Macquarie Foundation Reflects on 25 Years of Philanthropy

The Macquarie Group Foundation is celebrating its 25 anniversary this year and in celebration, Pr Peter Shergold – Macquarie Group Foundation Chair reflects on philanthropy in Australia over the last two decades and makes some predictions for the future.

This year sees the 25th anniversary of the Macquarie Group Foundation. Established to formalise the Group’s engagement in community activities, the Foundation has contributed close to $120m to over 1000 community organisations in Australia and overseas. Such a milestone gives pause for thought. It is worth reflecting on how fundamentally the world of corporate giving has changed over a generation.

At first sight an emphasis on transformation seems a bold call. This has been the quietest of revolutions. Indeed many of the not-for-profit organisations (NFPs) that have benefitted from the Foundation’s support have a long and proud history. The Benevolent Society, Mission Australia, Barnardo’s and the Salvo’s all have their origins in the nineteenth century. They do good still.

Moreover, many of the characteristics of Australian civil society have remained constant. Against many predictions, Australia has continued to be a nation of joiners and givers. Today there are around 600,000 not-for-profit organisations, most entirely dependent on the energy of unpaid enthusiasts. They are driven both by the interests of their members and by a raucous cacophony of community missions. They do things and, on occasion, advocate forcefully for things to be done. Around 85% of Australians join at least one such organisation. Most of us are members of a number.

Whilst Australia’s high net worth individuals are often criticised for their meanness of spirit compared to other countries, the public at large has become increasingly generous. Tax deductible donations in 2007-08 were $2.35b. Even after allowing for inflation that’s at least double the level achieved in 1985. Around a third of Australians now give an average of more than $500 each year.

Actually that’s a significant undercount. It’s been estimated that Australians claim as little as $1 in every $4 donated. Many don’t seek tax reimbursement at all. It’s known that in 2004 87% of adult Australians gave to charity. That was up from 69% in 1997. At times of crisis, such as the Asian tsunami or Victorian bushfires, Australians dig even more deeply into their pockets.

In spite of increased workforce participation and greater time pressures, the level of volunteering also remains strong. Indeed the proportion of Australians who gave their time rose from 24% in 1995 to 34% in 2006. That year they donated 713 million hours of free labour, with a wage equivalent value of $15b.

Yet the framework within which this community activity continues to blossom has altered in profound ways. The relationship of community organisations to beneficiaries, businesses, governments and the public is being rearticulated. These changes are inadequately recognised. Indeed the scale and significance of the social economy is invisible even to those many Australians who are active participants within it. The activities of NFPs now represents 8% GDP and is growing in real terms at around 7.7% annually.

Recent years have seen increased opportunities for Australians to express their charitable selves. Workplace giving schemes, which allow employees to make regular donations from their payroll and claim immediate tax benefits, have spread since they were introduced by the Howard government in 2002. Already some $20m is being raised annually. The potential is enormous. If just 10% of working Australians donated $5.00 each week an additional $260m would be available for the community.

That’s not all that is new. Prescribed Private Funds had their origins in the recommendations of the Prime Minister’s Community Business Partnership in 1999. The legislation allows wealthier families to establish a fund by will or trust instrument. Last year the Rudd government converted them to Private Ancillary Funds, simplifying their structure and improving their transparency and accountability. The family is required to distribute at least 5% of the market value of its PAF assets as gifts each year. The take-up has been impressive. There are now more than 800 Funds which, since 2001, have received donations of over $1.3b. Already they distribute more than $700m each year. They have the potential to transform the level of Australian philanthropy.

In the meantime, a rising share of Not for Profit income comes from governments. This, too, is an area of profound change. Around 25 years ago most community organisations would approach governments for grants to subsidise the activities they undertook in pursuit of their welfare, cultural or environmental goals. Governments, seeing the public interest benefits in the activities, would offer generally short-term assistance.

The move by governments since the 1990s to outsource the delivery of their programs has changed that relationship. NFPs are now increasingly contracted as providers to deliver the governments’ policy objectives. In consequence levels of funding to community organisations have risen substantially but so also has the potential for increased dependence, greater bureaucratic intervention and mission drift.

Around a third of NFP income now comes from governments through service agreements. For social welfare organisations it’s typically twice that proportion. Approaching $26b annually is now paid directly by governments to NFPs to deliver their employment, disability, healthcare, aged support, family and other services. They do the job well. The challenge is to not tie-up community organisations in red-tape and unwittingly constrain the social innovation which is their hallmark.

Equally significant, but perhaps with less potential downside, the relationship between corporate Australia and the community has developed in unexpectedly positive ways. When the Macquarie Group Foundation was established its goal was to give much needed financial assistance to organisations in the arts, education, environment, health and welfare sectors.

Much has changed since then and most of it for the better. Within the evolving language of ‘triple bottom line’ reporting, ‘corporate social responsibility’ and ‘sustainability’, the relationship has moved from one of funders-beneficiaries to partners. Increasingly both sides see value from entering into longer-term collaborations founded not on an ethos of charity but a spirit of social investment.

There is increasing recognition that, beyond the notion of a licence to operate which underpins ethical practice and corporate citizenship in many businesses, financial benefits can accrue from working with the community. Many companies have reported that employee recruitment and morale improve when they engage in community-based activities that are benchmarked and reported upon. That’s not all. In a world in which ethical consumers and socially responsible investors are flexing their muscles, reputational advantage has increasing value.

The challenge, of course, is to be able to measure the beneficial impact that the collaborative activities are having, both on business and on society. Many Australian NFPs have traditionally exhibited a strong commercial ethos and have become increasingly adept at managing their financial and organisational performance. Businesses, which in the past have too often perceived community involvement as ‘a lunch, a launch and a logo’ peripheral to their core interests, are today far more focussed on achieving strategic value from their community commitments.

So where will we be 25 years on? Within a sector that will continue to become larger, I’d expect to see further developments in 3 key areas. This is no tribute to my foresight: the harbingers of change are already evident.

First, I anticipate that the increased capacity and scale of many economically-significant NFPs will see them evolve into true social enterprises. They will retain the vision that inspires their members, donors and volunteers but increasingly couch their benefits in terms of a blend of social and financial value. Already around 20,000 Australian community organisations trade to fulfil their public mission, reinvesting their surplus income (their ‘profit’) into improving their organisational capacity and scaling-up their activities.

Second, I expect to see new investment vehicles emerge to raise funds which will complement the donations of philanthropists. A contemporary challenge, which will be overcome in the near future, is building and accessing a capital market for social impact. Investors need to be able to make low-interest loans to or acquire equity in social businesses. The early signals are encouraging. The Commonwealth has recently announced a Social Enterprise Development Investment Fund and the WA government has budgeted for a Community Development Investment Fund. Both are intended to harness loan capital for community benefit.

The initiatives are intended to corral social impact investment from those who seek not only a modest financial return but an opportunity to do good. This is the bold business model underpinning GoodStart, which has emerged to manage around 600 of the ex-ABC Learning childcare centres. It’s dependent not on government grants and philanthropy but loans which offer lower than market returns. That’s just the beginning. Expect to hear in the near future of new vehicles such as social impact bonds or a social stock exchange.

Third, and in some ways most influential, the measurement of social and environmental impact will increasingly be incorporated into government measures of national well-being. The social costs (of externalities) and benefits (of community activity) will long before 2035 be fully integrated into measures of Australian economic income and growth. The extraordinary value of community engagement will be accounted for in our national statistics. The social economy, and the contribution which it makes to community well-being and civic engagement, will at long last be properly accounted.

Peter Shergold is the Macquarie Group Foundation Professor at the Centre for Social Impact.