Governance

Heat & Light

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Heat & Light

The Information Commissioner’s recent decision to fine several charities for data processing and consent transgressions has generated a remarkable amount of heat (in the form of impassioned comment) but, from my perspective as a practitioner, somewhat less light (ie actionable insights).  So I have collected a short list of questions below – these are presented as honest enquiries, informed by an awareness that change in fundraising practices is inevitable, that better ways of working are possible, even desirable, and that tomorrow’s ICO compliance conference is likely to be a big part of this change.

Before the questions, though, permit a historical detour, as it is absolutely imperative to recognise the antecedents of current regulatory attention on charities.  Even the most cursory search of recent Fundraising Standards Board’s (FRSB) Annual Complaints Reports shows total complaints received doubled in four years, from 33,744 in 2012 to 66,814 in 2015, complaints which were prompted some 60 billion fundraising contacts over this time.  Strikingly, the FRSB estimated that for each complaint received, a further 20 people are annoyed but do not complain; this puts the 2015 total at around 1.3m.  Their source seems clear: “half of all complaints are incurred by less than 2% of charities reporting”…”just 1% of reporting charities (all of which have voluntary income of £10 million and over) generate six in every ten complaints”.  Frustration at continued inaction in addressing the issue led outgoing FRSB Chair Andrew Hind to deliver a strongly worded rebuke in his 2016 Complaint Report foreword:

“[T]his report shows that more than 66,000 people were so unhappy about a charity fundraising activity targeted at them last year that they took the time and trouble to make a formal complaint about it to the charity concerned…The stark reality identified by this report is therefore that, in all likelihood, some 1.3 million people were dissatisfied by the impact that a charity fundraising technique had on them in 2015. That’s enough unhappy people to fill Wembley stadium 15 times over.  Just three fundraising activities – direct mail, telephone calls and doorstep fundraising – are responsible for more than seven in ten of these concerns” [italics added]

A brief word also on the Daily Fail, whose 2015 ‘New Shame of Charities’ story is widely thought to have precipitated the current storm?  It should be remembered that the story was prompted by a concerned whistleblower, as DM Investigations Editor Katherine Faulkner made clear in her evidence (given in a closed session) to the Commons Public Administration and Constitutional Affairs Committee (PACAC) in October 2015.  The DM were not even the first newspaper to run such whistleblower stories in recent years – in 2009 the Daily Mirror published a similar one relating to charity telemarketing, while, in 2012 the Telegraph ran an exposé of what it called “aggressive, intimidatory and potentially unlawful [fundraising] tactics”, after an undercover Telegraph reporter worked at Tag Communications for 12 days, the FRSB later found Tag had “deliberately confused and misled the public” in their fundraising activities.  This story used the very same method as did the DM in 2015; indeed, it seems highly unlikely the DM would have covered charities in such detail in recent years had earlier stories not set a marker and had a whistleblower not approached them. Media coverage obviously caught the ICO’s attention (their reply to my recent Freedom of Information request says “[a]llegations have been made in the media that individuals are being overwhelmed by fundraising requests”).  But, odious as the DM is, there is a wider backstory of public dissatisfaction with and frustration towards charity fundraising which cannot, and should not, be ignored.  The current climate may make the above look like the case for the prosecution; it is not, but those who cannot remember the past are condemned to repeat it and I, for one, do not wish to see the recent past of British charity fundraising repeated anytime soon.

I would add that the recent ICO rulings seem to me to present a real opportunity for the sector.  I cannot escape the conclusion that affinity and engagement are the key determinants of large contributions, and I see no reason why an increased emphasis on measuring and acting on these attributes cannot yield substantial gains for many charities.  Odd as it sounds, I also welcome the recent scrutiny on screening – the ICO’s actions can in important ways be seen as a catalyst for fundamentally more open and transparent relationships with our donors.  They are also a spur to re-examine longstanding practices, a result of which may well be an increased capacity to build enduring relationships with supporters.

All that said, my questions are:

  1. Consents & reasonable expectations.  We travel magically to a Utopia where charities have in the recent past secured every necessary consent, perfect privacy statements are publicly displayed and where, thanks to a concerted communications campaign, “substantial distress” would not reasonably be expected to be caused upon learning that ones data been processed in a wealth screening.  In this world, is wealth screening illegal?
  2. Types of screening.  Any organisation with significant data assets screens regularly – so as not to send mail to deceased people/so use the correct address, and for any number of other reasons.  Is the risk of “substantial distress” the main, or only, difference between these processes?
  3. Substantial distress.  Both the recent ICO Civil Monetary Penalty notices and paper accompanying the imminent Fundraising & Regulatory Compliance Conference stress the likelihood that “substantial distress” would be caused were data controllers to learn their data had been processed in a wealth screening.  This might be true, however no evidence is cited to support this claim in the judgement or the paper, and subsequent Freedom of Information requests have been refused or are awaiting a reply (Note to Madeline Bowles: whoever you are, thankyou!).
    1. Related: how can we know “substantial distress” is likely when such distress is itself partly the result of the manner in which the activity in question is described or explained?
  4. Understanding capacity to give.  Quite simply, how are charities to arrive at an understanding of who might have capacity to be able to make a major donation without analysing publicly available sources?

Do also check out Factary’s very good recent “5 Questions to Ask the ICO“.

For those attending the conference tomorrow – enjoy.  For everyone else – catch you at online at #FRCC2017!

