Some Thoughts After a Summer of Reading & Watching Films

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Numbers Not Words: Towards the end of the film ‘Zero Dark Thirty’, Defense Secretary Leon Panetta (played by James Gandolfini) quizzes his team on the likelihood of Osama Bin Laden being in hiding in the Pakistani town of Abbotabad.  “Is he there or is he not f–––––– there?” he asks. Analysts offer probabilities between 60% and 80%, until the protagonist, Maya (Jessica Chastain), chimes in: “A hundred percent he’s there,” she says. “OK, fine, 95%, because I know certainty freaks you guys out. But it’s a hundred!”

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The scene is notable for the numbers, not the words. Completely unremarked, each person offers a numerical percentage estimate.  This is no accident.  After the 2nd Iraq war, the US Intelligence Community undertook an enormous cross-departmental excercise to improve the quality of its forecasting, which was recognised after the (hugely expensive) war to have been poor at best.  One of the recommendations was to do away with vague, textual predictions (“quite likely”, “probably will happen”, “may not take place”) and forecast using only percentages.  Another outcome of the excercise was the establishment by the US Intelligence Advanced Research Projects Agency (IARPA) of a forecasting tournament pitting teams of experts against one another in a test of forecasting ability.  The shock winner was the Good Judgement Project (GJP), a team of enthusiastic amateur forecasters marshalled by Professor Phillip Tetlock and his team.  Professor Tetlock’s book Expert Political Judgement: How Good Is It?  How Can We Know? caused a sensation some years earlier by showing that political pundit ‘experts’ have less forecasting ability than would a monkey throwing darts at a board, ie. that their predictions were worse than random guesses would be.  Professor Tetlock has said that the landmark 20-year study underlying Expert Political Judgement was inspired by a comment from Noble Prize winning economist Daniel Kahneman that most experts were no better forecasters than the average New York Times reader.  The GJP team easily beat their higher-paid, better-resourced Government opponents, who have now enlisted Tetlock and his associates to teach them how to forecast future events.

The upshot: anyone with any interest in forecasting should read the Tetlock/GJP work, starting with his most recent, Superforecasting.  The next major gift may just be round the corner, but there are lots of corners and it helps to know which one to take to find it.

Occupy Philanthropy: Malcolm Gladwell’s priceless tweet got me thinking about inequality and not-for-profits.  There is surely a thesis to be written on the fact that the British charities sector is one where 0.36% of organisations raise half all funds, while half of all charities raise 0.57% (chart below is from the NCVOs Financial Sustainability Review).  How can we speak with a united voice with such stark divisions?  And when 62 individuals hold as much wealth as half the world’s entire population, how can causes not popular with the (very) wealthy thrive?

NCVO chart charity size_income

The Curious Case of Building 20:  During World War Two, American Universities were required to join the war effort.  The Massachusetts Institute of Technology (MIT) was no different, only they had a problem: after all the major departments had been assigned office space in their re-worked campus, an assortment of smaller, less established departments were left.  These included Linguistics, Electrical Engineering various branches of Military Studies and even a piano repair facility.  Eventually, a ramshackle temporary wooden building was constructed to house the departments, designed to last “until the end of the war + six months”.

But a funny thing happened.  ‘Building 20′, as it came to be known, left a remarkable legacy.  Because it was never considered prime real estate on campus, occupants were free to modify the cheap building at will, making the space more comfortable and useful.  The eclectic departments and oddly distributed seating plan meant academics from unrelated disciplines sat close by and were free to share ideas and listen in to their colleagues’ meetings, and the randomised floorplan and single-storey structure made chance conversations with academics from random departments almost impossible to avoid.  Even a walk to the bathroom gave opportunities to bump into colleagues from completely unrelated disciplines, and for new and unexpected connections to be made between subjects, and people.  “Scientists working there pioneered a stunning list of breakthroughs, from advances in high-speed photography to the development of the physics behind microwaves. Building 20 served as an incubator for the Bose Corporation. It gave rise to the first video game and to Chomskyan linguistics”.  By the time it was finally demolished in 1998, the building was legendary for the extraordinary number of inventions and innovations whose origins lay in the shabby building.

