Over the past week the critical eye of the media has turned again to look at the way in which charities generate income, and how some are increasingly using their commercial arms to raise money for the causes they support.
It is understandable that for some, their gut reaction is concern that charities could be profiting from the advice they are giving to their often vulnerable beneficiaries. I am very clear – charities are here to serve the public, not to take advantage of it. If that is proven to be the case I know that NCVO, our 12,000 members, and the broader sector would be dismayed and concerted action would be required to set it right.
However, the way that charities operate is changing, and we need to be better at explaining to the public why we are using new ways to raise money, and why those don’t detract from our core purpose.
Why do charities have commercial arms?
We should be clear that charities must always live and breathe their values, and if there is any suggestion that a commercial relationship leads to charities losing their way and not giving the best support and advice to their beneficiaries, that should be scrutinised.
But in a world where charity income is being squeezed, charities are right to look at alternative revenue streams and look at what lessons they can learn from businesses to maximise the good they are able to do.
Commercial activity is ok when there is a convergence of vision, mission and values between a charity and their commercial partner. The guidance set out by the Charity Commission (CC35 for reference) explicitly states that ‘Charities may carry on trading activities which contribute directly to the furtherance of their charitable objects, or (where the purpose is to raise funds for the charity) which do not involve significant risk.’ So it wouldn’t be ok for NCVO to run a pub chain even if there was an opportunity for us to generate massive profits, for example. But it is ok for us to offer discounted software or insurance services because this is another way we can achieve our mission – helping charities to be more effective and efficient by reducing their costs and maximising the money they can spend on their own charitable work.
Of course, charities need to ensure they are doing their due diligence before getting into bed with commercial organisations – particularly in relation to how partners do business on their behalf and how this fits into the values of their organisation. Setting out explicitly how this meets our charitable objectives and how it benefits the people and causes we serve as well as the specific terms of the deal. But that’s not to say they shouldn’t consider appropriate partnership work. Part of being a good organisation is responding to what the people using your products and services want. We need to be transparent about why charities are involved in commercial partnerships.
And above all, we should remember whatever surplus is generated by trading company is then donated to the charity, enabling them to help more people.
Why charities are different to businesses
There’s nothing wrong with doing the things that businesses do well, but of course charities are different. While some charities can look like businesses, scratch under the surface and you’ll see a totally different approach and motivation.
Charities are fundamentally driven by their values, and everything they do must be in pursuit of their charitable purpose. Businesses ultimately exist to deliver profits for their owners, while charities put their beneficiaries at the heart of everything they do. Through their trustees, charities are led by volunteers, and of course they are judged by the public and the Charity Commission on what they do and whether they should be supported.
Charities that manage to keep the crucial connection to their values and their beneficiaries, while finding new sources of income, will be the charities that are able to be more effective and do more good. That surely is something we all want to see.