Pru Etcheverry, ONZM, is Director of Advocacy Answers New Zealand and a champion of the non-governmental sector with a long history in NGO governance and management.
OPINION: Civil society is at the heart of our daily activities. We rely heavily on the vital and often invisible work of the not-for-profit sector (NPO).
New Zealand has the highest number of charities per capita in the OECD – over 28,000. That may be too many, but their contribution is colossal and not always properly valued.
If we talk about dollar value, in 2018 the charitable sector was worth more than $12 billion a year to our GDP.
Many dedicated and talented general managers and teams work for successful and long-standing charities. These are complex and often large multi-million dollar businesses that must meet stringent compliance requirements.
* Good leadership in our communities has never been more important
* Some charities may not survive Covid-19 as their finances take a hit
Moreover, they are also run under the critical gaze of public scrutiny with limited tolerance for any missteps.
So why are the skills and experience of these people often valued differently than those working in the corporate sector?
These nonprofits may have a lot to teach businesses. Nonprofits can be fearless in their activism and often take bold but calculated risks to ensure their voice is heard and they remain sustainable.
NFPs can be adept at articulating the most elusive things, defining and measuring impact, when it is not directly financial.
These general managers lack many standard tools to attract and retain staff, such as high salaries, performance bonuses, insurance and large personal development budgets.
Instead, they operate by inspiring and instilling passion in their staff to ensure they believe in the purpose of their organization and the essential role they play.
The multi-billion dollar charitable sector may need to be more open about what it does with the money it makes from its business activities and receives in the form of donations. (First published July 2021)
It is very difficult to attract and retain talented employees when they could earn much more in the private sector.
NFP roles are often written and delineated, then devalued by a salary that will not attract the required talent.
The not-for-profit sector does not always defend itself. We have been told that NFP administration costs, or overhead, are all bad. Many donors expect 100% of every donation to go solely to the mission.
Yet, obviously, without staff and infrastructure, this is simply not possible.
While corporations are expected to invest in visionary infrastructure and technology, we have little tolerance for NPOs to invest in those same things.
At the same time, most people who donate to charity want a receipt, they want to be thanked and acknowledged, and to be sure that their personal data is secure.
They want to learn about the organization through a high quality website.
They want to see evidence of impact and increasingly want to understand how that impact is measured.
While all valuable and essential, these items fall under administration or overhead.
Donors and backers often seem to expect smoked salmon for the price of herring.
Nonprofits are praised for reporting that almost all of their funding goes directly to service delivery, with some allowance for minor overhead.
In contrast, companies invest in research and development for continuous improvement. These same costs are treated as “overhead” for an NPO and viewed negatively. Yet innovation and efficiency are essential for NPOs to operate effectively.
A nonprofit reporting a cost-to-revenue ratio of over 50% would be vilified, but this is an accepted business practice for achieving growth.
NPOs tasked with providing “essential services” are even consistently underfunded by the government.
They are being asked to provide services at unsustainable rates that are often dramatically lower than what the government pays to its own staff performing the same work, with an inconsistent annual adjustment for inflation and no guarantee of continued funding.
This forces organizations to catch up and spend valuable time and resources fundraising to make up the shortfall.
An additional and important challenge of having so many charities can be the governance of certain NPOs.
If charities provide services that governments cannot, will not or should not provide, they surely need and deserve excellent governance.
It is concerning to hear that NFP governance roles are sometimes presented as a “stepping stone” for aspiring business managers.
The community sector needs skilled and dedicated directors who contribute in the same way they would on a government, public or NZX board.
Fiduciary covenants are not a second-rate directorship to cut your teeth on.
Directors should treat NPO board roles as an equal and valued part of their portfolio, perform due diligence, and enter with eyes wide open to the organization they are joining.
They must also demonstrate commitment, assess their own skills, and be clear about how these will add value to advancing the organization’s mission and vision.
It is time to truly value this vital sector and those who work in it and govern it. Let’s start by being open to better understand the sector and the issues in which it evolves.