Whenever I get the opportunity to travel I choose the Hilton. I love it there. For me, walking into a Hilton is like going home. They know my name and my room preferences, the pillows are perfect, and the staff is always kind and provides stellar customer service. And, I have no idea what their profit margin is. Never once have I laid my head down after a long day and thought to myself, “I wonder how much they spent on these pillows?” When a business meets our expectations with it’s products and services, we don’t focus on what their overhead is. We appreciate they made the investment required to operate smoothly and provide the value we expect.
So why then, do we care so much about administrative costs and overhead when it comes to the charities we support? Shouldn’t we expect charities to invest in the appropriate infrastructure and capacity required to fill societal gaps effectively and efficiently?
The charitable sector in Canada represents 8.1 per cent of our gross domestic product and employs over two million people – that is roughly 11 per cent of our economically active population. In fact, when it comes to giving, Canadians donated over $12.8 billion to charity in 2014. Canada’s charitable sector is the second largest in the world, provides extraordinary social services and is a significant driver of our economic engine.
It is an unfortunate reality that when choosing a charity to support, the first thing that comes to mind for most donors is overhead, administrative costs and how much of the donation “actually goes to the cause.” We would never ask that of the automotive industry or manufacturing industries…and yet the charitable sector makes a much larger contribution to society than either of those sectors.
With the need for social services in Canada growing and demands on charities increasing, it seems appropriate for donors to drive the change required to move away from what has become commonly known as the Non-Profit Starvation Cycle.
In order to grow and be better able to meet demand, charitable organizations need to be able to stop worrying about defending their overhead expenses and start being able to communicate the value of their ability to plan and ensure they can fund the tools and resources needed to do their jobs effectively.
It is unreasonable to expect any business to operate and grow with out-of-date technology, inadequate office space and untrained, underpaid staff. Yet, when donors ask the question about overhead, that is exactly the reality that continues to permeate charitable systems.
I think that the reason donors keep asking about administration costs is because Canadian charities are simply not very good at reporting impact. So, just like consumers of business drive changes in services, I think people who donate to charity can drive changes in the charitable sector.
When choosing an organization to support, there are a lot of criteria, other than the overhead costs, that will help you know whether a charity is right for you.
Josh Cooper, CEO of the Jewish National Fund encourages philanthropists to do their research: “Don’t take anything at face value. Do your research and find out where the money goes. Do your homework and phone the charity to see if they can answer your questions. At JNF we can tell our donors exactly what their donation has achieved right down to the tree planted on their behalf. All charities should be able to do that, and they will if, donors start asking them.”
When deciding to choose a charity here are some questions that might help guide you through a new kind of conversation:
What plans do you have for the future and do you have the resources needed to deliver them? Is there a strategic plan in place?
Knowing where you are and how you are going to get there is fundamentally important for any business. Charities are no different – and yet due to the aforementioned starvation cycle this process is often regarded as a waste of time and resources. Donors need to start expecting their favourite organization to have alignment towards the future.
What kind of impact will you have on the world?
Charities need to do a better job at measuring and reporting their impact. How many lives will be saved? How many children are taught and how will a more educated population change the community? How many trees will be planted and how will that impact air quality?
Philanthropy and fundraising is not about the money – it is about the change we want to make in the world. We need to start reporting beyond the audited financial statements and talk more about the changes in society as a result of increased revenue. We will do this – if donors ask us to.
Is your board of directors engaged in the organization? May I meet them?
Think about it for a second. Nonprofit board members have a legal responsibility for $12.8 billion donated to charity in Canada every year. Yet, governance is often the weak link for many organizations.
Is sufficient investment being made in board training? Can they read and understand the audited financial statements? Can they talk about them? Are they passionate about the cause? Do they donate to the cause? Attend the meetings? What is the recruitment process?
When donors start asking about the board of directors, more priority will be placed on ensuring the board is functioning well and doing its job.
What is the turnover rate of your staff?
One of the biggest challenges in the nonprofit sector is staff turnover. Again due to lack of investment in salaries, technology and resources the sector has a very challenging time keeping good employees. When donors start asking about staff turnover, charities will start making retention a priority.
What didn’t work and how will you change it? Can I trust you?
Building trust between donors and charities is essential. Any investor understands that failure is going to happen if progress is to be made. Once we start to release the sector from the starvation cycle we can start taking more risks and reporting our outcomes the way Engineers Without Borders does with their annual failure report.
When charities understand that donors support risk, innovation and failure they will be able to make more progress, faster.
Being in a position to invest in charity is a great responsibility and it should feel good to give. For a charity, earning your support is a great privilege. Together, philanthropists and charities can have extraordinary impact on the world. It is time for charities and philanthropists to work harder at changing the conversation about what truly makes a strong, viable, noteworthy organization and, as a result,charitable sector in Canada. Let’s get started today.
This article first appeared in Canadian Jewish News - August 27th edition
Kimberley MacKenzie is deeply passionate about building the capacity of the charitable sector. As part time Editor of Hilborn, Charity eNEWS she is always sourcing out practically useful content to share. Kimberley also works with a variety of organizations to advance a culture of philanthropy among staff and senior volunteers, and ultimately raise more money for their missions and serves as a member of the Advisory Panel for the Rogare Think Tank at Plymouth University in the UK. Contact her via@kimberleycanada, email her, or visit www.kimberleymackenzie.ca