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Barry et al, this is what a good gift policy looks like

In 2010, I was planning a personal trip to the 2010 FIFA World Cup in South Africa. A South African bank found out I was attending, and an offer of tickets and match hospitality arrived for a couple of games, including a semi-final. As tickets were hard to find, I was keen to accept, but knowing how strictly our gift policy was applied, I followed the procedure which required senior management approval subject to certain value limits. The tickets were worth at least $600, and no doubt the hospitality a whole lot more.

My application came back saying that I could only accept if I paid for the tickets myself. Fine by me. I told the South African bank why I needed to buy the tickets, and I was eager to attend. But they replied that under FIFA rules, they were not allowed to resell the tickets. I either had to take them for free or not at all.

What to do? Surely, we could come to an arrangement. After much discussion internally and externally, we agreed that if I donated an equivalent amount to a South African charity, then I could accept the tickets.

Which brings us to the Independent Commission Against Corruption (ICAC). I don’t criticise Barry O’Farrell for forgetting the bottle of wine received three years earlier. At the time, he had been recently appointed Premier, his father-in-law had died the week before, and he had hundreds of things to do each day. Many people laugh at the ‘I don’t recall’ answers at ICAC, but who can remember some of life’s details from a week ago, never mind years? I once testified before an ASIC enquiry into a rogue trader, and the defendant’s QC asked me about transactions we had done a couple of years earlier. We did hundreds of deals a year, and I could not recollect the ones he spoke about. Although it is an overused excuse by some witnesses, the ‘I don’t recall’ is often not as bad as it sounds.

It is harder to accept not declaring the gift at the time it was received. That’s not forgetfulness, it’s ignoring an obligation. It should be the same in the corporate world, or almost any form of business. While many people will think corporate gifts are the classic ‘snout in the trough’ experience, all major institutions have strict gift policies, and the penalties for ignoring them include dismissal.

What’s included in a good gift policy?

A good gift policy ensures employees are not subject to conflicts of interest, and do not breach regulatory obligations. It is part of maintaining professional standards and business ethics, and protects the reputation and integrity of the business. It includes:

  1. Who does it apply to? On the receiving side, it should cover everyone from directors, employees, contractors, volunteers and temporary staff. On the giving side, any external party including clients. The rules should apply to family members and associates.
  2. What is a gift? A gift is anything that confers a benefit, including money, event tickets, flights, accommodation, lunches, specific goods, special privileges or subsidies, and any payments or fees made to an individual.
  3. What is the limit? As a general rule, a gift may be accepted if it is usual in the business, such as a lunch or match ticket, but never a direct financial benefit like cash. In determining appropriateness of a gift, every company should set a value limit, with varying levels of disclosure and approval, such as:

    • Less than $100. No disclosure or approval required.
    • $100 to $500. Disclosure in gift register but no formal approval required.
    • Over $500. Disclosure in gift register and formal approval required.

The seniority of the approver may go as high as the CEO for substantial gifts.

  1. Who maintains the gift register? There should be a compliance function in every business which has independent reporting lines, and it has monitoring responsibilities for the gift registry. Senior management of the business should review the register regularly to ensure the policy is operational. Clearly, if employees are known to receive extravagant entertainment, or there is consistent attendance at major events, the register should be well used.
  2. What if refusal would offend or endanger a relationship or it is impractical to return a gift? Approval should be sought immediately, and the likely solutions are to raffle the gift among staff with proceeds to charity, give it directly to charity or distribute widely among the staff to dilute the per member benefit (such as a case of wine).
  3. What extra restrictions apply to giving gifts? Giving of gifts has similar sensitivities to receiving, but special care must be taken dealing with any government or public officials, or political parties. The company involved in donations must be aware of the consequences of their actions, such as legal limits, or even worse, bribing officials to achieve results. Such donations should only come from the highest level of the business, not at the discretion of individual business units.

Apparently, less buys more

Networking with customers, suppliers, competitors, regulators, journalists and all manner of hangers-on is a vital part of business. It is the lubricant that drives activity. The main problem to watch for is the potential creation of a conflict of interest.

An example of a highly-detailed study of gift-giving is ‘You Owe Me’ (warning, this is a 52-page study). Apparently, gift-giving does change behaviour, but less buys more. The authors from the US National Bureau of Economic Research found that a small gift encouraged the recipient to award contracts to the donor’s company, but a more valuable gift (say three times as much) cut the response back to little better than giving no gift at all. If this is correct, then putting limits on gifts will not achieve much.

So what does your policy look like, and how do you police it?

When the cheap seats to see Bruce Springsteen cost $200, or the Wallabies charge $300 for a seat plus function (and scarf, football and souvenirs), every major event or game should be generating hundreds of entries in gift registers. It’s not enough just to have a policy. It needs to be adopted by all.

I must admit when I attended those football games in South Africa, knowing how much FIFA World Cup tickets cost, I wondered how many of the hundreds of guests in the fine dining rooms had been able to devise a solution like mine? Was it a good year for South African charities?

Or was it just a game, worth not much more than a good bottle of wine?

(For a more detailed look at the Audit office of NSW’s views on managing gifts and benefits, more information is available here).


 

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