Corporate Philanthropy in Israel – An Overview

F?????eb / 2021

Dr. Liad Ortar 

Introduction

The Israeli economy has evolved dramatically in the last 30 years from one in which centralized planning by the government has been increasingly replaced by market forces. It has gone from being an economy that was relatively internally focused to one in which global forces (such as Israel’s joining the OECD) play a central role. Once farmers and workers were model economic actors, but now those engaged in entrepreneurship and finance (and business corporations) are perceived as holding the keys to the future (Kay, 2018). Among the global forces that have influenced the Israeli economy is the adoption of CSR as an applied business ethics methodology (Aharoni, 2016).  

This review is focused on the formal and legal aspects of CSR. The legal aspects are becoming increasingly significant since mandatory (legislation based) progression of CSR’s applied derivatives (such as mandatory environmental, social, and governance disclosure) can bring about major changes in the business sector and improvement in the overall implementation of this approach (Ioannou & Serafeim, 2011). 

CSR & Corporate Philanthropy in Israel – the Legal Construct

The cornerstone of the legal construct of corporations in Israel is the Israeli Companies Law. It states that the purpose of a limited company is “… to operate in accordance with business considerations in realizing its profits, and within the scope of such considerations, the interests of its creditors, its employees, and the public may inter alia be taken into account; similarly, the company may donate a reasonable sum for a proper object, even if such donation is not within the scope of business considerations as aforesaid if a provision for such is laid down in the articles of association”. With this statement, Israeli law sets the boundaries for companies’ operational goals, which are to satisfy their shareholders’ expectations, e.g., to maximize profits. This claim goes hand in hand with the traditional capitalist model rooted in Milton Friedman’s celebrated fifty-year-old doctrine (Friedman, 1970). 

This legal framework set the ground for next thirty years of growth and development of Israeli CSR (Kay, 2018). From the legal perspective, some efforts have been made in recent years to mandate CSR in general and, more specifically, the disclosure of the ESG performances and risks of Israeli corporations. One of the major developments in this realm took place in 2010 when the Israel Securities Authority required public companies to include in their financial reports’ disclosures concerning the environmental risks that have had or could have a material effect on the corporation. Another important development occurred in the same year when the Banks Commissioner issued a directive requiring all banks in Israel to file CSR reports.  

The result of this decision has been that since 2014, all large and medium-sized banks in Israel have published an annual CSR report (Ortar, 2015). Finally, in December 2017, the Israeli Capital Market Authority’s demand entered into force, requiring institutional investors to declare, as part of their investment policy, whether responsible investment factors were taken into consideration when determining said policy and if so, to furnish the details of these factors. 

Among the additional CSR-related legal proposals, The CSR Bill is an important one. It is the product of the joint work of several members of the Israeli parliament and the Corporate Social Responsibility Institute. The proposed law, introduced for debate in August 2016, calls for the obligatory submission of an annual CSR report by all Israeli companies that (1) employ at least 250 employees, (2) have annual revenue of at least seven million USD, or (3) in which the pay ratio between the highest-salaried executive and the lowest-salaried worker is greater than 30 (Knesset, 2016). Among other things, these annual reports are required to address the following CSR-related areas: corporate governance, the environment, relationships with suppliers, and labor-related matters such as unionization, diversity, and access to employment for disabled individuals. The bill never reached the voting stage (Ortar, 2015). 

Although it seems that Israeli corporations’ CSR-related activities are on the rise due to both foreign and local circumstances, there appears to be significant room for improvement, particularly in terms of issues such as nepotism/favoritism, discrimination, confidentiality, treatment of customers, advertising, competitive intelligence, whistleblowing, worker health and safety, and environmental protection. One study showed that when participants were asked to compare Israeli firms and their agents with their counterparts in the U.S. or Europe, most believed the Israeli firms and agents were less ethical in business (Schwartz, 2012).

In 2014, a public opinion survey found that the issue most frequently associated with socially responsible business was “community investment”, with 25.6% of the sample correlating a socially responsible company with its community donations (Maala, 2014). In the same survey, the question of the association of fair and honest pricing with businesses’ social responsibility elicited a 9.3% response rate. Not surprisingly, Israeli corporate leaders also seem to view community investment as the most important manifestation of corporate social responsibility. Indeed, most Israeli corporations focus their CSR efforts on the area of corporate philanthropy. 

Corporate Philanthropy in Israel

The inspiration for philanthropy in Israel can be traced to the ethical foundations of Judaism. Because Israel was established as a Jewish state and is still defined as such, the ethical foundations of Judaism are an integral part of CSR in Israel and of business norms of behavior (Visser & Tolhurst, 2010). Considering this situation, corporate philanthropy is also perceived as giving charity, which is, indeed, a biblical commandment (mitzvah):

If there be among you a poor man of one of thy brethren within any of thy gates in thy land which the LORD thy God giveth thee, thou shalt not harden thine heart, nor shut thine hand from thy poor brother: But thou shalt open thine hand wide unto him, and shalt surely lend him sufficient for his need, in that which he wanteth. King James Bible, Authorized Version, Cambridge Edition. Deuteronomy 15:7,8

According to this commandment, Jewish people are obliged to show generosity to the poor and provide them with the charity they need. Later Jewish scholars added the element of secrecy to giving charity, stating that the benefit of concealing the donation is that doing so prevents the recipient from feeling shame. The sages claimed that the most virtuous givers are those who give without receiving any formal recognition. This is the true essence of charity (Minzberg, 2014).  