Heat & Light II: “Let Sunshine Win the Day”

George Osborne revelled in his role as the ‘Austerity Chancellor’.  However, for all his talk of “tough choices”, this austerity did not, it seems, extend to charitable sector spending, where at times his decisions seem generous almost to the point of profligacy.  Nowhere is this clearer than in the case of disbursals of funds raised by fines on banks, in which Osborne had significant – if not sole – say in directing the funds, totalling by some estimates almost £900m. Some edited highlights of these disbursals include:

  • £50m to the Cadet Expansion Programme (itself established in 2012 by the Coalition) to place 500 Cadets in British schools, each cadet costing, it seems, a cool £100,000, more than many whole charities cost each year
  • £7.6m towards the refurbishment of Wentworth Woodhouse, which led the Guardian to question the surprise choice – with a £42m total cost of renovation, £7.6m will only pay for the roof to be fixed and some other structural repairs at a private home which only granted access to the public in the 1980’s.  The funds were said to be contingent on the Wentworth Woodhouse Preservation Trust publishing a business case which, at the time of writing in February 2017, did not seem to have been posted to the Trust’s website
  • £20m towards the costs of the National Rehabilitation Centre at Stanford Hall in Nottinghamshire, which Ceasefire magazine have cogently and persuasively argued should really be a cost borne by Government, who sent affected veterans to battle in the first place
  • £35m towards the Armed Forces Covenant (Libor) fund.  The Fund was established in 2010 by the new Coalition Government – David Cameron himself tasked the initial  working group with producing a “low-cost” ideas for rebuilding the Covenant.  Again, this is arguably money which should have been provided by Government to care for veterans.

A recent Private Eye story also reported on the continued expense of the National Citizenship Service (NCS), which (it reports) will receive £1.26bn from 2016-2020.  This includes £187m in 2016-17 making it one of the largest charities in the country according to recent figures from Professor Cathy Pharoah at the Centre for Giving and Philanthropy at Cass Business School.  Despite this, the NCS is on track to miss participation targets by some 40%, with a recent National Audit Office report, saying “[w]eaknesses in governance and cost control need to be addressed”, concerns which led Meg Hillier MP, Chair of the influential Parliamentary Public Accounts Committee, to say “it is difficult to see how [the NCS] will be sustainable in the long term”.

Charities faced allegations of misspending or getting poor value for money from LIBOR funds they received, but surely the bigger question surrounds opaque Government decisionmaking.  It is concerning that not long before the Kids Company enquiry, the Treasury and MoD were making highly centralised decisions as to who would receive hundreds of millions of pounds, with very little transparency, and with MP’s apparently lobbying for a share of the funds.  As Civil Society reporter Helen Sharman wrote in late 2016, “[w]hen an MP writes to the man in charge of the government’s chequebook, seeking preferential treatment for a charity he supports, and the charity then receives a considerable chunk of what is on offer, we cannot help being slightly suspicious that public money is being distributed to charities because of patronage, rather than merit.”  Ms Sharman’s Civil Society colleague Gareth Jones sums the issue up well in saying “the longer the Treasury declines to outline a detailed decision-making process for these grants, the more we will have to infer that there simply isn’t one.  With charitable funding so scarce, it is vital that every penny is directed in the most targeted, effective way. No doubt the vast majority of causes receiving Libor funding (if not all) are very worthy, but do we know that there aren’t other causes that are more deserving?”

In 2006, David Cameron famously used his first Conservative conference as leader to urge colleagues to “let sunshine win the day”.  Will this Government let some sunshine illuminate their decisions around how charity funding choices are made?

Bricks and Mortar

With legacy bequests left to British charities measured in the billions and the value of British residential real estate measured in the trillions, why is high-value legacy fundraising not top of every fundraising directors to-do list?  The estimated value of members of the Sunday Times Rich List has grown from £99bn in 1997 to more than £500bn in 2016.  However, even this astronomical growth is dwarfed by the explosion in the estimated value of British real estate, whose value a 2016 Saville’s research report estimates at more than £6tn (trillion).  To put that into perspective, if everything in the UK were to be sold, it would fetch an estimated £8tn.  In answering the question “where is the money”, the answer, in the UK at least, is clear: “bricks and mortar”.

This is an urgent issue for British charities.  A perfect storm of more activist regulation, stubbornly high attrition/low response rates and a struggling cost-per-acquisition business model mean charity Direct Marketing is both waving and drowning.  Of charities’ existing major revenue streams, only legacies, major donations and ‘mid-value’ giving seem to have any chance of filling the gap left by falling or flatlining direct mail, face-to-face, door-to-door, telephone and DRTV.  And Legacies offer far greater scope for much-needed unrestricted funds than do major gifts, as well as the chance for collaboration between fundraising teams to build a value proposition stretching across the life course.

And crucially, legacies are highly unequal – in a good way.  A colleague recently recounted how a former charity received around 200 legacy bequests each year, with half a dozen accounting for around 40% of the total received – just one or two more of these big bequests would have transformed the charity’s financial outlook.  For a sector populated largely by micro-organisations, many with few or no paid employees, legacies are far more realistic proposition than securing and stewarding major donations.  Substantial legacies are possible for far more people than major lifetime gifts.  Many households in middle-England would never have the means to give a gift in the hundreds of thousands, but far more would could consider a legacy of this scale.
Property wealth is also far more broadly distributed than cash, meaning legacies enable more regional charities to raise big gifts. Many HNWI’s are London-based, however property wealth is far more broadly distributed, meaning charities across the country can seek and secure significant legacies.  The UK, already unequal and set to become even more so in the near future, offers far more opportunities to raise funds from property wealth than cash.  We should recognise this, and act accordingly.

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.

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.

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‘.

ncvo review pic

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.