Don't just rubbish charity reform campaigners

The charity sector is under attack from a variety of sources: the press, politicians, commentators and other parties - including one brave lady who has put her head above the parapet to make some very blunt criticisms and has provoked howls of fury from the charity establishment. That lady is Gina Miller who runs campaigning organisation the True and Fair Foundation.

While some of the points she has made are to an extent vulnerable to reasoned argument and counter-analysis, she and the material produced by her foundation certainly do not merit being swept aside by a blizzard of denial.

This state of denial by the big charity leaders, not just in the face of Miller's criticisms but generally in the face of any criticisms, is resulting in them continuing with actions and practices which are totally at odds with public expectations of charities. Not just expectations of efficient and effective management, but also of practices in line with the charitable ethos - behaving in an acceptable manner.

The True and Fair Foundation has most recently come up with the following statistics: 50 of the UK’s largest charities, selected on the basis of public donations, spent on average 22% of their income on "income generation and governance" costs; the average for these 50 large charities (22%) is twice the average UK charity (11%) based on a sample of 5,089 UK charities; the average for these 50 large charities (22%) is also more than twice the average of 50 US large charities (10%) based on similar cost categories; 13 of the 50 large charities spent 30% or more on just income generation and governance costs.

Lifting the lid

So really these statistics and other findings the True and Fair Foundation's two reports (the earlier A Hornet's Nest - A Review of Charitable Spending by UK Charities, and now Lifting the Lid - A Review of Income Generation and Governance Costs, and Charity Shops) are critical of the big charities rather than the sector as a whole. Also, the two reports look at categories and amounts which are used as official reference points, for which they cannot be fairly criticised.

Certainly these reports do contain some eyebrow raising material. For instance, the criticism of charity shop profit margins involves a comparison with one of Britain's most profitable retailers, Next - somewhat unfair to say the least. But of course that is Next having to pay rates and rent levels which charity shops don't.

Also, while there is criticism of the extent of governance costs, it should be appreciated that it is the bigger charities which tend to take on outsourced contracts from central and local government and these have quite onerous governance-related requirements. Furthermore, necessary governance/risk management can require significant resources when carrying out certain work.

However, it is legitimate that questions should be asked; indeed more than that, cherished assumptions should be challenged. Gina Miller's basic theme is that the large charities are not spending a high enough proportion of their money at the front end of service delivery and that they are not sufficiently cost effective in their fundraising, with charity shops being an example. And overall, there should be a review of the justification of charities receiving tax breaks to the extent they do.

To see a more considered response to the foundation's analysis and conclusions, it is recommended one reads a paper by Pesh Framjee, head of not for profit at accountancy firm Crowe Clark Whitehill, entitled Neither true nor fair - A critique of the True and Fair Foundation's Review of Charitable Spending by UK Charities. Framjee writes that "financial statements alone just cannot be used to measure efficiency and effectiveness", and points to "the futility of using superficial benchmarks and cost ratios".

Further details of workings

The foundation has responded to this and other criticism by giving further details of its workings and making the statement: "All the data came from the UK charity regulator, the Charity Commission, which itself used the reports and accounts filed and signed off by each charity's board.

"The ratio of costs related to the generation of income and governance costs, as expressed as a percentage of total incoming resources used by TFF, is exactly the same ratio used by the Charity Commission on their Beta website and is labelled clearly as 'income generation and governance'."

Paradoxically, it is Pesh Framjee himself who, unintentionally, reinforces the reasonableness, indeed mainstream approach, of the foundation using the basis of the analysis it did, when he states: "Charities are also to blame, further perpetuating these unrealistic expectations and poor understanding by highlighting their financial ratios as a measure of effectiveness." Game, set and match to the True and Fair Foundation!

Framjee can be said to imply that there is some publicity seeking agenda behind the foundation's criticisms ("little more than a publicity exercise"). Well, the foundation is a campaigning organisation!

But what the charity establishment has to take on board is the fact that Gina Miller is a significant philanthropist in her own right, which gives her much credibility in relation to her motives, and that she is indeed a realist about the need for charities to pay for professional services, her separate company being a supplier of such services.

So what is all this about and what should the charity establishment be doing to remedy matters?

Refusal to acknowledge anything wrong

The critical conclusions by Gina Miller and the True and Fair Foundation, whatever their precise accuracy, reflect the great wave of criticism of charities from other quarters, and that the criticism is fuelled by a refusal of many charity leaders to acknowledge that anything is wrong at all. There is absolutely no bending, not the slightest blink of an eyelid that the critics may have a point. No awareness that falling donations may be caused by negative public perceptions, which should be addressed.