An examination of the charity figures from a country-wide perspective reveals that the relative contribution of corporate entities is low. In 2014, a wide-ranging survey conducted by the Central Bureau of Statistics addressed the donation figures between 2009 and 2011. The survey examined the revenues of 408 nonprofits with annual incomes of over 500,000 NIS ($143,000), which is a representative sample of such Israeli organizations. Of the total income of the NGO sector in Israel, only 4.7% comes from Israeli philanthropy (private and business). This portion represents net donations of approximately 5.6 billion NIS (~1.6 billion $US). Of the 4.7%, the business sector is responsible for only 1.5 billion NIS net of donations—a minor percentage of some 1.5%. This number may explain the title of the article that covered the findings of the survey: “Israeli Corporations Don't Give to Charity”. 

Another systematic survey of corporate philanthropy in Israel is conducted yearly by Maala and the Institute of Law and Philanthropy of the Faculty of Law at Tel Aviv University. Their findings summarizing data up to 2018 indicate that of 423 reviewed public companies, only 222 were found to report on any kind of donation. Cumulative corporate donations were 334 million NIS (around 100 million $US). The median percentage (of the pretax profit) was 0.38%. Another important point is that the 10 largest companies are responsible for 58% of the cumulative sum of donations (MAALA & ILP, 2019). 

Maala (2014) shows that the main areas of corporate giving were “welfare” (35%), “environment and housing” (27%), and “volunteering” (25%). Frantz (2008) noted that while corporate giving in Israel is 60% “in kind” and 40% in actual financial support, in the United States that ratio is 82% financial support and only 18% “in kind”. Both the nature of Israeli corporate giving and its magnitude differ from those of corporate giving abroad. The general worldwide rule of thumb regarding corporate giving is that companies should be donating at least 1% of their pre-tax profits. Few Israeli corporations have been reaching that mark (Kay, 2017).

The Way Forward

To conclude, the major development in CSR-oriented legal changes is a direct result of the increase in public awareness and scrutiny of issues such as fair trade and human rights. It is also associated with new perceptions of the purpose of companies in the twenty-first century and corporations’ growing commitment to their stakeholders. In this context, contract and corporate law are emerging in Israel as agents of real social and legal change, both because they address the most common daily interactions and because of their growing social engagement (Bukspan, 2016). 

As mentioned above, Israeli corporations are allocating small amounts of money through donations. Undoubtedly, if a Mandatory CSR law is passed in Israel (as it has in India), these amounts could increase dramatically. Whether this is the proper path for increasing corporate community involvement and donations in Israel is an interesting question that can and should be addressed in discussions with all relevant stakeholders, such as business managers, legislators, scholars, and NGOs. These discussions should be more practical than theoretical because we have set the accepted rate of 1% as the applied target that we are now attempting to find the optimal way to reach. The fact that Israeli businesses are falling behind substantially encourages and justifies this effort.  

References

Aharoni, T. (2016). NGlobalisation de la responsabilité sociétale des entreprises : Développement et caractérisation du champ de la RSE en isra?l. etude de cas - L'organisation maala de 1995 à 2010.

Bukspan, E. (2016). Neither angels nor wolves. Israel Studies Review, 31(2)

Friedman, M. (1970). The social responsibility of business is to increase its profits. New- York: New York Times.

Ioannou, I., & Serafeim, G. (2011). The consequences of mandatory corporate sustainability reporting: Evidence from four countries. (). Harvard: Harvard Business School. Retrieved from file:///C:/Users/liadortar/Downloads/SSRN-id1799589.pdf

Kay, A. (2018). Corporate social responsibility in Israel. Contemporary Perspectives in Corporate Social Performance and Policy: The Middle Eastern Perspective, , 115-140. 

Knesset. (2016). CSR law (mandatory reporting).

Maala. (2014). What the Israeli public thinks? (). Retrieved from https://www.slideshare.net/estsegal/ss-32804677

MAALA & ILP. (2019). Donations of public companies in Israel 2018. (). Retrieved from https://www.law-and-philanthropy-tau.org/copy-of-foreign-entity-contribution-2

Minzberg, Y. (2014). Agadot hazal. Jeruslaem: Herztog College.

Ortar, L. (2015). Towards regulated CSR reporting in Israel. (). Ramat-Gan, Israel: College of Law & Business. 

Schwartz, M. S. (2012). The state of business ethics in Israel: A light unto the nations? Journal of Business Ethics, 105(4), 429-446. 

Visser, W., & Tolhurst, N. (2010). The world guide to CSR: A country-by-country analysis of corporate sustainability and reporting.