"There are decades where nothing happens; and there are weeks where decades happen." - Vladimir Ilyich Lenin 

Lenin’s reflection just ahead of the Russian revolution seems apt for our times. Quite where a post-Covid world will settle is still unclear, but permanent change is certain. 

This recent period has highlighted a series of underlying issues that have been building within the non-profit world. Top of the list is the sheer number of entities in Aotearoa New Zealand. At the end of 2021 we had over 28,000 registered charities and rising. Per capita, this is twice that of Australia and three times the United Kingdom. We also have over 24,000 incorporated societies—so, in total, fewer than a hundred people per entity. 

Commenting in a 2020 Stuff article, Fred Hollows Foundation chair and BoardWorks Associate Craig Fisher likens Covid to ‘a blowtorch amplifying existing pressures’. [1] He suggests that the number of organisations is ‘ridiculously high’ and that we are ‘really good at setting up small entities and, sadly, unfortunately competent at keeping them small’. A few years ago, the chief executive of large funder told me that there were 35 organisations in Auckland and Northland working in the area of breast cancer. She wouldn’t deal with any of them until they ‘sorted themselves out’. 

As Fisher notes, ‘it’s not about numbers, it’s about the effectiveness of impact, that’s the key discussion we should be having’. 

It is all about impact. It cannot be about anything else. All business exists to serve a need and the charitable sector is no different. Charities all have good intentions, committed people and do good work. That is not in doubt. What is in doubt is efficacy and proof of impact. 

The True to Label study looked at 55 diverse organisations across four sectors, considering only publicly available information. While most annual plans (90% plus) were freely available, fewer than 50% of strategic plans were and some were withheld—rather extraordinary for organisations running on public funds and gifted time. 

The information was considered from the point of view of an interested stakeholder or investor looking in. In general terms, can I see what this organisation is trying to achieve? Is it clear in outcome terms? Is there a measurement framework? Does the strategy or theory of change stack up? 

The findings were summarised as follows: 

• 65% had externally facing outcomes at head of their plans [2] 
• 51% had some form of measurement—so half displayed no measurable accountability  
• 27% had measurements broken down on an annual basis 
• 13% had some form of lead indicators 
• 67% had no governance reporting—accountability for the work of the board 
• 74% had no extended reporting—environment, supply chain etc 
• 24% attempted to show resource alignment to strategy. 

These findings were somewhat dispiriting but unsurprising. Hopefully it is glaringly obvious why this is important. It’s a competitive and changing world. A cause may be just but that does not mean it should be funded. As experienced practitioner Chris Clarke noted in the report, ‘the basic business model of the non-profit world is a broken one. We will see a massive shaking out in the next five years’—and that was a pre-Covid comment. 

But at the top of my list is a matter of ethics. Warren Allen, the former chief executive of the External Reporting Board (XRB), put it very neatly, ‘once an organisation receives donations, government grants or tax advantage then the rules change. They should genuinely explain why they exist and the impact that they are having’. [3] 

We are all investors. When you bundle up tax credits, tax foregone and government investment in the sector, the contribution from every taxpayer is roughly estimated at $2,000. [4] 

Just as important is the inability of a board to execute its performance oversight role in the absence of clear frameworks. We expect management to be suitably busy, but what is harder to assess is the difference between activity and productivity. Without a good map, a compass aligned to organisational ‘true north’—and with no way to assess genuine progress—many boards descend into the oversight of operational busyness. 

What to measure 

Understanding commercial transactions is easy. I buy a product. Am I happy with it? Do I perceive it was value for money? A simple consideration involving just two parties. The non-profit world has struggled to create an analogous framework to demonstrate accountability and impact. Generally, the provider of resource and the recipient of the benefit are separated by one or more intermediaries. The perception of value can therefore be generated from several possible perspectives. This is argued as a structural disconnect between revenue and expense or an absence of traditional market equilibrium. [5] Sometimes it is also described as ‘the missing hand of Adam Smith’. 

The perspective of the beneficiary is the most valid. What positive change did we achieve in that person’s life? 

The concept of outcomes measurement is simple. It is the recognition that in a complex world, organisations need to develop a better understanding of how they create value for stakeholders and society at large to be able to develop a long-term, viable strategy and to keep their license to operate.  

