Corporate elites due a post-referendum reckoning on spending

Qantas has unveiled its new livery on three aircraft, in support of the Indigenous voice to parliament referendum.

One of the issues raised in the recent voice referendum campaign is the role of corporate donations. It’s clear a majority of the top 20 listed companies made donations.

The big four banks made substantial contributions, totalling more than $7m, and large donations were also given by Wesfarmers, Qantas, BHP and Rio Tinto. Interestingly, Rio Tinto has an agreed Code of Conduct preventing the board from making political donations but the contribution to the Yes campaign was interpreted differently. Explicit shareholder approval was not sought in these cases.

(It should be noted that donations to the No campaign from the owners of private companies are in a different category: the owners can do whatever they want, akin to private citizens.)

Wesfarmers chairman Michael Chaney had no doubts about the decision by the company to donate to the Yes campaign. “Occasionally, you hear someone say that companies have no right to give away shareholder money to community causes. But the board of a company is charged with deciding how expenditure is allocated.”

Chaney referred to the Indigenous members of the company’s workforce as one reason to donate. He noted “the real symbiosis being a company that looks after its stakeholders and provides good returns to shareholders”. He added: “We’re not going to tell you how to vote but, as a company, we believe this is a good thing, and it’s consistent with the practices we’ve followed in terms of community support and ethical conduct and integrity.”

There is a great deal of circularity to this argument – the directors establish what is a good thing and the company spends shareholder money on this good thing. The trouble is there are a lot of good things in the community and companies don’t (and can’t) fund them all.

The directors of the CBA encountered some resistance from shareholders at its recent AGM in relation to its donation to the Yes campaign. The chairman, Paul O’Malley, responded by declaring “we see it as policy item, not a political item, from a CBA perspective”. But the distinction between policy and political was never made clear.

“Our own experience has been that listening to Indigenous voices has improved the way we support First Nations customers, employees and community members. Our support for reconciliation is consistent with our focus on sustainable practices, policies, and outcomes to create long-term value for our customers, communities and shareholders. For these reasons, we reached a view that the bank should be supportive of the voice.”

A cynic might say the best way for the bank to support First Nations customers – indeed, customers more generally – would be to cease the closing of regional branches and the restrictions on the services provided to bank customers. Lowering bank fees could also be useful. Is CBA’s support for the voice, in part, a device to get everyone to look the other way and ignore the downsides of its corporate restructuring?

Michael Chaney

Paul O’Malley

A valuable outcome of the exposure of these corporate donations would be an examination of the principles that should govern corporate donations in the future.

Should directors of listed companies use shareholder funds to contribute to essentially political campaigns? Should directors seek the consent of shareholders? Should there be full transparency about the sums of money donated and where the money is directed? (It is interesting to note the listed companies in the UK almost certainly would not have made donations in similar circumstances.)

It is worth recalling the work of Nobel prize-winning economist Milton Friedman. He is often regarded as the father of scorched-earth economics, the person who claimed companies should solely be in the game of maximising profits. He was in fact a nuanced thinker; he supported negative income tax – the equivalent of a universal basic income – and inheritance taxes.

But when it came to what companies should focus on, he was clear: “The social responsibility of business is to increase profits.” Indeed, he wrote in The New York Times Magazine in 1970 making just this point. He argued: “The discussions of the ‘social responsibilities of business’ are notable for their analytical looseness and lack of rigour. What does it mean to say that ‘business’ has responsibilities? Only people can have responsibilities. A corporation is an artificial person and in this sense may have artificial responsibilities, but ‘business’ as a whole cannot be said to have responsibilities.”

To be clear, Friedman was not calling for businesses to operate in a values-free vacuum. Managers must “conform to the basic rules of the society, both those embodied in law and those embodied in ethical custom”. He was also happy to see companies establish separate foundations to support not-for-profit causes, such as schools or hospitals. (Some companies in Australia do, in fact, have separate charitable foundations.)

When it comes to company donations to the voice, however, it’s clear what Friedman’s views would have been. “The corporate executive would be spending someone else’s money for a general social interest. Insofar as his actions … reduce returns to stockholders, he is spending their money. Insofar as his actions raise the price to customers, he is spending the customers’ money. Insofar as his actions lower the wages of some employees, he is spending their money.”

Milton Friedman

A useful response to the issue of corporate donations for political campaigns would be the setting down of the principles that should govern these types of board decisions in the future. It shouldn’t be necessary to be too heavy-handed on this issue. New laws, for example, shouldn’t be needed. Changes to the Corporate Governance Principles issued by the Australian Securities Exchange are one possible avenue.

Under these principles, it is recommended that company boards have written codes of conduct. It would be relatively simple to include the inclusion that company donations for political purposes should be banned in all circumstances. Examples could help define what is political. An alternative is to seek the explicit consent of shareholders for any political donations, which is in keeping with one of the current ASX guidelines that “a listed entity should have an investor relations program that facilitates effective two-way communication with investors.” With the new technology and shareholders linked to companies electronically, it is feasible for this consent to be requested at relatively low cost.

When the dust settles on the referendum, some of these vexed issues should be sorted out. They don’t stop with company donations but also the involvement of charities and sporting codes. But it will be a useful outcome.