“Who, WE?”

Social enterprise is not the answer, and the solution affects us all

By Chris Carter

Even before the effects of COVID-19 were felt, nonprofits and charities were struggling for funding: many donors don’t understand the concept of administrative costs and other necessary expenses, and accordingly prefer donating to program-only expenses; as well, the proliferation of channels has meant increasing costs simply to have a viable presence in front of your donors, so more “overhead”. However, just because donors don’t like admin costs doesn’t mean the cost disappears — what does a cash-strapped organization do solve this problem?

To fill this funding gap, some saw social enterprise as a solution: recognizing that the admin ratio is a consideration that doesn’t apply to social enterprise, charities and nonprofits could launch a revenue-driven arm with fewer limitations, helping to lessen the funding shortfall.

The problem
Unfortunately, the focus on reducing/suppressing admin costs is leading fundraising organizations down a path fraught with unintended consequences. Moreover, it is an ill-fitting solution to a manufactured problem: instead of explaining to donors that “overhead” is as necessary and inevitable as groceries, many have avoided the topic altogether, so that a small perceived problem became a bigger perceived problem as years went on. The resulting “solution” was worse than the problem it was to have fixed, having now caused deep and lasting mistrust in charities generally, across the country.

While restrictions and requirements around financing and charitable status can be time-consuming, they serve their purpose well: to ensure donors and the public at large can have complete confidence in the charitable sector, especially those organizations they support. Given both the necessity and effectiveness of this reporting and transparency, why is it suddenly okay for social enterprise run by a charity or nonprofit to have 95 percent of costs — entirely “overhead” — completely unmonitored? Why is it that nonprofits are under intense scrutiny, but their for-profit counterparts are held to such vastly different standards?

The WE Charity scandal is a scandal, yes, and rightly so — but not a surprising one. It is a natural consequence of hiring individuals who don’t necessarily have any concern for mission; who work at an organization that instead focuses on a capitalism-like churn of big events, big exposure, big celebrity names, and big dollars. And lather, rinse, repeat. Unfortunately, in the constant churn, it tarnished the whole nonprofit sector, including those who for years have been working to build trust in their supporters with transparent, responsible fiscal management.

What does this mean?
While some are still saying social enterprise is a viable solution, I disagree: we need to go back to basics.
Think about the impact your organization is making, and share it with supporters.

Think about the benchmarks we need to hit to ensure our work is properly funded, this year and the next and so on.

While creative funding solutions may deliver short-term wins, they are detrimental to the sector as a whole. Charities should be rewarded for making an impact and achieving their mission. Time and again, results have shown that donors support impact and mission. If you get a gift because your spokesperson is a celebrity, you will have a harder time renewing them than someone who joins due to the value of your mission and its impact. If you get a gift from chatting up wealthy donors, your model is networking-based, not impact-based; and you will have to chat them up again to get another gift, regardless of your organization’s impact with their gift.

To that end, the sector needs some serious introspection, not only in terms of this year’s scandal, but of scandals waiting to surface. While there have been rumblings of harassment against major giving staffers, there has not yet been an earth-shaking story with consequences on the major giving model as there has for the social enterprise model. However, that doesn’t mean the sector isn’t rife with such stories, and it doesn’t mean a reckoning isn’t long overdue.

Major giving is a model based on individual staff soliciting donations from individuals with means. When someone has complete discretion over a decision, it is a worrying power imbalance. Not only does it mean we are putting fundraisers—primarily women, almost certainly people with less power and wealth than those they solicit—in a vulnerable position. Moreover, in a non-diverse sector with non-diverse donors, we are almost inevitably putting staff—minority staffers among them—in a situation where securing a major gift means ignoring micro-agressions, outright ignorance, or worse.

Also problematic are other consequences of outsized influence: a significant donor asks about a job opportunity for their offspring; a board member suggests hiring someone they know for a sizable contract; a long-time supporter offers space for free but makes suggestions on decisions not in their purview. These are significant risks but are also unsurprising consequences of this funding model, which can focus on securing gifts at the expense of mission and impact.

Fundraising organizations need to reconcile these lesser-discussed ethical considerations with the sector’s existing best practices. Many charities and nonprofits have rules about accepting gifts from vendors — a relatively small problem with large attention paid to it — but not what to do with undue influence from significant funders or other “insiders”, with leadership’s responsibility to hire staff and vendors that best serve the mission, and with protecting and supporting staff experiencing harassment — or ideally, with setting up a system that prevents it from happening in the first place.

What’s next?
The pressure on admin funding makes clear both that change is needed and that there is already a clear cost of maintaining the status quo. Move away from fundraising models that allow the possibility of poor ethical decisions, like conflict of interest or the appearance of it, corruption or the appearance of it, and relying on staff to be in vulnerable positions without a clear way out. In short: there is a reason political campaigns have giving caps, and the rest of us should have taken this lesson long ago.

Given all this — the challenge of funding administrative costs, the risks of social enterprise and the outside influence of major donors — mass fundraising should be the path forward. A fundraising organization can raise as much money from people giving smaller amounts without compromising the organization’s values to meet one person’s expectations.

A shift to mass fundraising won’t solve all of the problems in our sector, but it’s a start. We can’t ignore the glaring issues highlighted by the WE Charity scandal, demonstrating that while our system may not be broken, it is chipped and in need of repair.

Chris Carter is president of Candela Strategies and has a strong track record of success in direct marketing and fundraising. He is also principal of Chris Carter Marketing in Toronto.