David Gonski's speech to FIA Conference, 2009

  “Aspects on philanthropy in Australia” by David Gonski AC, Monday 2^nd March 2009

1. No matter how broadly you want to cast the net on the question of aspects of philanthropy one issue comes to mind, front, centre and rear.  How will the great financial crises affect philanthropy and is “giving” a thing of the past?
   
   
2. There are many who say that the great financial crisis will severely adversely affect philanthropy and they argue as follows:-
   
   
1. Obviously, if potential donors have lost they will give less;
2. If donors are uncertain of the future even if they have sufficient to give they may give less in order to protect their own positions;
3. It is well known that a feeling of “well being” is often like a good fertilizer to generosity and the same is the case in reverse.
4. Tax deductibility is an important factor in fundraising and if people have losses rather than income they don’t need tax deductibility and therefore donate less.
5. The arguments continue quite alarmingly on this basis.
   
   
3. But there are arguments put to the contrary, they are that:-
   
   
1. If you look at history some of the biggest philanthropic foundations and donations have been made in bad times.  Henry Ford’s establishment of a fund for unemployed car workers in the depression is a good example.
   
   
2. There is the argument that many who have assets in bad times starkly realise that there are many who have not and do the right thing.
   
   
3. Sections of society although perhaps scared in the GFC are themselves better off.  For example, a person with a job in Australia and a variable home loan has more to spend in these bad times than in the good.  Lower interest rates, lower oil prices and bargains at the shops may result in more to give. 
   
   
4. If you look at America the consumer has gone on strike.  Whilst this could be argued to be because they have run out of money it could also be argued that they are looking to use their money and resources for better purposes paying off debt both theirs and to society.  In particular and closer to home have a look at the outpouring in relation to the tragic and recent Victorian bushfires.  The generosity of people was fantastic and that is in very bad times.
   
   
4. As a banker I am very aware of the problems of the great financial crisis.  It saddens me to see so many people particularly young out of work and my expectation is that unemployment rates will rise although i am not prepared to say by how much.  The speed with which this crisis has escalated has amazed many including me.  A well known economist and former reserve bank of Australia member Dr Bob Gregory, said last Thursday that in his lengthy career he had never seen anything like it.  I have to say to you that I agree with him although I must also admit to you that I have said that in the midst of each of the four crises I have lived through prior to this one. 
   
   
5. I don’t believe, no matter how bad the great financial crisis, that one can really say that either side on the debate of whether philanthropy will continue in this climate is correct.  The answer is much more subtle and I might say I am concerned that anyone will take a definitive view on the question because undoubtedly that may effect their decision making, how they raise funds for their organisation and be adverse to their organisation’s future generally.
   
   
6. Some of the subtlety of the answer to this question can be removed if one analyses a number of the parts of philanthropy in Australia.  And it is this, in covering the aspects of philanthropy that I wish to do today.
   
   
7. Let’s start by looking at those who are employed and in particular examining whether philanthropy through work place giving is likely to be affected.
   
   As mentioned previously someone who has a secure job ironically in this great financial crisis maybe better off than they were previously.  The main expenditures of their family may well be less and their ability to give may be more. 
   
   It is accepted that no-one can escape hearing of the sadness of the crisis and this may be destabilizing to say nothing of dwindling superannuation balances.  However, you could also argue that might be inspiring – inspiring the person to give, to look after others in distress.
   
   It is my perception that employers – responding to the many, many problems that surround their efforts at the moment – are reducing their attention and encouragement of workplace giving.
   
   If I were in the fundraising business for not for profit this is an area where I would be very keen to focus. 
   
   I would focus on those who have secure employment be they in government departments, hospitals, and companies such as Macdonalds and the manufacturers of basics etc.
   
   It is well documented how goodwill within one’s staff and motivation despite bad times can come from matching the workplace giving donations and spending some money to encourage them.
   
   In short it is my suggestion that pockets of workplace giving donations should actually prosper in these worse times acknowledging absolutely that the workplace giving programs in merchant banks etc may not be as generous at this time.
   
