SPECIAL REPORT: Business wants more than just good stories from the NFP sector if it is to justify its funding – it wants hard data.
Business wants more than just good stories from the NFP sector if it is to justify its funding – it wants hard data.
Demands by the business sector for greater accountability and efficiency from the charities they fund might prove counterproductive, according to some not for profits.
From the business side, those providing funding want tangible evidence of where their money is spent, data proving their investments are having an impact, and for organisations with a similar focus to merge and collaborate.
But NFP organisations say many of the requests from business run the risk of applying business principles to a sector that operates in a vastly different world.
They say adhering to business-founded demands isn’t possible in many cases and are concerned that experience might be overlooked in the search for numerical evidence.
Many of these issues were raised in a recent Business News boardroom lunch where a range of representatives gathered to discuss philanthropy in Western Australia.
Those included chief executive of disability services organisation Rocky Bay, Michael Tait, who said delivering the information required by potential funders was problematic.
“There’s the corporate understanding of good practice and benchmarking … but in order to get that evidence that (investment) is going into an area and having good outcomes, to me that is terribly fraught,” Mr Tait told the forum.
“I don’t think that’s needed and I haven’t met anyone in the not-for-profit space who isn’t trying to do the right thing.”
Curtin Not for Profit Initiative director David Gilchrist has been researching the sector and the influence coming from philanthropic involvement, including calls for data to prove outcomes.
While Professor Gilchrist did not attend the boardroom discussion, he told Business News that philanthropists tended to take a broad-brush approach to looking at the sector, which belied its complexity.
Intertwined with that approach was national rhetoric around cost cutting and commercial productivity, which was missing the point of the NFP sector.
“The current discussion nationally is very much about the reality commercial economics rather than looking at the humanity of the not-for-profit sector,” Professor Gilchrist said.
“When you are delivering a profit target it really simplifies decision making; when I’m trying to achieve outcomes, money is one consideration, but I cannot simply fall back on money being the only consideration.
“Looking at statistics doesn’t give you an appreciation of what (not for profits) do and how they actually do it.”
And yet philanthropists, including McCusker Charitable Foundation trustee Tonya McCusker, are continuing to call for hard data.
Mrs McCusker said the foundation, which has donated more than $30 million in recent years, found deciding where to allocate funding an arduous process.
But she said it would be made easier if the sector was transparent and able to show how donations were helping bring social returns; a request that not for profits were so far unable to satisfy with hard data.
Instead, case-by-case anecdotes were relied on to show an organisation was having an impact.
“They’re all feel-good stories, but at the end of the day it helps to have some numbers as to why one needs more funding, and it’s not easy,” Mrs McCusker said.
“To be able to say to a donor ‘this is what your investment has achieved and where your money has gone’ would be a big benefit to potential donors and to current donors.
“But it’s hard for not for profits that are running on a shoestring to be able to get the resources to deliver that measurement.”
Fogarty Foundation executive chair Annie Fogarty supported Mrs McCusker’s view.
Ms Fogarty said if she could not see proof that a not for profit was financially sustainable and that donations would be put to good use, it would be unlikely to get funding from the Fogarty Foundation, the private philanthropic trust she established with her husband, Brett Fogarty, in 2000.
And the figures tend to support Mrs McCusker and Ms Fogarty’s belief that organisations able to show statistical proof of their impact are more attractive.
The Clontarf Foundation places great emphasis on its ability to prove its work is benefiting communities.
In one example, it cites school attendance of Aboriginal boys improving from 55 per cent to 80 per cent.
Oil and gas company Santos recently referenced such data as a key motivator in its decision to renew a three-year partnership with the foundation.
In a company statement, Santos Western Australia and Northern Territory general manager Brett Woods welcomed the extension of the partnership with “one of the nation’s most successful programs for improving school retention rates amongst Aboriginal boys.”
“Recent data shows an increasing number of Clontarf boys are making the transition into employment upon graduation,” Mr Woods added.
Clontarf has nearly 100 corporate sponsors, which account for about one third of its annual income.
For organisations without the resources to prove impact, or that are working in an area where measuring outcomes is problematic, the only option is to use anecdotal evidence, as is the case for the St Vincent de Paul Society.
