In the wake of the COVID-19 crisis and the subsequent lockdown imposed by government, corporate CEOs have shown great leadership in ramping up the charge for corporate philanthropy to support ordinary Ugandans affected by the lockdown. Individuals, learning, religious and cultural institutions have followed suit. This article argues that corporate philanthropy during the COVID-19 crisis enhances the shareholder, stakeholder and intrinsic value of the company. The article also argues that the state centralization of philanthropy as a result of instituting the National Taskforce on COVID-19 diminishes the freedom of private actors and is inherently weak and less effective in enhancing the welfare of people during this covid-19 crisis.
INTRODUCTION.
Coronavirus, also called COVID-19 has been declared a global pandemic, meaning it will have sustained global impact. Governments worldwide have imposed lockdowns to encourage social distancing and isolation. As a result, the global economy has plunged with experts predicting another economic recession that might supersede the 2008 financial crisis. Governments worldwide have made economic interventions to support people locked in their homes and stimulate businesses that have been affected by the lockdowns. Measures taken by central banks worldwide have included cutting interest rates, fiscal and monetary stimulus, quantitative easing to mention a few. A case in point is the ‘helicopter money’ intervention by the US government to help families, and businesses withstand the economic haemorrhage caused by covid-19. UK has also made the same interventions by paying up to 80% of the wages of furloughed workers.(i)
The African response to effects of COVID-19 lockdown: A case of Uganda.
Most African countries cannot afford to introduce social safety nets like those employed in Western countries. Only a handful of countries like Kenya and South Africa have put in place social protection measures. This is largely in part because African countries do not have enough money to do more. Between 2010 and 218 average public debt in sub-Saharan Africa has risen from 40% to 59% of GDP. Any fiscal response on the scale seen in the rich world would require outside help. (ii) This therefore begs the question: How have African countries responded to the effects of COVID-19 lockdown to populace. In the case of Uganda, the answer has been wide scale philanthropy. Perhaps out of genuine realization that their governments can only do so much, or conscientiousness towards the plight of ordinary people, private individuals and corporate companies have engaged in philanthropy to help the population that has been put out of work cope with the lockdown. This paper will analyze and critique the philanthropic approach and the state in Uganda. Particularly about whether a state centric philanthropy approach that has been adopted in Uganda is the most effective and efficient way of utilizing limited resources offered by private individuals, corporate companies, cultural and religious institutions.
Philanthropy in Uganda.
Philanthropy derived philanthropos means voluntary, active, non-reciprocal efforts (financial, organizational, human resources, etc.) by an entity with the sole purpose of benefiting human beings, or fulfilling an unmet social need, regardless of any specific ‘return on investment’ for the donor. The primary responsibility for human development undoubtedly rests with national governments and their administrations. However, government burdened by continuing deficits may lack the resources to effectively address many pressing national concerns. Therefore, private individuals, large corporations and other religious and cultural institutions can fill this gap by engaging in philanthropy
Philanthropy as a concept has always been key to promoting the social welfare of society. Although parallel to the state, philanthropy has always reinforced state efforts to improve the living conditions of the wider society where the state cannot reach. As a result, philanthropy has buffered the state against social discontent and uprising, hence preserving it. David Owen, an English historian argues that during the Tudor era in England, the key motivating factor in the enthusiasm that was shown for philanthropy was the realization by the donors that failure to address social problems associated with poverty would harm the wider fabric of society and perhaps lead to unrest and even revolt.(iii) In African countries like Uganda that are already burdened by budget deficits, the state may not have the capacity to address the effect caused by the lockdown on the economic survival of most Ugandans. Mr Matia Kasaija, the ministry of Finance, Planning and Economic Development has stated that the low activity in the industry and service sectors as a result of the government lockdown will result into loss of jobs, further leading to a decline in economic growth and an increase in the level of poverty. He has stated that;
‘’ The number of people that could be pushed into poverty is estimated at approximately 780,000.’’
