OPINION: Overheads – why we’re still robbing donor Peter to pay fundraising Paul

Ian copyA new study by behavioural scientists has recommended charities should tell donors they have no overheads costs because they’ve already been paid by a philanthropist. Although the numbers stack up, Ian MacQuillin argues that this is a very bad idea

In the past, I’ve postulated a scenario whereby a street fundraiser could say to passersby that, were they to sign up to a regular monthly gift, all their donation – all 100 per cent of it  ­– would go directly to ‘the cause’ and none of it would be spent on overheads. In this example, the overheads would be paid by the previous person the street fundraiser had signed up to monthly giving.

Of course, I was joking ­– I don’t seriously advocate that any fundraisers massage their admin costs in this way. I was using it to show how easy it would be for any charity to magically make their overhead costs disappear.

However, just this scenario has now been proposed as a way of encouraging giving in a paper published in Science ­– ‘Avoiding overhead aversion in charity’ – by behavioural science researchers from the University of California San Diego’s Rady School of Management.

Based on a lab experiment and field trials, a study led by Dr Uri Gneezy concludes that more people will give if they are told all their donation will go to the cause because a major donor has paid the fundraising costs already (see the summary of this research in our ‘Knowledge’ post).

‘Just because fundraisers can use some particular nudge or other behavioural technique or insight, doesn’t mean that they should’

The paper’s authors note the tendency of donors to avoid charities with high overhead costs. There’s nothing particularly new or revelatory about this. There’s research from the 80s and 90s showing that admin and fundraising costs impact on people’s propensity to donate. One study found that charities that spent at least 60 per cent of their income on programmes received significantly higher levels of donations.

What is new in this study is that the authors actually recommend as a solution to this problem using donations from major philanthropists to cover admin costs and then telling other donors that this is what has happened. The recommendation is another example of the gap between research findings derived from behavioural economics and their application to professional practice, without sufficient consideration of the fundraising context in which they could be used. As I’ve written before on this blog, just because fundraisers can use some particular nudge or other behavioural technique or insight, doesn’t mean that they should.

Practical and ethical questions

There are practical and ethical questions about the proposed solution.

1 Where will overhead-funding donors come from?

Major philanthropists are as reluctant as everyone else to have their money spent on overheads, perhaps more so. There are tens of thousands of people happy to have their £10 a month go into unrestricted coffers, but far fewer major donor donors prepared to write an unconditional cheque for £100,000. The Bank of America US Trust Study of High Net Worth Philanthropy 2014 reports (see p69) that 81 per cent of high net worth households think it “very important” that a non profit “spend only an appropriate amount of your donation on general administrative and fundraising expenses” [my emphasis], even though 72 per cent of HNWI’s rate themselves as “knowledgeable” about charitable giving and philanthropy, and 14 per cent think they’re experts (p53). They are also prepared to take less risk with their donations than with their personal assets (p72). So the question of whether a major donor can be found to pay a charity’s admin costs is far from unproblematic.

2 Tracking restricted income

Mass appeals are usually aimed at raising unrestricted income, but money that came through appeals that promised all the donation would go to programme work is restricted income. So there is the question of coding and tracking the major gift to ensure that it really is used to cover the overheads of those donors who were recruited this way; or the flip side of this is to ensure the new donors’ money is allocated to programme work so that at any point, one of these donors can see the audit trail of where their £10 a month or $50 cash gift has been used. That’s a considerable increase to the existing administration of such gifts if they were unrestricted.

3 A question of sustainability

If a major philanthropist can be found to cover overheads, Bank of America’s pessimistic stats notwithstanding, what happens if s/he decides to withdraw funding? What happens if a replacement donor cannot be found? The charity will lose its core fundraising expenditure at a stroke and the individual donations cannot then be switched to replace this because they are now restricted income. If the charity has used this ‘overheads-free’ solution in its PR and marketing, it will need to backtrack and new donors who have bought in to the charity’s ‘overheads-free’ marketing will find that 100 per cent of their donation will no longer go to the cause as some of it will be spent on administration and fundraising instead. A question this also raises is, what if there are not enough such donors for every charity? How does the charity without a fundraising-friendly philanthropist present its 21 per cent, say, admin costs against a competitor that claims it is ‘overheads-free’.

4 A question of ethics

Finally, the ethical question – is there really such a donor? The Rady Business School study mailed 40,000 potential donors to an unnamed medical foundation, telling a quarter of them that overhead costs had been met by a philanthropist. But the paper doesn’t make clear if there really was such a philanthropist or if it was just an exercise. If there is not, then this whole exercise becomes moot. If the charity does not have a donor who has restricted his/her gift to cover the entire admin costs, or particular fundraising costs, then it would be highly unethical to pretend to donors that such an arrangement existed. For the record, the Rady Business School study does not recommend charities should do this, only that they find a donor to pay overhead costs.

