“There are too many charities.”
It’s a popular catchcry about the charity sector, but the facts and underlying causes behind this issue are not generally in focus. They should be.
Australia has approximately 53,000 registered charities; one for every 444 Australians. This sounds like a significant number, but it is relatively small compared with similar jurisdictions around the world (418 head per charity in Canada, 340 in England and Wales, 274 in the USA and 174 in New Zealand) according to the Australian Charities and Not-for-profits Commission (ACNC).
This number still seems large, leading some, such as wealth management firm JBWere, to call for charities to consolidate in order to become more efficient and effective. Through their latest Cause Report, JBWere observed that roughly 10 new charities are registered every day, but statements from ACNC Commissioner Susan Pascoe indicate that a similar number that cease operating, suggesting a slower rate in growth.
So why are we so concerned about the number of charities? The real question is not whether there are too many charities (how long is a piece of string?), but what the drivers behind consolidation in the sector really are.
Every charity board needs to ask “are we still relevant and should we still be here?” More challenging still will be having the courage to face the hard truth if the answer is no.
There’s a myth that government funding of charities is constricting. This is mostly untrue. The 2010 Productivity Commission report Contribution of the Not-for-profit Sector recorded government funding in excess of $25 billion. Not four years later, the ACNC’s 2014 Australian Charities Report recorded $42 billion in government grants. Clearly, government expenditure on the sector is growing.
But there’s a catch. The way that government structures funding is changing. Government is outsourcing more of its functions to charities and, in so doing, reducing the cost allocated for these services. Larger grants are being shared among fewer recipients and government is seeking to realise the benefits of economies of scale. As a result, charities are expected to do more with less.
Make no mistake, the primary driver for mergers in the charity sector is government funding. It hasn’t been stated explicitly, but the policy lever has been pulled and the effects are already flowing. For a long time, many charities have not operated in a competitive marketplace and as such have not been subject to market rationalisation. This is changing fast and, as a result, the question is being asked: are there too many charities in Australia?
I want to make a bold assertion. Every charity board needs to ask “are we still relevant and should we still be here?” More challenging still will be having the courage to face the hard truth if the answer is no. The AICD’s 2015 NFP Governance and Performance Study found that one third of charities had discussed mergers at the board table. This suggests that many are recognising the need to change in order to remain relevant and competitive.
A clear example of this new funding approach emerged in the results of the Australian Government’s 2015 employment services grants scheme. The new program saw the number of provider organisations reduce from 79 under the previous scheme (‘Job Services Australia’) to 44 (under ‘job active’) and the service regions more than halved from 110 areas to only 51. Unsurprisingly, some charities in the employment services space flickered out of existence.
Government has a responsibility to ensure that its funding practices do not negatively impact the charity sector or, by extension, its clients.
The risk of these changes is that the value provided by specialised local services may be lost, but some charities have responded innovatively to this challenge. CoAct, established as early as 1997, unites a network of localised services under one banner to tender competitively for government funding in employment and training. Together, their 22 member organisations have the ability to compete with larger players (including private providers) without eroding the integrity of their community-based approach.
Government has a responsibility to ensure that its funding practices do not negatively impact the charity sector or, by extension, its clients. Having charities deliver services might be cost-efficient, but pulling these levers too hard merely moves financial distress from the government to charities.
For charity boards, negotiating these changes will continue to be a challenge. Strategic boards will be thinking about how their organisation will fit in the new landscape and how they can demonstrate their value and relevance to government and to the community. Those who are unable to do this may be at risk of being lost to the tide.