Philanthropy is having a high impact. Yet donor funds could be even more effective if more philanthropists were able to leave their egos at the door. Philanthropists must get out of the mindset that they only want to fund specific projects or, worse still, have projects developed and named for them.
If you believe in an organisation and are confident about impact it is having, then give money to the whole organisation and trust them to allocate this unrestricted money so it can have the greatest impact. A charity's management team will usually understand the challenges the organisation is trying to address and what it takes to deliver far better than a donor, so they should be trusted to be the decision-maker. Hold them responsible for measuring and reporting impact, but don't dictate how they should achieve it.
This change is even more urgent as charities find themselves facing big funding gaps in light of government cuts. More charities will need partners to fund running costs as well as projects. These costs have never been a popular funding proposition as many funders prefer to have high-impact flagship projects branded with their name. But funders should approach charities with their business brains and accept that a growing organisation needs to build an infrastructure that is fit for purpose, and has running costs; investment in these will ensure it continues to deliver on its vision and mission, and is better equipped to achieve its true growth potential.
If a commercial organisation were seeking investment and claimed none of the capital would be going towards building its capacity to deliver its business strategy, it would fail to secure any investment. Nobody would believe that the business could deliver maximum value or profits if it were not investing in its own development. So how can anyone think that charities will be able to deliver greater results without investing in their own capacity? Money that doesn't go directly to beneficiaries or to a project is not necessarily money badly spent, it can be money invested for the greater good of the cause. We are at risk of developing a vicious circle because too few donors want to pay for capacity building, so charities under invest and then because they under invest, they are less efficient and less able to deliver.
The issue of capacity building will become more critical as we see social investment become a more widely used form of funding. Many small and medium-sized charities don't have the systems in place to be able to accurately track their impact accurately, and therefore may not be able to take advantage of some of these new forms of funding that would allow them to grow. In order to prepare them for sustained growth, we need to ensure they have solid management teams and boards, strong infrastructure and financial acumen, and the right systems and processes including measurement and evaluation. This will enable them to consider a type of funding where a return on investment is expected, or where payment is tied to results. The sector knows this; research from YouGov, commissioned by Impetus Trust, reveals that charity CEOs see investment in business planning, staff structure and partnership working as key to their growth over the next five years. It will take money and business acumen to make charities "investment-ready".
What could happen if we do not invest in building the capacity of charities to be investment ready is we will grow the pool of capital because we have promoted social investment, but we will not grow the pool of potential recipients. So the capital will only reach the better developed social businesses while many crucial social issues being addressed by smaller charities and social enterprises could go unaddressed. Under-investment means we risk losing the opportunity for numerous ambitious and innovative charities to have the real impact on social issues that is so desperately needed.