Managing charities in the new normal: The latest instalment in our managing in a downturn series

As charities fight the Government’s proposed cap on tax reliefs our research shows that they are already battling to cope with increased demand and reduced funding and support. Despite the economic uncertainty and reduced income the charity sector is resilient and flexible. The majority of charities remain focussed on fundraising, although some are looking to withdraw reserves and are looking at how to invest funds more effectively, while some are looking at restructuring or merger as a means of survival.

Our latest research in our managing in a downturn series, produced in partnership with the Institute of Fundraising and the Charity Finance Group (CFG), shows the current state of the charity sector through the eyes of nearly 500 senior fundraising and finance professionals in the charity sector. It shows a sector in the middle of a major re-shaping that is testing the morale, ambition, energy and competence of trustees and senior managers.

Liz Hazell, Head of Charities and Ian Oakley-Smith from our Business Recovery Services practice discuss the findings with Peter Lewis, Chief Executive, Institute of Fundraising and Caron Bradshaw, Chief Executive, CFG.

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LH: Hello, our fifth report in managing in a downturn series in collaboration with Charity Finance Group and the Institute of Fund Raising is based upon a survey of charities undertaken in late 2011 and seeks to shed some light on the experience of charities during 2011, as well as their hopes and concerns for the future, but also focuses on what charities are doing to make the best of the current environment. I’m Liz Hazell and I lead PwC’s charity team and with me are Caron Bradshaw, Chief Executive of Charity Finance Group and Peter Lewis, Institute of Fund Raising’s Chief Executive, as well as my colleague Ian Oakley-Smith who has been responsible for PwC’s input to the report. Now Ian, we’re called Managing Charities in the New Normal. Can you just start by explaining what we mean by the new normal?

IOS: Thank you Liz. Well back in 2008 when we first prepared one of these reports, we highlighted that at the time, the expectation of the economists was that the recession was going to last for some time, or the effects were going to last some time. So we flagged up to charities then that they should be considering this as a more medium to long-term adjustment and I think recent events have certainly confirmed that that was proved to be true and so the new normal that we are referring to in essence is that this is a more permanent recalibration and that charities shouldn’t see this as temporary measure and therefore their actions should be aligned to that. Encouragingly many of the responses in this survey, really for the first time, have confirmed that I think a lot of charities are really starting to get that now and are making the necessary assessments and changes to their operating models in order to survive in a more permanent adjustment.

LH: So Ian, are there any sort of key messages that we would see emerging from the report and from the survey?

IOS: Well I think the first point to make Liz is a lot of this is really supportive I think of what all of us have been seeing anecdotally anyway. We know that it’s tough out there. I think one of the most interesting things for me I think, is the sense that, as I say a lot of charities are really just starting to get this. So for example 1 in 5 are now saying that they are actively considering a merger as part of their response to what’s going on. Now whatever we may think about the merits of that, I think that’s a real marked step change from previous surveys, which I think can only be seen as a positive thing, as least they’re considering these options. Whereas before I suspect they were more sort of focussing on carrying on as normal.

LH: OK. Peter, if I can turn to you next, from a fundraising perspective, are you seeing this coming through from an anecdotal perspective as well?

PL: No, yes, very much. I mean I’m the new Chief Executive at the Institute. I’ve only been there six months so I’ve been really getting out to see our members in the North West, in the South West, in Yorkshire and that message has really come through that it is much more difficult to fundraise at the moment. I mean there’s still a very innovative, engaged funds who are looking for every opportunity, which is very positive, but it is difficult out there and I think it’s more difficult for some charities than others. Some of the ones, who are really struggling, are the ones who were more consistently reliant on public sector funding before and are having to do fundraising in a more, well understood way, in a different way.Whereas some of the bigger charities have always done direct marketing and traditional fundraising so these are still seeing some growth. So it’s a bit of a mixed market.

LH: Yeah, certainly the figure of 93% struck, there was obviously quite a lot of concern out there with fundraisers, it really is a much tougher market.