Competitive advantage and the Dutch auction in overhead costs

Of course, the authors of the present study are right. People don’t like their donations to be spent on the electricity bill, paper clips, the receptionist’s salary or using a portion of that donation to raise even more money. But the answer to the problem of the ‘overhead myth’ ­is not to pander to public misunderstanding about how modern charities must operate professionally by pretending that someone else – but not you, dear donor – covers those costs. It is to engage with that mindset and change that perception.

Yet that is extremely difficult to do when some charities have been happy to undermine this co-operative endeavour by playing a kind of Dutch auction with their overhead costs, pretending that they don’t have them or that they are lower than they really are.

‘The reason the charity could tell the public in 2002 that every penny would go directly to the project was because the public of 1975 had already donated the admin costs.’

For example, US charity Smile Train (which repairs cleft palates in children in developing countries) began fundraising in the UK in 2006 with a series of press adverts that promised that 100 per cent of donations would go directly to the cause because the charity’s administration costs had all been covered by a coterie of “founding trustees” – exactly the same proposition as recommended by Dr Gneezy and his team.

In 2002, the Archie Foundation in Scotland ran a capital appeal to build a new wing at the Royal Aberdeen Children’s Hospital. The radio adverts urging people to support the appeal declared that every penny donated would go directly to the appeal. So how did the Archie Foundation meet the admin and fundraising costs of their capital appeal? They were paid for out of an unrestricted emergency fund held in reserve by the charity. This fund had been set up in the 1970s and raised through donations from the general public. So the reason the Archie Foundation could tell the public in 2002 that every penny would go directly to the project was because the public of 1975 had already donated the admin costs. It was a professional robbery of donor Peter to pay fundraising Paul.

And of course, the paradigmatic example of this is Comic Relief’s Golden Pound Promise*, which stated that for every pound it received from the public, a pound would be spent on programme work, although Comic Relief stopped this practice to conform to the revised IoF code of practice in 2006 (see below).

In 2004, the then ceo of the Institute of Fundraising, Lindsay Boswell, spoke out against Lions Clubs International’s pretence that it had no fundraising costs – Lions Clubs had conducted some market research that showed that 29 per cent of people (perhaps a surprisingly low number) said they would be more likely to donate if 100 per cent went directly to the cause. Lions Clubs then said that it did not deduct its admin costs from public donations.

Boswell said:

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Former Institute of Fundraising ceo Lindsay Boswell

“Any fundraising organisations that promote themselves at the expense of other charities and the reputation of the sector as a whole is acting highly irresponsibly…For too long charities have pandered to the view that fundraising and administrative costs are something to be ashamed of, when the simple fact is that it does take a professional organisation to deal with donations, and costs are an essential part of these processes. Every charity has a role to play in presenting this to its donors and it’s absolutely vital that charities take a unified approach, being open and transparent about their activities wherever possible.”

Lions Clubs International’s website still states that “not one penny is spent on administration as Lions Club running costs are funded by members“.

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Even though there has been some progress – organisations that once directed donors to compare admin costs, such as Charity Navigator, now say this is poor way to evaluate charities, describing it as the ‘overhead myth‘ – this is still a live and important issue.

The reason is that presenting lower administrative costs than another charity (whether that is in actuality of via a piece of creative accounting) is a competitive advantage in the market of public opinion. Charities such as Comic Relief, Smile Train, and Lions Clubs International instinctively knew this and now Rady Business School at UCSD has provided the science behind it.

Should we punish ‘defectors’ from the common good?

Fundraising leaders have tried to change perception largely by appealing to charities to act for the common good, by being honest about their overhead costs. If everyone were to do this, then we would all be better off because we could present a united front in attempting to dispel the ‘overhead myth’. However, as we have seen, people who don’t join this co-operative endeavour give themselves a competitive advantage over those who are part of it.

What we have here is something like a Prisoner’s Dilemma. In a Prisoner’s Dilemma, two participants would be better off working together in a common aim (co-operating). However, if one of them were to leave this pact (‘defect’) while the other carried on co-operating, the defector would reap more rewards than the sucker who carried on working toward the common good (it’s more complicated than this, of course). Game theory posits that to regulate a Prisoner’s Dilemma, you should reward co-operation and punish defection – you need the carrot and the stick.

In the charity overhead game though, we have neither sticks nor carrots. For a short while though, there was a stick.

Partly in response to the debate cause by the activities of the likes of Lions Clubs and the friction in the profession generated by the Golden Pound Promise, in 2006, the Institute of Fundraising revised its Accountability and Transparency Code of Practice to say that fundraisers:

“OUGHT not to make statements such as ‘All of your £1 goes direct to the cause’ or ‘Our fundraising does not cost us anything’ or imply that fundraising does not cost anything.”

