THERE’S NO ‘SOCIAL MOBILITY’ IN THE CHARITY SECTOR, AND IT’S DAMAGING US ALL

It may come as a surprise, but for an industry which exists to fight for the underdog, one of the greatest challenges facing the charity sector today is its inability to promote potential. This is bad news for everyone.

As a society it is crucial that our civil sector is able to find and champion the best, most compelling and most cost-effective interventions – not least because the issues we face are constantly evolving while funding is increasingly scarce (we’ve all heard what’s happening to government budgets but it’s also worth highlighting that corporate giving by FTSE 100s is down a staggering 26% since 2013). The business sector prizes innovation and recognises that it is rare without the presence of competition from smaller, newer players, but in the charity sector things are very different. And as a result, mobility is stagnating. Big charities are getting bigger – 87% of the 167,000 charities in the UK have an income of under ￡500,000 but the largest 7% receive 90% of the income – and smaller organisations are struggling to survive, let alone provide the challenge the established players need.

So why has this lack of 'social mobility' in the sector come about? In the business community strong returns organically lead to investment and scaling. It is different in the charity sector because how good an organisation is at doing its job often has no relation to its ability to raise funds. There have been huge advances in helping organisations measure their impact to address this paradox, but across the sector it is generally still the charities with the best brands and the best fundraisers, not the best operations, which end up with support. To put it another way, the big boys are cleaning up.

This needn’t be the case, as the landscape of smaller organisations is extremely fertile. There are over a hundred thousand smaller charities, with around a thousand a year newly registering, and there are hundreds if not thousands of exceptional ideas and solutions out there. The problem instead lies in two areas: the lack of public trust and the current funding system.

For the public it is the harshest irony of the repeated scandals that smaller charities are hit the hardest. Despite the fact the negative press has recently all been for household-name organisations, when people give, their fears lead them to familiar brands that they feel their money will be safer with.

The established funding system of trusts and foundations has also proved to be largely ineffective in arresting this march towards a polarised civil society. Funders like to have clearly defined purposes to show they are affecting change in specifics areas – for example, homelessness or child literacy in Yorkshire.

The inadvertent outcome is that in expecting all charities to articulate why they most closely meet a funders’ purposes, funders have created a labyrinthine system of application procedures that favour those with the sharpest advocacy skills, not those who are best at making sure someone living on the streets in Hull accesses housing. Small and start-up organisations operating on shoe-string budgets do not have fundraising departments to navigate this system. Even more worrying is the fact that, by default, the system has come to discriminate against those with lower levels of education or standards of English, which means that countless solutions and ideas from community-led grassroots organisations in areas of major disadvantage simply never see the light of day.

 For small organisations, often with turnovers of less than ￡100,000, the system is particularly crippling for scaling ambitions as funding is so often only offered for projects. The reasoning generally given is that undertaking due diligence for unrestricted grants is not seen as economical for a grant of under ￡50,000 – a sum so high it is unlikely a small charity would ever be considered for – which means covering core costs is hard enough, let alone raising sums to invest in infrastructure.

There is huge potential for corporate philanthropy to fill some of these gaps, as so many businesses are looking to differentiate themselves both through their giving and by offering up the skills of their staff. Once again, however, the perceived risk of working with smaller organisations and the difficulties of differentiating between good and bad get in the way. Lengthy compliance procedures and the demands of business are beyond the capacity of all but a very few small charities. There are success stories, but for those small organisations that have made it to the mainstream, the majority have benefited from existing connections to the establishment – TeachFirst, for example, was started by a McKinsey alumnus.

There are people out there challenging this status quo – Impetus-PEF and Social Business Trust are accelerating multiple, exciting projects – but more must be done, especially if we want a society that can take advantage of the huge sums of money waiting to go into social investment. At The Fore we are offering businesses and other funders a chance to support early stage charities, building confidence and skills in small organisations with high-potential and putting them on a path to recognition and future success. However, for real change to happen we need to work towards some sort of independent rating system to help foster public trust in small charities. Not only would it encourage donations to smaller organisations, it would encourage unrestricted donations that would give the best small charities the freedom to decide where they want to end up and our society a much greater chance of solving its own problems.

This article was originally published as a blog post at www.theRSA.org.