Chance encounters between people with radically different skill sets can be hugely valuable, and are almost free for organisations to engineer.  Why doesn’t everyone do it?

Conviviality: How can not-for-profits help their employees be convivial, learn about one another, and turn the walls built by the working world into bridges?  Theodore Zeldin’s recent book is a reminder that work can and must be about more than a trade-off between ‘real’ life and something called “work” we need to “balance” against.  What if charities not only used donations and grants to deliver services, but  connected their supporters with one another, and their employees, building a mass-movement of people with shared interests and outlooks?  The imperative for this was clear as I looked at a poster in Barcelona of a Catalan charity asking for €3 to help an older person escape grinding loneliness.  While whole global businesses were built in the 20th century to fill houses with furniture, driveways with cars and planes with passengers, the third ‘revolution’ (following those in agriculture and industry) may be to fill far more lives with meaningful relationships, and to facilitate the creation of such links (Zeldin’s ‘conversation dinners‘ are one suggestion ).  This in turn could be a chance for charities (and organisations more widely) to evolve to provide not only more meaningful work, but also a solution to some of the biggest societal challenges of the 21st century, including isolation and poor mental health. Karl Wilding’s comment to the Lords Select Committee on Charities that some charities are reimagining themselves as social movements may prove to be very prescient, and not only because charities are seeking greater social proof of their causes.  The post-war model of donations for services is creaking loudly; movements funded and lead by coalition-networks of the interested, willing and able may be the future.  Am I wrong to think that’s an exciting prospect?

A Future To Believe In?: Bernie Sanders has had a busy year.  Two of his notable achievements (other than breaking the internet with a sparrow) were raising almost $230m from 8m donors with an average donation amount of $27, and, in doing so, soundly disproving the notion that low-value fundraising is old news.  Though his tilt at the Democratic Presidential nomination was ultimately unsuccessful, (not entirely due to consummate HRC campaigning), Senator Sanders moved the terms of the political debate by financing his campaign through small contributions from individuals.  This allowed him both to run on previously neglected issues of inequality, healthcare and police reform, political campaign finance and media biases in a way that would have been difficult or impossible had he appealed for major gifts from wealthier constituencies.  He also got political traction against his opponent in painting her as a creature of the Wall Street elite.

 

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Charities take note, especially of Sanders’ teams use of online fundraising, through which they raised the majority of the funds used in his Presidential nomination campaign.  The Sanders case demonstrates that a principled, urgent call to action delivered intelligently to a receptive audience who are asked to support a discrete goal works as well now as it ever did.  It also lends weight to the argument that small donations can have a big impact – a year ago relatively few people outside Vermont had heard of Bernie Sanders; he is now one of the best-known politicians in the US.  Fundraisers can learn much from his innovative, disciplined campaign.

Lastly: States collect revenue through taxes, not gifts; indeed, states who rely on gifts to function are said to have been “captured” by “special interests”, called clientelistic, or even labelled as “failed”.  As James C. Scott’s seminal Seeing Like a State makes clear, states (ie the frequently coercive bureaucratic infrastructures of authority on which nations are built) do this as it is the worst way to collect revenue, except all the others.  Is there enough discussion of the downsides of donations?

