Should companies be charitable?
Yesterday, global pharmaceutical group GlaxoSmithKline announced that, over the next five years, it is to donate £1 million to a single charity.
Help for Help for Heroes
The lucky recipient is Help for Heroes, a charity launched in October 2007 to help wounded HM Armed Forces personnel returning from the conflicts in Afghanistan and Iraq.
Many servicemen and women suffer severe injuries through combat or accidents. They often require specialist, intensive care that isn't easily available via the National Health Service.
Hence, in just four years, Help for Heroes has raised more than £120 million to care for wounded members of the Armed Forces.
Personally, I was delighted to hear this news, because Help for Heroes is the charity to which I donate most generously. I come from a military family and my father, who retired from the British Army last year after 42 years of service, was himself severely injured while serving in Cyprus in the late Sixties. Hence, I strongly believe that those who serve also deserve.
Help from the taxman
On the other hand, as a GSK shareholder, I can ask whether it is right and proper for GSK to spend £1 million of its owners' profits on a charitable donation. After all, if the directors and officers of a company want to support a good cause, then they can do so from their own generous pay packages.
However, GSK shareholders won't lose a million because of this act of generosity. That's because company donations to registered charities (and political parties) can be offset against tax.
As the main rate of Corporation Tax in the 2011/12 tax year is 26%, £260,000 of this donation effectively comes from HM Revenue & Customs. Thus, GSK shareholders lose only £740,000, while Help for Heroes (H4H) gains £1 million.
Good for GSK
What's more, I firmly believe this gift will benefit GSK's workforce as well as injured combatants. The pharma giant (market value: £67 billion) is to build a partnership with H4H by creating a specialist 'Phoenix Wellness Centre' at Tedworth House, a Personnel Recovery and Assessment Centre located in Wiltshire.
When the Centre opens next summer, it will deliver health, sport and exercise programmes to more than a thousand servicemen and women each year. In addition, GSK will provide free support through its expert know-how and expertise, plus GSK employees can extend their existing volunteering arrangements to include the Centre.
Announcing this news, Andrew Witty, GSK's chief executive, said:
"This new partnership with Help for Heroes will make state-of-the-art rehabilitation facilities available to wounded servicemen and women who deserve our support. GSK is committed to playing its part in helping to improve the health and well-being of communities and we look forward to seeing the completion of the Wellness Centre and to sharing our expertise with Help for Heroes through a long-term partnership."
Personally, I am utterly opposed to companies making political donations and blagging tax relief on these sums. I regard such behaviour as fundamentally undemocratic and would argue that company founders and directors should make political gifts from their own pockets and not from shareholders' funds!
On the other hand, I enthusiastically welcome charitable donations from companies, which are very much part of the CSR (corporate social responsibility) movement that has been gaining ground since the Nineties. However, I feel that good causes are best chosen by workforces as a whole, in order to prevent any whiff of fraud or corporate glad-handing to a CEO's favourite charity.
Of course, many corporations, especially smaller companies, don't donate any money to charities or political parties. However, corporate philanthropy is very much on the menu among members of the FTSE 100, the UK's blue-chip elite.
For example, in 2010, GSK gave a total of £5.4 million to charities, focusing on the fields of health, medical research and education. In addition, its staff donated many thousands of hours of time volunteering for local causes.
Other corporate behemoths, such as Royal Dutch Shell, have created their own charitable foundations to support and fund good causes. In 2010, the Shell Foundation had an income close to £17 million and total funds of £277 million.
In summary, shareholders should not begrudge the charitable gifts made on their behalf by boards of directors. After all, when set against hefty pre-tax profits in the billions, these donations are a small price to pay for a better, fairer world!