Time to Ring Some Changes

Craig Swistun - Aug 05, 2021
Imagine a world where larger charities were suddenly required to give more money away each year. Those funds would trickle-down to smaller organizations, right?

(article originally published online at Retool Lab, a collaborative of experts focused on helping cultural, entertainment, private and public institutions regroup, reshape, and retool their strategies as a springboard for thriving into the future.)



It’s not easy running a small- to medium-sized charity.

The challenges are real and seemingly endless: from managing staff, to creating budgets and recruiting board directors to implementing fundraising, marketing and public relations. And that’s even before putting donated assets to work in support of the mission or cause, which is, at the end of the day, most important to donors (and sometimes all they see).

In Canada, registered charities are required to spend a minimum amount each year on charitable activities. This ensures that money they collect actually goes to supporting a specific cause or goal. In simpler terms, charities can’t simply hoard donated money indefinitely.

The rules aren’t particularly complicated – the minimum required is mandated by the government in the form of a “disbursement quota” or “DQ”. This calculation is based on the value of the charity’s overall assets, and they are required to disburse a minimum of 3.5% of the value, annually. So, a charity with $1,000,000 in its endowment is required to disburse 3.5% (or $35,000) each year. The DQ is a minimum – there is no limit to how much they can disburse.

Fundraising is hard. Change is harder.

Many small- to medium-sized charities struggle to raise funds from individual donors, and rely heavily on the benevolence of other charities whose missions are aligned to support their cause. I’ve written before about how overall donations across Canada are down, leaving smaller organizations scrambling for their piece of a shrinking pie.

Arguably, if larger organizations were suddenly required to give more through an increase in the DQ, those funds would find their way to the smaller organizations. Right? Unfortunately, that may not be the case: while raising the DQ seems like it should be the charitable sector’s version of trickle-down economics, there is little evidence to suggest it would benefit smaller organizations. In Canada, established charities still receive the lion’s share of donations: 80% of registered charities receive less than $500,000 in annual revenue (56% have annual revenues less than $200,000) and 75% of all donations go to support the “big four” causes: religion, health, social services, and international organizations.

That’s why “Intelligent giving, not throwing cash at charities, is how we’ll cure society’s ill” is worth reading. It’s an excellent article for Canadian Family Offices by philanthropic consultant Bri Trypuc, which addresses efforts to encourage the federal government to increase the disbursement quota.

Trypuc writes that “while charities that can demonstrate they deserve the funds and will put them to good use can almost always use more, throwing money at the problem alone is not a panacea.” The sector must do better. “Unless you bolster that cash with evidence-based decision-making, you might as well roll the dice with it in Vegas, because your chances of achieving your goal will be about the same.” She challenges the entire sector because the status-quo is insufficient: do better by using research and data to support decision making, both with respect to investments as well as grants.

While some cross their fingers hoping for the magic money tap to be turned on, others are not content to wait. Those willing to pick up the gauntlet thrown down by Trypuc understand that the sector is highly competitive and donation patterns do not currently favour smaller organizations. Certainly, they still may be supported with grants and donations from other groups, but they’re not perpetually holding an empty cup asking for more.

So where does the sector go from here?

Regain control of your mission.

Organizations are in charge of how they present themselves to current and prospective donors. If they aren’t talking about their mission, why should anybody else? Successful organizations, writes William Petruck, President and CEO of FundingMatters, understand their “need to inform, educate and activate their donor base. These individuals are looking for information and insights to discuss issues they face as part of their estate and potentially philanthropic planning.”

Clear and concise communication is critical to attracting new followers, but it is equally important to maintain connections with current supporters, keeping them and their dollars close. Organizations that take current donors for granted do so at their own risk, forgetting that there are literally thousands – tens of thousands – of other options.  

In a crowded landscape, the organizations that reach out to educate, inform and motivate their donor base will be ultimately successful. Here’s the beautiful bit: that donor base may include other charities. So, if the DQ amount is raised, those organizations that invest today in educational tools and communication strategies will be best-positioned to capitalize. Those that don’t…well…they’ll be the ones holding the empty bowls.

Leaders who recognize these challenges and want to start building a better framework for success would benefit from re-reading Good to Great for the Social Sector by author Jim Collins. In his monograph, Collins points out that “Every institution has its unique set of irrational and difficult constraints, yet some make a leap while others facing the same environmental challenges do not.” Those that succeed, he argues, take their challenges seriously and employ a disciplined approach to solving their problems. “Greatness is not a function of circumstance. Greatness, it turns out, is largely a matter of conscious choice, and discipline.”

Consequently, non-profit leadership should routinely evaluate every aspect of their organization, looking for evidence on which to base critical decisions. This is the discipline required to generate positive change. I am a strong advocate of having someone from outside an organization take the lead, since some challenges may be hidden in plain sight and hard for those closest to the organization to observe. A fresh perspective is always welcome. Consider the following:

  • Do you have the right people on your board? How are you recruiting new board members and ensuring the new and more diverse voices are being heard?
  • Are you relying on “tried and true” marketing and communication tactics or are you exploring new avenues to connect with current and prospective donors?
  • Are you successfully transferring knowledge inside your organization, or do staff and Board Directors continually “learn on the fly”, repeating the mistakes of their predecessors?
  • What experience are you providing to your donors? Are you helping them become better philanthropists or simply thanking them when their cheque arrives?
  • Are you exploring licensing or other opportunities to diversify your revenue stream?
  • How much time do you spend getting to know your donors and what their other interests might be? Are you tracking this in real time with a customer relationship management tool?

One of the books I return to often is my dog-eared copy of Al Ries and Jack Trout’s classic Positioning: The Battle for Your Mind. I would go so far as to suggest it is “required reading” for anyone trying to communicate a message. The lessons still feel relevant even decades after it was first published. What Ries and Trout demonstrate is that “positioning is not what you do to a product. Positioning is what you do to the mind of the prospect. That is, you position the product in the mind of the prospect.”

So who are you? Do you want your donors to see you perpetually cap-in-hand? Or as someone leading change in the social sector? Those who lead will benefit long term, regardless of whether or not there is an increase to the DQ.

Craig Swistun is an Associate Portfolio Manager with Raymond James Investment Counsel. The opinions expressed are those of Craig Swistun and not necessarily those of Raymond James Investment Counsel which is a subsidiary of Raymond James Ltd. Statistics and factual data and other information presented are from sources believed to be reliable but their accuracy cannot be guaranteed. It is furnished on the basis and understanding that Raymond James is to be under no liability whatsoever in respect thereof. It is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of securities. Raymond James advisors are not tax advisors and we recommend that clients seek independent advice from a professional advisor on tax-related matters.