PART TWO OF A TWO PART SERIES
The City of London’s financial services industry has suffered severe collateral damage from the banking crisis and the dramas that have unfolded since. Accusations of ‘fat cat’ ‘casino’ bankers earning sky scraper salaries and pocketing bumper bonuses while the nation picks up the tab has seen the City’s stock tumble in the eyes of the public and the press.
Yet, there is a flip side: there is a sizeable City constituency passionately committed to addressing social and economic need and supporting the nation’s cultural heritage. It does so through corporate philanthropy, volunteering, payroll giving and major donations of money, shares, professional skills and talents.
However, talking about City-based philanthropy is comparable to Dracula announcing he donates blood – it’s met with cynicism, derision and outrage. Head of community affairs for Europe, Middle East and Africa at Swiss Bank UBS, Nick Wright, explains.
“The prevailing view of the financial sector is hardly positive. In the bigger and wider conversation about bankers and the financial services, and the news that fills the major sections of newspapers on a daily basis, the message about what the City does in terms of corporate social responsibility (CSR) and philanthropically gets drowned out.” Yet this is the man in charge of the Swiss Bank’s vibrant and creative programme of community schemes that focus on enterprise and education in Hackney and enjoy a 25% take up by the firm’s employees. Its pay roll giving scheme introduced in 1995 matches giving up to £1200 per employee a year: “But in the public’s eyes it’s never enough – you can’t win the argument and that’s why the City tends not to talk about what it does,” says Wright.
Carolyn Housman, of Heart of the City , an organisation that supports hundreds of City businesses in developing CSR strategies of which philanthropy is a part, agrees that the public perception of bankers and their ilk makes it difficult to talk about the good work being done both individually and corporately. “Though there is much philanthropic activity in the City, firms feel the public will not be receptive to the message. The public only views the figure given away as a percentage of pre-tax profit and it may not look huge compared to those sums – but it is not as simple as that,” she says.
The public fury directed at the financial services sector in recent months has led to a questioning of the very notion of capitalism and the role the City and its high earners should play in creating a more equitable and sustainable society. It has left us all asking what is fair when it comes to pay differentials?
City professionals themselves believe that City bond traders and stock brokers are paid too much, teachers are paid too little and there is too great a gap between rich and poor in the UK, according to a 2011 survey carried out by ComRes on behalf of St Paul’s Institute, that exists to engage the financial world with questions of morality and ethics.
To give some scale to that inequity, in the UK, the money earned by the poorest 10th fell by 12% between 1999 and 2009, while the money made by the richest 10th rose by 37%. The Gini coefficient, which measures income inequality with 0 representing perfect equality, climbed in this country from 26 in 1979 to 40 in 2009.
Compare that with the figures on philanthropy: only 56% of British adults currently give to charity in an average month and people earning over £200,000 per year give, on average, £2 to charity for every £1,000 that they earn; 4% of the British workforce participates in a payroll giving scheme and less than 1% of UK employers operate an active scheme. And we know that poorer people give considerably more as a proportion of their income than the wealthy do.
The conclusion is the City, where much of the UK’s wealth is concentrated, could do more.
As Give and Let Give, a key 2007 report from the Policy Exchange concludes: “Giving, in terms of personal time, skills and money, are not commensurate with individual wealth creation in the City over the past 15 years.”
It is impossible to put figures on the City’s philanthropic contribution owing to a lack of coherent data, the difficulty of attributing giving by global firms to one geographical area and the preferred anonymity of many donors. However, a 2010 report published by the City of London Corporation calculates that in 2009 FPBS (finance and professional business services) firms are estimated to have made community investments in UK-based projects worth £519m, delivering roughly £820m of economic and social impacts, and £1.58 worth of impacts for every £1 donated.
Through the ages the City has committed billions of pounds worth of philanthropy to addressing the causes on its doorstep, nationally and internationally. The City’s rich tradition of corporate and individual giving goes back centuries to the Livery Companies of the early middle ages, who in the last 15 years is estimated to have contributed £1bn alone. It continues through the hey-day of Victorian philanthropy fuelled by the new wealth of the Industrial Revolution, to the strategic corporate and individual philanthropy of today.