In the context of the code, ‘ought’ means it is mandatory on IoF members. Therefore to breach the code by using something like the Golden Pound Promise would leave a charity liable to investigation by the Fundraising Standards Board. However, when the IoF condensed its 29 separate codes into a single code in 2012, this requirement was moved from the code to the guidance, which now only says that “it is best for charities to avoid” such statements. (It doesn’t even say they ‘should not’ which is IoF-speak for not mandatory but recommended anyway).

What this means is that while the recommendation made by the Rady Business School team would (probably) have been in breach of the IoF code of practice in 2011, now it would be compliant, on a strict reading of the code, and practices such as the Golden Pound Promise are now, in theory, all back on the table. In fact, BBC Children In Need was using a version of it this year, explaining how overhead costs are paid for out of investment income and Gift Aid.

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In October 2011, professor Adrian Sargeant issued a formal call for whistle blowing against American charities that claimed to have zero fundraising costs, which he described as “blatant manipulation”. Reporting on a summit of leading US non-profit personnel that was “emphatic” in its recommendation that no non-profit should claim no fundraising costs, Sargeant said that if they persisted in doing so, they should be “called out and held accountable for the damage that they do to public trust” (see recommendation 11).

Yet until we have such a mechanism, I find it hard to see how we are going to prevent some charities pandering to public opinion by engaging in a race to the bottom over their overhead costs, especially now that behavioural scientists are providing them with a sound scientific rationale for their actions. The result will be that we’ll go on encouraging fundraisers to rob Peter to pay Paul.

And as with all such cases, Peter eventually runs out of money.

* Comic Relief’s ‘Golden Pound Promise’

“Comic Relief promises that for every pound of Red Nose Day cash we get from the public, a pound will help tackle poverty and promote social justice in the UK and Africa. Comic Relief does not spend any of the money raised on its running costs. We are able to keep this promise because the costs of running Comic Relief are met in cash or in kind from all types of organisations, including Government, corporate donors and individual suppliers, as well as through the interest generated on our funds.”

The promise often appeared on BBC materials in a ‘distilled’ version of just the first line. This version was found, for example, on BBC press releases and the information for schools section of the Comic Relief website.

17 thoughts on “OPINION: Overheads – why we’re still robbing donor Peter to pay fundraising Paul”

  1. It’s funny, how we all talk about being ‘donor-centred’, and yet, when we get presented with one of the most donor-centred tactics we could possibly use, we don’t like it.

    It would be great if we could educate donors to understand the issue of fundraising costs and overheads, and yet there is a big problem here for charities, namely this:

    You can’t educate donors.

    Well, at least not the donors at the level who are most sensitive to the impact of overheads on their gift – i.e. small donors. They’re already quite conscious that they’re not giving much, and they want it to ‘go as far’ as possible.

    So if in 20 – 30 years time we are sitting here saying, “Wow, do you remember all that problem we used to have with ‘admin costs’ in the 2010s? Thank goodness that’s over and people accept it now!”, I’ll be delighted. But somehow I don’t think we will be – I think educating the public on this one could be a Sisyphean task.

    Because I suspect the public don’t want to be told.

    So I have no problem with folk like charity:water using their 100% model. They explain how it’s possible, which seems transparent enough to me, and if they don’t have this as a major risk in their business plan (‘what happens if we can’t find donors to back the 100% model’) then they’re pretty silly.

    I certainly wouldn’t want to be talking about punishing them for ‘defecting’.

    If a charity has identified a key donor concern and found a way of addressing it that provides them with competitive differentiation and advantage, and ultimately a way of raising more money for their mission than if they didn’t, then good for them.

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    1. Thanks for your comment Adrian.

      I strongly suspect that you are right and that we can’t educate small-scale donors on this issue. The corollary to that however is not necessarily just to tell them what they want to hear, especially if it conflicts with what the charity sector needs. Doing everything donors tell us to do is not being donorcentric, it’s being donor-controlled.

      So that’s what really brings us to what I think is the nub of this issue – the conflict between the needs of individual charities, such as Children in Need and charity:water, which gain a competitive advantage by claiming zero overheads, and the needs of the charity sector as a whole which wants to explain that charities, as a rule, need to incur overheads to function. The latter collective endeavour is undermined by the individual actions of the former.

      The elephant in the room is competition. We tend to convince ourselves that it’s the commercial sector that is characterized by competition but in the charity sector we are much more co-operative. But competition in fundraising is everywhere.

      There was an excellent report written by Joe Saxton and Mhairi Guild at nfpSynergy in 2010 – It’s Competition, But Not As We Know It.

      This suggested four strategies in which charities can maintain a competitive advantage:

      1) They could be “externally driven”, relying on statutory, contract, investment or legacy income.

      2) They could “differentiate” themselves from other charities by targeting a key audience, having a distinct ‘product’ (such as child sponsorship), or through their organisational beliefs and values.