   
8. Private philanthropic funds is a further area that one should look at.  We are all aware that over 640 of these have been established over the last few years principally by high net worth individuals.  We are also aware that their corpus/capital was in excess of $1.5 billion and may well have fallen as a result of the great financial crisis. 
   
   But the very essence of PPFs is the ability to put money in good times aside for donation in bad.  So many that have started these foundations have taken advantage of windfalls (the sale of their business, inheritance etc) to establish foundations which can live on in good and bad times.
   
   Now I accept that if the corpus of the fund has diminished greatly it may diminish the ability of the fund or the willingness of its trustee to donate.  Having said that however it is my perception that many of these funds will continue to donate in good and bad times.
   
   I note that the Federal Treasury has recently distributed a discussion paper entitled improving the integrity of prescribed private funds. 
   
   In that paper they stated a number of suggestions to make PPFs more workable and efficient.  Some of the suggestions are very reasonable.  However, others would cause enormous difficulty. 
   
   In particular there is a suggestion in the paper that PPFs should be required not just to distribute their income each year but instead to distribute a prescribed rate based on the capital at the beginning of the financial year.  The suggested rate is 15%. 
   
   Clearly the advantage of this is that PPFs would continue to distribute funds even in bad times.  However, the disadvantage is massive.  Given the various rates that even the safest investments can yield at this time PPFs, if required to distribute 15% p.a. Would actually be distributing so much capital each year that their life would be reduced to what has been estimated to be 8 years rather than the very long term.
   
   Many have argued as I have, that it is wrong to have a prescribed rate that has no relationship to inflation or the risk free bank rate of the time.  Personally, I am not opposed to the prescription of a minimum distribution but sincerely hope that treasury will opt for a number which is more related to the income that can be achieved safely on capital monies at the relevant time.  If they go that way it will be a nice balance between ensuring that PPFs keep distributing in good and bad times and that they also continue for the long term
   
   The second suggestion with which I disagree is that PPFs should have a minimum size.  In my view we should be encouraging as many as possible to establish PPFs and we should also remember that PPFs cannot be established in one’s will.  Therefore, perhaps starting the PPFs with a small amount now and leaving it as a recipient in one’s will could well be a nice way of ensuring that beneficence continues after one’s death.
   
   The research paper suggests a number of other concerns such as restricting the number of donors who can donate to PPFs and the provision publicly of details of the PPFs and who is involved in them.  Both of these I suspect will reduce the ability of PPFs to get donations and in the latter case increase the amount of administration that they have to be involved in. 
   
   My view is that PPFs have been highly successful.  I acknowledge that there is an argument that some money which would have gone directly to not for profits instead find its way into the PPFs and only later comes to not for profits.  However, this argument fails to remember that many give to PPFs more than they would have given to not for profits in the first place because of a conscious wish to do good things and to ensure that they have monies to donate in the good and bad times ahead of them to say nothing of the world.  
   
   I should also mention that there is considerable debate on the fact that a tax deduction is received on the donation to the PPF and if it doesn’t go directly to the not for profit the state has paid monies in loss of tax and it has not gone anywhere.  If I am right that the donations are bigger than they would otherwise be then the net present value of that loss of tax will be repaid in spades over time. 
   
   
9. Bequests
   I have always believed that people in the fundraising business underestimate the power of bequests.  Particularly when one has regard to the ageing nature of our population and also where even after the financial crisis the wealth has accrued.
   
   There is no doubt in my mind that crises often bring out the best in people.  If this hypothesis is right then many people in these bad times want to donate but I suspect may not be in a position to do so or may ameliorate that want when looking at their superannuation and being scared that their lifestyle may be affected by losses in the stock market etc or indeed of their job.  However, making a promise to leave the amount they really want to give now in their will must surely be a logically correct thing to contemplate.
   
   I would suggest that even in these tough times this is a rich field.  It does not affect the lifestyle of the person as far as I know!  To leave something after they have gone.  If they can make that commitment now and perhaps get the good feeling from doing it all the better.
   
   It is possible now although I accept harder for not for profits to somehow discount that contract to a bank or whatever.  But what it can do is to provide the not for profit with the possibility of capital in the future and maybe allow them to use some of their capital now or indeed other donations for their present operations.
   