#ResearchPride

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First, let me thank Helen for taking the initiative to start #ResearchPride (and also defining what should come after).  It’s a great and timely idea – I think for a number of reasons:
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  • Fundraised income in the UK and elsewhere will struggle to grow until prospect research is more incorporated into fundraisers work and until senior leadership take it more seriously as a strategic proposition.  Prospect research’s raison d’être is to help fundraisers go where the money is, and go there often.  Yet, too often we find conference agenda lacking prospect research content, and thought leaders not discussing prospect research.  #ResearchPride is our chance to change this and tell the world how important prospect research is to funding more of the vital work our organisations do
  • We cannot escape the fact that wealth an income in many countries is now more unequal than was the case 20 or 30 years ago.  This means we cannot trust our fundraising approaches to chance.  Those able to offer truly major support are a very elite group – and we must be directed in finding them among our supporter base.  Even a brief reading of the Sunday Times Rich List shows that 2% of the value of members of the list (in 2015 valued at £587bn) would double to amount of directly donated income going to UK Charities.  And the Coutts £m Report shows that the link between wealth creation and philanthropy in Britain is weak to the point of not existing. UK GDP is £1.5trn (trillion) per year, yet £m+ philanthropy is valued at £1.3bn.  The Big Society has failed to budge this trend – while the UK is by some measures the most generous society in the world, prospect research can and should help fundraising be strategically directed toward key areas of potential growth, including high-value giving.  Important within this is ensuring charities change their habit of not asking for enough, again, something prospect research can help to change
  • Researchers give the sector space to consider new ideas and cross-pollinate.  In an industry where the next deadline is never far away, we can also help our advancement offices to lift their heads, take a look beyond within-year targets to scan the horizon for trends and innovations.  In doing so, researchers can enable fundraising to move from being a short order cook to Feran Adria.  As we’ve seen from recent developments in the UK, this is invaluable – a week (or a couple of months) is a long time in fundraising, and inertia is often not an option.  We must respond to events, and prospect research should be central to this response.
  • Finally I’m hugely proud that researchers help to make the most of donor contributions.  The ROI for investments in prospect research often exceed 10:1, a truly outstanding return.  If nonprofits are ever to overcome perennial donor concerns over admin costs and impact effectiveness, prospect research will surely be at the heart of the answer.
I’ll leave it at that.  However, many others have blogged/ tweeted and commented this month as part of #ResearchPride – some of the relevant links are here, do check them out:

Looking forward to #ResearchPride 2017!

