Articles

FYI – STRL

/ rymerben / Leave a comment

2019 sees the the Sunday Times Rich List (STRL) go political. With the bright red front cover adorned by an image of British opposition leader Jeremy Corbyn, Editor Robert Watts’ introduction warns of a potential exodus of high net-worth individuals (HNWIs), fearful of a so-called “Corbygeddon”, from the UK’s shores. Right on cue, Corbyn himself chimed in to call the List “a stark reminder of the grotesque inequality that scars our society”. So far, so controversial.

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Away from politics, the 2019 list again sees a record high for top wealth in the UK. Despite significant losses for evergreen Listers like Lakshmi Mittal, Mike Ashley, Luke Johnson and the Schroder family, this year a whopping 151 billionaires feature in the top 1,000, with total estimated value of £524.8bn, (up from £480.5bn in 2018). Total list value is at an all-time high of £771bn, 68% derived from billionaire wealth, with entry to the list now requiring £120m, up from around £40m in 1989. At the top, a £241m drop in profits at his firm Ineos explained as having caused a £3bn drop in Sir Jim Ratcliffe’s overall wealth, pushing him from top spot to third. Private Eye, who had questioned his elevation to first place in 2018, will doubtless take note.

And the sharp-eyed reader will have spotted other methodological quirks. The ‘rules of engagement’ on p144 hint at the potential variability underlying the list’s published estimates. Landholdings – a critical part of so much wealth – are valued on a hierarchy atop which sits “London land with planning permission”. But this masks a tremendous variation even within the value of this region, especially when so-called ‘hope value’ – the increased price of land with secured planning permission – is factored in. Looking at assets, the listed sources of “identifiable wealth” seem to leave major categories unmentioned. Assets listed as having been considered are “land, property, racehorses, art or significant shares in publicly listed companies” – no mention of significant classes of collectibles like wine, jewellery, classic cars, coins, any one of which are considerable  stores of value whose prices have risen steeply in recent years. The list also omits sailing, odd when a single superyacht can cost eight figures. When the list was first published in 1989 such assets may have been intangible, but the standard of open source investigation has risen rapidly in recent years, as shown by the pioneering work of the Organised Crime and Corruption Reporting Project (OCCRP) and Bellingcat, among others, work which shows that identifying the value of assets has never been more possible. And what of the “computerised searches and analysis” used to track down owners of private companies? Data suppliers are mentioned, but no methods – a tantalising loose end for those interested in the STRL teams methods.

Even given that a generous dollop of art by necessity leavens the science of the lists’ affluence estimates, the sheer scale of difference between different publications estimates are notable. One eye-catching example is that of the Reuben brothers, whose wealth the Bloomberg’s Billionaires Index (BBI) reckons at $6.2bn (£4.8bn), while the STRL has them an order of magnitude away, at £18.7bn. I raise this not to nitpick at the undoubtedly slippery task facing the STRL research team, but to highlight the thorny job facing many fundraising researchers (and others) who seek to use these lists to understand the approximate order of magnitude to use in their recommendations. Many of our teams rely on our estimates to determine team activity, estimations which are made more difficult to make by such huge differences between the estimates of much-used resources like these.

Experienced List-watchers will find the absences almost as interesting as the presences. And no, I am not referring to the longstanding convention of absenting Rupert Murdoch from the list (though I can’t resist noting that his daughter Elisabeth’s £156m fortune derives from the sale of her former television production company to her father’s firm, News Corp), but to the elusiveness of the ‘missing wealthy’. Put to one side the growing academic literature on top wealth which is has driven up the standard of analysis in this area in recent years. But, when an experienced practitioner like Rupert Hoogewerf (creator and lead researcher of the Hurun Report) estimates that for every billionaire his team in China identifies a further two are missed, can we reasonably believe the STRL omits fewer HNWIs than this? Probably not. Maybe we will be in a better position to judge once the Institute for Fiscal Studies recently-announced five-year study of inequality in the UK, headed by Nobel Prize-winning economist Sir Angus Deaton, is completed. Let’s see.

As it enters its 32nd year, the STRL is part of the landscape of our industry, and others. Current Editor Robert Watts and STRL founder Philip Beresford deserve credit for creating and sustaining such a bankable (excuse the pun) publishing phenomenon. Yet, as the team are no doubt aware, as the years pass so must methods evolve. In the age of Big Data, ever-sharper academic and journalistic specialism, and growing interest from companies and the public, the Rich List will need to evolve. We await to see the innovations Watts and his team will use to keep ahead of the field next time.

Roll on 2020.

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.

Aid and Philanthropy: Two Stories

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Story one:

For a long time, Governments gave money to other Governments.  The money was called ‘aid’.  It was to be used to increase prosperity and reduce poverty and suffering.  But there were problems.  Projects went wrong, were not finished, or didn’t meet the need.  Administration costs were said to be too high, and recipients struggled to be independent of the aid support.  Some of the money couldn’t be accounted for.  Another way was sought.  Soon, countries learned not to give money, but rather to purchase goods, or services, from one another, or to give money in return only for tangible outputs, or agreed outcomes.  They expected to be partners in the projects, have a say in decisions and be kept informed of progress.  They had learned through experience that this was a better way to achieve goals than writing cheques.

Story two:

For a long time, donors gave money to charities.  The money was called a ‘donation’.  It was to be used to increase prosperity and reduce poverty and suffering.  But there were problems.  Projects went wrong, were not finished, or didn’t meet the need.  Administration costs were said to be too high, and recipients struggled to be independent of the donations.    Some of the money couldn’t be accounted for.  Another way was sought.  Soon, donors learned not to give money, but rather to buy things from the charity, or to give money in return only for tangible things or agreed outcomes.  They expected to be partners in the projects, have a say in decisions and be kept informed of progress.  They had learned through experience that this was a better way to achieve goals than writing cheques.

I wonder if these stories are in fact as similar as I’ve made them out to be?  Answers on a postcard (or in the comments).