Charities hit by corporate stinginess

Big business blames the recession for the slump in donations. Richard Northedge reports

Charity used to be voluntary but the Government – which has designated 2011 as the "year of corporate giving" – is pushing business to make donations.

Companies, however, are cutting back on their philanthropy and resisting ministerial pressure.

A request from the Cabinet Office minister, Francis Maude, for the advertising industry to donate its skills and media space to publicise government projects as part of the Big Society has been rejected by agencies and publishers. And high-street banks are baulking at Treasury demands that they contribute £1.5bn to a Big Society Bank – on top of the levy on their profits and the Government's raid on customers' dormant accounts.

Rather than compensate for the cuts in public services, companies are reducing their charitable giving. Corporate donations are estimated to have fallen by a fifth since the start of the financial crisis. The future looks bleak, even though the Government is targeting business to increase charitable budgets, especially for the arts.

The Government intends to publish a Green Paper on corporate giving this year. The Culture Secretary, Jeremy Hunt, who plans a series of initiatives aimed at companies, says: "There is huge scope to strengthen private and corporate support for culture over the next few years."

But Art & Business, an organisation promoting corporate giving, says corporate donations fell by 14 per cent last year – the third consecutive year of declining contributions. Gifts from other sources failed to compensate for companies' cutbacks, making last year only the second time since 1976 that arts donations have fallen.

Colin Tweedy, the chief executive of Art & Business, says: "Corporate money is a discretionary spend, particularly in hard times. As a result, business investment is now lower than it was in 2003-04."

ARK, the children's charity founded by hedge fund manager Arpad Busson, husband of Uma Thurman, has seen the sums from its annual fundraising event diminish since the crash. Last year's gala dinner raised an impressive £14m, but that was down from the previous year's figure and almost half the 2008 total.

The belt-tightening extends to both financial firms and manufacturers. Last month, Goldman Sachs revealed a reduction in the bank's charitable giving from $500m to $320m. Johnson & Johnson, after four years of falling donations, gave $339m in 2010 – 3.7 per cent of its profits compared with 4.3 per cent in 2005. "Our contributions budget is estimated well before the start of each fiscal year," the company says. "Our giving as a percentage of year-end, pre-tax income thus varies from as fluctuations in income become apparent."

US firms are more generous than their British counterparts. The average FTSE 100 donation is less than 0.2 per cent of profits: many US companies donate 5 per cent. Berkshire Hathaway's chief, Warren Buffett, is giving $31bn to the $33bn foundation set up by Microsoft founder Bill Gates. It was the example set by Goldman Sachs, led by Lloyd Blankfein, that inspired the actor Paul Newman to give away the profits of his food group.

Wall Street bankers are expected to donate part of their bonuses each year: some British bank chiefs reluctantly agreed to hand bonuses to charity last year, but only after threats by the Government to curtail payments.

Vodafone, the £93bn mobile phone group, runs the world's largest network of charitable foundations – 27 bodies in countries where it operates – but it cut its support sharply last year, reducing payments to its charities from £24m to £18m. Its foundation had to dip into reserves to meet expenditure that reached £26.7m. Andrew Dunnett, a director of the Vodafone Foundation, says: "Sadly, we are unable to support with funding all the requests which we receive – estimated at over 12,000 in the last year alone."

Companies donate to charities for different reasons. Some want to repair poor public images; some see it like sponsorship or similar marketing activity; others believe it pleases staff while for others, donations are an extension of the corporate social-responsibility programme.

Most refer to "investment" rather than "donations" or "gifts". Goldman Sachs takes a businesslike attitude to its charity, carefully choosing targets that focus on economic growth and rigorously measuring the results. "Growth creates jobs, opportunity and innovation," says the bank. "That is why extending economic growth and opportunity is a focus of some of our largest philanthropic investments."

But some shareholders argue that, like political donations, charitable giving is no longer best practice. Companies should pay a return to investors and leave them to decide how much to donate and to whom. Some shareholders, critics note, are needy widows or orphans who are more likely to be recipients of charity than donors. Others are themselves charities and would rather receive income that they can apply to their own objectives rather than give to a charity chosen by the directors.

The Association of British Insurers, a guardian of good governance, has no policy on charitable giving. Sir Victor Blank, the chairman of Lloyds until last year, argues that companies should give much more than they do and that business has a role in building a better and more equal society.

The recession has made companies rethink their charitable policies, however. Stephen Howard, the chief executive of Business in the Community, admits: "We cannot escape the fact that we are in challenging and uncertain times."

More companies are giving in kind rather than cash. Many City lawyers provide pro bono legal services to charities, and Johnson & Johnson combined $127m in payments to charities with $462m worth of its products – 73 per cent of that to needy patients in the US. Vodafone provides mobiles in disaster areas, and mobilises its customer base to donate too: the £4.7m raised by clients making gifts over their phones for Haiti last year dwarfed the £300,000 given by the company.

Dunnett says: "Corporate philanthropy is changing, and so is Vodafone's network of foundations, innovating to make the greatest impact from the funds in which it invests."

The phone company is one of many that helps its own staff to contribute. The Charities Aid Foundation estimates that 500,000 employees at 3,000 British companies gave £81m through give-as-you-earn schemes last year. Many companies match their workers' contributions. Vodafone, for instance, matches funding of up to £350 per employee for each fundraising event on up to five occasions a year.

But, again, US companies are more generous. Johnson & Johnson "double matches" staff contributions of up to $10,000 and also matches payments made by its pensioners. Goldman Sachs matches employees' contributions up to $20,000 a year.

America is also more generous in tax relief – the Bill and Melinda Gates Foundation qualified to pay tax at just 1 per cent – but British company donations can be offset against corporation tax or, for the self-employed, income tax.

Individuals can take advantage of the Gift Aid scheme but figures from the Charities Aid Foundation show private giving has been hit by the economic squeeze too. Donations fell by £400m last year to £10.6bn and are still below the £11.3bn given before the financial crisis in 2007.

Sir Stuart Etherington, the chief executive of the National Council of Voluntary Organisations, says even that reduced figure shows the British public is still prepared to dig deeply. "However, this is no time for complacency," he says. "Departmental spending cuts could amount to a significant shortfall in the sector's earned income, meaning charitable giving becomes more vital than ever to fill potential gaps in funding."

Tweedy predicts that the arts sector will be squeezed from both sides, with business donations falling as government cuts bite. "This is the biggest global recession since the 1920s and it was inevitable that arts income would go down," he says. "Two years ago we predicted 2011 and 2012 would be the worst years and levels of income would not increase until 2013. Trusts and foundations have held up well because they are professional givers, but individual and corporate giving is inevitably down."