Preferences, Hidden and Revealed

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That it is possible to choose one thing yet prefer another is a very ordinary idea.  Perhaps because it is so ordinary, choice and preference are often mistaken as the same thing, when they are in fact entirely different.  This confusion has crept into fundraising via the fallacy of ‘revealed preference’ where choices are seen as the enactment of preferences. This makes the idea relevant in several respects:
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First, revealed preference is partly responsible for trapping charities in a low income/low reward/low commitment cycle, the endgame of which were the acquisition-based donor strategies which precipitated last years fundraising crisis.  During the ‘marketing revolution’ of the 1970’s and 1980’s, charities came to see fundraising as a branch of marketing, and revealed preference encouraged them to believe that they were mostly giving donors what was being asked for (choice, remember, here being the enactment of preferences).  But the ‘£3 to save the world‘ business model   (h/t Mark Phillips) has long been deficient, if only because the economics of cost-per-acquisition fundraising have been becoming more and more challenging for a number of years.  However, a revealed preference mindset enabled charities to convince themselves they were selling what donors wanted to buy.  This, in turn, led to an acquisition arms race played out in a war room of ever more elaborate and intricate customer journeys, spanning ever more channels and encompassing ever more consumer insights.  This has not ended well.
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Second, revealed preference encourages the view that as donors reveal their judgement through the act of giving, we should be happy with what is offered and not push the envelope too much.  The customer is always right, and markets incorporate all the information you need, right?  And besides, £10bn-£12bn total donations from the public to UK charities is a big deal.  That’s good going, isn’t it?  Well…yes, but.  £10bn-£12bn is no-one’s idea of loose change, but what’s the comparator?  The UK produces goods and services totaling £1.5trn (trillion) each year; at £734bn, Government spending is hundreds of times larger than charitable donations.  British consumer spending, at £378bn in 2014, is also many times greater.  Indeed, increasing the amount donated by the British public from that spent on cheese to that spent on alcohol would be no mean feat.  Current donation levels make the UK by some measures the world’s most generous nation.  But should we take this to mean the British public have somehow found their natural donation limit?  Probably not.
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Third, many organisations – charities included – now use data analysis to try to understand who is most likely to be sympathetic to their cause in the future.  But donor choices often result from ‘satisficing‘, or muddling through, rather than holding out for perfect.  This is why Steve Jobs famously had no time for market research; as he said, “people don’t know what they want until you show it to them”.  Admittedly, qualitative methods are used both offline – in the form of focus groups, donor surveys and capturing other feedback – and online – in sentiment analysis, word clouds, web scraping and other techniques, to counterbalance quantitative methods’ need to extrapolate from past choices.  But quantitative techniques are still dominated by transaction analysis; which is a brake on aiming for ambitious change, as the goal tends to be ‘a bit better than last year’ or ‘a bit better than they are doing’.  Quantitative methods also often do not incorporate granular ratings of wealth or capacity, important as wealth has become more unequal and those able to offer major gifts lie well within the top 1%:
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guardian ons wealth graph
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Finally, and related to the last point, revealed preference can lead to bad strategy.  Availability drives choice – and if the charity you want to support ask for a certain amount by way of a donation, for example, chances are you will anchor your offer around that level.  But this is a choice, not a preference – the supporter is choosing from available options, not those they would most like.  These choices then feed back into available options, and the feedback cycle continues, assisted and amplified by benchmarking, a tool apparently designed to ensure no-one ever tries anything new, ever.  Another facet of this bad strategy is seen the lack of responsiveness to changes in wealth held by Britons.  UK top wealth has grown hugely in recent decades, but many British charities have not aligned their expectation of major giving accordingly.  In a sector where more than 70% of organisations employ two or fewer people this is perhaps understandable.  But a certain lack of ambition holds charities back.  A 2009 Barclays Wealth/Ledbury Research report sums this up in setting the bar for a major gift at £10,000, (see graphic below), even for HNWI’s.  We can and should aim higher than this – indeed we will have to in order to raise more in total than we currently do, rather than cannibalising income from elsewhere in the sector.  Charities represent the best causes imaginable, and should aim to raise more than 0.02% of the money spent each year on consumables.
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Barckays Ledbury graph
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There is urgency in all of this, as marketing becomes more difficult, incomes continue to polarise, the ‘gig economy‘ eats into previously solid professions, the ‘civic core‘ dwindles, and the expectations of younger donors make our existing operations obsolete.  Many charities are pretty good at explaining the ‘what’ of donor behaviour.  However, they are often less good at explaining the ‘why‘.  To get better at this we must escape the trap of believing we can explain behaviour without referring to anything but behaviour, and begin to respect, understand and operationalise the nature and scope of donor preferences, both hidden and revealed.

Craig Linton interview: “the market for something to believe in is infinite”

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Craig L

Craig outlines his thinking around the recent Rogare/Professor Adrian Sargeant review of relationship fundraising, why the donor journey needs a rethink, and the enormous challenge facing big charities in breaking down silos in order to put the needs of the donor first.  Craig tweets @frdetective, and you can find his blog on the Rogare review here.  The interview is available to download here.

Also, another (Fund) Raising Voices interviewee, Ken Burnett, blogged recently on the relationship fundraising phenomenon his 1992 book began, and why the subtitle is more important than the title.  Ken’s blog is available here; he tweets @kenburnett1.

Marianne Pelletier interview: the power of understanding donor engagement

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Following on from our first interview last year, it was great to speak with Marianne again. She highlights the importance of linking fundraising staff, operations and analysts to instill an evidence-based culture in your team, as well as the importance of being targeted in fundraising activity to raise funds efficiently.  Measuring engagement also comes across clearly as perhaps the major recent trend in understanding donor motivation.  We face a marketplace of donors who often feel bombarded by requests for support so being targeted, in order to build stronger relationships and get the best ROI, is a major challenge for charities.  Marianne gives some practical ways we can achieve this, and raise more in doing so.

