibility of developing innovative, business based means to stimulate and facilitate corporate community investment learning and dialogue.