Without any state intervention, these large sections of Ugandans could degenerate into social malcontents and becoming a danger to the establishment. Philanthropy therefore offers a much-needed lifeline to ensure their survival in these tough economic times. Following the declaration of the lockdown in Uganda as a result of coronavirus, a group of CEOs from the private sector have offered leadership by ramping up the charge for corporate philanthropy which has gained traction in all spheres of society ranging from religious institutions, cultural and traditional institutions, small businesses, wealthy individuals, musicians et al. The government has responded to this wave by state centralizing all philanthropic efforts made by individuals, companies and to avoid exacerbating the spread of the virus. According to the state, some politicians engaging in cheap politicking of offering aid would attract crowds hence endangering the lives of the people. communities around them. Therefore, the government has set up the National Taskforce through which all philanthropic efforts would be channeled and well-coordinated.
To give or not to give: What does the law say about giving?
The primary responsibility for human development undoubtedly rests with national governments and their democratic institutions. However, the inability of overburdened government resources to meet society’s most pressing needs has reinforced the necessity for philanthropy in Uganda especially during this COVID-19 crisis. A lot of contributions have been made to government during this crisis. Most notably contributions from corporate companies like MTN, Crown beverages, Toyota Uganda, Mukwano industries, Vivo Energy, Multichoice Uganda to mention a few. For several decades, corporate activities to promote human welfare and increase positive impacts on society over and above their business activities have been regarded as an integral part of their corporate social responsibility. But not without judicial scrutiny. So, what does the law say about companies engaging in philanthropic drives?
The initial position under common law was that a company has no power to make a gift out of corporate property or assets unless such payments of were reasonably incidental to the carrying out of the company’s business and was meant for the benefit of the company for example to contribute to its property or assets. This is based on the predominant assumption that the company’s predominant purpose is to make profits, also known as the shareholder value theory. As was stated in the words of Lord Justice Bowen:
‘’The law does not say that there are not to be cakes and ale but there are to be cakes and ale excerpt such as required for the benefit of the company’’.
This position of law prevailed when old provisions of the Companies Act required that company’s objects be clearly stipulated and ultra vires doctrine applied to invalidate any transactions against the company’s objects clause. However, in light section 7(5) of the Companies Act that allows companies to carry out general commercial activities that are incidental or conducive to the carrying on of any trade or business by it, the ultra vires doctrine may not apply to invalidate gifts or donations made by companies. This is because there is nothing to say that business and profits must come first. Given the separation of ownership and management in corporate structure, that is the transfer of corporate power from owners to managers, decisions about corporate policies are now made by those who are not owners i.e. the directors (Bearle and Means). Corporate philanthropy has depended on predominantly on the social values, sensitivity and awareness of a firm’s top management. Those managers who as private individuals value benevolence and welfare enhancement of the needy have been likely to apply their intrinsic concern for others in the corporate context and support the company’s engagement in corporate philanthropy. However, the propriety of directors spending money belonging to members of the company has at times been questioned by the shareholders. In the Grundt v Great Boulders Proprietary Gold mines, Cohen J stated:
“there is nothing unusual in the shareholders not being allowed to interfere in matters which have been deliberately placed under the control of the directors”
The directors are the mind and will of the corporation, the very ego and centre of the personality of the company. They have the power to act on behalf of the company including taking part in philanthropic activities. In undertaking this role, they may be accountable for their actions if they act unlawfully or fraudulently. The Companies Act under section 198 allows directors to act in a manner that promotes the success of the business of the company. It also allows directors to act in good faith in the interests of the company as a whole. Acting in the interests of the company means adding value to the company. In recent times, there has been a trend towards stakeholder value as opposed to shareholder value theory which mainly focuses on making profits. Today, the company is required to play the role of good corporate citizenship and as a part of society, the company is expected to part of the solution to problems affecting it despite the fact the shareholder value still persists. For shareholder value theory, corporate objectives like social value and profits cannot be maximized at the same time, constituting – at least in the short term – a direct goal conflict. As a result, a focus on profit maximization is likely to exclude bankrolling philanthropy from corporate funds – for reasons set out by Milton Fried man many years ago. . On the other hand, according to the stakeholder value perception, companies should engage in corporate philanthropy in order to satisfy the requests and expectations of stakeholders (e.g. civil society organizations, neighbouring communities, employees and other specific constituencies). The underlying rationale is that the company receives benefits such as higher consumer loyalty; deeper employee commitment and motivation due to the greater pride they take in the organization; and improved public image as a responsible member of society and a ‘good’ corporate citizen. Giving back to the various constituencies that grant the company its societal license to operate preserves and enhances the value of corporate assets. It can generate positive ‘moral capital’ among communities and stakeholders beyond the company’s direct business relationships. Such ‘moral capital’ as a result of the firm’s philanthropic activities can provide a company and its shareholders with an “insurance-like protection for a company’s intangible assets in the event of accidents or other unfortunate incidents. Where corporate management is perceived to be socially aware and responsive to others’ needs, unfortunate accidents cannot be attributed to corporate greed. Therefore, to soften the stance carried by shareholder value, one could look at enhanced corporate reputation or increased employee morale as elements that contribute to the financial gain of the company. However, in contrast to short term financial gain, stakeholder value is difficult to quantify. No accepted standards, accounting metrics or performance benchmarks exist for measuring social returns to the company. Furthermore, stakeholder value accrues over the long term; it does not appear in quid pro quo fashion in the next quarterly results.