The interview is available as an audio file here: https://soundcloud.com/benrymer/marianne-pelletier-fund-raising-voices-interview-part-2

Josh Birkholz interview: “Fundraising is industrialising…analytics has a big role to play”

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Josh is a world-leader in fundraising analytics, and talks in the interview about how not-for-profits can use analytics to raise more, more effectively, how to move toward data-driven prospecting for philanthropy and regular giving, and the future of fundraising innovation.

The interview is available as an audio file to download here: https://soundcloud.com/benrymer/josh-birkholz-interview-fund-raising-voices

Craig Dearden-Phillips MBE: “Charities must adapt or die”

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Craig D-P

I was delighted to interview Craig recently – his Third Sector articles on charities’ needing to adapt to new funding realities and what went wrong at Kids Company were, for me, among the best of 2015.  He tweets @DeardenPhillips.

His message for charities is clear – that the golden days of (mainly Government) funding are over and we must think hard about the best way our organisations can make the most impact.  This fits with my theory that the three big income streams which have propelled British charities since WWII (50’s/60’s the rise of the generous baby boomers, 70’s/80’s the CRM revolution and ‘fundraising as marketing’, 90’s/00’s New Labour/central Government grants/spending) are, for very different reasons and in very different ways, all ending.  The challenge this presents to British charities should not be underestimated.  In the interview, Craig explains the reasons behind his thinking and gives some predictions about how these will play out among charities over the coming year.  Enjoy.

The interview can be downloaded here, along with all the others from the site.  Apologies for the slightly crackly sound quality in parts of the recording.

Antidisintermediationism

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There are some really long words in the English language.  Maybe the best known is antidisestablishmentarianism. Another is the is the Welsh town name Llanfairpwllgwyngyllgogerychwyrndrobwyllllantysiliogogogoch.  And the film Mary Poppins gave us  supercalifragilisticexpialidocious (even though the sound of it is simply quite atrocious).
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Another, more prosaic, long word is ‘disintermediation’.  A financial term, it simply means ‘cutting out the middle man‘.  Since the credit crunch, the finance sector has embarked on an enormous round of disintermediation, driven by the need to cut costs. While fundraising is yet to follow suit, we may not have long to wait. One example is GiveDirectly. Founded in 2008, GiveDirectly uses ‘unconditional cash transfers’ (translation: giving people money) to communities in Kenya and Uganda to alleviate poverty, boost families’ income and facilitate entrepreneurialism. GiveDirectly use ‘randomised control trials’ (RCT’s; translation: testing if an intervention works by using it on one group but not another comparable group and recording the difference in outcomes) to understand the effectiveness of their work. They claim impressive results, and that cash transfers are very effective in poverty reduction. Others disagree, arguing other interventions including affordable irrigation and micro-credit should be prioritised.  We don’t yet know who is right, but we do know that disintermediation is real and here to stay, in some form or other.  The debate matters for fundraising, whose traditional model is donors gifting money to organisations to do work.  But what if an authentic ‘100% model’ is possible?  (you may already have guessed, but I’m skeptical of Charity:Water’s claims to have achieved this already – I love their website as much as the next person, but there’s no way they have no overheads) .  What if 100% of the donation really could go to the ‘work’?

One way this could happen is by connecting the funder directly to the projects via peer-to-peer or peer-to-business (P2P or P2B).  The Internet makes this more and more possible, as Uber and AirBnB, among others, remind us. A question for fundraising is whether it will embrace the trend to disintermediation or resist and turn to ‘antidisintermediationism’?  Certainly, ‘delayering’ should not be a surprise.  Basic scenario planning or SWOT analysis reveals that peer-to-peer is fast emerging as a rival technology, not least because the traditional donor-led model makes it difficult to effectively scale-up promising ideas, and can be an enabler for ‘founders syndrome’. And beyond P2P, alternative finance channels like crowdfunding and variants of ‘impact investing’ are to the fore, as seen in the recent Cambridge University and EY report on European alternative finance (see Chris Carnie’s recent blog for more on this, and a write up of the recent European Venture Philanthropy Association conference in Madrid).  My takeaway is: start planning for a world with less passive donors and more active investors.

