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  1. Law
January 4, 2011

Tough Love

By Spear's

Caroline Garnham on why charities and not-for-profit organisations need to embrace the hard-nosed efficiency of successful commercial businesses
ON 20 OCTOBER, Chancellor George Osborne announced HM Treasury’s Comprehensive Spending Review to the House of Commons. Local councils will get a 7.1 per cent reduction to their budgets every year for the next four years. With Whitehall departments losing £6 billion of funding, the Home Office, Ministry of Justice, the welfare bill and capital spending, social housing and prisons will be hit hardest.

Government funding accounts for 38 per cent of the UK’s charitable-sector income, and 13 per cent of charities get more than half their income from government. Many local councils provide funding to support youth work, crime prevention projects, advice for women on how to deal with domestic violence and short breaks for families of disabled children or the elderly. Through the reduction of funding of local councils, these non-crisis charities are the most vulnerable.

David Cameron speaks passionately about creating the Big Society, but no one really knows how to deliver it. Martin Brookes of New Philanthropy Capital (NPC) is challenging the private-client industry of lawyers, accountants and private bankers to assist in raising the profile of philanthropy with their customers and clients. It is widely believed that more would give if they were encouraged to do so and were given better direction on developing a philanthropic strategy and effective giving plan.  Martin’s project is good, but it needs to deliver and deliver quickly. Barely more than half the population gives to charity, down from close to 70 per cent just over a decade ago.

Despite the hope that philanthropy is replacing conspicuous consumerism among our wealth owners, the truth is that the world’s marinas are still stuffed with luxury yachts and our donors are still on the decline. Most people in the UK, unlike the US, believe that they pay taxes to the government and therefore it, not they, should look after the needs of the weak in our society. Many wealth owners do not feel it is their responsibility to make up for the government shortfall. In my view this mindset needs to change.

Government is not good at dealing with the grassroots needs in our society — it is not flexible or innovative enough to know how to prevent an increase in crime, to detect disease, advise on preventing domestic violence or to give support to those who care for the elderly. Government is not good at providing solutions, nor is it good at delivering these solutions in a cost-effective manner.

Entrepreneurs, on the other hand, are good at being flexible, innovative and learning lessons from others with experience. Entrepreneurs also know how to get the best bang for their buck and to deliver solutions in a cost-effective manner. When they apply these principles to philanthropy, the results can be spectacular. An excellent example of this is ARK, which I had the privilege of setting up with Arki Busson. It applies rigorous commercial principles not only to the raising of funds but also in the running of its philanthropic projects. Stanley (now Lord) Fink, former chairman of ARK, says: ‘We believe the best form of development is to build a programme that saves many lives, where we are ultimately able to let go, ensuring a smooth transition to local management and creating a strong legacy.’ Last year ARK raised £23.9 million, which it uses both locally and abroad.
THERE ARE, SADLY, many other charities or not-for-profit organisations, which I shall not name, which have become lazy, inefficient and ineffective. Some of these have become dependent on government funding. These charities need a shake-up.

I would like to see more charities engage consultants such as Stephen Dawson, who co-founded venture philanthropy firm Impetus, to see what they could do to reduce costs, scale up their operations and deliver better results. I would like to see more charities working together, possibly even merging, to save on administration costs. I would like to see charities become more accountable to donors.

From research carried out by NPC, most people donate because they like the people who ask them for funding or feel sympathy for the cause presented. Very few are captured into giving again. They need to be told following their donation what good was done as a result of their gift, and what further good could be done if they gave again.

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Family Bhive, the online social media website for wealth owners, wants to help charities become more accountable to their donors and get repeat donations. It wants to partner with charities so that members who donated can follow online what difference their funds are making and be encouraged to give again.

There is considerable expertise and opportunity to help charities that have been affected by the spending cuts to become more efficient and survive, but it will need hard work and effort. Some charities will rise to the challenge, but others may fail. For those who fail, my hope is that it will be at their own expense and not at the expense of those who need or benefit from their organisations. 

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