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The Shekel Before the Storm GA Magazine / Accounting for accountability By Ora Coren Tags: jewish world, Israel news, GA  Full coverage of the 2008 GA conference After footing the bill for NIS 35 million worth of life-saving medicines for impoverished Israelis since 2005, Israel's Ofer Fund folded in mid-October. The fund, which belongs to the Israeli billionaire family of Sammy and Idan Ofer, had paid for medication not covered by national health insurance. Although the fund says its decision was unrelated to the global financial crisis, the closure remains a warning to Israeli society, signaling that the financial wellbeing of the wealthy Israelis who run the country's largest companies - like the Ofer family's holding company, Israel Corporation - affects not just their own bottom line, but also that of struggling families assisted by a burgeoning local culture of corporate philanthropy. Advertisement Several prominent Israeli business leaders were reluctant last month to commit to continuing to donate the same amount of money they have in the past - a sign that, combined with the losses leading Israeli businesses have already suffered and the profits expected to continue diminishing, indicates cutbacks in local philanthropic donations appear imminent. But while companies that end up in the red may no longer have the option of lending a helping hand, the good news is that philanthropy has become sufficiently entrenched in the Israeli corporate culture as to make it unlikely that companies will stop donating altogether as long as they are capable of doing so. All the same, the amount they donate - typically between 0.5 percent and 1 percent of the company's pre-tax profits - may well go down. "It's reasonable to assume that there will be a reduction in donations," says Talia Aharoni, the founder, president and CEO of Maala-Business for Social Responsibility, a nonprofit organization that encourages corporate involvement in the community and runs an index ranking Israel's largest public and private companies in terms of their community investment, business ethics, workplace and human rights and their impact on the environment. "The expected rate of decrease is akin to the rate of decrease in the pre-tax income," she says. "If the decrease will be 30 percent to 50 percent, as people think, it's reasonable to think that will be the rate of reduction in donations." Israel's wealthiest business leaders, including prominent philanthropists, have already been hit hard. The richest 35 tycoons in Israel, according to figures from June's TheMarker magazine, have lost a combined $15.5 billion, roughly NIS 60 billion, since March. The share price of Israeli conglomerate Africa Israel Investments, controlled by Lev Leviev, has tanked, falling almost 90 percent between its peak in May 2007 and late last month. Its credit rating is three notches lower than it was 18 months ago, and the company is starving for fresh cash. All told, Leviev has personally lost $2.25 billion this year. As for the Ofer family, Sammy, Idan and Eyal Ofer have lost about 60 percent of their combined fortune since the end of March, and are now worth somewhere between $1.75 billion and $2.25 billion. The market capitalization of Israel Chemicals, one of the companies controlled by the Ofers' Israel Corporation, has shrunk from more than NIS 100 billion to NIS 43 billion. And Bank Hapoalim, controlled by Shari Arison, announced last month that it would miss its 2008 profit forecasts due to the financial crisis (though it also says net profit for the last two quarters of this year was expected to be more than NIS 1 billion). It remains to be seen whether Bank Hapoalim will drop from its perch as one of the 10 leading companies in corporate responsibility management, as ranked by Maala. The 2007 Maala Index gave it a score of eight, out of 10, for total community investment, which monitors companies' financial contributions, donation of services and products, investment policy and employee volunteering. While Maala does expect the financial crisis to have a noticeable effect on the 2009 budgets of the companies it ranks, Aharoni says she has yet to be informed about a reduction in community involvement for 2008. She isn't expecting the worst, though, noting that this year saw a rise in overall donations despite a drop in pre-tax profits. "I hope we won't reach a situation where the market assessments that donations will drop by 30 percent to 50 percent come true," she says. On the fence Until the current economic crisis, prominent Israeli businesspeople by and large did not hesitate to publicize their philanthropic contributions. But as profits dropped and CEOs waited to see what would come next, it became difficult to find out details about donations. Interviews with representatives of several prominent local businesspeople indicated they were sitting on the fence when it comes to formulating a philanthropy policy for the coming year, which is expected to be a tough one for businesses - but even tougher for the needy who have come to depend on such donations. Businesses like Nochi Dankner's IDB holding group, Idan Ofer's Israel Corporation, Arison's Arison Holdings and Leviev's Africa Israel all had a similar message: There's no change in our donation policy. But the emphasis on policy rather than numbers still leaves open the key question of whether local businesses will keep donating the same sums of money they have in the past. None of the business leaders interviewed, or their representatives, could give an unequivocal answer to that question. Indeed, some Israeli public companies