      3) They could occupy a particular issues-based or geographical niche that no other charity was operating in.

      4) And for the very biggest charities – the household names such as NSPCC, Oxfam and RSPCA – the final option is to achieve extremely high levels of brand awareness.

      None of these strategies implies any criticism of other charities adopting the same strategy for competitive advantage. Just because NSPCC has high brand awareness does not mean it’s a ‘better’ charity than Action for Children.

      The overhead-free scenario is a different type of competitive advantage because it does imply criticism of other charities. It implies that those charities with higher overheads are less worthy of donations because the overhead-free charity can put donors’ money to better use. It may be ‘good fundraising’ to adopt such as strategy at the expense of other charities; it may not. But it doesn’t make it the right thing to do just because donors want us to do it.

      Marketing as warfare’ is an analogy that dates back to the 1980s in the commercial sector. From a competitive advantage perspective, we’re not quite as pacifist in the charity sector as we like to think we are.

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      1. I have to say while that the concerns you raise about ‘inherently criticizing” are not supported by ANY research anywhere showing that the Rady model (or other similar ‘honest’ models) hurts any other organizations charitable donations (you just ‘worry’ it will), you elevate your imaginary concerns over something that will, if used, INCREASE donations by up to 80%.

        Large charitable umbrella groups can take the lead in educating a very small, easily reachable group of “big donors” and get these increases out into the world in a matter of months and years as opposed to the decades (or as you admit, maybe ‘never’) it would take to educate everyone else in the world to ‘just ignore overhead costs.”

        And while overhead aversion is an exaggerated concern among most donors, it is definitely not a “myth.” There are still far too many charities that are sinecures for the politically connected at best, and outright frauds at worst. It is definitely NOT a non-issue.

        Forgive me, but all your objections seem like a self-defeating, almost religious ‘statement of purity,’ rather than something that will ever actually help other human beings.

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    2. As I constantly tell my seven-year-old, life isn’t fair. Some causes are more popular with donors (and therefore easier to fundraise for) than others. We would never argue that charities representing more popular causes have an obligation to the “sector” as a whole – including some causes that are less publicly resonant – to educate donors that the reality is that other fundraisers have it tougher.

      So why, if we know that some business models are also more popular with donors, do we argue that it’s somehow unethical for those charities who are lucky enough to have a privileged business model to exploit this? If a charity has major philanthropists who will fund “overheads,” good for them! Their trustees have an obligation to the people/animals/environment that they serve to make the best possible use of the resources they have at their disposal, *not* an obligation to the “sector” as a whole. That obligation includes exploiting every competitive advantage at their disposal, including the competitive advantage of their business model.

      It is also not always the case that a business model that covers “overheads” is unsustainable. What if “overheads” can be funded via surpluses created from trading? Or from an endowment?

      We all agree it is best practice to explain transparently to donors where their money goes. If, in fact, all of their money goes to elements that are outside the category considered to be “overheads,” wouldn’t it be irresponsible NOT to communicate this?

      I completely agree that a more “sophisticated” read of how modern charities operate necessitates some spend on what the general public would consider “overheads” – things like salaries (how dare we operate on more than just the goodwill of volunteers?!) and research into how effective our programmes are. I think this is money well spent and protects the investment of our donors. However, the fact remains that spending on these areas is not as popular with the general public as money spent “on the cause.”

      Whose obligation is it to educate the general public about the reality of “overheads”? I would argue this is more appropriately situated with umbrella bodies like NCVO, the IoF, and, indeed, Rogare, rather than with individual charities, whose primary obligation is to do as much as they can with what is at their disposal to promote their own cause.

      Editor’s note: The author of this comment has requested that it be posted anonymously.

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      1. I totally agree with you, Donor-centric Fundraiser, that a charity’s “primary [fundraising] obligation” is to, paraphrasing what you said, raise as much money as they can for their own cause.

        However, that doesn’t mean charities don’t have obligations to other parties and it doesn’t mean that their “primary obligation” necessarily trumps the obligations they have to those other parties in every situation.

        We already accept that fundraisers have obligations to donors. I think that charities also have obligations to other charities. Unlike the commercial sector, where the ‘big four’ supermarkets and car companies enjoy taking potshots at each other in their marketing, I don’t think charities should go down that route. I’d say it is arguably unethical for one charity to position itself as better than another charity, the way companies do.

        This doesn’t just apply to the overhead myth. It would apply to a charity that marketed itself as a better solution to a problem than a different charity by denigrating that charity’s service provision; or a charity that tried to push another charity out of a donor market because it wanted to dominate that market. Both are acceptable tactics in commerce but I am not sure we would look favourably on charities that “exploited every competitive advantage at their disposal” if that meant embarking on these last two courses of action.

        I may well be wrong about this, but we need to have the discussion: it is not self-evident that charities such as Comic Relief of charity:water DO NOT have obligations to other charities and the sector as a whole in the way they conduct their fundraising.

