Thursday, March 8, 2012

Why Charities Are Doomed

This is a speech I made in February 2012.

I wish I could tell you that charities are doomed because they will no longer be needed. I would love to tell you poverty will be history, unnecessary disease and death will be eliminated, there will be a cure for cancer and AIDS, and that all of the problems charities work so hard to fix will be eradicated.

Unfortunately, that’s not the case. While I do think all these problems can and will be fixed, if we continue down the path we are on charities will not be the ones responsible.

Instead, charities are doomed. They are doomed because of the restrictions we put on them, and because of their competition.
We restrict charities by telling them they cannot operate like a business and this attitude is strangling them. Let’s think about it...

Firstly, we tell charities they can’t spend money on advertising and marketing, or they must rely on free ad space or can only spend minimal amounts. But why? Businesses spend on advertising because it works. Pepsi, Apple, Microsoft, these organisations built their empires through advertising. You might not like to admit it but charities are competing for the money we spend on these products, and yet we tell them they can’t spend money trying to secure it. As a result they lose out.

Secondly, we tell charities they shouldn’t spend money on wages, and certainly not high salaries. Charity sector chief executives earn on average 18% lower than their private sector counterparts. Charities are often not able to attract the best and brightest minds because these people can earn so much more working in the private sector.

The Irish Examiner recently ran an article criticising charities for paying their CEOs more than €100k. Now think of some of the most brilliant business minds of our time - the Bill Gates, the Steve Jobs, the Warren Buffets - would it be unreasonable to pay them more than €100k to run a charity? I don’t think so - they would do amazing things. Steve Jobs was making millions through stock and expenses - the company bought him a $90 million dollar jet. Do you think his board and do you think the public criticised that move as a waste of money? Of course not...look what he did for the company.

I’m not saying paying someone over €100k is acceptable or should be encouraged - but if we’re going to allow it in the private sector we need to allow it in the charity sector. Otherwise we put these amazing charities at a disadvantage.

Finally, we tell charities that they cannot spend more than 10% on overheads. Nonsense. Let’s simplify it - a really basic example. Imagine I work in a small charity and I spend hours every week putting letters in to envelopes. I get paid for this, albeit my wage falls in to that acceptable 10%. Now imagine we wanted to buy a machine that could put all these letters in to envelopes quickly. It’s going to cost me thousands for the machine, but for years afterwards it’s going to save us time and money. A business would look at that and ask how quickly will it pay for itself and if it makes sense it will buy that machine. A charity however will not – because every year they have to deliver a financial report showing their overheads are minimal.

Not only are these restrictions holding charities back, but their competition is gaining ground and eventually will overtake them.

Who is their competition? Profit making corporations.

We are at a point where profitable companies are making numerous donations to charities throughout the world. But these companies are demanding more and more from their donations - more recognition, more involvement, more say in how this money is used. We are at a tipping point where very soon these companies will take full control of the charitable work they pay for by absorbing it fully in to their company.

Think about this - why would someone like Google continue to make donations to a charity that provides computers to schools in developing countries? Why would Google not make a direct connection with these schools? They’ll have full control over how the computers are distributed, full control over how this gesture is marketed - they’ll do it more efficiently and more effectively because they don’t have the restrictions we place on charities.

How about someone like Specsavers? Rather than their charitable work being merely donations it is only a matter of time before they do the ground work themselves. Why would Specsavers continue to make charitable donations when they could instead have a division of their organisation that works to cure unnecessary blindness themselves?

If we continue down the path we’re on it will happen, and the number one reason it will happen is because of the huge benefit these profit making companies will derive.

If Google provides computers to developing schools what browser and search engine will these schools use? Googles - they would have grown their own customer base. If Specsavers cures your blindness (and 80% of blindness is curable) who are you going to buy your glasses from for the rest of your life? Nike will help people to walk so they buy more shoes. SherryFitzgerald will house the homeless until they are in a position to pay rent. Pharmaceutical companies already pump millions in to researching cancer and AIDS - not because they are selfless but because a cure will make them the most successful company in the world.

We will save your life but you will be a loyal customer for the rest of that life. THE most loyal customer.

It makes sense for profit making companies to tackle world issues directly and because of the restrictions we put on charities they will do it better. Charities are doomed. The question you need to ask yourself - is that a bad thing?

We live in a market economy where the most cost-effective businesses survive and thrive. If charities can’t compete then why do we care? If businesses do more good work, do better work and more of the worlds problems are fixed then why do we care?

Or do you believe businesses are greedy and unethical? Do you believe charities do their good work selflessly? If that’s the case then we need charities to survive, and thrive. So let's let them.

Why couldn’t a charity have created Facebook, the iPod, Coke? Imagine! Instead of profits for shareholders these things were funding life changing projects?

We need to allow charities to excel by allowing them to be competitive. We need to stop choking them - allow them to be run like a business, advertise like a business, pay like a business and compete with businesses.

Only then will we eradicate the world’s problems.

5 comments:

  1. "If you haven't any charity in your heart you have the worst kind of heart trouble" to cure it
    Help people, let's unite for one good cause, be a volunteer"save live"!
    mawaddainternationalaid

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  2. "We are at a point where profitable companies are making numerous donations to charities throughout the world. But these companies are demanding more and more from their donations - more recognition, more involvement, more say in how this money is used."

    Corporate giving only accounts for 5-7% of all charitable giving worldwide. Any charity who lets a corporate hijack their time, resources and reputation is probably run by fundraising rookies. Experienced fundraisers go where the money is...individuals. 75% of all charitable giving is from individuals. Charities in Ireland have been over-dependent on corporate giving and events with heavy corporate sponsorship. The charities with the largest support by individuals are weathering the recession the best. Some of us are even growing.

    I agree charities need to be run on a more business like model but that doesn't mean getting more involved with corporates. Go where the money is. Build a fundraising programme with a focus on individuals.

    Denisa
    .

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  3. Oh, and thanks for validating my purchase of an envelope filling machine. It saves us a huge amount of time which we can spend on more lucrative tasks.

    Denisa

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  4. The CEO of Gorta gets less than €100,000. http://www.gorta.org/home/where-we-work/

    http://www.newstalk.ie/question-should-top-charity-bosses-reduce-their-salaries

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    Replies
    1. Thanks Anonymous. Have you got a point/comment related to that?

      Delete