Akina Foundation [6] 

This is not easy; outcomes are hard. An organisation may be one of many contributing to a high-level goal. But there is a need to be accountable at some level.  

The New Zealand Film Commission has a nice approach. [7] As a Crown organisation, it feeds into the Living Standards Framework, which has high-level NZ Inc outcomes. Its statement of performance notes the desired outcomes at the national and sector levels, then asks: how we will make a difference and how will we know we are making a difference? These two questions are the central inquiries for any board. 

Accountability must lie with the things the organisation can control influence and measure. Too many plans start with ‘boil the ocean’ statements that the organisation has neither the resource nor capability to influence. They may be valid but are completely aspirational. But somewhere the organisation must put up and say, ‘we will be accountable for this, and this is how we will know’. 

Most organisations are indeed busy, dedicated and operating with good intent. But are they efficient and productive? It’s often hard to tell. 

In a 2008 McKinsey article, Starting as a CFO, [8] one of the first recommended actions was to initiate a value creation audit. This explores how the company makes money, where the margins are and where return on capital is generated. Very few non-profit entities undertake similar reflection. One simple method is to plot all activity against two axes: cash profit and impact on mission. Low-impact, loss-making activity should be culled immediately. Focus on mission impact. Low-impact, high-profit is valuable in the portfolio, allowing transfer to projects that are vital but hard to fund.  

Public benefit entity reporting 

Some charities have been required to work with the new XRB standards already. From 2022, larger entities are also included, which requires providing a Statement of Service Reporting (SSP) as part of the annual audit. This requirement covers the entities in the True to Label research. From information provided at the time, many of them have work to do to meet the new requirements. This should not be difficult. If the board has done its work at the outset, with well-crafted, outcome-driven plans, then the SSP should simply fall out of internal reporting. 

The standard has some useful guidance: 

• Performance measures should have an external focus. 
• The information should be consistent with that used for internal decision making, i.e. not a confection thrown together to keep funders happy. 
• Performance over time is important as is ‘plan versus actual’ and comparison to similar entities. 
• It should have utility from the reader’s perspective, notably relevant, clear, timely, accurate and verifiable. 
• There should be enough contextual information to make clear why an entity exists, what it intends to achieve over the medium to long term and how it goes about this. 

We have heard of instances of consultants being engaged to retrofit SSPs to meet the XRB standard. If that is necessary, then the board has failed to do its work at the outset. 

A changing world 

The long term is in question for a sector crammed with goodwill and good intentions, competing for limited resources [9]

Maria Robertson

Looking back to the opening Lenin quote, we live in a period of accelerating change and the non-profit sector is not immune. The rate of change in the commercial world far outstrips this sector.  
Our largest charities are long standing. But they are not immune to the winds of change and failure to adapt will be fatal. The list of influences in the wider environment is long and growing. New forms of entity—social enterprise, impact investing, B-Corps etc—are growing quickly. The digital revolution is changing traditional fundraising. The coming generation has little interest in the things built by their parents. Their approach to philanthropy is very different indeed. 

Part of staying alive is making the case, which means the ability to demonstrate value—showing clearly that the organisation is delivering. 

The right benefits for the right people at the right cost 

John Carver 

We acknowledge Sport New Zealand, which funded and published the True to Label study. 

Notes

1. Is 27000 charities too many  
2. I was fairly liberal here. Many were not framed in any good practice form 
3. Warren Allen in conversation for the original paper, 2018. 
4. Extrapolated from a conversation with and information provided by Stewart Donaldson, Inland Revenue and from 2017 Treasury budget information  
5. Cheng, W and Mohamed, S. Eds (2010) The World that Changes. Jossey Bass. San Francisco. 
6. Akina Foundation (2017) Growing Impact in New Zealand: impact investment: need, practice and opportunity. http://akina.org.nz/wp-content/uploads/2017/12/Growing-Impact-in-New-Zealand-Report.pdf 
7. https://www.nzfilm.co.nz/sites/default/files/2020-07/NZFILM_SPE_2020_21%20Final.pdf  
8. Starting as a CFO  
9. Maria Robertson, Deputy Chief Executive Kāwai ki te Iwi - Service Delivery and Operations, Department of Internal Affairs