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      2. Thanks Donor-Centric Fundraiser. You made me rethink my position on this, in terms of charities having an obligation to use whatever legal opportunity or competitive advantage comes their way.

        But I remain convinced that ‘the Golden Pound’ approach is damaging to all charities, including those who make use of it.

        1. It reinforces the widespread belief that charities with overheads are inefficient, in that overheads are somehow avoidable.

        2. For all those thousands of charities who will not attract a funder or major donor, or who can generate a trading surplus or rely on an existing endowment to cover overheads, they will be tarnished with the notion of inefficient charities. Or perhaps included in that pernicious phrase ‘fake charities’.

        3. It will focus donors’ attentions on overheads rather than outcomes. Every donor or potential donor will be reminded of the issue whenever they choose to give to a charity.

        4. It will certainly focus journalists’ attentions on overheads yet more. Transparency is of course welcome and essential in this area, but anyone care to guess how long it would take for newspapers to come up with a charity hall of shame, simply for acknowledging overheads?

        Maybe they would turn the tables on charities with a charity-focused version of The Scrooge Christmas Card Awards. ‘Which charities are doing their best to keep donors’ money away from beneficiaries? Read our top 100′.

        5. It could create not just two tiers of charity – the Golden Pounders and the we’ll-use-some-of-your-gift-to-light-our-office majority – but could set off a scramble amongst the Golden Pounders to secure the best major donors. If charity A posts overheads at 20% and charity B can only manage 22%, then any major donor is going to be tempted to go with the ‘more efficient’ charity.

        If it’s about contributing to overheads, you can bet the bigger charities will try poaching each other’s major donors on the grounds that ‘our overheads are less than theirs’. If it were more about impact, that prospect would I think be reduced.

        6. Which trustees and volunteers would want to be seen spending their time helping a charity that hadn’t ‘eliminated overheads’? Many would be guided by their passion and commitment, but some would be more attracted by a ‘zero-cost’ cause.

        Some might argue that this impact on thousands of other charities is nothing to do with their charity, and that bigger charities have always had an advantage. Perhaps. But I fear that pandering to donors’ misconceptions about how charities operate as businesses will result in many more of them holding all charities more cheaply.

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  2. Fundraisers and NGOs seem to be in a talking mood about overhead… The Agitator (Craver and Belford) wrote about it. We’re talking about it here. And earlier this week, at a luncheon hosted for women donors by my community foundation – overhead came up.

    I would find it somewhat amusing, certainly curious – if I weren’t so angry and frustrated by this. No overhead? Please… Even some portion of the telephone or rent?

    There’s no business other than fundraising that is expected to do the work without any cost. Sure…Several donors cover your overhead but there is still overhead. Okay…You have an endowment (funded by donors) that pays overhead.

    Why would any NGO be proud of low overhead? Because when I hear about low overhead, I wonder:
    – How decent are wages at that institution? Or is this an example of the poverty mentality? Employees of NGOs should actually take a vow of poverty, or even volunteer. As a development officer, I used to explain to theatre donors that the very actors they loved – and wanted to stay and live in our community – couldn’t get a mortgage because salaries were so low.

    – How effective and efficient is the capacity of the organization to serve its clients? Because if the employees don’t have email (or it always breaks) or the computers aren’t relatively recent… I wonder how the organization gets the work done.

    – What is the scope of professional development? Because if there’s no money for professional development (and anyone, the staff can’t go to a conference because the organization is short-staffed), I’m not impressed.

    I also think there’s a lot of misrepresenting going on. (Note, I’m not saying “lying” because that isn’t nice.) I think organizations are finessing their donor communications to say there’s “really low” overhead. So as a sector, we’re not actually really honest? In our fundraising operations we’re sort of not actually really telling the whole truth… because we have to compete with other organizations that have no overhead?

    As Adrian Sergeant noted back at the Growing Philanthropy Summit in 2011, Washington D.C. (I was there), it is rather unethical.

    I believe the NGO sector can be better. I believe it is donor-centered to tell the whole truth. I believe we have to quit apologizing for overhead or living wages or buying a new computer or attending a conference or…

    And I think it would be wonderful if there was really good research about how donors feel and behave and why… Because I suspect that a whole lot of what is going on is that the fundraising sector doesn’t do that well communicating in ways that people can hear and listen and understand.

    Thanks for the great conversation.

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  3. I nearly didn’t comment, as I’m getting so tired and downright bored of the “overhead” debate. And yet here I am! Why? Because I also recognise that it is a consideration for our supporters – particularly when the media keep telling them it is so – and we have an individual and collective responsibility in the way we approach this issue.

