It is an industry with revenues of £40bn ($79bn, E58bn), some of the greatest brands in the world and a workforce that spans the globe. Yet there are no shareholders, no City analysts or private equity raiders to pressure management and only a show of accountability. Now, after years of having it its own way, Britain’s giant charity industry is facing a backlash.
Britain’s new super-wealthy class is increasingly seeking to give away some of its lucre, American-style: a growing contingent of hedge fund managers, entrepreneurs and City leaders is taking an interest, often for the first time, in the voluntary sector. The result has been to put increasing pressure on Britain’s big charities to pull up their socks and act more like private-sector companies.
Not a moment too soon. There are more than 190,000 charities in England and Wales with a combined income of more than £40bn and more than 600,000 paid staff. The largest charities operate trading divisions, hold multi-million pound investment portfolios and carry massive payrolls. Yet their internal structures are notoriously opaque and the sector is dominated by a powerful clique. More than a quarter of their wealth is locked up in the top 500 charities, with the top 10 alone, including the Salvation Army and Barnardo’s, taking in £2.4bn in 2005/06.
The annual income of Britain’s biggest fundraising charities – roughly equivalent to operating profits at a private sector company – puts them on a par with leading British public companies such as ICI (shortly to be bought by AkzoNobel), Whitbread and Cable & Wireless. In earnings power and brand recognition, the big-name charities rank with Britain’s biggest blue-chip multinationals.
Oxfam, with income of £311m in 2005/06, is comparable with a stock market giant like Smith & Nephew, the medical devices group that made a trading profit of £290m in 2005 on sales of £1.4bn. The National Trust, with income of £337m in 2005/06, pulls in the equivalent earnings as J Sainsbury, the FTSE 100 supermarket group that has a market capitalisation of £9bn. Sainsbury’s made an operating profit of £352m in 2005/06 on revenues of £17bn.
Of £10.9bn raised by Britain’s biggest 500 charities last year, 82% went on direct charitable expenditure. The rest – 18%, or £1.9bn – went towards fundraising, trading activities, salaries and other expenditure – costs that the charities claim are entirely justifiable but the size of which usually surprises donors.
In fact, the waste and inefficiency is even greater than these figures would suggest. Support spending is often obfuscated by including it under general charitable activities, making it impossible to work out how much of each pound donated goes on support costs.
The least efficient charities skim off as much as 50p in each pound to cover admin costs, a shocking figure that would never be tolerated in a publicly quoted company, let alone one owned by private equity. There is also wastage caused by poor procurement; the ill-conceived application of revenues eats into funds in other ways.
Perhaps just as damagingly, there is a wealth of other anecdotal evidence pointing to the cavalier way in which big charities treat donors’ funds. Charities place large orders for goods without asking for competitive quotations. Staff on overseas assignments are given generous daily allowances on top of their salaries; invariably they stay in the most expensive hotels.
Charities are notoriously prickly when criticised about their running costs and have no incentive to streamline operations. There are no external stakeholders to demand improvements; City journalists do not write about their results; investment banks don’t scrutinise their fortunes. There is no private sector-style performance culture to drive results; no bonus targets to hit. Inefficient charities don’t get taken over by their competitors.
Yet executive remuneration – at the big name charities at least – can be considerable for the elite, though it obviously comes nowhere near the top salaries in the City. The top 500 fundraising charities employed 90 individuals earning a salary of more than £100,000 in 2005/06, according to the Charities Aid Foundation. The highest average salary across all organisations was £91,434.
