I have a couple of follow on thoughts from yesterday’s post on large companies being pressured to donate to charity.
Firstly, I was probably a bit flippant in describing the target donation rate as 0%. If charitable donations are what the shareholders want, so be it. However, the shareholders should make that choice, not external pressure groups. Further, the majority of shareholders should not make that choice for the others. If they want donations made, it should be from their share of the profit. This takes us to the simplest solution of giving the money to the shareholders to let them do with it at they see fit.
My second thought is about the level of funding that will go to these charities. If the company does not pay the 1% of profits to charity, the shareholders are unlikely to give all of their 1% larger dividend to charity. On a direct basis, donations to charity are likely to go down. But what of the indirect effects? Do corporate donations crowd out individual philanthropy? I suppose that is an empirical question, but I would expect that there would be some crowding out.
Perth’s Channel 7 runs a charity drive called Telethon each year which raises money for Princess Margaret Hospital for Children. The drive consists of 24 hours of entertainment during which people phone in to pledge cash support. This year the drive opened with Prime Minister Julia Gillard donating $1.5 million on behalf of the Federal Government (several layers of irony there). That donation was quickly followed by a series of companies with their cheques (very cheap advertising time for them). That start certainly reduced the incentive for me to pick up the phone to give $10 or $20.
Also on the crowding out theme, this afternoon I listened to a podcast in which Steven Johnson, author of Where Good Ideas Come From, mentioned Kickstart, an organisation that links entrepreneurs with capital. While the focus of these types of organisations is typically poverty alleviation, Johnson used the example of a band needing funding to, say, record an album. He commented that this was a different dynamic to the artist seeking government grants. It would be disappointing to crowd out these types of innovative approaches to entrepreneurship.