Lastly, engaging in corporate philanthropy during the COVID-19 crisis can be construed as being in the interest of the company because of the intrinsic value that arises from being part of the solution to the COVID-19 crisis. The intrinsic value proposition states that companies can be part of the solution to social, ecological problems like the COVID-19 pandemic on a needs-oriented basis, without expectation of reward. The intrinsic value lies in the results themselves for example reduction of child mortality. In relation to COVID-19, the value can lie in avoiding social unrest and revolt that can arise from prolonged effects of lockdown like poverty. Therefore, engaging in corporate philanthropy during this COVID-19 pandemic enhances the shareholder, stakeholder and intrinsic value of the company. In so doing, the corporate management would be furthering the interests of the company excerpt in situations where it would be pernicious to the company’s assets, fraudulent or unlawful. Neither the shareholders nor the courts would challenge the powers exercised by the directors to engage in corporate philanthropy during this COVID-19 crisis because it would be within the director’s duties i.e. promoting the interests of the company as a whole in accordance with section 198. The only way shareholders can control the exercise of powers vested by the article in directors is by altering those articles, or if the opportunity arises under the articles, by refusing to re-elect the directors of whose actions they disapprove.
However, it is important to note that the most common form of business vehicle in Uganda is Private limited liability company, according to Bowmans, a top tier law firm in Uganda. A private limited liability company can have one or two share holders but its members must not exceed 100. The shareholders can take any form ranging from natural persons to corporate bodies or non ugandan share holders. In Uganda, most private limited liability companies are privately held companies owned by close family relations with few share holders who have overlapping duties as directors of the company. Therefore, the decision whether to engage in corporate philanthropy is taken by both the owners and directors of the company. In such instances, there are no competing interests between shareholders and directors and the power exercised by the company to engage in philanthropic activities cannot be challenged.
Other society stakeholders like individuals, religious and traditional cultural institutions have responded to the call by the president to help respond to the effects of COVID-19. Traditional cultural institutions Kingdom of Buganda donated items worth shs.100 million, the kingdom of Bunyoro Kitara donated a total sum of shs.60 million. Religious and learning institutions have also widely donated to the National Taskforce in the fight against COVID-19.
Challenges with the law
Most companies and individuals are making donations to the National Taskforce on COVID-19. These donations are not subjected to tax deduction in accordance with the income tax Act as the government is not among the defined exempt organizations.
State attitude towards Philanthropy during the COVID-19 crisis
The state suspicion towards philanthropic efforts made by “politicians” who are self-serving has caused philanthropy during the COVID-19 crisis to be centralized. The government has put in place the National Taskforce for COVID -19 response where all philanthropic efforts in the fight against the crisis and its effects should be directed. The justification made by the President for setting up the National Taskforce is to avoid people’s lives getting endangered by self-serving politicians who attract crowds when offering aid to people affected by the lockdown. Another justification is to coordinate philanthropic efforts made by the private sector in order to benefit the wider populace using government structures already in place. As a result of state centralization of philanthropy, all philanthropic efforts made by the private sector has been banned. Individuals found taking part in direct philanthropic acts without handing over their resources to the National Taskforce have been apprehended by the police. A case in point is the arrest of Mityana member of Parliament, Francis Zaake for distributing food to his starving electorate in this ongoing COVID-19 lockdown. Basically, philanthropy may be done but only through the National Taskforce on COVID-19. It can be argued that the state centralization of philanthropy has encouraged more giving by the private sector and other cultural and religious organizations as well as the external non state actors like the US embassy as philanthropic efforts continue to increase rapidly. However, the question is whether state centralization philanthropy is the most effective way of reducing the economic strain the lockdown is having on ordinary Ugandans who are merely surviving during this period.
