Who Wants to Commodify Charities?
Thursday, 25th October 2018 at 8:48 am
The core role of the charities regulator should not be diminished by ill-informed attempts to develop a nebulous marketplace for which there are few, if any, customers, writes Community Council for Australia CEO David Crosbie.
A number of key people – including Australian Charities and Not-for-profits Commission (ACNC) Commissioner Dr Gary Johns – have argued the ACNC should provide a marketplace, a listing of products for potential buyers or investors. They argue there are many donors seeking more information about charities and the ACNC should play a role in providing comparable data to inform donor decision making. This approach is flawed at many levels.
To start with, it is not the role of a regulator to run a marketplace.
The Australian Securities Exchange (ASX) provides comprehensive information to potential business investors. The ASX is a highly regulated marketplace with rules governing which companies can list their shares, the level of product disclosure, insider trading restrictions to protect the broader market and carefully controlled standardised comparable information that can and must be provided to be part of the market. Only a limited number of well capitalised companies can be ASX-listed companies.
The ASX is not a regulator, it is a private commercial company making money by running a marketplace.
The Australian Securities and Investments Commission (ASIC) regulates businesses in Australia. The fact that a business is registered with ASIC does not mean it is a good business. There are many not so profitable and not so well-run businesses that are on the ASIC register. ASIC does not endorse or compare. It is government funded to act as the regulator for all Australian businesses.
About four years ago Dr Gary Johns met with me to promote his company Donor Inform. This was a company that Dr Johns believed was going to become successful by offering donors the information they needed to make informed decisions about their donations to charities. We ended up agreeing to disagree about its potential to succeed, primarily because at the time I saw little evidence there was any market for the product Dr Johns was creating. I am still of that view.
There is a significant body of research into why people give to charities and what the critical factors are in choosing a charity. It will come as no surprise to most readers that the motivations for giving are about how we feel, what really matters to us, and our own experiences. We are more likely to give to a charity if we have personal commitment to their mission or cause. We are more likely to give to a charity if we have personal experience of the charity making a difference in our lives or the lives of people we know. Charities that are well known and are seen to have good governance and competence are more likely to be supported, but these are not the primary motivators or the key factors in decision making. In fact, there is good evidence that additional information about charities makes little or no difference to decision making about which charity to support.
The failure of the US Hewlett Foundation Non-profit Market Initiative to achieve its objective of “influencing 10 per cent of individual donors to be more evidence-based in their giving by making high-quality information available about nonprofit performance” has been well documented. Four years into the $12 million-dollar project it was closed-down because it wasn’t working. Hewlett Foundation concluded that: “based on independent research and evaluation, we concluded we were not going to meet that goal”. They could not achieve their goal of changing just 10 per cent of decision making by providing more information about charities.
The take home message in all the research is that giving to a charity does not involve the same decision-making processes that we might use when purchasing a new toaster or flat screen TV. Charities are not a commodity.
Perhaps this explains why there is no evidence that thousands of Australians are looking for a marketplace to enable them to make their decision about which charities to give to. While it is an often-repeated claim that donors need more information, I haven’t seen this claim substantiated. I keep looking for the mythical cohort of confused donors seeking guidance in their philanthropic decision-making. Unfortunately, I have yet to meet anyone in this cohort, despite my willingness to offer advice.
It is also important to point out the fundamental difference between the way business performance is measured and the way we judge a successful charity. The success or failure of business is measured by their capacity to generate profits for their owners, including any shareholders. The higher the profitability of a business, the more it is worth.
If I am comparing the ANZ to Westpac as an investment on the ASX, there is a plethora of directly comparable measures of performance across a broad range of factors from dividends and price earnings ratios, to total capitalisation, etc. etc. No such comparable information is available across the charities sector, even in comparing two charities that may share very similar purposes.
For example, how can we compare the performance of two different charities working to increase Indigenous retention in school? Is it the retention rates achieved? What if one of the charities works with families in remote communities and one works to offer scholarships to high level private schools in the major cities? What if one of the charities selects high achieving Indigenous children and one works with children that are more disadvantaged? What if one has a bigger surplus, one gets government funding, etc.? Each needs to measure its success, its impact and know the costs of its services and the outcomes it is achieving. But knowing these measures does not necessarily make the two charities directly comparable in terms of their performance or their return on investment.
There is a very good argument charities should do more to measure their performance, their costs, their outcomes, their impact, not to create a marketplace, but to build the evidence base and contribute to our knowledge about how to achieve positive change.
There is also a very good argument that the ACNC should provide important information about each charity, just as ASIC does for each business. This is not about creating a marketplace, but providing good information on each organisation and allowing for informed analysis of the charities sector.
Donor Inform was voluntarily deregistered as a company (with ASIC) in the months prior to Dr Johns being appointed as the ACNC Commissioner. It was a failed concept.
The ACNC is a government funded charity regulator, not the commercial provider of a marketplace.
The core regulatory role of the ACNC should not be diminished by ill-informed attempts to develop a nebulous marketplace for which there are few, if any, customers.
About the author: David Crosbie is CEO of the Community Council for Australia. He has spent more than 20 years as CEO of significant charities including five years in his current role, four years as CEO of the Mental Health Council of Australia, seven years as CEO of the Alcohol and other Drugs Council of Australia, and seven years as CEO of Odyssey House Victoria.
David Crosbie writes exclusively for Pro Bono News on a fortnightly basis, covering issues of importance to the broader not-for-profit sector.