While this change will undoubtedly be disruptive, it could have upsides. Fundraising could seek funds from the capital markets directly, (as Scope have already done) making scaling-up easier; it could evolve its management structures to enable greater varieties (and quality) of governance; it could access more diverse mixtures of funding in order to spend to invest, which could in turn mitigate the endless chase for unrestricted funds which grant-makers and donors alike are often loath to commit; and it could use the greater plurality of funding to develop new types of projects not possible with the traditional binary restricted/unrestricted funding mix.  It could also perhaps encourage a more long-term outlook in developing donor/investor relations. I sensed exasperation in some of the comments of Higher Education attendees at the recent NCVO Fundraising summit, perhaps baffled that a crisis has arisen when most HE institutions have in fact never stopped building long-term donor relationships.  Moving the focus from donations to investments would change charities outlook fundamentally.  Disruptive, yes.  But also potentially desirable.

The Internet has revolutionised many industries, (just ask Borders) and is likely, in time, to revolutionise fundraising. P2P/P2B, crowdfunding, alternative finance and impact investing are exciting or frightening, depending on the viewpoint. But while I’m no gambler, if I had to bet I’d say that to cling to the warm blanket of familiar practice – ie antidisintermediationism, resisting inevitable technological change – would be potentially very damaging for fundraising, if not simply quite atrocious.

Rare Events

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Some things don’t happen very often.  Rarity makes them interesting and important, but also cryptic.  Epidemiologists, insurers and bankers, the military, geographers, scholars of international relations and meteorologists all face important challenges in forecasting how likely rare events are to occur over a given period of time.  Rare events matter in fundraising too; major gifts are scarce, but important.  So how do we estimate the chance of big gifts occurring when only relatively few will be given across a supporter base? (Hint: it’s not via a heat map):
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One popular method has been to use logistic regression, a statistical method used to illustrate how likely it is that one variable causes others to change in a given scenario. However, for various reasons, it can sharply underestimate the chance of rare events occurring, making it unreliable in forecasting.  However, a new approach being pioneered by Italian academics Raffaella Calabrese and Silvia Angela Osmetti may have some answers. They propose a new statistical method to account for situations where one comparison group is very small, hopefully bypassing the underestimation issue.  And another area (even more) remote from fundraising or marketing could offer some clues on gaining insight into rare events: namely, the study of civil wars.  A recent paper from Rob Blair, Chris Blattman and Angela Hartman describes how the use of a set of statistical methods including neural networks, random forests and ‘LASSO’, a kind of logistic regression, can help to gain insight into the likelihood of occurrence of civil war.  The paper presents three findings of interest: first, that all the methods used return results better than chance, (some are far better), and therefore have a good degree of predictive power.  Second, the simplest method (LASSO) gives some of the most accurate results (hopeful for the non-statisticians among us), and, third, initial results suggest some novel causes for conflict that previous literature had not highlighted.  These findings are partly based on important earlier work by Gary King and Langche Zeng, whose much-cited 2001 article is a key text in the rare event literature.  This research is a step in the right direction, although obviously does not solve the thorny issue of using data and statistics to predict rare events.
white bar padding spaceFor those who think this discussion should go back to the statistics chat forum it managed to escape from: think again.  Developing innovative methodologies is at the heart of the challenge for fundraising in igniting sectoral growth.  We all know about the 80/20 rule.  But as Peter Wylie recently pointed out, for many not-for-profits, a fraction of a percent of the donor base contributes a huge majority of total giving (more like the 0.1/50 rule).  This is not unique, but is acute.  Wylie speculates that repeatedly asking existing donors for support is the main reason for this concentration, as is a short-term outlook in campaign planning (no doubt wealth polarisation in the wider society also plays a part).  Whatever the cause, we need evidence-led philanthropy to break the 0.1/50 rule, fast.  The FPS and Government austerity could between them shrink British fundraised income significantly.  A tougher regulator has been appointed, big name charities are already forecasting imminent losses and data protection, if not yet nuclear, is developing not necessarily to DM’s advantage.  Smart, evidence-based relationship fundraising with engaged, informed donors can help to mitigate all of these risks.
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panning for gold
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Information is the lifeblood of modern organisations, and philanthropy can suffer due to a lack of robust, granular management information on forecasted donor value.  But this should not be an excuse not to try to understand the predictors of major gifts.  The studies mentioned above work with far more difficult and complex environments than fundraising, and are making headway in their forecasting efforts.  It is still very early days in using probabilities to gauge the effects of specific solicitation or cultivation activities on donations.  While developments in arcane statistics journals will obviously not raise more money in isolation, improving our data-driven prospecting and fundraising probably will.  And when major gifts are less rare, the models will predict them better, making them even less rare, meaning the models will predict them better…

