Bruce Dewar is president and CEO Of LIFT Philanthropy Partners. Scott Cameron is principal at McKinsey & Co.
Imagine the impact we could have if instead of treating charities like charity cases, we thought of them, and invested in them, as businesses – helping them scale, become more efficient and deliver a better return on investment? It’s counterintuitive by most people’s thinking, but charities are actually more effective if they aren’t expected to spend all their money on program delivery. When they invest in themselves, they can help more people.
It’s part of our culture of philanthropy to think charities should spend all their money directly on programs, that “administrative” spending is bad. A recent Imagine Canada survey found that almost two-thirds of Canadians who plan to donate over the holiday season believe that charities spend far too much on their administration and overhead costs. In fact, only 7 per cent of those polled disagreed with the view that charities overspend on administration.
This survey also found that the amount spent internally is one of the most important factors used by donors when deciding on where they will and will not give.
The only consideration that ranked higher in people’s minds was their “interest in the cause.”
It’s understandable that donors want their dollars to go directly to the cause that moved them, but this short-sighted thinking ultimately undermines charities’ ability to have the type of impact that both they and their donors expect on the people, communities or cause they want to support.
Here’s why: Charities know that donors fixate on overhead costs, so to attract financial support, they underinvest in staff, tools, internal systems and strategic planning.
In doing so, charities starve themselves of much-needed technology and training. The impact of this donor-imposed self-sacrifice is they actually can’t deliver the most positive impact possible with the dollars donated. Don’t get me wrong; charities do the best they can and are making an incredible difference. But imagine what they could do with proper training, technology and business systems.
“Administration and overhead costs” sounds dry, as if it refers to mere office supplies, but it’s actually the opposite.
This catch-all phrase applies to the amount charities can invest in systems and structures that will define their ability to be successful and impactful.
It includes what they spend on technology, training, recruitment, financial controls and governance.
The challenge is the misperception by donors that any dollar not seen as going directly to the stated cause is “wasteful” and “outrageous.” We need to put an end to this old-school thinking and encourage charities to invest in business resources.
We need to spread the message that to be effective, charities, like the private sector, need to actively invest in themselves in order to best help those they serve.
The private sector knows the ROI of this type of investment – and that’s why successful brands and companies actively invest in all of the above.
The 2014 Forbes Corporate Learning Factbook found that U.S. spending on corporate training grew by more than 15 per cent last year, to more than $70-billion. The number one area for spending was management and leadership training. The Forbes survey also found that companies ranked as “high impact” in their industry also spent significantly more on training than their competitors. That’s the thinking behind venture philanthropy. And it’s the kind of thinking that should be the future of funding for non-profits in Canada.
Instead of simply providing cash grants to charities, non-profits and social enterprises, venture philanthropy invests in the expertise and resources required to help them grow and function most effectively.
It’s an approach with proven results and high potential, but it requires a cultural shift. Donors need to give implicit permission for charities to invest in “administration and overhead.”Report Typo/Error