Chief executive Mark Fitzpatrick often reiterates his view that the ultimate determination of the society’s success would be when its services were no longer needed and, thus, homelessness had ceased to be a significant social problem.
Mr Fitzpatrick said the corporate sector needed to loosen its clutch on statistics that don’t tell the full story of social and community issues.
“We’ve got to strike a balance between head and heart and we have to get away from conversations that speak only of the numbers,” he said.
Lotterywest chief executive Jan Stewart agreed, and went so far as to question what information philanthropists and corporate donors were actually seeking.
“I really struggle with this concept (of measuring social investment). I’ve been doing this for a long time and I wonder if we’re trying to measure the immeasurable – what are we trying to measure and to what end?” Ms Stewart said.
“After a lot of time and effort the only methodology which made sense to (Lotterywest) was the method that we use – the most significant change method, which essentially, is stories – it’s not hard data.”
Giving West chief executive Kevin McDonald said the root cause of the sector’s inability to provide data showing success was not only due to a lack of resources and difficult-to-measure outcomes, but also a lack of cohesiveness within the sector.
“Part of the problem is the complexity of it; you’re trying to measure quite a complex and heterogeneous sector,” he said.
“What you need is some frameworks and guidelines and a central repository of what works and what doesn’t.”
Mrs McCusker welcomed the idea of sharing information and providing case studies and benchmarks, but maintained it needed to include more than anecdotes.
“It doesn’t mean everyone has to do it, but if someone was able to do it and that information was easily accessible then (not for profits) could go to donors and say ‘here is some evidence to say there is good reason to get involved in this’,” Ms McCusker said.
“I think you need a balance of good stories and the numerical evidence, but you do need more than just the stories,” she said.
Mergers
Part of the McCusker Foundation’s frustration in deciding where to allocate funding is related to the multitude of NFP organisations vying for donations.
Ms McCusker said, in one example, the foundation had been encouraging two separate organisations to merge, but without success.
“We’ve worked for many years with a research foundation and have been trying to move them in with [another] foundation and because of personalities it just didn’t happen, but both of them would get more funding if they were together,” she said.
It’s not the first time not for profits have been urged to merge, as Professor Gilchrist said he had been aware of calls for consolidation during his 22 year experience in the sector.
“And yet we’re still here and we’ve still got small organisations,” he said.
While some organisations have joined forces and begun to collaborate in a more meaningful way, examples are scarce.
St Vincent de Paul’s Mark Fitzpatrick said the fact mergers hadn’t occurred to the extent funders would like was because of the emotional nature of the sector.
“I have a view that there are too many not for profits out there that can’t differentiate themselves and what they’re there for, and that’s a concern,” Mr Fitzpatrick told Business News.
“I’m not sure what value that is adding to the market.
“I can understand from a donor perspective how there’s a lot of confusion, and I think emotion and ego sometimes gets in the way of a good business deal.”
Increasing pressure for mergers is likely to be put on the disability services sector as the National Disability Insurance Scheme comes into effect (see story, page xx), but Mr Tait said organisations such as Rocky Bay would have to step back from the emotion surrounding their mission if that were to happen.
“You’re talking about a space that is driven by emotion, and so the objectivity, rationality and pragmatism needed for mergers tends to be very tough,” he said.
“There is no question that the NDIS will probably necessitate some (mergers) as some of the smaller and potentially larger organisations struggle because of the governance and compliance needs of the federal system coming into the space.”
“But I think it’s going to be difficult for some organisations that are either parent, emotion, or mission-driven.”
Diversification
Mr Fitzpatrick said further growth in the sector and survival of small organisations could depend on a range of diversification strategies – the first being service delivery.
He said organisations could improve their chances of success by collaborating with others that offer a different service to the same market, but wouldn’t necessitate a merger.
“It’s about complementarity and knowing what services you are good at providing. I don’t want to be a drug and alcohol (recovery) provider, there are others that are good at that, but I want their skills to help my people,” Mr Fitzpatrick said.