Kaytherington

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Oceans of ink have been spilt in recent weeks to describe and explain the causes and likely consequences of the review of fundraising regulation led by Sir Stuart Etherington.  But the fundamental issue has not received the attention it deserves.  This is not the relative (de)merits of a Fundraising Preference Service, the bonfire of the regulators, or even the need for greater trustee awareness of fundraising, necessary as that is.  Rather the key is, I think, a culture of short-termism in parts of the industry.  This is not directly addressed in the report in any length, and, in terms of proposed solutions,  only perhaps greater trustee oversight will help to remedy it.  Neither a FPS nor extra regulatory muscle will make the slightest headway with short-sighted management, nor the confusion of donations for affinity, where these things exist.  Short-termism is not only a problem for fundraising; far from it.  Al Gore, Prince Charles, the Chief Economist of the Bank of England, and US Presidential candidate Hillary Clinton have all commented recently on the perils of ‘quarterly capitalism’, where organisations sole focus is the next quarterly profit statement.  But an important question is whether the Etherington proposals will have traction on thinking that says ‘as long as this appeal washes it’s face, it’s fine. We’ll cross the next bridge when it comes’.  Because the next bridge has arrived and, as the best Prime Minister Britain never had once said, ‘the first rule is: when you’re in a hole, stop digging‘.

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Let’s be clear. Larger and more prominent sectors than our own have struggled with the slippery issue of culture change in recent years, not least financial services and media. Neither, as I write, has resolved the serious cultural issues they sought to change following various scandals and crises. In finance, ‘too big to fail’ is still with us, and, were Lehman 2.0 ever to transpire, the resolution would be no less messy than first time around.  And in media, reforms proposed by Lord Leveson are still far from effecting a paradigm shift in culture.  These major, systemically important industries have spent millions of pounds and thousands of man-hours trying to understand how to regulate away toxic cultures existing in parts of their industries.  And they have failed in important respects.  That failure stands testament to the fact that changing culture is hard because measuring it is impossible. The nearest we have to a unit of culture is a ‘meme’, and no one even pretends to know how to use memes as a working metric, even forty years after the idea was introduced by Professor Richard Dawkins in The Selfish Gene. But it is a modern axiom that ‘what gets measured gets done’. So how to fix a culture which we cannot measure in any meaningful way?

Two works by Professor John Kay could hold some of the answers for fundraising.  First is the report, commissioned in 2011 by the Coalition Government and published the following year, on tackling short-termism in finance. Of the 17 recomendations made in the report, most relevant for short-termism are the abolition of quarterly profit reporting; the development introducing a broader stewardship responsibilities for directors; consulting major, long-term investors in board appointments; and the recommendation that companies “should structure directors’ remuneration to relate incentives to sustainable long-term business performance”.  For fundraising, the takeaways are that management reporting should include metrics on the long-term wellbeing of the organisation, not just short-term financial returns, that investment must be aligned with long-term priorities of innovation and new product development, and that risk analysis should be both granular and broad-view, incorporating current, as well as planned, activity. Using these measures would have a demonstrable effect on the ways our organisations set their priorities and structure their activities, and would help to remedy charity short-termism as it has begun to with business, although there is still obviously more to do.