Shortcomings and analysis.
State centralization of philanthropy takes away the freedom of private sector donors to directly engage in philanthropy. Private sector organizations and individuals would be better placed to carry out philanthropic activities because they have more experience in donating to the public and have a vested interest in ensuring that their relief aid is utilized to good ends as opposed to government actors who are merely doing their job while distributing relief aid. Private sector organizations would be motivated with amassing social and moral capital that would accrue from giving to the population under lockdown. Therefore, their direct relief efforts would be more deliberate.
Secondly, private sector organizations and individuals can easily positively discriminate while offering aid. They can do so by targeting the people who need relief items more than others. Government by nature tends to be more egalitarian when bringing services and goods to the people and is more concerned about general welfare whereas individuals and private sector organizations would be more concerned with strategic goals of offering goods and services which therefore can lead to better utilization of relief resources. However, due to strategic preferences of individuals and private organizations, this would place a bigger burden to these groups to reach as many people as possible which they can easily discharge by handing over to a centralized authority like the National taskforce to distribute. The main shortcoming being that the state may not utilize the relief to achieve the strategic goals of the individual or private organization.
The major weakness perhaps with state centralization of philanthropy is incompetence and corruption that is endemic among public officials in bureaucratic institutions of government in developing countries like Uganda. Police and State House Anti-Corruption wing discovered beans, maize and other relief items at the home of Martin Owor, the Commissioner Disaster Preparedness and Head of COVID-19 relief management in the office of the Prime Minister. Mr. Owor was among the 4 OPM officials in connection with inflating product prices to gain illicitly. The Chairperson of Uganda Women Parliamentary Association (UWOPA) and Budaka Woman MP, Hon. Pamela Nayiso made a shocking revelation that some women within Kampala made distress calls to her reporting that local council officials were asking sex before providing them with free government relief food. Corruption and incompetence is a big indictment against centralizing philanthropy. As a result of these weaknesses, individual donors and private organizations would be placed to engage in philanthropy directly because they are much less prone to such weaknesses.
Recommendations for improvement.
Instead of centralizing philanthropic through the National Taskforce on COVID-19, the government should enable the private sector to directly engage in philanthropy by issuing Ministry of health standing operating guidelines to be followed when providing relief. This would enhance the freedom of the private sector to provide relief items like food to targeted groups like people in slum areas.
It is recommended that the Income Tax Act be amended to allow the private sector benefit from tax deductions on donations regardless of whether they are made to exempt organizations or not, as long as the donations are for philanthropic or charitable ends. It is also further recommended that the tax deductible amount for donations by the private sector be extended from 5% to 10% so as to encourage more philanthropy.
Conclusions.
The response by corporate entities, individuals, religious and cultural institutions to ease the burden on the people most affected by the COVID-19 lockdown shows that there is a lot of potential for philanthropy to improve the social welfare of Ugandans. The crisis has shown that Corporate management can be a substantial force for good: indeed “it is companies, not abstract economic forces or governments which create and distribute most of society’s wealth, innovate, trade and raise living standards.” Therefore, the government ought to recognize the potential of corporate philanthropy and make power conferring rules through which these corporate entities can obtain privileges as a result of engaging in philanthropy. A case in point is amending the income tax Act to provide for tax deductions on philanthropic efforts made by the private sector regardless of whether it is made to exempt organizations or not.
The Ugandan government can only so much. Instead of government being suspicious of non-government philanthropic actors and looking to control them, the government should put in place Ministry of health standing operation guidelines to enable them engage in philanthropy directly rather than leaving the state to be the only one to intervene on their behalf.
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