   The person who says that the great financial crisis has stopped philanthropy will miss out on this rich vein which should be considered and considered carefully.
   
   It is interesting that there is no tax deduction given for bequests.  Maybe this is an area we should discuss with government so as to give some impetus to gifting by will in difficult times. 
   
   
10. Gifts of time
    We have always known that Australians are very generous in giving time although are playing a catch up game in their level of giving of cash per person when compared to the USA etc.
    
    One of the major differences between this crisis and some of the ones that have come before is that it started and continued for some time as an employment crisis of the white collar workers.  That may well flow on to blue collar workers but has very much found its way in the banking area, merchant banking, ancillary services, etc.  These are well trained people who are often capable of running business, helping to raise monies.
    
    It seems to me that there is a rich and real possibility that many of these people may not only want to give time and expertise to not for profits but also may need it as something to do whilst they find their next incarnation but also to improve their curriculum vitaes and their expertise generally.  I am not aware of many in the not for profit sector who have sought to take advantage of this and I feel they should. 
    
    I also note that John Chambers the CEO of CISCO systems some years ago in a previous crisis set a precedent of saying to his staff that he needed to reduce numbers but would prefer not to lay people off.  His suggestion, as it has been put to me, was that instead of laying them off his company would for a period of time pay a third of their salaries and at the end of a period of time they would work out whether they would come back or not depending on how the business was travelling.  The terms however of that gratuity would be that they would go out and work in the community for up to a third of their salary and they would be prepared to forfeit a third of their salary.  My understanding is that not for profits got high quality people at a third of their private sector cost.  Those high quality people were able to find employment and only lost a third of their salary.  Maybe not for profits should encourage business to look at these sort of imaginative ways of assisting them in times where unemployment grows?
    
    
11. Corporate social responsibility
    in the last few years corporates I believe have risen to the challenge and corporate social responsibility or corporate responsibility as some call it has increased enormously. 
    
    I might say that this has increased not only in the amounts spent but in the professionalism of it.  Many corporates have been using their money extraordinarily wisely, seeking to excite their customers and make them more loyal, motivating their staff and at the same time doing the right thing. 
    
    I have picked up that some corporates in these bad times are thinking of reducing their corporate social responsibility budget as part of economy drives. Obviously if they are fighting for their lives that may be a necessity.  However, I really can’t understand how companies that are to continue and are not terminal would cut back something which is of such an important nature both for the corporation going forward, its staff and also for society. 
    
    I am aware that some people cut back advertising in bad times and I have never understood why when sales drop one decides to reduce telling the public to buy one’s product.  This sort of thinking applies to corporate social responsibility as well.
    
    What is clear however is that it may be incumbent on not for profits to encourage corporates to do different things in these bad times than what they did in the good.  As I mentioned previously in the good, they might have had a lot of money and a staff that was working extremely hard.  In the bad times they may have less money but the wish to occupy their staff.  Accordingly it seems to me that corporate social responsibility can live and should but its output may well be different to previously. 
    
    I should also mention that as we are watching so many banks and other financial institutions to say nothing of insurance companies etc being bailed out by governments and society generally around the world.  Corporates must continue their side of the bargain and continue to do good things in the society that looks as though it will be there for them in the bad times.
    
    
12. When one looks at the various potential givers, one can see that you can’t clearly state whether the crisis will be good or terrible for giving by those parties.  But what is clear is that there is some room for the expectation that giving will continue.
    
    The essence in my view as I might say is always the case, is having the depth of talent and back up on the part of the not for profit to be able to structure what they want in a way that is consistent with the particular circumstances of the potential giver.
    
    Asking for money alone in difficult times is extremely difficult.  Asking for help say from staff who are not fully employed or assets that are not totally used may well be more advantageous.  Seeking to get donations by way of bequest which will not affect lifestyle or exhorting those in good jobs to help those who are not by workplace giving is the essence of what I am saying.
    