    I can understand why some commenters here suggest we should take advantage of this research and manipulate supporter engagement. Trying to address deep-rooted social prejudices is really difficult, and raising cash is also hard – so when there’s an easy way to potentially get more money, why not take it? Businesses don’t moralise in such a way, they do whatever it takes to raise their shareholder value – charities should toughen up and get on with it.

    But here is the crux for me. We are first and foremost social causes – and so we should not be trying to raise money at any cost. We have a responsibility – to ourselves, and the wider change movement of which we are all a part – to weigh up the consequences of our actions and be guided by our values. Should we accept money from absolutely anyone, even if their values clash with our own? Should we accept money for work we otherwise wouldn’t have done/believed necessary, in order to meet a donor’s interests? Should we exploit or take advantage of beneficiaries in order to raise more cash? No, no, no! And nor, do I believe, should we deliberately reinforce a negative social frame to make easy cash.

    And that’s what this research recommends we do. Reinforcing the notion that there are “good costs” and “bad costs” in running our organisations – the good costs being spent “on the cause”, the bad costs being frittered away on supposedly wasteful activities that are not for the cause. The notion that fundraising is a necessary evil, that running costs should be avoided, that investment in infrastructure, in people, in dreaded “admin” is all an abuse of donor trust that throws their money and support away.

    All of which is, of course, a false dichotomy. Here at Friends of the Earth, I can say confidently that every single penny donated does go to the cause – because we won’t deliver impact if we don’t run the organisation well, invest wisely and efficiently in our development, involve the public in our campaigns through both financial and non-financial support (inspiring people to give their money, voice, time). I agree we shouldn’t spend money on anything but the cause – the point, is that everything we do should be to advance the cause, and strengthening a frame that suggests otherwise is counterproductive for all of us.

    So I do not agree with the recommendation of this research, because I do not subscribe to the “whatever it takes” philosophy of fundraising. The Do No Harm principle should underpin everything we do, whether that’s raising money, campaigning, delivering services or running projects. Ultimately in my view, chasing a quick buck now will be detrimental to both the individual charity, and the sector as a whole.

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  4. So, if I can summarise the position of the commenters above:

    1) Under no circumstances should any charity seek direct support for its fundraising and/or operational costs from wealthy individuals, trusts or corporates. This would be unethical and bad for the sector.

    2) If a charity has inadvertently done 1) above, under no circumstances should they tell any other donors about it as a way of inspiring confidence and boosting income. This would be doubly unethical and bad for the sector.

    Is this a fair summary of your positions?

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    1. Though I can’t speak for others, Adrian, this is not a fair summary of my position. Of course charities should seek funds to offset their overhead costs from trusts, individual and corporates, the same way they seek funds to offset their overhead costs from individuals through their direct marketing all the time. And many foundations are happy to pay overhead costs these days. I don’t see there is an issue here.

      They are then at perfect liberty to tell the donors who made those donations how they used them. Indeed, that’s exactly what they should do.

      My position is that having done so, they ought not use this as a competitive advantage at the expense of other charities that have not covered or, more relevantly, are unable to cover their overheads in such a way.

      You beg the question somewhat when you say the ‘overheads-free’ solution would “inspire confidence and boost income”. It may inspire confidence in the charity claiming it has no overheads but decrease trust in the entire sector. And I maintain fundraisers have obligations to other fundraisers in this respect.

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    2. I don’t normally find myself commenting on blogs but the short-term nature of some of the arguments being put forward here, something that seems to be rife in our sector, I find frustrating, unethical and ultimately damaging to us all.

      As a sector are we not creating a rod for our own backs and ultimately risking the long-term sustainability of all our organisations if we tell our supporters that it costs x to deliver a particular impact when in fact it costs y? The things we are trying to change, the differences we are tying to make are not easy to achieve – whatever your cause or scale of organisation. It takes take time, expertise, and money to achieve a better outcome for our beneficiaries and it requires the whole organisation to be working together to deliver this change. So it’s a complete red-herring to split out ‘overhead’ costs from ‘project delivery’ costs ‘overheads’ are ‘project delivery’ costs.

      It’s also naive to think you can manage and contain messages between audiences, that one message can be presented to the general public and another to major funders. Who do you think works for grant giving organisations or companies? And whilst many HNWIs spend a lot of time in their own social circles they still engage with the ‘real world’ through social media. If you are informing the public that you can deliver your objectives without having to pay ‘overheads’ why should other funders and supporters not expect this to be the case too?

      Ultimately we are undermining the true cost of delivering change and that can only have negative consequences for our beneficiaries. I take issue that you can’t educate people – we are educating people, just to expect more for less and less, in the long-term, is what we will be able to deliver.

      Sarah MacQuillin, Development Director, Geffrye Museum

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  5. Wading back into the debate with a few further reflections:

    For me, it is very clear that all charities need to be transparent and honest with their donors about how their funds are raised and how they are used. Anything less than this would be unethical.

