Large charities have not been enjoying the limelight of late. From the collapse of UK charity Kids Company in 2015 to the recent Oxfam sexual abuse scandal, analysts have warned that big organisations could fall even further from favour with donors.
Smaller charities where donors can see where their money is going and how it is spent have long been in vogue among wealthy philanthropists, according to private bankers.
But when the rich are pondering where and how to give it away, is big always bad?
Bigger charities have many obvious advantages. They often have global reach, can operate in many different jurisdictions, have the infrastructure to communicate quickly with governments and other foundations and the staff to monitor processes. Wealth advisers often point to Medecins Sans Frontieres as a prime example of a large charity that has the resources to respond swiftly and effectively to emergencies around the world.
But the flipside is that with so much administration and infrastructure scaffolded around the larger charities, donors find it harder to see where their money is going. This is an especially important point for wealthier donors, bankers say, who have often made money through entrepreneurship and are used to controlling how their money is spent. They also often have very personal causes, such as giving back to communities they came from, where smaller localised charities are likely to be better at delivering outcomes.
“When people are giving big money, they like to see it’s making a difference,” says Michael Maslinski, adviser at wealth adviser Stonehage Fleming. He says smaller charities tend to be attractive to large donors as they can talk directly to the decision makers. “The decision-making processes can be crisper,” he adds. Larger charities that attempt to woo big donors by offering them the chance to give directly to a particular project can also get it wrong, in his experience, as they can fail to recognise that wealthy donors will want — and are used to having — a say in how their money is spent.
Nicky Wynne, managing director of the Global Fund for Children UK Trust, which analyses then selects local organisations to fund on behalf of donors, believes boutique charities “are the way the world is moving”. “We’re not part of a big machine which is slower moving, we can make decisions quickly,” she notes.
But wealthy donors should not always be so put off by the idea that their money will not go to the front line in a large charity, advisers say.
“Costs spent on administration are seen as bad but it’s that very expenditure you need to achieve due diligence and accountability,” says Tom Hall, head of philanthropy services in the UK at UBS. “Donors need to be cognisant of that. If they want charities to be as robust as they can be, they need to be properly funded.”
Angela Kail, head of the funders team at New Philanthropy Capital, agrees. “One reason donors like to give to smaller charities is they like to see where their money is going but every penny on the front line isn’t spent on core things like safeguarding,” she says. “Having people who do logistics, fundraising and boring things like paperwork are an essential part of a charity as big as Oxfam. Even smaller charities need admin.”
Mr Maslinski adds that smaller charities can also face the problem of succession planning — if the organisation has been driven by a particular individual with a clear vision, they may be difficult to replace.
These concerns mean that wealth advisers tend not to look at whether a charity is large or small when considering where their clients should donate.
“We try to steer clear of big is bad, small is good,” says Tom Hall at UBS. Instead, he advises looking at charitable giving as problem-solving. “We try to look at cost per outcome delivered,” he says. So the question is not big or small but rather what the charity is trying to achieve and whether it is good at achieving it. “Not all philanthropy is doing good,” he points out, using an example of a programme backed by the rapper Jay-Z that installed merry-go-rounds in Africa that children could play on and pump water at the same time. The children got bored, and the older people were unable to push the merry-go-rounds. In the meantime, the hand pumps for the wells had been removed.
Small-scale projects, if funded by entrepreneurs and proven to be successful, can often be scaled up when governments get involved — which ends up causing massive change and has obvious appeal to donors, Mr Hall says. For example, if it costs $100 to raise the literary rate of a group of children from 19 per cent to 50 per cent but $300 to increase it from 19 per cent to 75 per cent, donors may opt for the cheaper option as it is more scaleable.
On the flipside, “getting the economics of small wrong can be a burden”, he says, pointing to examples where a donor ends up funding a school that is too expensive for local communities or governments to get involved with and ends up tied to that project for life.
Bernard Fung, head of wealth planning in Asia at Credit Suisse, says that clients in Asia tend to pay less attention to whether charities are big or small. The core issue, he agrees, is whether donors believe the charity will effect the change they want to happen.
One change he has seen happen in recent years is that donors no longer want to give what he calls unrestricted grants, where they do not specify what they want to be done with their money. “They are much more nuanced in their giving,” he notes. Part of this change could be to do with the economic reality of certain Asian countries. “Many families in Asia have been giving for just as long as in the west, but the needs on the ground in Asia have been so broad — a lot of things need fixing — so the families didn’t pay so much attention to how the money was spent. In the last few years it’s become much clearer what the needs are.”
One thing advisers are in agreement on is that scandals should not deter the wealthy from giving. “If anyone read [recent reports] and said we need to stop giving that would be a disaster,” says Mr Hall. “There are lots of really effective organisations that are brilliantly run.”
Get alerts on Philanthropy when a new story is published