The 800-year old City Bridge Trust, whose funds were built from the donations to and income from the Old London Bridge and whose sole trustee is the City of London Corporation, grants more than £15m a year to causes across Greater London.
While the criticism levelled at the rampant ‘greed is good’ mentality that exists in parts of the City is understandable, philanthropy and community service is very much part of the same City – more importantly, there is an opportunity to extend it.
There is a growing acceptance that acting in the interests of the wider community is important for a well- functioning society; but perhaps more motivating for corporations is the realisation that it can pay measurable dividends to businesses themselves.
The business case for corporate philanthropy
The driving force behind corporate philanthropy today is less about altruism and more about the bottom line; enlightened businesses have rediscovered the 19th Century Quaker belief that being socially responsible makes good business sense.
Former Lord Mayor of the City of London Nick Anstee is one of many extolling the benefits of corporate giving: “The mark of a successful city is not only its economic prosperity, but also its social contribution; this should be a fundamental part of the calculation of a city’s success. Although the climate for business is tough, giving staff time to get involved in corporate community involvement is clearly a good investment – it pays dividends for the community, for staff and organisations alike.”
Companies are increasingly recognising the value of strategically aligning their corporate community programmes with their business goals. Large companies are focusing more on in-kind donations, which fit their own business objectives, according to a report by Deloitte, the business advisory firm. The report says factors being taken into account include the need to improve employee retention, attracting new markets and enhancing reputation.
Nick Wright, of UBS, knows first-hand the benefits such schemes deliver to a company and also to employees. “CSR is a key factor in recruitment and retention. For today’s graduates it can be the deal breaker when considering companies offering roughly the same packages, as the banking sector does.”
UBS has also identified that volunteering may deliver tangible career benefits, says Wright. By comparing the career performance of 250 of its volunteers against non-volunteers “we found that volunteers significantly out-performed against non-volunteers. Though we can’t say there was a causal link it is likely that those who volunteered had developed the soft skills such as teambuilding, listening, leadership and being more collaborative, that made them better management material ” he explains.
Perhaps more important than employees’ desires or the realisation that companies benefit from philanthropy, is the demand from customers for corporates to act in the interest of society, particularly in the aftermath of the banking crisis. Former chairman of Lloyds Bank, Victor Blank, wrote in a Telegraph article calling for a new philanthropy for the 21st Century: “Businesses have a strong incentive to get involved, not just because of altruism or to rehabilitate themselves after the crunch, but because customers are demanding responsible corporate citizenship.
“Programmes of employee engagement, where companies make time available for their employees, combined with enhanced philanthropic giving, can make massive improvements to society and, ultimately, benefit the bottom line also. As companies look to their future in a post-credit crunch era, perhaps it is time to rewrite the old proverb and adopt the motto that Charity Begins at Work,” says Blank.
Sir Ronald Cohen, the father of private equity investment and more recently social investment in the UK and one of the UK’s most politically-connected financiers, goes further. He says ‘giving back’ to society is more than a business benefit; rather it is a crucial component of capitalism. He makes the point in the Give and Let Give report, that took a forensic look at how the financial services industry could become more philanthropic:
“ … many City people do not today realise early enough the need to put something back if the system is to operate smoothly”.
Cohen’s comments at the time were controversial, but turned out to be prophetic. He feared that a widening gap between rich and poor, especially in the same neighbourhoods, would lead to social tension: “People haven’t quite understood that the system that enables entrepreneurial societies to thrive leads to social consequences that the market does not take care of. It’s great to talk of the economy’s growth, but you do have to worry about what’s happening at the extremes. The divergence of the rich and the poor creates an unstable situation. And I am interested in avoiding a situation where people get so far left behind that they are desperate, they don’t mind overturning the applecart.”
Last summer, that applecart was over-turned as anti-capitalist demonstrators took to the streets and looted many city-centre shops while others took up residence outside St Paul’s. It has led businesses to accept they have an important role to play in creating a more equitable society.
Individual giving needs corporate leadership
The Give and Let Give report consistently makes the important link between corporate and individual giving, highlighting the leadership role companies can play in directing a cultural change among employees.
