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Position Paper

  1. 1. Version 1November 15, 2011 Charity in the 21st Century For over than 50 years, our company has been the main source of funding research for theXYZdisease. We have been committed to spend $10 million per year since 2005 in order to cover theWorldwide Tracking Project. Based on this commitment, a team of three renowned scientists have beenhired to work on this project. Recently, we have witnessed a significant decline in donations due to theglobal financial crisis and the remarkable increase in charity organizations competing for donors’ money.As a result, we have found ourselves unable to raise the necessary funds for this year. For that reason, wemust change our strategy for fundraising, otherwise we will not be able to honour our commitment whichcould jeopardize the research program("Does commission based,") We acknowledge the legitimate concerns with regard to the high cost of fundraisingfirms.Nonetheless, we want to assure the community that we have done the necessary due diligence to ensurethat this cost is justified. We have considered all options and concluded that this is essential, if we are toachieve our $10 million target for this year.It is important to realize that the cost increase is inevitablewhether we keep the fundraising function in-house or use an external firm. At this stage, we need to setthe right expectationsand ask ourselves the following question: is it still realistic to expect that 80 per centor more of the money donated will go to charity? Concerns With Regard to Using a Fundraising Firm Some seefundraising firms as commercial entities aiming at making profit regardless of thehumanitarian cause they are associated with. This may be true in many cases. The same concept is appliedwhen we hire a professional accountant or go to a physician. Indeed, we will always have to pay forprofessional work,unless we entirely rely on volunteers( S h a r p e , 2 0 0 9 ) . We need to accept the factthatfundraising firms offer professional services and should be compensated for that. Some argue that people will always donate for causes they believe in, regardless of fundraisingefforts. Thus, they question the need for the high cost involved in the process. They expect their moneyto go to charity, not to fundraisers( S e g u i n , 2 0 0 9 ) . For them, 65 per cent cost of fundraising issimply unacceptable. It is correct that people will always donate, but not necessarily for your cause. While bigdisasters such as earthquakes enjoy free wide media coverage that raise people’s awareness to almost100 per cent, causes such as medical research for a rare disease do not have the same advantage. In suchcases, they require a lot of spending to raise awareness to just 10 per cent. Moreover, the managementprocess of collecting the donations, keeping records, and administration add up to the cost. There is also a concern about the high salaries of CEOs that can reach $500,000 peryear( " C h i l d r e n c h a r i t i e s : S a l a r i e s , " ) . When we look at this issue we have to know that top-tier calibers deliver big results. To elaborate on this point, we need to ask these questions: should wepay a CEO $50,000 and raise $500,000? Or is it better to pay a CEO $300,000 and raise three milliondollars? Of course the latter is better. Page 1 of 6
  2. 2. Version 1 Charity in the 21st Century We also need to know that the salaries CEOs receive when they work for not-for-profitorganizationsare significantly lowerthan the ones theyget at the for-profit side. For example, the typicalsalary ofa CEO at a multinational company is usually in the range ofthree to four million dollars peryear ( C o v i e l l o , 2 0 0 8 ) . The Advantages of Using a Fundraising Firm As mentioned earlier, the increased competition in the charity field made those without a capability torun sophisticated campaigns left out and neglected( " C h a r i t i e s p a i d $ 7 6 2 m , " 2 0 1 0 ) . Equallyimportant, when a charity launches a large campaign it puts high pressure on other charities to do thesame, otherwise they will see their donations fall. This has drastically increased the cost of operations,especially in communication, due to the fragmentation of media. Now it costs more to reach our targetaudience as it requires the use of multiple media vehicles. Moreover, we have to realize that using a specialized fundraising firm would enable us to reachnew segments of donors, raise awareness, change perceptions and attitudes, and establish new beneficialrelationships and partnerships( " C h a r i t i e s p a i d $ 7 6 2 m , " 2 0 1 0 ) . In this context, the costincurred should be consideredas an investment that will pay off in the future by lowering fundraisingcosts and increasing donations. In addition, using the external firm wouldsave us the cost of hiring more specialized staff such associal media strategists and seasoned marketers. It also gives us the flexibility to change our strategy,when needed, in a very timely fashion by drawing on the external firm’s vast pool of resources. Thisflexibility