already appear to be gearing up to cut back on philanthropic activity. "Minority shareholders won't like seeing their shrinking profits distributed as a community donation the same as usual," says the spokesman of a leading Israeli business owner. Philanthropic trend Many philanthropists outside of Israel have become used to seeing the country primarily as a recipient of donations, but over the last few years, a wide-scale interest in reducing the social gaps in the country has helped turn local philanthropy, including an increasingly accountable corporate philanthropy, into something of a trend. The Maala Index, which was launched on the Tel Aviv Stock Exchange in 2005, played a large part in this transformation. Until the late 1990s, most businesspeople involved in philanthropy contributed to whichever cause most interested them - so someone with an abiding interest in education in the country's peripheral areas would give money to education, while another would help children with disabilities or fund new equipment for a hospital. The donations, and the accompanying accountability and publicity, were haphazard. But that began to change in 1998, with the founding of Maala. Soon enough, Israeli companies began talking about the financial and public-relations value of contributing to the community and about preparing management to examine charity requests in an organized fashion. "The previous economic slowdown, in 2002-2005, changed the corporations' attitude toward contributing to the community," says Aharoni. "In the crisis, corporations examined more, focused on and invested management time in the matter of donations. In retrospect, that most difficult period provided an impetus for more strategic investment and a better understanding of community involvement. Today we are in a different position in terms of the corporations' understanding and their investments." But while the amount of donations by Israel's leading companies might shrink, along with profits, the business owners' private donations may suffer less because they are less directly connected to how well a business is doing in a particular year - which could mitigate the expected difficulties. Indeed, most of Arison's donations to the community are through the Ted Arison Family Foundation, which is named after her father and distributes $25 million a year to charitable organizations in areas including health, education, youth and culture. "I will continue with the giving," Arison says, though she would not commit to retaining the same level of donations as in previous years. "I believe that what's important is the principled conduct, caring and humanity that are expressed by donating and giving to the community." While the Arison foundation money comes from profits earned by family businesses, Dankner's donations primarily come from IDB funds, and are widely publicized - which he says will spur other businesspeople to donate as well. Dankner says he is interested in reducing the gaps in society, especially in using education to fight poverty and distributing essential goods to the needy. The company donated about NIS 200 million in the country over the past two years, according to IDB. Most of the money went to residents of the north and Sderot, and were allocated for education, culture and social welfare. Dankner has developed an image of being one of the major donors in the country, in relation to his wealth, and is considered likely to want to retain that image - but the amount of money available can be expected to go down if IDB profits fall. Leviev, meanwhile, has been donating for years from the profits he made from his private diamond deals as well as through Africa Israel, with donations reportedly reaching millions of dollars. Leviev says he sees charity as a divine commandment requiring him to distribute some of his profits to the needy. The arrangement has worked out well across the board; he says the more he has donated, the more his profits have increased. "Whoever gives a 10th increases his wealth," he says, referring to the religious mandate to donate a 10th of one's income to charity. He focuses on funding Jewish education in Israel and the Diaspora. Leviev founded the Ohr Avner Foundation to develop Jewish education in the former Soviet Union. Leviev travels to the countries where he wants to open schools, makes the necessary political connections, and opens another elementary school. He has so far founded 120 kindergartens, schools, yeshivas, summer camps and other institutions in former Soviet states, and has recently opened a school in New York. The foundation works with the Israeli government, Jewish Agency, Joint Distribution Committee and businesspeople from abroad. However, a source close to Leviev says there has been a decrease in the funds he has been able to raise from other businesspeople, due to the worsening economic situation. It appears that the reduced worth of his public companies and a 5-percent decrease in diamond prices announced late last month will lead to a reduction in Leviev's donations. Leviev, like the other major donors, is considered likely to make an effort to continue to donate, even if the amount does go down. It appears that the accountability, transparency and publicity that have resulted from the Maala Index could ultimately help corporate philanthropy - and its needy recipients - weather the financial bumps ahead. Full coverage of the 2008 GA conference Bookmark to del.icio.us   The King is dead Archeologists find new evidence for King Herod's tomb site. Al-Hasbara Israel launches Arabic YouTube channel to bypass Arab media.

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