Another of Kay’s works may be even more relevant.  In his 2010 book ‘Obliquity‘, Kay lays out a convincing case that achieving objectives is often best done by working obliquely.  He lists example after example of businesses focused ruthlessly on quality and innovation being massively profitable, often leading their respective fields for decades.   He also highlights the ‘profit-seeking paradox’, whereby firms, (most notoriously Enron, Parmalat and WorldCom, but also stalwarts like ICI who lost their way), whose explicit focus was profits and growth, failed, often spectacularly.  Fundraising would be wise to heed these lessons.  As an industry whose raison d’etre is profit, the message is loud and clear: focusing only on money will not raise more money.  To grow giving, the industry focus must move to incorporate much more than pound signs, and should, where it does focus on income, use a broader range of more nuanced measures.  Fundraising consultant Nick Mason has spoken persuasively of the need for charities to focus less on a narrow toolkit of ROI/cost per acquisition plus one or two other measures, and to take a broader view of the metrics used in guiding strategy.  These include the Internal Rate of Return, Net Present Value and the Hurdle Rate, all commonly used indicators in other sectors.  This is partly in recognition that income targets alone do not beget income; building donor relationships is vital.  As Kevin Schulman has said, the first not-for-profit who can make each and every donor interaction a joy will clear up pretty quickly in a field where customer service levels are often mixed.  The sooner this happens the better, as stronger donor relationships will enable charities to build a true ‘value proposition’, and move the business model from Primark to Waitrose. This will in turn engage whole new segments of society, for example those neglected groups in middle England who could pretty comfortably donate in the neighbourhood of £2,000-£20,000 on a regular basis, but at the moment are not solicited for those amounts, or not stewarded to at the appropriate level for those sums.  Focusing on relationships could, obliquely, be the direct way to raising more.

obliquity pic

In all this, it is important to consider the role of regulation. Whatever form it takes, the new regulator will be an essentially reactive institution. Cf. the Charity Commission who, as a body, can barely keep up with major regulatory events such as the Cup Trust saga.  The handling of this episode led a scathing National Audit Office to conclude that the Commission “makes little use of its enforcement powers, for example suspending only two trustees and removing none in 2012-13”, adding that “[the CC can also] be slow to act when investigating regulatory concerns…Furthermore, the [CC] does not take tough enough action in some of the most serious regulatory cases. It is…reactive rather than proactive, making insufficient use of the information it holds to identify risk”.  Margaret Hodge MP, then-Chair of the Parliamentary Public Affairs Committee was more blunt in saying that the Charity Commission “[obviously] has no coherent strategy and has been simply buffeted by external events” adding that “[i]t is clear that the Charity Commission is not fit for purpose.”  Even with a smaller remit, the new regulator will be at or close to capacity from day one.  We must recognise, therefore, that culture change among not-for-profits will come not from an army of regulators monitoring our every move.  It will come from performance management and incentives set by the sector itself. The new regulator will be a fire service, (and not a particularly well-funded one), called out to the deal with the most serious accidents or offences, not a police force patrolling the beat.  In important senses, we have to fix our own mess.

How we define and measure success will be at the heart of achieving this.  Internal reporting, governance and performance measurement to prioritise donor satisfaction, engagement and affinity, and to dethrone ROI and  RFV, (indeed, to ensure that “no one metric is sovereign“), will be critical in moving from ‘has this appeal covered its costs?’ to proper relationship fundraising.  Developing governance, management and methdologies to ensure donor relationships are at the heart of what we do will be the oblique, but also the most direct, way to growth.  The proposed Etherington reforms do not address this issue, and they will not cure the myopia suffered by bits of the sector.  The solutions will come from not-for-profits themselves recognising the need to change.  Hopefully, oceans more ink will not be needed before that happens.