would enable us to hold our strong position against competition. Furthermore, using the external firm wouldgive us access to international markets. This newstrategy isexpected to increase the donations by at least 200 per cent. Apparently, this factor alone couldbe enough to justify our decision to use the firm. Finally, we have to admit that the rules of the game have changed and that we have to adapt andbe practical, as long as we are not compromising on ethics. We have to be result-oriented. If we need toraise $10 million and are unable to do that using our in-house function, but can do it by using an outsidefirm, then this would be the best option we have. Corporate Governance At this stage, our focus should be on the transparency of the fundraising process rather than itscost. We need to know where every dollar is spent. We have to understand the cost-benefit analysisbehind every decision to spend money in a certain area. One would not expect items such as first class airtickets and staff retreats at luxury spas to appear on the budget. However, we should expect to see itemssuch as social media strategy and implementation, fundraising events, and advertising to appear on it. Tomake sure that our costs are reasonable, we would consider the current industry standards and benchmarkagainst other not-for-profit organizations. We would alsouse best practices in all aspects of themanagement process including the main functions of general management, accounting, human resources,marketing, and operations. Page 2 of 4
  3. 3. Version 1 Charity in the 21st Century Moreover, we will always ensure transparency by elaborating on the scope of work of eachproject managed by the external firm. For that matter, this year’s project would include thefollowing( K l i e n , 1 9 9 8 ) : Conduct formative research to gain more understanding of the stakeholders. Develop strategy and objectives for the organization. Propose changes in the organizational structure to improve the effectiveness and efficiency of fundraising activities. Hire and train staff and volunteers. Project management and the execution of action plans. Conclusion To conclude, the not-for-profit organizations are witnessing a transformation of the way theyoperate. It is their responsibility to inform the society about this new way of doing business and deal withthe misconceptions. It is necessary to educate the public about the notion that a 100 per cent can go tocharity is unrealistic and ineffective, thus it has to be discarded. All stakeholders must realize that thehigh fundraising costs are necessary to deliver results. We haveto promote the effective operation of not-for-profit organization and strengthen public trust in them( D r a p e r , 2 0 0 3 ) . In addition, it might be a good idea to start using a different way of describing fundraising coststhat reflect their true nature. At the moment, using the terms “indirect cost”, “overhead”, and“administrative expenses” do not express the link between expenses and the quality and quantity of whatthe organization delivers. In contrast, we should use the terms “infrastructure expenses”, “core agencysupport”, and “organizational investment” to show this relationship (Draper, 2003). Moving forward, we need tothrow light on the critical role of fundraising costs involved incharity. We also need toensure full transparency with this regard by explaining the rationale behind eachcost item( " S t a t e m e n t f r o m i m a g i n e , ” ) . All of our communication should reflect this newapproach by clearly stating the percentage allocated for costs for each project. Consequently, we willeliminate any suspicion surrounding the issue and maintain people’s trust. ReferencesCharities paid $762m to private fundraisers . (2010, September 22). Retrieved from http://www.cbc.ca/news/canada/story/2010/09/21/con -charities- fundraisers.html Page 3 of 4
  4. 4. Version 1 Charity in the 21st CenturyChildren charities: Salaries of the executives . (n.d.). Retrieved from http://www.squidoo.com/child -organizationsCoviello, C. (2008, April 30). Historic CEO compensation. Retrieved from http://www.forbes.com/2008/04/30/ceo -pay-historic-lead-bestbosses08- cx_sd_0430flash.htmlDoes commission based fundraising pose an ethical dilemma ? (n.d.). Retrieved from http://www.the -cma.org/?WCE=C=47|K=225383Draper, L. (2003, February). 100% goes to charity? . Retrieved from http://www.foundationnews.org/CME/article.cfm?ID=2339Klien, K. (1998, January). Hiring a consultant . Retrieved from http://www.nhi.org/online/issues/97/fundraising.htmlSeguin, R. (2009, April 22). Environmentalism-fundraising is a mega -big money business industry . Retrieved from http://canadafreepress.com/index.php/print -friendly/10485Sharpe, A. (2009, November 23). Dont watch fundraising costs, but cost - effectiveness. Retrieved from http://www.charityvillage.com/ cv/research/rfrm33.htmlStatement from imagine Canada: CBC news coverage on charity fundraising is misleading. (n.d.). Retrieved from http://www.imaginecanada.ca/files/www/en/misc/statement_regarding_cbc_1 0232010.pdf Page 4 of 4