With the uncertainty around philanthropic, corporate and government funding, Mr Fitzpatrick said NFPs also needed to reduce their reliance on those funding sources and become more innovative in the way they gained income.
In this sense, Mr Fitzpatrick said NFPs could learn from the business sector.
“To be more charitable you’ve got to be more commercial in parts of your business and unashamedly so in some cases too; it’s really about how to get the income to deliver the outcome,” he said.
“What we’ve done in the not-for-profit sector is talked ourselves into a mindset that the only way we’re going to get funding is through donations.
“We’ve just got to look differently at the way we get the money in to deliver the outcomes we still need to deliver. I don’t think it necessarily changes the business or the ethos if you run it properly.”
The St Vincent de Paul society is a good example, with half of its income derived from its 43 ‘opportunity shops’ across the state.
Another example of what’s become described as ‘social enterprises’ is Dismantle – a Fremantle-based NFP which holds an ultimate aim of improving youth engagement and development through a bicycle mechanic program.
In order to fund that initiative it has developed a business around bicycle repairs and selling team-building sessions to the corporate sector.
Further funding diversification is emerging in the sector with the rise of impact investing, (see page xxx) where investment is made for a social cause but is also expected to bring economic benefits for the donor.
Business expertise
In order to help not-for-profit organisations succeed with such business-focused ventures, organisations are continuously seeking board involvement from experienced business people.
However, the sector has warned of a certain presumption of knowledge coming from corporate executives joining not-for-profit boards.
Chief executive of disability services provider Nulsen, Gordon Trewern, said board members were not always fully aware of how an organisation operated, but assumed business principles would apply regardless.
“The not-for-profit sector is a bit different from the corporate sector because we deal in such an emotional space and the decisions boards make can have a big impact on people’s lives,” Mr Trewern said.
“I’ve seen examples in our own business where directors do not understand the business; they’ve brought good governance to the table but there’s been a disconnect from the core purpose or mission, and that can be quite dangerous.
“They’re making decisions or putting judgements on the table that, actually, are not based on an understanding of what the organisation is trying to achieve or the nature of what the services are trying to do.”
Mr Trewern said Nulsen encouraged board members to “roll their sleeves up” and get involved with the organisation to gain full understanding of how it operated.
In addition to running the Curtin Not for Profit Initiative, Professor Gilchrist works closely with Mr Trewen as chair of the Nulsen board.
He said the not-for-profit sector needed to stand its ground and push back on successful business people who assumed they knew best.
“There are so many extraordinary not-for-profit people in terms of their wealth of knowledge, their work and their capacity to understand what’s going on … and it’s something that we just don’t document,” Professor Gilchrist said.
“And so you often get business people telling the not-for-profit sector what they have to do and how they have to do it, when in fact it’s a real shame that the tacit knowledge that these not-for-profit people have is elusive.
“The reweighting needs to be on not-for-profit people so that there’s equal validity given to their opinion and how things need to go.”
Mr Trewern also said Nulsen was pushing back on innuendo that not-for-profit boards were a stepping stone for people with aspirations for a seat on a for-profit board.
“We might be perceived as a stepping stone but we need to push back on that a little bit,” he said.
“We might be perceived as cute charities that do good things, but the truth is that charities can be very complex businesses with huge risk, so going onto a board of a not for profit should be seen as equal to commercial.”
Mr Trewern said Nulsen was becoming more discerning about who it asked to join the board, a trend Mr Fitzpatrick said the St Vincent de Paul had also adhered to.
“You recruit for a purpose and a context, and you do the same with a board.”
Mr Fitzpatrick said business acumen could also be leveraged without the person holding that expertise necessarily joining the board; instead they could be utilised in a mentor or consulting capacity.
For Rocky Bay, which has a huge vested interest in the introduction of the NDIS, the future presents a range of challenges the board would have to be across.
Chief executive Michael Tait said, as a consequence, the organisation would be asking more of its board members.
“We’re having to become more sophisticated organisations,” he said.
“With that, the board has to become more sophisticated and, therefore, we’re demanding more of directors coming on.
“There’s a lot more of that happening than what has historically been done and that will set the tone of expectations going forward generally.”
