Legal & General: planning for the long-term while in a recession

February 01, 1992

If you link your community affairs budget to a percentage of profits, what do you do when the business makes a loss? If the company is to be a household name, but has no high street presence, how do you communicate your community activities at a national level? If you simply make a mass of small charitable donations in response to hundreds of appeal letters, how can you have a focused planned approach?

These are some of the questions the community affairs team at Legal & General have been grappling with. This profile examines the answers they have found and the issues they still face.

The business

Legal & General is a financial services company. It concentrates on life insurance and pensions, general insurance and investment management. Most of its products are sold through agents, so despite annual premium income of some £3 billion, there are less than 7,700 full time and 800 part time employees. These are mainly located in three offices – in Brighton (Sussex), Kingswood (Surrey) and Enfield (north London). Some 20% of Legal & General’s business is from overseas.

The company has not escaped the cyclical problems affecting the whole insurance industry. Losses in general insurance have risen to swallow profits from other sectors. The Group reported a loss in the six months to 30 June 1991 of 85 million, more than the previous year’s whole profit, so analysts confidently predict a full year loss.

The national programme

Until a year ago, Legal & General had a reactive approach at national level. Some 70 or 80 individual projects were supported at a national level with donations of up to £ 5,000. There was no clear theme – a `scatter-gun’ approach that made working in partnership with the agencies who received support very difficult. In short, although it cost a lot, the company derived minimal benefit.

So the decision was taken to

1) switch national support to a small number of projects directly related to core business activities;

2) to set a £25,000 pa minimum per project; and

3) to make three year commitments.

The desire for a clear link between business activities and the community programme was applied rigorously and the chosen themes are:

– life insurance

– medical research and health education into life-threatening conditions

– general insurance

– crime prevention

– pensions

– quality of life in retirement

– mortgages

– housing

– investments

– small business and enterprise.

Among the organisations assisted are Cancer Research Campaign, Crime Concern, RSVP (retired volunteers) and Women in Enterprise. Some of the support given enables the partner organisation to provide a front-line service like crime prevention among young people or research into skin cancer. However much of it is behind the scenes to build the capabilities of the organisation itself – such as publicity advice, fundraising materials, feasibility studies and marketing research.

Local and arts

While the national programme takes the bulk of resources, about a quarter of the budget is allocated to the local programme centred around the three main offices. In each, one person is charged with implementing a programme of community links, with preference to activities in which staff are involved. The aim is to be a `good neighbour’. This is a part-time task, shared with other duties, either personnel, marketing or office administration.

Arts support accounts for about a tenth of the programme and mainly consists of corporate memberships and a series of sponsored performing arts events, generally outside London, which offer entertaining and business promotion opportunities.

The effects of recession

Coping with the recession is one of the main challenges for Legal & General’s community affairs. Traditionally it has been among the nation’s biggest corporate donors. It is listed in the Charity Trends 1991 league table of the top 40 companies with programmes exceeding 1 million. Historically the company’s aim has been to meet a general target of 1% of pre-tax profits, but it is now re-examining the wisdom of this approach. How appropriate in budget setting is the per cent approach, when profits vary during the business cycle? Should the budget vary too, and if so, how can a company really develop long term committed partnerships with external agencies? If the budget is not to vary, is there another measure that can provide a better planning tool?

For Legal & General, the decline in profitability has indeed affected budgets, with £200,000 shaved off during the course of 1991, although that still leaves a substantial programme at a time of losses. So they are examining the feasibility of linking budgets to dividends. Since dividends tend to follow the underlying growth of a company, with no radical swings, so it is a more practical measure. There is also a theoretical basis too. If community affairs is all about stakeholders, then there is a certain logic to linking the contributions to community stakeholders with those to investor stakeholders.

Programme management

A annual Main Board paper each year approves the strategy and resource allocation. The Group Communications division has responsibility for implementing it – principally Sue Green, Group Communications Director, and Jon Stevenson, Sponsorship and Donations Manager – together with the three local contacts in the main offices. There is no cross function committee and no staff representation on a charities committee.

No in-kind assistance is provided in the sense of pensions or insurance, but skilled staff do get involved to a limited extent. Managers are involved personally in some six enterprise agencies and the Group Communications department has produced publicity materials for RSVP.

Limited monitoring and evaluation is carried out. A regular corporate image survey includes `good citizenship’ questions. Media coverage is monitored. As yet, staff attitudes are not systematically measured, although the whole area of monitoring and evaluation is under review.

The future

Having reorganised the programme, the challenges for the future are: First, resolving the budget issues, as discussed above, and expanding when resources allow; and second, achieving a national reputation that the scale of commitment warrants. (Legal & General does not see community affairs as a cost-effective marketing tool, but it does want to achieve a reputation among customers as well as opinion formers that it is a responsible company committed to the long term health of society.) The third challenge for the future is to build a genuine long term partnership with the supported organisations.

An assessment

Legal & General certainly now has a thought out carefully structure programme, but how does it match up to the new BITC Directions for the Nineties agenda which is reviewed in this edition? It has targeted its effort to key social concerns where there is a link with business growth. It has assessed its programme, adjusted its strategy, made long term commitments, is nurturing partnerships and starting to communicate with stakeholders.

However the big issue for the future is staff involvement. Apart from ad hoc volunteering at a local level, there is only limited utilisation of the massive powerhouse of skills and expertise that constitutes a modern financial services company. Furthermore senior executives have yet to play a significant role in the myriad initiatives that now involve business in so many facets of national life.

The compelling factor is not so much the business case – with few recruitment and retention problems, no dirty jobs and generally good morale, Legal & General does not have a staffing problem. Rather, it is a question of value for money – the return, both for the company and the community, on what is an expensive programme could be greatly increased by matching money with skills. At a time when money is short because of the recession, involving the staff is perhaps the only way to expand.

Legal & General Group plc.

Year ended 31 December 1990

Chairman: Professor Sir James Ball

Main areas of business: life insurance, general insurance, pensions and investments; 80% from the UK

Turnover: not applicable

Profit before tax: £68.6 m

Employees: 8,464

Declared charitable donations: £377,500

Total community contributions £1.0 m

% of profits: 0.55% (donations); 1.46% (total) Memberships: BITC, ABSA, Per Cent Club

Group Communications Director: Sue Green

Sponsorship and Donations Manager: Jon Stevenson

Address: Legal & General, Temple Court, 11 Queen Victoria Street, London EC4N 4TP

Phone : 071528 6200 (Fax: 071-528 6222)

Corporate Citizenship Briefing, issue no: 2 – February, 1992

Mike Tuffrey is founding editor of Corporate Citizenship Briefing and director of The Corporate Citizenship Company.