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Donors in the dock in provocative pamphlet from Panahpur Trust
Posted on 6th May 2011
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In his provocative pamphlet on why charitable funding must change, James Perry, an executive of Panahpur Trust, puts donors in the dock accusing them of unwittingly ‘breaking charity.’
The tract, The End of Charity – the renewal of welfare is written with the aim of illuminating the big concepts around impact investing that applies business imperatives to organisations working to deliver social outcomes. Perry says: “A consensus is emerging that charity and direct government intervention are misfiring, and the search is on for better solutions.”
In setting out the issues, challenges and opportunities for funders and charities he says: “In the evolving world of investing for positive social outcomes, the conventionally applied grant is the financial equivalent of a flint axe head.”
He explains the way in which donors give to charity “inadvertently causes problems”, through:
• One-off gifts making it difficult for charities to plan
• Restricted gifts contorting management decisions and forcing management to make decisions that are not consistent with their long term strategy
• Feeding the myth that money spent on administration is wasteful
• A passive attitude and lack of engagement with the charity beyond the cursory, leading to the lack of functional accountability dynamics
The inadvertent consequencesof these practices Perry says are:
• Distracted and overworked leaders with two jobs, unable to focus exclusively on their leadership or fundraising role
• Short term thinking, aversion to success, delusional thinking
• Level funding playing field, regardless of charity effectiveness
• Low pay for charity workers… and hence inadequate skills and experience
Perry began working with Panahpur, a small, private, family trust established in 1907, in 2004 as well as spending the last 11 years building the social-hearted business that he co-owns with his brother (www.cookfood.net), which now employs nearly 400 people and is rolling out nationally.
He says in giving away large sums of money through Panahpur, “being uncomfortable doing it piecemeal, Panahpur instead looked at the strategic questions of funding and sustainability that faced the recipients. But there were no answers.”
They felt it wrong that there was no access to capital for effective charities to enable them to grow, whilst simultaneously being no ‘natural selection’ process for ineffective charities to die.
“Trying to find funding solutions led Panahpur to a potential capital revolution, where money can be invested for positive social outcomes.”
In 2010, the board took the decision to seek to invest one 100% of Panahpur’s treasury into investing for impact.
Perry says the reason for the pamphlet which was not written for mass consumption, is that “nothing had been written about this new paradigm from the funders’ point of view or looked at why we are considering impact investing and what we want from it. While it may read as though I am knocking charities and funders it is written with the aim of helping them and is intentionally provocative.”
While he sees the huge opportunity impact investing offers Perry says care must be taken on how it is undertaken: “It is not just a case of overlying business priniciples”, which he calls a ‘philanthrocapitalist conceit’.
“The highly functional world of business has enormous knowledge that can be leveraged for the benefit of charities. But the knowledge must be distilled and reapplied for a sector with a different history, opposing objectives, a different culture, different drivers and some unique knowledge of its own.
“To borrow from L .P. Hartley, charitable donors or investors must realise that charity is like a foreign country, ‘they do things differently here’. Business culture does not translate - and charity culture could teach business a thing or two,” says Perry.
He says his worry is that now social investment has caught the eye of policymakers who have high expectations of what it can deliver, it will not be given the chance to develop. “The market is very underdeveloped. I liken it to an eight-week-old foetus. It has the potential to grow into something amazing and beautiful but it must be incubated. It needs nurturing, research and development and much piloting. I make a plea that that is allowed to happen.”
Perry, 38, says there is not one but two lifetime's work to be done to realise the potential of the impact investment market and true to form sets an evidence based target: " If it is half way there by the time I have retired I will have succeeded."
The End of Charity - renewal of welfare is available to download for free from the Panahpur website
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Comments
People-Centered Economic Development
It's good to see philanthropy on the same page as social enterprise. The same case was made in support of what is now described as social business, the self-sustaining approach to social enterprise. It drew attention to the limitations of charity and program related investments, proposing instead a cause driven business:
"The P-CED concept is to create new businesses that do things differently from their inception, and perhaps modify existing businesses that want to do it. This business model entails doing exactly the same things by which any business is set up and conducted in the free-market system of economics. The only difference is this: that at least fifty percent of profits go to stimulate a given local economy, instead of going to private hands. In effect, the business would operate in much the same manner as a charitable, non-profit organization whose proceeds go to local, national, and international charities. Non-profits, however, are typically very restricted in the type of business they can conduct. In the United States, all non-profits must constantly pay heed that they are not violating those restrictions, lest they suffer the wrath of the Internal Revenue Service. For-profits, on the other hand, have a relatively free hand when it comes to doing business. The only restrictions are the normal terms and conditions of free-enterprise. If a corporation wants to donate to its local community, it can do so, be it one percent, five percent, fifty or even seventy percent. There is no one to protest or dictate otherwise, except a board of directors and stockholders. This is not a small consideration, since most boards and stockholders would object. But, if an a priori arrangement has been made with said stockholders and directors such that this direction of profits is entirely the point, then no objection can emerge. Indeed, the corporate charter can require that these monies be directed into community development funds, such as a permanent, irrevocable trust fund. The trust fund, in turn, would be under the oversight of a board of directors made up of corporate employees and community leaders. "
"Clearly, profits can be used very effectively in ways other than traditional investment and profit outcomes. Moreover, this is not charity, it is business--good business. One P-CED firm could be expected to spin off dozens of new firms and businesses, all of which create new jobs and all of which operate under traditional free-enterprise practices. That is, if a spin-off business were to profit a million dollars a year, the owners can bank the money for themselves and their stockholders as is the normal practice. There is nothing wrong with individuals becoming wealthy. It is only when wealth begins to concentrate in the hands of a relative few at the expense of billions of others who are denied even a small share of finite wealth that trouble starts and physical, human suffering begins. It does not have to be this way. Massive greed and consequent massive human misery and suffering do not have to be accepted as a givens, unavoidable, intractable, irresolvable. Just changing the way business is done, if only by a few companies, can change the flow of wealth, ease and eliminate poverty, and leave us all with something better to worry about. Basic human needs such as food and shelter are fundamental human rights; there are more than enough resources available to go around--if we can just figure out how to share. It cannot be "Me first, mine first"; rather, "Me, too" is more the order of the day."
First deployed in 1999 to source a development initiative in Russia it became a working model in the UK in 2004. In a recent social impact report we illustrate that this new form of capitalism has since reached Harvard, in their advocacy for creating 'Shared Value'
With an organisation like ours attempting to leverage investment for childcare reform and a foundation advocating the same approach, it's surprising that there's been no engagement, so far..