The Russian novelist Leo Tolstoy wrote that “happy families are all alike, but every unhappy family is unhappy in its own way”. The same can be said of organisations – business or philanthropic. Regardless of their industry, region, mandate or mission, the characteristics of well-run entities are often strikingly similar. On the other hand, poorly run organisations can be dysfunctional in a seemingly infinite number of ways.
That is why when considering the merits of philanthropic organisations applying business principles to the way they work, it is essential that we distinguish between the kinds of business practices non-profits should seek to emulate and any unsustainable behaviours they should avoid at all costs.
The key to finding the right balance is the adoption of sound governance principles. That is what the philanthropic sector across the Arabian Gulf Region should be prioritising in the next phase of its development – not just raising funds and delivering great programmes, but improving its standards of governance. In this regard, the non-profit sector can learn a lot by examining the best – and worst – practices on display in the business sector.
There is room for improvement across the world. According to an international study published this year by Stanford University, 42 per cent of the 924 surveyed non-profit directors admitted that their organisations do not have an audit committee, 69 per cent revealed they do not have a succession plan and a staggering two-thirds admitted that their organisation does not properly evaluate its own performance.
This is unsustainable – not because non-profits are necessarily engaged in poor practices, but because many of them do not have the basic systems of governance in place to demonstrate that they are not. The business case for taking corrective action is unquestionable; a strong governance framework provides all stakeholders – including board directors, management, employees, volunteers and donors – with much greater confidence that every dollar invested, and every hour spent, is generating the right kind of impact. As a result, not only can greater transparency and reporting improve the quantity of funds that a foundation or charity is able to raise, but it can also improve the quality of those funds by making donation flows more predictable and reliable.
Fundamentally, it all boils down to trust; the philanthropic sector should never fall into the trap of taking people’s trust for granted. As many businesses have learnt the hard way, this is one gift that can be revoked at any time. According to the Edelman Trust Barometer, an annual study measuring trust in different institutions, global trust in NGOs actually fell from 66 per cent to 63 per cent in the past year. It is likely that millions, if not billions, of dollars are being lost to the sector as a result of this trust deficit. Strengthening governance is the key to reversing this trend.
Of course, an enabling regulatory environment in GCC countries is also a prerequisite to strengthening our philanthropic institutions. The United States and United Kingdom, for example, which have long-standing systems for registering charities, are home to more than 1.5 million registered non-profits between them. On the other hand, the GCC reports only a few hundred registered charities, with hundreds or probably thousands more operating in the shadows. The need to know exactly where our charitable donations are flowing, and what impact they are creating, should no longer be considered a luxury – it must be seen as an imperative.
As in most other sectors, the world of philanthropy continues to evolve. Once the exclusive domain of the elite few, the growth of digital communications, social media and disruptive tools such as crowdfunding has made smaller-scale philanthropy a viable option for all. And this transformative change for the sector has heightened expectations when it comes to transparency, accountability and the ability to demonstrate impact. For charities that are dependent on public donations (as most are), sound governance has become an essential component of their social license to operate and their ability to raise funds.
The digitisation of giving is not just making philanthropy more widespread and accessible. It is also increasingly blurring the lines between philanthropy, business, and our collective social impact. In fact, there is growing acceptance that long-term value creation requires both the business and non-profit sectors to align their long-term goals with those of society. And as they do this, more commercial and non-profit enterprises will see just how much they have in common, and how much they can learn from each other.
As just one example, non-profits often worry about the appearance of overhead, staff and marketing costs in their finances. However, non-profits are tackling some of the most important issues of our day, and logically need to be measured by impact, not by their overhead. Who among us would invest our hard-earned money in a company that boasts that it spends the least on management and marketing? Such a company would be doomed. Similarly, we need to accept that recruiting the best talent costs money. For any organisation to attract the right professionals into its ranks, it has to offer market rates for their skills and experience.
As the poet Rumi wrote, “Yesterday I was clever, so I wanted to change the world. Today I am wise, so I am changing myself”. The most successful non-profit organisations will do both – they will change themselves to change the world. And ultimately, that should be our goal, because with the well-governed and successful organisations that we create today, our business and philanthropic sectors – and therefore our society as a whole – will thrive.
As featured in The National on 11 January 2016.