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Local and National Community
Cities, states, and national governments invest substantially in public goods that support corporations in their daily business, including basic infrastructure such as roads, ports, airports, railways, water, and sewage systems, as well as legal systems, an educated workforce, a national defense, local security, a financial system, public health services, and social security for the retired, unemployed, and disabled. Governments also frequently provide business with subsidies or markets protected from foreign competition. In doing so, local and national communities place substantial investments at risk in support of industry, in the belief that a healthy and productive business community is good for society.
We believe that when companies treat their local and national communities fairly in return, they are making an investment in their own well-being by enriching the communities upon which they depend for financial success. Creative and generous philanthropy, open dialogue and ongoing partnerships with community-based organizations, honest and transparent relations with government, and paying a fair share of taxes are among the ways companies can reinvest in their communities, strengthening the base from which they operate. Conversely, corporations that harm their communities or benefit disproportionately or inappropriately from them will ultimately undermine their own long-term self-interest.
The following are the five major themes we use to assess the strength of corporations’ relationships with their local and national community partners:
- Generous and Innovative Philanthropy
- Community Partnerships and Trust
- Protection of Community and Public Goods
- Fair Tax Dealings
- Government Relations
While other issues are also important in this regard, these five are those which we believe we can most meaningfully and consistently assess.
Traditionally, corporations have used philanthropy to give back to the local communities in which they operate. Too many of these programs, however, are little more than public relations campaigns seeking to protect a company’s good name at minimal cost. With corporate giving programs averaging less than 1% of pretax profits and many corporate initiatives focusing only on high-profile giving to well-established sports, academic, or cultural programs, most companies fail to identify those causes that foster much-needed economic self-sufficiency among recipients and fail to devote sufficient resources to solving communities’ greatest challenges.
We look for companies that target their giving creatively, particularly those that assess the actual needs of their communities and, drawing on their own greatest strengths, work toward empowering local communities. Endowing a corporate foundation, which companies can do with their own stock, or giving generously from pretax earnings, demonstrates a willingness to allocate serious resources to enriching the more intangible aspects of the communities in which companies operate. Corporations should seek to use their philanthropy to fill the most important gaps left by local or national governments in developing a self-sufficient community. These efforts demonstrate an understanding of the importance of the company’s investments in the spirit, as well as the economy, of the regions in which it operates.
Communities and corporations often find themselves at odds over basic issues such as the siting of a new plant or store, the effects of their pollution on the economically disadvantaged, their policies on layoffs or plant closings, or their use or abuse of local resources. Corporations rarely seek proactive involvement in collaborative partnerships with groups that understand and give voice to the basic concerns of those in the communities in which they are operating. True partnerships require considerable investments in time and a willingness to communicate openly — on both sides. The reward from such hard work, however, is a mutual understanding and trust that can help reduce litigation, avoid plant sitting disputes, and generally keep problems from escalating into major controversies.
We look for companies that are willing to listen to their communities’ opinions and act collaboratively to reach mutual understanding.These partnerships can address complicated environmental and natural resource challenges, difficult issues of health and safety, matters of adequate housing or improved education, job training for the economically disadvantaged, or the legacy of racial or gender discrimination. We believe that such partnerships not only strengthen the community base on which corporations build, but establish a trust between corporations and society that benefits both parties in long-term and intangible ways.
The wave of privatization and deregulation that has swept over the world as part of the globalization of national economies since the 1980s has aroused controversies around the world about the proper role of corporations in society. We believe that companies have an obligation to understand that a clear boundary often needs to be drawn between government and the private sector and to support government’s responsibility to provide basic public goods that are as varied as healthcare, prisons, primary school education, and national security. We also understand that in different countries and different regions, historical and cultural differences have led to different decisions about which goods and services are best provided by government and which by the private sector, and understand that these decisions are often part of involved political processes.
We look for companies that appropriately balance their efforts to innovate and experiment with respect for the role of government in assuring the availability of public goods. The market is not the solution to all problems and companies should not inappropriately interfere with the political processes by which local and national communities allocate responsibilities to the public and private sectors.
Paying their fair share of taxes is in many senses the most basic responsibility of corporations to society. Without the public services that a well-financed government can provide, corporations cannot operate successfully or generate the profits upon which their employees and stockowners depend. However, today’s global economies combined with the sophistication of today’s accounting principles mean that companies often have a wide range of choices of how much in taxes they pay and where they pay them. The temptation to cut taxes to enhance profits is great and companies are increasingly successful in this tactic. In the United States, for example, the share of the national revenues derived from corporate tax payments has declined from 20% to 25% in the early 1960s to 10% to 12 % by the early 1990s. Without adequate tax revenues, society will suffer to the detriment of all participants, including corporations themselves.
Judging the appropriateness of a specific company’s tax payments is a difficult task and beyond the scope of our research. However, we look for broad indications of corporations’ willingness to pay their way and we take seriously disputes between government and companies over tax avoidance schemes and situations in which corporations appear to have inappropriately used their influence to obtain tax abatements by threatening to site or move their factories to other regions, or have abused the trust of communities that have offered such abatements.
The relationship between corporations and government is of great importance, of great complexity, and of great concern to Domini. The relationship is complex because government is sometimes a customer, and frequently a good one; sometimes a regulator, and potentially a strict one; sometimes an owner, and occasionally an involved one; and sometimes a financial supporter or a partner, and often a generous one. Corporations simultaneously want as little contact as possible with governments when it comes to oversight by them and as much contact as possible when it comes to doing business with them; as small a role as possible when it comes to government participating in the marketplace and as large a role as possible when it comes to setting the rules for that marketplace. To complicate the matter further, governments in Europe and Asia are often stockowners in the companies they contract with, regulate, and support.
For these reasons, we believe transparency and openness are crucial in dealings between companies and governments.This means disclosure and effective internal controls on lobbying, contributions to candidates or political groups, payments to government officials, hiring, and other interactions with government and public policy institutions.
We also believe that collusion and corruption are particularly serious when they involve government officials and corporate representatives. Corruption within the corporate world — whether through bribery, price fixing, or anticompetitive practices — is serious in and of itself. But when public officials are compromised by corporate misdeeds or actively collude with business to steal from the public, the resulting contamination of public trust in our local and national governments is of great concern.