One of the main causes of bad public perceptions of charities are big salaries and benefit packages for senior executives, in practice in many of the big charities. Ordinary people simply cannot relate what they see as the charitable ethos to the payment of large salaries to senior charity executives. It doesn't matter how these charities and the chief executive of ACEVO defend it (on the lines of "if you want good people you have to pay the market rate"); ordinary donors don't like this.

It would also be very reasonable to ask whether the big charities and their donors are actually getting good value for money from these highly paid executives. Framjee says: "We need to stop talking about good and bad expenditure and focus instead on performance." On that basis how does one rate the senior management of a major charity for offering older people a fixed two year energy contract which proved not to be ultimately to their advantage, and which was only discontinued when there was a public storm, as opposed to the charity's senior management monitoring the situation from the very beginning and appreciating problems.

Mindset of big charity bosses

What is concerning is the mindset of many of these big charity bosses (not the chief executive of NCVO one hastens to add who has called for transparency on the subject) who won't take on board the unacceptability of this high pay and benefits policy.

So the future remains gloomy: self-denial and no change leading to angry press and political reactions and further reductions in donations. And a continued diverting of money meant by donors for use in front end delivery - which is Gina Miller's basic overall complaint and on which further focus is needed in the interests of the charity sector as a whole.

Before going any further, the point has to be emphatically made that the majority of charities are marvellous and those who run them are marvellous people and cannot be faulted in any way concerning how they operate in very challenging circumstances. Society owes a huge debt to the great majority of charity workers and managers and it is a great pity that they are at risk of being caught in the backlash against those causing bad problems with public perceptions.

Smaller charity leaders generally do not have the large salaries and benefit packages - and the lower down the size scale one goes the lower the salaries and packages, with rates no person with similar responsibilities in the commercial or public sector would accept. Indeed criticism of big remuneration understandably leaves most charity senior executives scratching their heads in some bewilderment.

It is really the leaders of some of the big charities who are mainly at fault, and the leaders of one or two of the charity associations who have much to answer for - again NCVO being an admirable exception. It is these leaders who are in complete self-denial, completely impervious to criticism. And unfortunately this is seeping down into the management culture of the charities they run.

Exempt from normal rules

Many charity leaders, managers and even workers feel that they can act in a certain way (which is unacceptable to the outside world) simply because they are working in charities. They feel they are outside the rules of acceptable behaviour.

A short while ago, I responded by telephone to an email from a charity which was offering a free booklet on a medical condition suffered by elderly people. I called to ask for the leaflet and my call was handled by someone who quickly wanted to take my bank details. When I demurred that I was only calling to obtain the free booklet, I was aggressively asked, "Don't you want to give money to charity?" Needless to say, I would now never contemplate giving a donation to that very large and well known charity.

An elderly pensioner was sadly driven to suicide by being subject, as so many people unfortunately are, to masses of begging letters from different charities. There was massive publicity and huge condemnation. Did this immediately result in a commitment by charities to stop the practice of passing on information about donors? No need to wait for a new regulatory body and new rules - did they make this clear cut and obviously necessary commitment?

Passing on donors' details

In January this year a representative of the Institute of Fundraising was interviewed by Piers Morgan on the Good Morning Britain show on ITV. He was repeatedly questioned on the fact that charities passing on donors' details to other charities was an undesirable practice and should be stopped. His answer was that donors didn't need to tick the box! But why leave the option there in the first place?

The representative wouldn't address the core fact that the interviewer and the general public found this practice unacceptable and instead kept on repeating in different ways that the practice was a good thing because it gave people the opportunity to donate to similar charities! This representative and the organisation he represented had lost the plot.

Certain charity leaders may believe that aggressive fundraising tactics and inflexible fundraising strategies are part and parcel of raising money for charities to carry out their vital activities, but again they have to get it into their heads that the public doesn't like what is going on. The public doesn't like being accosted in the street, so why keep on using chuggers? Why respond to this dislike by only regulating chuggers rather than getting rid of them altogether?

Occasional one-off donations

People frequently feel more comfortable making occasional one-off donations (often they can't afford to do more) so why ignore this and relentlessly keep presenting the sole opportunity of direct debit? Of course, direct debits are more helpful to charities, but why ignore donors' wishes like this as some charities do with their street fundraising activities?

Perhaps if the issues raised above were addressed there wouldn't be so much anger expressed by the press, politicians, commentators and campaigners like Gina Miller and her True and Fair Foundation. Remove the causes of the anger and the sector as a whole would benefit. Time for the big charity leaders to change their mindset.

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