PL: Absolutely.

LH: What are you advising that they ought to be doing to address this?

PL: I mean we think people should be investing in their fundraising teams and to a certain extent we’re seeing that happen. Our training programmes for fundraisers are going very well and are probably busier than ever and that investment to make sure that the people within an organisation know really what the opportunities are, know what the fundraising strategy should be and what opportunities as an organisation they should pursue are absolutely essential. So really getting the fundraising strategy right before you start doing things.

IOS: That’s very true.

LH: Caron can I move onto you next? The Government and the Big Society agenda is obviously a key thing that we hear an awful lot about at the moment and have done for the last year or so. What benefits are you seeing that bringing to charities?

CB: It’s interesting isn’t it? This Big Society rhetoric that we’ve had, it’s got three elements to it. One is the increasing of giving of time and money, the second area is opening up a public sector service provision and the third is localism and these three things have inherent inconsistencies in them. Which of itself is not a problem, the charity sector is very diverse and it is able to, hopefully and in principal deal with that, but what we’re finding is that nearly half of the respondents saw no benefit whatsoever, or no impact and of those that did have an impact 82% said it was negative. So what we are seeing are some mixed messages coming through and there really needs to be some leadership here that gives them some certainty to charities, because it’s the uncertainty that really kills planning and ability to respond to change.

LH: OK and of course there’s just been recent news around the relief cap as well.

CB: Absolutely, absolutely.

LH: I don’t know whether there’s anything that you want to say about that Peter from a fundraising perspective?

PL: Yeah, I think most fundraisers were pretty astonished about it coming in from nowhere, you know the Government’s been pushing people to increase phi apathy, to increase giving, to support us, to help people to ask for money better. Then all of a sudden there’s this income tax relief cap which will, if nothing else, it will at least dis-encourage the amount of money that some very wealthy people are likely to give. So astonishment I think would be the reaction in summary.

LH: So Peter, if we can just look to the future, what would you leave as your sort of final message?

PL: Two things I think. I think firstly continue to invest in your fundraising teams to make them the best that they can be, so that the organisation can bring in as much money as money as it can. But secondly, and probably more importantly, make sure that your senior fundraisers are involved in the strategic decisions about where the organisation is going and are involved in really looking at the purpose of the organisation and then how the fundraising piece fits into that. Because otherwise it can get very disjointed and at this difficult time organisations, the leadership really needs to be together.

CB: I would echo that Peter in terms of the leadership piece and we have always stood for financial leadership, but its massively important that finance people don’t just consider their roles to be that of a compliance, they must consider the impact of the organisation. This is called a perfect storm, let’s not just weather the storm, let’s build in some flexibility and some innovation, lets forward-plan. Which I know is, as we’ve already said, is very difficult in an unpredictable environment.

IOS: I mean I agree with all of that, I guess the only thing I would add from my experience is that I think there needs to a real sense of honesty when these debates and discussions are taking place, I think it’s very easy for charities, because there are so many individuals around the trustee table and in the senior manager team to kid themselves, I think what are they really good at? Let’s stick to that, lets really make the best of what we’ve got but be honest about what the future holds for them.

LH: Thank you all and I think that from my perspective and I think bringing all of that together, there’s a lot of quite lonely roles out there, in finance, in fundraising, as Chief Executives and indeed as Trustees and I think the working together is very much something that’s coming from all of you. Hopefully our report will give you some food for thought, I just want to say thank you to the three of you for with me today and do please come back to us if you’ve got any questions or thoughts as you go through the report, we’re very happy to talk further with you. Thank you.

The research revealed:

  • 1 in 5 were considering a merger to try and tackle economic difficulties.
  • 94% of fundraisers expect the climate to get worse over the next 12 months
  • 63% said they had been negatively affected by Government spending policies.
  • 82% said government policies to improve the sector had had a negative impact.
  • 70% said they were expecting an increase in demand for their services.
  • 73% of charities are open to using reserves in the coming year.