The B-Word: Dispelling the myth around charity spending on business practices

The B-Word: Dispelling the myth around charity spending on business practices

This week, one Ottawa charity will win the branding lottery: a complete brand (or re-brand) from McMillan agency. The Ottawa-based creative agency celebrates its 20th anniversary this year, and wants to help an organization in their backyard make a greater impact.

The initiative, called Betterful, will award one lucky organization hungry for a new brand the three-course meal: what they look like, what they say, and rolling it all out. Deadline for applications is 11:59 pm Tuesday, May 17.


But many more charities won’t win a branding grand prize, and we shouldn’t shun them for lack of a pro-bono partner.

According to a 2014 survey of of 1,543 Canadians, the usual metrics donors look for when choosing a charity or not-for-profit (NFP) to support is maximum dollars supporting direct mission. But many non-profit professionals warn this is a myth that has the charity and NFP sector operating at a deficiency.

“We have two rulebooks—one for the non-profit sector and one for the rest of the economic world,” says Dan Pallotta, founder of AIDS/Lifecycle Ride to end AIDS, in a talk he gave in Ottawa in November last year (based on his Ted Talk).

Pallotta discusses how a double-standard towards not-for-profit and for-profit puts the NFP sector at a significant disadvantage. Donors don’t want to see charities spend on business practices.

“’Well, look, if you can get the advertising donated, you know, to air at four o’clock in the morning, I’m okay with that. But I don’t want my donation spent on advertising, I want it to go to the needy.’ As if the money invested in advertising could not bring in dramatically greater sums of money to serve the needy,” says Pallotta.

“I feel very positively about non-profits and charities taking on what I would describe as business-like practices,” says Tessa Hebb, Distinguished Research Fellow with the Carleton University Centre for Community Innovation. “What I mean is, I don’t think charities and not-for-profits need to become businesses per say…but that they can adopt business-like practices that make them much stronger and more resilient as organizations.”

Branding is one of those business elements, and having a consistent and unified message is key to reaching the public—particularly as we become increasingly bombarded with information and messaging.

“For an organization to be effective it’s got to use its brand to break through the clutter so it can reach its target audience,” says Hebb. But it’s not just brand that’s become important in our digital age, but trusted brand:

“If you lose trust, you’re aware of the brand but it doesn’t mean you use the brand,” says Hebb.

Hebb believes that even though there are costs attached to developing a brand, it’s a net positive “because you’re building this trust relationship through the brand.”

In true activist style, Pallotta created an organization last year to dispel the myth that a low overhead percentage means a better run organization. The group, called the Charity Defense Council, aims “to change the way people think about changing the world,” says Jason Lynch, Director of Mobilization for the Charity Defense Council.

“What we see here is there are all these systemic constraints that we place on charities and we have this attitude that we want our charities to not spend a lot of money on overhead, pay, fundraising…and these have unintended consequences that slow down the pace of the social change we’re working for.”

Not only should we ask if they’re spending money on these business practices, but what they’re spending money on, says Gina Grosenick, instructor in the Philanthropy and Non-Profit Leadership program at Carleton University. “And is what they’re spending it on realistic and needed and necessary in order for the organization to achieve its longer term mandates and goals?”

Hebb agrees, saying more public education is needed around what is a legitimate amount to spend on overhead. “A lot of people don’t investigate,” she says.

So, how do we know?

Well, in the NFP and charities sector a different business tool exists, one that helps charities exude a trusted brand, and helps donors choose a trusted organization: third party approval.

Charity Navigator, for example, analyzes non-profit financial documents and rates charities on how efficiently they use their support, but also how well they sustain their programs and services. According to Charity Navigator, the most efficient charities spend 75 per cent or more of their budget on their programs and services; less than 25 per cent on fundraising and administrative fees; and should be growing their revenue at least at the rate of inflation.

Like a Good Housekeeping seal of approval, Imagine Canada accredits charities through a third-party peer review process before stamping them with their own seal—adding to a charity’s trusted brand.

The organization also publishes a Guide to Giving, to help Canadians choose a charity. The guide reminds donors that business practices are required for NFPs to make a difference, saying “real impact requires real investment.”

How will McMillan choose their winning organization?

“We have an internal group that’s going to make that choice,” says Megan Findlay, an Associate Creative Director with McMillan. “It’s a combination of looking for the organization that has the most to gain from a rebrand…We’re looking for enthusiasm, buy in from internal stakeholders… and we’re also looking for an opportunity for us to do really great creative work.”

Findlay says this doesn’t mean they’re applying any kind of criteria to the type of organization they want to work with: “We hope to be surprised, so we’re trying to not be too limited in our thinking and our expectations.”

In a similar vein, donors shouldn’t limit their gauge of an organization’s effectiveness to simple metrics like overhead spending.