Tuesday, October 25, 2011

Why is donating unlike buying a pair of shoes?

This ain't a donation
There’s quite a lot of talk these days about how charities should spend their money. There have been stories in the media about charities that spend more on fundraising than they do on supporting research. There have been stories about the size of charity CEO salaries and how they need to be capped. There have been stories back and forth about what a charity should spend on overhead and whether that is really fair. If we were talking about the retail business none of this would apply. Why is making a donation different than buying a pair of shoes?

On the face of it the two are the same. You spend $30.00 on a set of new shoes. You spend $30.00 on a donation. You use your credit card for both. Both organizations – the shoe retailer and the charity – count them as “sales” (although the charity will use a different description). Both use the same marketing techniques – advertising, website, social media, PR, celebrity endorsement and more. Both often use the same sales techniques – face-to-face sales, online sales, events, etc. So, what’s different?

It all comes down to the purchase. When I buy something from a retailer it is for me. I buy it to use or to give as a gift, but it is mine. When I give something to a charity, I buy something for someone else. There are those who donate because of tax reasons, but most give because they want to help someone in need. Or it can be a cause that is in need or even an animal in need. The person or thing in need is the end beneficiary of the donation, not the charity itself. When I make a donation to a charity that help endangered animals the end beneficiary are the animals and not the charity that does the work to save them. I give the money to the charity but I want it to go to the animals.

When I donate to help an end beneficiary the charity makes me an unwritten promise that they will do the helping on my behalf. I make a donation to the charity to help those animals because they say they will help them. And I believe them, so I give.

So, in one relationship, I see, I buy, I consume. In the other, I see, I give, I get a promise to help someone in need.

Here’s where charities get into so much trouble. What happens if the unwritten promise the charity made isn’t kept to the satisfaction of the donor? As we have seen, by definition, the donor has a stake in the operation of the charity. I give, they help on my behalf. That is something that doesn’t happen in for-profits. I don’t care what the retailer does to get me those shoes after I buy it, unless they are exploiting child labour in a Third World country. Usually, my relationship with the retailer ends once I buy the shoes. But implicit in a donation is a stake in the helping the charity does.

Because of all this, built into the donation is a responsibility that a charity must live up to. Anything that impacts a charity’s ability to do the helping they promised is an issue for a donor. This can be real or imagined. It can be fair or unfair. Since often times the promise in unwritten and not very well explained donors fill in the gaps. They make assumptions about the charity and what it will do. And when those assumptions are challenged, there is a disconnect.

How does this help? It shows that charities need to clearly say how they are going to spend their money at the time of the donation. Many charities often leave this to a later date, such as in an annual report. That does nothing to solve this problem, and in fact could make it worse. Second, it underlines the need for the charity to make reporting about their activities a priority. Many charities are afraid to say too much about what they do and how much it cost in order to avoid possible trouble from donors who don’t like their practices. This simply perpetuates the problem. One charity I know illustrated this by not publishing its annual report this year and instead put up a link to their public tax return at the Government of Canada website. This is after they published annual reports for several previous years. What message do you think that says to their donors?

Don’t treat your donations like shoe purchases. Be clear about why you are raising money, how you will use it and how you spent it. It will avoid a truck load of problems.

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