    It is also very clear to me that spending on what many members of the general public consider to be “overheads” is critical to charities being able to achieve their missions. I think spending on these areas is perfectly legitimate, and my life as a fundraiser would no doubt be easier if everyone in the general public shared my view of what makes for charitable effectiveness.

    My argument is that it is not down to individual charities to do more than be fully transparent with their donors about how they raise their money; they do not then have a further obligation to fight with hands tied behind their backs to help make life easier for other charities who, through choice or circumstance, find themselves less popular with donors.

    So if you are lucky enough to have a business model that allows you to say, honestly and transparently, that you are able to restrict donations from the public to service provision ex-“overheads”, then I do not think it is in any way unethical for you to do so, because, crucially, I don’t think an ethical obligation is owed to “the sector.”

    This debate about competition is an interesting one. Virtually every fundraising training in which I have taken part urges fundraisers to think about what it is that compels their donors to support them and how they are distinctively positioned to offer this. Thinking about “unique selling propositions” and “competitive positioning” does not seem like it is generally verboten among accepted fundraising practice. Indeed, it seems to be encouraged.

    However, I have never once seen a charity call another charity out by name in its fundraising literature and suggest in a direct comparison how they are more effective – either in terms of impact (where we all seem to agree we would like to be judged) or in terms of fundraising. I don’t think any of us is playing a game of “give to us, not to them” – it’s much more about “give to us because we understand what you care about.”

    And, like it or not, it’s clear that one of the things that donors care about is “overheads.”

    Let’s use another example of something that donors care about to see if it better illustrates my point. We all know there are some forms of fundraising that are more popular with donors than others, and Joe Saxton’s research suggests that there is an inverse correlation between the effectiveness of the method in terms of delivering long-term value and the popularity of that method among members of the public.

    It would be helpful to all fundraisers if the public were more accepting of those methods that bring in the most money per pound of effort expended, but this is not currently the case. Some charities choose not to engage in those less popular forms of fundraising, eschewing face-to-face and any gambling-based methods. Would we ever argue that it would be unfair for those charities to disclose the fact that they don’t use those methods because it could put them at an unfair advantage relative to charities that do?

    My argument is that suggesting that it would be unethical for a charity that truly doesn’t need your money to cover its “overheads” to say this even if it is true is the same thing as saying that all charities have an ethical obligation to defend ALL fundraising methods, even those they don’t employ.

    Whose job is it to educate the general public about what enables charities to carry out their work most effectively (including spending on “overheads” and pursuing cost-effective fundraising methods)? Again, my argument is that that responsibility sits with collective bodies like NCVO, the IoF, and Rogare, not with individual charities.

    It is unethical to lie, not to present yourself in the best possible light, even if that means your peers appear less attractive by comparison.

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    1. “Some charities choose not to engage in those less popular forms of fundraising, eschewing face-to-face and any gambling-based methods. Would we ever argue that it would be unfair for those charities to disclose the fact that they don’t use those methods because it could put them at an unfair advantage relative to charities that do?”

      Yes – absolutely.

      This is what happens on a fairly frequent basis. Here’s a few redacted examples:

      • Small charities say they would NEVER use ‘chuggers’ because it’s a disgraceful way to fundraise (implying that their fundraising is more ‘ethical’).
      • Digital agencies castigate F2F purely as a way of promoting and positioning their own fundraising product. They don’t argue digital is more effective than F2F; rather that it is more ‘ethical’.
      • A charity with an in-house F2F team says in a press interview it does not and would never use an agency (implying that in-house teams are somehow more ‘ethical’ than outsourced F2F). This was simply a way for the charity to extricate itself from the blanket criticism being heaped by the media on all charities using F2F during one of its periodic hatchet jobs.
      • Local autonomous branches of federated charities disown their headquarters for using F2F, arguing instead to give directly to the federated branch.
      • A charity stops using F2F (after it starts to deliver diminishing returns) and then claims it did so because it no longer considers F2F to be an ethical form of fundraising.

      Unlike commerce, where individual companies must fight each other to survive and only rarely co-operate to lobby government over tax or advertising, for example, fundraising is a much more collective endeavour. Fundraisers are trying to present a collective professional front, explaining, for example, that all fundraising costs money, all fundraising has a breakeven point, all fundraising means asking you to give, all fundraising might mean you feel guilty about declining to give.

      Charities that break ranks in this collective endeavour potentially undermine the ability of other charities to raise money. Friends of the Earth’s Joe Jenkins makes a great point in his comment above: not only must fundraisers do good, they must avoid doing harm.

      You point out in your comments, Donor-Centric Fundraiser, that charities ought to make the case in their fundraising to for donors to give to them because of the great work they do. The examples I’ve just given are not like that. They are ‘give to us because we are better than other charities in ‘x’ respect’. They don’t name specific charities (though this has happened). But they don’t need to, as they can rely on the public to infer who those ‘chugger’-using competitors are.

