Singing for their suppers
While high profile endorsement is welcome, the charity sector now has harsh corporate realities to contend with, writes Colin Cardwell
TIS the season to be giving – and when it comes to charity, this is the time of year when we give with our hearts rather than our heads. Many of us are particularly swift and susceptible when it comes to reaching for cash or cards (those with a more structured approach to their giving tend to align it with the end of the tax year in spring). This year will be no exception, with pictures of the Philippines, a nation painfully recovering from the devastation of Typhoon Haiyan vexing the collective conscience of a relatively comfortable constituency of Xbox and PS4 consumers.
Celebrities such as Celine Dion and JK Rowling have been no slouches in raising the profile of specific causes. Last month Dion recorded a video clip in which she endorsed Child 31, a documentary about the work of Argyll-based Mary’s Meals, which provides a meal to 822,000 children in their place of education; while also last month Rowling raised £1 million at a fundraiser for children’s charity Lumos, which she chairs.
Commendable as these events are, funding the Third Sector demands more than a sentimental burst of seasonal goodwill or a highly-publicised event. Research by the Scottish Council for Voluntary Organisations and evidence from its constituent charities demonstrate that the sector has been subject to the same pressures on its dwindling income as any other since 2009.
Roslyn Neely, director of fundraising at the Children’s Hospice Association Scotland says: “I would say that this year has been one of our toughest so far, with a drop in community and small donations.”
With daily costs of £25,000 involved in running care services at CHAS, any shortfall in contributions is bound to be concerning. “People are certainly finding their circumstances more challenging and are prioritising their giving more – there is much less spare cash around.”
There is also, she adds, an increasing desire to see where the money is going. “At CHAS we have an advantage,” she says. “We are in Scotland so people can come here to visit our centres and see exactly what we are doing, in terms of intensive care and support of the relatives, including those who have been bereaved.”
John Wilkes, chief executive of the Scottish Refugee Council agrees that while the demands made of the sector have not diminished, the challenge of funding its urgent requirements has grown.
“Charities are not immune to the general economic climate and like many others the Scottish Refugee Council has certainly been affected by the downturn,” he says. “But we are used to change and we continue to adapt and evolve in response to external circumstances.”
For Roslyn Neely, this kind of adaptation means that CHAS now has to be “a bit shrewder. We have to demonstrate how the money is being used and how we are fulfilling our strategy.”
That strategy, she says, has involved introducing more events into the calendar. Many people, she explains, are more likely to sponsor a friend or colleague for the effort they are making rather than simply dropping
money into a collecting box. Giving to charity in the 21st century has become a much more involved business than signing a cheque. There are fiscal year deeds of covenant, trusts – and a whole landscape of sophisticated financial instruments.
Not-for-profit organisations, in short, are operating in the same unforgiving bear pit as their less cuddly counterparts. The rules and the rewards are the same – but have charities caught up with this?
James England, head of Charity and Corporate Investing at Standard Life Wealth highlights the complexities. “Fortunately, charities have seen their investments bounce back this year, but many are focusing more on their finances and ensuring they are structured as efficiently as possible for the future.
“There are many hot topics for charities at the moment: the new Statement of Recommended Practice; the introduction of the total return approach, resulting in trustees being given more flexibility and control; and more recently, the debate over professional versus retail classification for charities, resulting in some smaller charities seeing a change or reduction in service.”
Malcolm Rust, head of the private client and charities teams at Shepherd and Wedderburn Financial is encouraged by the fact that many charities are coming to terms with the increasingly involved demands made of them.
“There is no doubt they are more alive to effective financial management and controls. This is now more apparent in the smaller charities – particularly start-ups which have grown relatively quickly.”
He agrees with Roslyn Neely that there is – and given the straitened circumstances of the past six years a natural – desire to see where the money is going and what the results are.
“Philanthropists now expect something back – ROI or ‘return on investment’ is the buzz phrase. It’s increasingly about targeted investment with a clear return sought, which leads to challenges being laid down to charities to meet the targets,” he says.
“I think the focus now for charities is to address that challenge and give the ‘investors’ the ‘returns’ they seek.”
So are there any differences left between the management of Third Sector organisations and their peers in the purely-for-profit arena? James England gives an asset management perspective.
“Many charities have similar requirements to corporates. Often the goal is to preserve capital versus inflation or to achieve specific rates of return above cash rates. If this is the case, then the investment approach is the same. Ethical consideration is probably where a charity portfolio will deviate in terms of the holdings from other clients we manage.”
And charities are of, course, bound by the same rules as their private sector counterparts – which leaves them open to the same accusations and opprobrium. This year has seen a stinging series of articles in the press about the sector risking being “brought into disrepute” over the mismatch of chief executives’ pay and pay-offs and falling revenues.
Malcolm Rust injects a note of circumspection: provided the individual is performing at or above the level expected, there are regular appraisals and the return is benchmarked, then the remuneration levels can be supported, he argues.
“It’s when the performance dips that the questions really arise. But some are effectively the CEOs of large turnover businesses so why shouldn’t they be remunerated accordingly if they do well? It is about attracting and retaining the right skilled people.”
Rust also highlights the hazard that any company or organisation now faces on a real-time basis: the maverick universe of social media.
“There are cases of urgent advice we have to give, for example, about negative comments made on the internet. I’m perplexed by some users of, for example, Facebook and Twitter whose messages can in some cases can be very damaging to reputations – particularly when employed unfairly and without substance. Charities thrive on their reputations and once a seed is planted, even in jest or based on false information, whether maliciously or not, it’s out there.”
This, of course, is yet another challenge for the sector which, with others, is facing serial rounds of regulatory requirements.
John Wilkes takes a pragmatic approach: “We share the regulatory burden experienced by many others in terms of issues such as new pension regulations, employment and company law and we also have additional regulation imposed by the Charities Regulator, OSCR, and the Fundraising Standards Board.
“However, while this imposes additional requirements it is important that charities maintain public trust and confidence and that proper regulation is seen to be effective.”
So what of the future? There are, after all 23,000 registered charities competing for our attention in Scotland alone. Professional services firms and small businesses have sought efficiencies through mergers – and charities are not immune from this, says Malcolm Rust.
“There’s currently not enough collaboration between charities. We’ve seen many mergers and that trend is a good one to make efficiencies and cut waste. A headline number of 23,000 charities is still very high though and there are opportunities for greater collaboration; those that embrace that are likely to thrive as they will be open to change.”
Tomorrow and the next day, though, charities have a more elemental focus. The Scottish Refugee Council’s Wilkes says: “Despite the huge pressures on public services and funding our proudest achievement is that, even in the toughest times, we exist to help thousands of people who have fled unimaginable situations and are trying to build new lives in Scotland.”
James England of Standard Life Wealth says that many charities are now focusing on structuring their finances
Singer Celine Dion, who last month supported a documentary highlighting the Scots-based charity Mary’s Meals