Monday, February 11, 2013

Philanthropy, pride and precedent.

Will Patrice Motsepe’s magnificent gesture make much difference to class conflict?

classic old world aphorism says “a favour is not a favour if you tell the whole world about it”.

This may contribute to the mild cynicism that some have displayed to billionaire Patrice Motsepe’s decision to donate half of his family’s fortune to charity. I’m not one of those cynics, but he did not do the decision much good by saying that it was inspired by the Gates/Buffett Giving pledge. Does one need inspiration to be charitable when one is surrounded by poverty?

Also, there is something demeaning to philanthropy itself when it becomes something of a competition, an adolescent “mine is bigger than yours” school yard rivalry; and when less overt or smaller donations by the much less affluent may be seen to be less significant. It has a similar unpalatability to the rivalry that is a critical flaw in executive pay itself.

But this may be unworthy nit-picking on my part. The two key questions that are raised are whether Motsepe’s gift will set a precedent, and whether it will enhance trust in business and its leaders as a whole.

Regarding the first question, Motsepe has indeed set a splendid example that will most likely be a fillip to South African philanthropy, setting off a kind of billionaire telethon. But it is highly unlikely to affect even in a small measure the critical distrust the public has of business and its leaders. After all, grand philanthropic gestures like the billionaires’ Giving Pledge have been in the headlines for some years now, and the strategic value of overt corporate social responsibility has been recognised for even longer. Yet, trust in business and business leaders remains in crisis.

And that crisis can be quite easily explained: it’s not what the rich and corporate business do with their money, but how they made it in the first place. The real value of generosity in economics is about giving the best of oneself and of looking beyond immediate self-gain. That is the essence of risk and entrepreneurship.

In a parting shot shortly before his death some six years ago, Nobel Prize winning economist, Milton Friedman, reiterated his view that “there could be no greater threat to free enterprise than the concept of a business social conscience”.

This was a return to his essay in the New York times in 1970 when he argued that “There is one and only one social responsibility of business–to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.”

He went on to accuse those propagating the view that business was not concerned merely with profit but also with promoting desirable social ends of “preach­ing pure and unadulterated socialism. Busi­nessmen who talk this way are unwitting pup­pets of the intellectual forces that have been undermining the basis of a free society these past decades.”

Friedman is best known for his unshakeable faith in free and unregulated markets, something evidently shared by his friend and admirer, Alan Greenspan, whose failure as Federal Reserve Board chairman in clamping down on activities in the financial markets is now widely recognised as having been the main cause of the bubble bursting in 2007. He confessed as much when he told the American congress in October 2008 that his view of the world was wrong. "I made a mistake in presuming that the self-interests of organisations, specifically banks and others were such that they were best capable of protecting their own shareholders and their equity in the firms," he said.

To give Friedman his due, he actually opposed what he saw as Greenspan’s lack of monetary discipline. But then, in an ironic twist shortly before his death he praised Greenspan’s ability “to achieve price stability without committing to a strict money rule”.

As someone who championed shareholder supremacy and who had a somewhat accommodating stance towards greed, Friedman undoubtedly played a huge role in in the growth of the shareholder-value phenomenon. His disdain for business social responsibility is based on two key assumptions – that the pursuit of profit automatically guarantees a social good; and that the “rules of the game” should be immune to social pressures as long as they are competitive and “without deception or fraud”.

His attitude towards greed does not differ much from the rather cynical generally held view “that it is part of human nature” and dangerous only beyond a degree. It’s a highly debatable assumption, and one which is more frequently and dogmatically proposed by economists than psychologists. I’ve always been somewhat bemused by those who attribute to Adam Smith the defence of greed to any degree as a necessary evil in economic wellbeing. Smith scholars deny this vehemently and cite his discourses on ethics as outlined in his key work “The Theory of Moral Sentiments.”

Even then, the last few decades have seen the creation of a vastly increased number of opportunities for unbridled greed to flourish, encouraging not only wider income disparities but also public indignation. We can then expect pressure for a change in the “rules of the game”.

Whether we approve or not, the world has no doubt moved on from Friedman’s restricted view on the purpose of business and there is a far greater acceptance that corporate social responsibility is not a threat to profit, but rather part of its pursuit – which of course makes it a bit hypocritical.

Perhaps more acceptable is the proposition that “there is one and only one social responsibility of business–to use its resources and engage in activities designed to serve its market.” Then, indeed, the corporate social responsibility manual could be rewritten. Then the most valid and more difficult question to answer is whether business should not return money available for corporate social investment to the customers who paid for it in the first place. In turn, philanthropy and compassionate individuals could become the source of CSR funding.

Today CSR implies a lot more than supporting some or other charity or social cause. The new business strategic discipline of sustainability has a substantial environmental element which to a large degree is non-negotiable. Non-compliance will inevitably lead to legal enforcement. Societies will change the rules of Friedman’s game.

Philanthropy and non-government or non-profit organisations are undoubtedly the most admirable institutions of a modern, compassionate society. But corporate social responsibility will have its critics whose points are not always without validity. It is a rather muddy field with fine dividing lines between marketing, advertising, spin, promotion, public relations, charity, executive pet projects and touches of cronyism. Companies pay tax of about R150bn a year, or more than 20% of the government’s total revenue and they can rightly question whether they should still be spending money on activities which the government should be doing.

The simple certainty is that any beneficiary of a business activity: shareholders, employees, government, and recipients of CSR benefits cannot count on those benefits without business serving customers and without the latter paying for them.

When it fails to do that well, all CSR efforts become counterproductive. The best recent example we have is how this 2011 statement by Barclays Chairman Marcus Agius sounds today: “Barclays has always taken its role in society seriously and believes that being a valued, respected and trusted citizen is vital in creating sustainable shareholder value. That ethos has been part of our corporate values since the bank was founded over 300 years ago.”

CSR will automatically have a loud ring of hypocrisy if not utter futility, if the customer experience is a poor one.

And as long as the amassing of fortunes is broadly seen to be unfair, relatively exclusive and exploitive, philanthropy will also have a hollow if not hypocritical ring to it.

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