The Charity "Admin" Myth

The first in a two part series on charities and how they operate, James Forbes goes in search of not just the myths that hold them back but where new frontiers may lie that generate the next wave of opportunities for charities to really solve the problems they work on.

"I don't want you wasting my donation on admin", said an exasperated donor to me one day.

"No, I wouldn't waste your money", I promised while in my mind I pondered yet again how on earth the charity I worked for would continue to deliver on its stated mission if we couldn't keep the lights on.

A charity is set up with a mission: a mission to help the poor, save the environment, put on theatrical productions, find cures for incorrigible illnesses and literally save people's lives.

These are the reasons a charity exists and why they are also often referred to as "non-profits" or "not-for-profit". Because unlike a business or corporation whose chief aim is to generate profit, a charity's chief aim is to have impact on the cause for which it was created to help.

When a charity gets started, it is often - not always - started as a small project with a bunch of people volunteering their time and making in kind and financial contributions. They're usually driven enormously by the cause; there is very little need for overhead considerations because the project will be run out of someone's house, garage or a friend's office.

A start up charity is much like a start up business. In order to grow and replicate their initial impact they need to do two things: 1. They must attract financial capital and 2. They must become more organised and meet the standards we expect of a business or charity in today's world; in other words they have to comply with a bunch of laws.

As they grow they will need to employ people skilled at what they do: leaders in people management, finance, marketing, fundraising, project delivery. To attract the right people, they need to offer competitive salaries. Recently, a role a charity was offering attracted a quantity of high calibre of candidates. The top two withdrew based on salary.

You have to ask yourself, when it comes to running an organisation that is trying to have substantial impact in social and environmental outcomes, why wouldn't you want to have great people executing and enhancing the capacity of the organisation to deliver that impact?

So what is admin and why do people think it's a waste?

The administration of a charity is everything from the electricity bills, to office rent, to insurance, salaries and superannuation. Like a business, a charity has legal obligations it must meet and compliance standards it is judged on every year by the Australian Charities and Not For Profits Commission (ACNC).

It also must meet a bunch of common laws around work, health and safety standards, volunteer management, and most importantly, working with children.

This year icare, the ONLY agency that manages workers compensation insurance in NSW, recategorised charities under a rather absurd new category "non-residential care services" which saw some premiums jump by 1000%. In one instance a small charity's obligation went from $600 per annum to $4700 per annum in one year.

Now, this charity has absolutely no choice about having workers' compensation insurance. So what does it do? Not pay? It's not an option.

Then comes the uncomfortable question of salaries. Apparently. Because why on earth would you want to pay highly skilled people who are good at what they do good money to work on some of the most intractable problems in our community? Let's pay the CEO of Qantas $23.9 million and accept that that is a fair cop, but charity CEOs? What's the right amount?

Some argue that a good rule of thumb is that if the CEO is overseeing at least ten-fold in revenue inflows then this is a good standard, but I would argue that it should be about attracting the right people at competitive salaries and DELIVERING IMPACT.

In any case, it's arguing over the wrong measures. A charity is a not for profit, so its performance should be measured against the goals and targets it sets for itself, and, theoretically, against others with which it competes. But that is dangerous territory, because not all charities are working on the same part of the problem. So a charity is not a charity, is not a charity.

If we have a $5 million charity and pay the CEO $200,000 and she grows it by another $5 million and is able to show that she has effectively doubled the impact of the organisation, (doubled the number of homeless people housed, doubled the species protected) then isn't this the point?

Look at it the other way: pay the CEO $100,000, and take the $100,000 that might have been spent on direct services or project costs. In a $5 million organisation that might get soaked up very quickly and yet we may not have had the benefit of the skill required to increase the impact of the organisation long term.

There is always an opportunity cost in any endeavour; even in your personal budget, so while we can tie ourselves in knots trying to work out how a charity should be spending the money, why not leave it to them to work out what will deliver the best results?

Because when you say you don't want money spent on admin, what you're saying is that you're not just willing to cover the indirect project costs, overheads and salaries that make the project possible: from conception, to planning, development, execution, delivery, and reporting; what you're saying is don't grow into a more organised, capable organisation that can meet the challenge head on and solve it.

It's time to stop obsessing about overhead and start focusing on progress. Change charity, and charity can change the world.

Dan Pallotta

But if you trust the charity to deliver impact, why wouldn't you support its growth? If a charity is well managed, effective and delivers the impact it says it will, it should be judged on that measure. Otherwise, what you're asking the charity to do is to jump from project to project without the ability to develop into a strategic and coordinated response to the problem. You're asking it to rely on the kindness of those willing to offer pro bono support or volunteers who may have the enthusiasm but not the skills.

Let's be clear: you don't solve the worlds problems by throwing only love at it. You need dough.

In my experience raising funds from philanthropists I have had the rare occasions where they have offered to contribute to overheads or even staff training to increase skills within the team so they can be even better and more efficient at delivering impact; but this has been the exception.

My call to action is this: if you have capacity to help a charity, why not ask them about their overhead and what it would take to solve that problem for them, so they can focus on the job of delivering impact. Imagine helping create an endowment that supports the charity's core function so everything else they raise is running straight through to the DELIVERY OF IMPACT.

To suggest somehow admin is not part of the delivery of impact - of the cause - is to be utterly ignorant of the way a charity works on solving a social or environmental problem.

American fundraiser, Dan Pallotta, produced this transformative Ted Talk back in 2013. It has helped create a revolution in the way we pitch, structure, fundraise and think about how a charity functions.

In the next part, James looks at the gate keepers and advisors who hold the purse strings for many of the philanthropists and whether there are new ways to philanthropy in the 21st century.

James Forbes is currently the Chief Executive Officer of the Jane Goodall Institute Australia, a global conservation organisation that puts people at the heart of the solution.