“Many companies fill the role of second home and second family for many financial sector professionals given the long working hours, and have a critical role to play. They can connect staff with causes or raise the profile of philanthropic role models, and they can provide access to infrastructure to make it easier to give,” it says.
It urges companies to use their existing internal frameworks to build up social responsibility among staff and encourage employees at all levels to engage in philanthropy. It suggests ‘seeing is believing’ experiences at an early stage, and mentoring or giving infrastructure at later stage and matched giving schemes.
Michael Hintze, former Goldman Sachs banker and a major philanthropist, says: “I have always given money, all the way through. Now the money being given is a lot more spectacular, but it is the give early, give often approach that is important.
“However, companies should provide opportunities for inspiration and access to infrastructure at all career stages, so that potential philanthropists already near the top of their career who were not encouraged early can catch up fast and act as leaders in defining the long-term philanthropy culture,” he says.
As a City executive says in the Give and Let Give report: “Within the culture of the companies, it should be emphasised that someone who makes a commitment to spend some time on charitable work will not jeopardise their career; in fact they will become a more rounded person, they will engage more in their community and they’ll be an ambassador for their company. I think there should be more encouragement and support broadly to do that.”
Why bankers make good philanthropists
The Give and Let Give research findings provide case studies to act as motivational tools and inform recommendations on how to build a culture of philanthropy “that inspires financial sector industry individuals to stretch their means and their minds for philanthropy.”
The studies give fascinating insight into the individual giving by many of the ‘Citerati’ – Man Group’s Stanley Fink; ex-investment banker and outgoing CEO of Marie Curie Cancer Care Thomas Hughes-Hallett; SVG Capital’s chairman Nick Ferguson; Nicola Horlick, founder of Bramdean Asset Management, and Goldman Sachs’ Jim O’Neil reveal the joy they have had in applying their business minds and skills to philanthropy to make a difference.
Some have been inspired to set up innovative organisations that use their skills to maximise the creation or distribution of philanthropic wealth. The alignment between the skills needed to succeed in philanthropy and in finance is one of the main reasons the City is targeted by the report.
The Give and Let Give report’s authors say: “Philanthropy is another form of finance – with the added complexity of social values. The skills of today’s financiers and entrepreneurs are vital to the development of a philanthropic capital market.
“Philanthropy, including social investment, requires the infrastructure and expertise seen in other financial markets if it is to develop into a financing sector in its own right and FSI professionals possess the social and financial capital to drive that development.”
Indeed the report urges City professionals and other business leaders to view philanthropy much like a career, “but with no retirement date, and to aspire to be leaders in the development of a British philanthropic capital market”.
It suggests: “Although different to a professional career, it can be considered in a similar light – an individual is motivated to start on a journey and builds up to a crescendo depending on career development, age and wealth creation.”
Sir Peter Lampl, who made his wealth in private equity before founding The Sutton Trust to improve the educational opportunities of young people from non-privileged backgrounds, learned from his time in the US how giving even affected career advancement: “I had a slightly British attitude to giving at that time and said ‘Why should I give money away?’ but it became fairly apparent that if you didn’t you would stand out, and that might affect your career prospects quite frankly, so everyone did it.
“While advancing your prospects for promotion might not be the purest motive for philanthropy, it does at least provide a powerful incentive to start the habit of giving in the early stages of a career – the more so if a company introduces its professionals to a particular cause at the same time. The latter is critical for motivation and financial services professionals need compelling stories about philanthropy in order to be encouraged to give and to give more. The industry needs to see philanthropy work successfully in the lives of those it respects professionally.”
Actions towards a more philanthropic City
Give and Let Give draws many conclusions in embedding a culture of giving in the City.
Among them it says ‘white label’ charitable accounts fed through payroll giving accounts would offer a major boost to levels of giving. It is a recommendation that was picked up by the independent 2010-11 Philanthropy Review, convened by ex-City banker and philanthropist Tom Hughes-Hallett to take a fresh look at supporting society through better giving.
In its study, Charity Bank Accounts: The Opportunity for UK Retail Banks, it found that over one fifth of donors and 18% of affluent and High Net Worth Individuals (HNWI) would open a charity bank account. Over half said they would increase the amount they give to charity. A similar idea in the USA has proved successful. Schwab Charitable, one of the largest providers of charity accounts, saw a 23% increase in donations to charities in the last financial year.