    
13. It follows also from what I am saying that in these difficult times some charitable enterprises will do better than others.  As many of you know I have a very soft spot for the arts and it would be trite to say that in bad economic times it may be harder to raise money for the arts than it would be for welfare etc.  For the arts you could sport etc. Clearly in bad times it is not difficult to paint a picture of how people are homeless and suffering.  Indeed, it may be easier to do that than in good times.  In essence therefore I believe that the giving that does occur may well be skewed away from aspects of giving that are seen as not being vital to those that are as important as oxygen.
    
    Two points arise from this revelation.  Namely:-
1. It is simplistic thinking to assume that pursuits such as the arts are not required as much as other aspects of welfare.  Of course, if one is starving the arts is unlikely to be of interest.  However if one is not starving life with no paintings on the wall, nothing to read or to watch, must be very questionable.
   
   
2. For that part of the not for profit sector which like the arts is not seen as vital they have to realise that to raise monies in this climate they may need to partner with parts of the not for profits that are more involved in welfare.  For example a partnership between the arts and the medical experts on depression is extraordinarily logical and certainly would improve the fundraising capacity of the arts in bad times.  Education, health generally all follow the same pattern.
14. Like everything in life it is not simple.  And I accept raising funds for not for profits in difficult times such as we are in is probably more difficult.  But it is not impossible.
    
    It is incumbent on those who are raising the funds to be as responsive as possible to the various stakeholders from which they are raising those monies. 
    
    This involves being nimble, thinking things through and being experienced. 
    
    Not for profits who don’t have such people may need through what I have discussed previously to find them.  
    
    In addition, the skills that are there have to be well honed and understand both the philosophical and practical aspects of what they are doing.  You would expect it of me as Chancellor of the University of New South Wales to laud the efforts of the Centre for Social Impact at our University in this regard.  I can’t believe how far we’ve got thanks to Professor Peter Shergold in the last year or so.  I note that there are now short courses already starting, masters degrees as well as research etc all proceeding into the area we are discussing today. 
    
    One benefit of bad times if there be any is that people can consider improving their life and changing directions.  For young people to specialize and learn about the not for profit area or for that matter people who are more senior to change direction or just add to their professionalism this is a great time and the courses are now there.
    
    
15. I should also note that at this time we may need to question how we raise money – black tie balls out – but new ways exist.
    
    Having given some hope in terms of raising monies in the not for profit area even in these bad times  I do want to note three further aspects:-
    
    
1. We have all been aware for so long that the not for profit area has enormous administrative and other requirements placed upon it by regulation etc. This is to say nothing of the fact that there is both Federal and State legislation applying for most not for profits.  Added to this is often the lack of depth in a not for profits administration.  They don’t have the departments that a big public company etc has to get the documents done, worked out etc.  I have advocated for a long time that it may be time to contemplate a charities commission like that in the uk and other places which brings together under one roof the various authorities applying to the not for profit area.  I hope that this may be something that the government now or shortly in the future could contemplate.  I hope also that such an organisation not only is there to enforce what has to be done but also to assist in reducing the commitments for not for profits to something close to what they can achieve and at the same time ensuring that they know what is required of them. 
   
   
2. In hard times often it’s not just the for profit organizations that get into trouble.  Not for profits also do.  I remain very concerned that the insolvency rules under the corporations law which apply to most not for profits may well result in liability for directors and officers of the not for profits.  In particular I note that organizations which incur debts when they are not able to repay them result in their directors being personally liable and indeed criminally liable.  It seems to me for not for profits if not more generally there should be a “safe harbor provision” added to the law which provides these directors with some comfort that if they act properly and without conflict of interest they will not get into too much trouble.  One has to remember that insolvency is a bit like a recession, you are only sure you’re in it when it has already occurred and to have such dire consequences apply to directors of not for profits without some excuse on proper terms seems very unfair.
   
   
3. In all my thinking over time,  I have always put great store on the generosity of spirit and thinking of the Y Generation.  It is that generation that is now being hurt quite considerably by this crisis.  I hope that their principles of social justice and their obvious wish to have a life which does more than just earning money does not get lost in the problems that may befall them now or in the near future.  It is they not my generation who will set the pace going forward and if they lose  some of that difference is one of the most major concerns for the not for profit and socially aware part of our community and will be a problem way beyond the scope of this financial crisis.