The business of charity

September 30, 2015

In light of the recent news that charities could be banned from certain fundraising methods, such as cold calling or mailshots. I’ve been asking myself the question, can charities operate more like businesses?

Now I don’t agree with charities or any business approaching vulnerable donors, such as the 87-year-old dementia patient whose details were allegedly passed on by charities more than 200 times before ending up in the hands of a scammer.

But is it fair that charities have to operate with one arm tied behind their back in many situations because of public and government pressure?

One big problem for the charity sector is that the perception of the word ‘charity’ is free. Duncan Craig, chief executive of Survivors Manchester, suggested in ‘The Guardian‘ that the UK should adopt the lead from other countries and term the sector as ‘non-government or not-for-profit’.

For charities to start acting like businesses, there has to be a major shift in mindset.

For example, a media chief executive salary only exceeds £100,000 when organisations have an annual revenue of over £25m. With less than 25% of registered charities having an income of more than £100,00, six figure salaries are a minority.

This is a difficult battle as the public can look at this as excessive, but why?

Like any business, to perform at its best, it often relies on attracting and retaining the best talent. For charities to provide the best results, they need to perform at their best.

From my experience, the vast amount of charity workers are as equally dedicated to their work and providing the best care, the best research and the best support possible.

The sector needs to keep these individuals and attract more like them. Choosing to work for a great cause does not mean that you shouldn’t be paid what you would be worth in the public or private sector.

Why not diversify?

In 2000, Cystic Fibrosis Foundation in the United States used a tax quirk to invest $150 million into a small biotech firm. The best case scenario being that the company would discover a new treatment for a group of patients with a specific genetic mutation.

It sold the rights to Vertex Pharmaceuticals’ cystic fibrosis drug, which included the breakthrough drug Kalydeco for a huge $3.3 billion.

This transaction is part of a growing trend in philanthropy known as mission investing. This type of investment means that instead of giving research grants, a charity acts more like a business partner and expects a share of the profits from their gift.

This approach doesn’t always pay off, so there is a risk on the financial return and that the charity might not fulfil its brands purpose on top of this.

Changing perceptions, what can we learn from America?

In America The Charity Defense Council is striving to change public perception about charities and how they operate.

70% of Americans believe that charities waste money, according to a NYU survey. The Charity Defense Council has one singular goal: within ten years to have 70% of Americans believe the opposite.

The perception in America is that charities should spend less money on overheads such as administration, fundraising wages etc and more money on the charity’s mission.

If the Cystic Fibrosis Foundation took this approach they would not have been able to sell the rights it held for Kalydeco, the first drug to treat the underlying genetic abnormality in cystic fibrosis, and receive a whooping $3.3 billion to help them with their mission.

So does the perception of the industry need to change to allow charities to act more like businesses and enable them to be all they can be?

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