Over 150,000 tax-effective charity accounts already exist in the UK with specialist providers, such as C. Hoare and Co, Coutts and Co. and the Charities Aid Foundation. Through them £190m is given to charity each year, which while sizeable may temper expectations of a revolution in giving if more high street banks were able to offer such charity accounts.
Most recently the movement to encourage more philanthropy among HNWIs has been boosted by the City itself as it responds to the growing and very public outrage at the inequities in society which has spilled onto the streets in its own neighbourhood.
There are indications of a new mood in the City and a number of recent actions that suggest how it might act differently in the future. Recently Ken Costa, the former chairman of Lazards International, has been charged by the Church of England with reconnecting “the financial with the ethical”. In this role he has demanded that the City rediscover its ‘moral compass’.
At the same time Barclay’s chief executive Bob Diamond, one of the highest paid bankers in the City, has called time on the ‘greed is good’ culture with hardball action: he has introduced what he calls 'the no-jerk rule' and has encouraged at least 40 executives at his firm to find jobs elsewhere after “behaving like jerks” or spending lavish amounts of money at a time when much of the rest of the country is struggling.
These and other top down actions (such as the political rejection of bonusses) may not result in more philanthropy per se, but they establish a new context, indicate a new mood and show the City’s leaders are challenging old ideals. New concepts such as ‘caring capitalism’ and ‘ethical banking’ are being discussed in the City among even the most hard-nosed Friedman followers.
And when coupled with the ‘bottom-up’ actions now in train, there are grounds for tentative optimism that philanthropy may take hold again.
City philanthropy’s next generation
A new generation of City workers fresh from university have shown they are not prepared to wait for a slow evolution and are getting on with creating the kind of City in which they want to work.
The recent launch of two organisations is pointing to a new appetite for ethics, social responsibility and philanthropy among the next generation of bankers and financiers.
Last November, the Young Philanthropy Syndicate launched with the aim of encouraging young professionals into philanthropy with the support of an experienced philanthropist or business leader.
In the same month, a group of Oxford University students started the 80,000 Hours campaign (referencing the average amount of hours we work in a life time) to encourage young people to give 10% of their time or money to good causes during the length of their working careers.
The campaign also encourages young people to choose high impact ethical careers that will enhance their ability to further good causes. Founder Will Crouch, a DPhil student in ethics, suggests controversially that becoming a high-earning banker with a social conscience is more impactful than being a poorly paid aid worker: “Everyone knows that when you go into a high-earning career you can earn absurdly large amounts of money. An average banker might earn about £6m over a 30-year career.
“When we see that number we get just as angry about bankers’ bonuses as anyone else, but we also see an opportunity. Say you decided to donate about half of that. You’d still be immensely well-off. But you would also be giving a lot: enough to employ several doctors in the developing world, or even to set up a charity to do almost anything you like!”
It’s not a view that has been wholly accepted but it is one that challenges the status quo.
Another group of young City highfliers are also hard at work re-imagining a City of which they can be proud. TheCityUK, an independent membership body that promotes the FSI at home and abroad, has convened a committee of 20 people from retail and wholesale banking, insurance, asset management, business schools, and from the professional services to define the sector they want in place when their time comes to lead it – to create their vision of what the sector can be in 10 to 15 years. The Next Generation Vision’s (NGV) aim is ‘to be a part of society not apart from society’.
Among the themes it will consider is how philanthropy could play a part in the early careers of City workers.
With this kind of push from the next generation, the show of leadership from City elders and a strong political and economic wind behind them, it’s just possible the scene is set for the Square Mile to return to its roots as a philanthropy powerhouse – not as a ‘white-washing’ exercise but because it makes real sense for those companies promoting it and those individuals partaking in it.
As former Lloyds chairman Victor Blank said in a recent article:“Philanthropy on its own will not – and should not – restore the damage to the reputation of banks or rebuild their moral capital: the scale of that task should not be under-estimated. But, along with commitment to best business values, it has a part to play for companies wanting to regain the trust and respect of communities in which they operate.”