      The F2F examples I’ve listed are all examples where a charity can show a competitive advantage by not using a particular form of fundraising. I firmly believe they have an obligation not to use this as a competitive advantage that outweighs their duty to raise as much money for their cause as they can.

      The ethical position should be: Raise as much money as you can without inhibiting, intentionally or otherwise, other charities from doing the same.

      In this way charity fundraising is a totally distinct moral proposition from corporate sales and marketing. If charities are permitted to deploy “every competitive advantage at their disposal”, there’s fundamentally little difference.

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  6. Some further thoughts!

    Why are we more relaxed about letting major donors dictate the terms on which their donations are made than we are regarding members of the general public? Very few charities turn down major gifts (even from trusts and foundations, which arguably should be more understanding of the need for “overheads” like professional staff and spending on research and evaluation) even if the gift doesn’t meet full 100% cost recovery standards. We would prefer this to be the case – and we support collective bodies like NCVO and others in their effort to educate professional funders about the desirability of full-cost recovery – but very few of us explicitly turn down gifts if they don’t meet this standard, and this is considered acceptable by most.

    In fact, doing this means that even more of the pounds raised from members of the general public end up funding “overheads,” and yet I rarely hear an argument made that charities that have accepted gifts that don’t meet full cost recovery standards should then be required to disclose to their general donors that more of these gifts go to “overheads” than to “delivery costs” than one would otherwise assume from the standard formula of how a charity makes and spends its money.

    In other words, if a charity spends 20% of its money on “overheads”, we seem to think it’s okay to allow “general donors” to assume that 20% of their own gift will go to “overheads” even if in fact it’s closer to 25% because of major gifts that did not include a full element of “overheads.” I would argue that charities that are lucky enough to have their “overheads” funded in other ways are being *more* transparent with donors than what is considered the acceptable standard.

    Another point worth bearing in mind is around “waste.” Most of us commenting here agree that “overheads” are essential and that for various reasons (unhelpful presentations by watchdogs and journalists among them), the purpose of spending on “overheads” is not well understood by the general public. Most of us also agree that there is such a thing as “waste,” and that the general public is correct to be opposed to it. (The devil is in the detail, and part of the problem is that often people conflate all “overheads” with “waste.”) But I think even defenders of a charity’s right to spend something on what some people would consider “overheads” would agree that some expenses are wasteful and bad.

    If you have a funder who is willing to cover your “overheads” (or indeed, if the charity can cover these “themselves” through trading activity or prudent investment of an endowment), I would argue you *might* end up with an even tighter control on “waste” precisely because the relationship between the person paying for the “overheads” and the people spending them is more direct. The analogy can be found in the private sector: the relationship between the shareholders of widely traded public companies and the board is diffuse, so their ability to control spending is rather more limited. What happens when a struggling public company is taken over by a smaller group of shareholders? The first thing to go is the company plane! Small businesses run by their management teams rarely spend excessive amounts on corporate frills that are routine in companies that are widely traded because the managers can see more directly which expenses contribute directly to the bottom line and which ones don’t.

    My point is that it is entirely possible that charities who have figured out a way to get their “overheads” funded through alternative means may in fact be more watchful over “waste” precisely because the pot available to spend on these is more defined and because they are more directly accountable to the people who are providing it to say how it’s spent.

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  7. Final points for the avoidance of doubt:

    I am not suggesting that charities are in general wasteful and that by definition charities that have a “100% to the cause” model are less wasteful. I just think the relationship between people willing to direct 100% of their donation to “overheads” and how the “overheads” are spent is a dimension that has not received very much attention and is worth considering.

    I also believe that while the primary obligation to educate the public on matters relating to charity effectiveness generally is properly located with collective bodies and not individual charities, individual charities (particularly those that make use of less “popular” forms of fundraising) do have an obligation to support the efforts of those collective bodies, through contributing resources in the form of dues and allowing members of staff time to serve on committees, etc.. That is the definition of being a “good citizen” towards the sector. My argument is simply that the “good citizen” requirement does not extend to individual charities having to make their own positions appear less attractive than they actually are.

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  8. Just kidding – one more comment! With respect to the competition debate, here is an interesting thought experiment for you: imagine we were to get to a nirvana where all donors understood the role of “overheads” in ensuring effective delivery and we were instead all able to be judged purely on the basis of the impact that we create.

    In this new paradigm, would it be unethical for a charity that could demonstrate that its model was, in fact, pound-for-pound more effective in creating impact than other charities in its field to do so in its fundraising literature?

    The comments here seem to suggest that it is unfair to compete directly on the basis of popularity of business models because that distracts donors from the real point – achieving effective results. If that distraction were removed, would it be unethical to compete on the basis of proven results? Or is head-to-head competition among charities not allowed, full-stop?

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