The charity sector is an imperfect market. I say this not to downplay or denigrate the inspiring and essential work that charities do every single day, nor to suggest that the private sector is perfect; I say it because it is important to recognise the sector’s challenges and work to ameliorate them.
One of the challenges that I am referring to is that the people who give money to charities (donors and funders) are frequently not the people who receive a charity’s services (beneficiaries).
Another is that it is often difficult to assess exactly how good a charity’s services or activities are, particularly in comparison to other charities.
The result is that the charity marketplace isn’t as effective at allocating resources as it would be in an ideal world.
What does this mean in practice? One problem is funding for core costs. Charities feel they don’t have sufficient resources to spend on vital core functions that will ultimately help them to do a better job, yet a great many funders and donors don’t want their money to go on core functions, they want it to go to “the front line”.
The power held by institutional funders
We’ll be taking an in-depth look at the core costs conundrum in next month’s issue, but for this month, our focus is on institutional funders.
They hold a pivotal position in the charity marketplace. Trusts and foundations control a large proportion of the sector’s funding, and they have the job of working out which charities are doing the best work and then providing suitable funding.
No easy task, though many do an admirable job.
This is why it is essential that trusts and foundations think deeply about their strategy. Our cover feature this month from Keiran Goddard is designed to assist in this process by outlining some of the models that are being adopted and hotly debated in the philanthropy world.
Two of them, emergent philanthropy and community philanthropy, speak to a desire to bring decision-making closer to the ground, allowing funding to be directed in a flexible way to where it is most needed.
Another example of deep-thinking was recently displayed by the foundation Lankelly Chase, which questioned in a blog post whether its focus on time-limited projects was effective when many of problems stem from the actions of the whole system. It has vowed to focus on growing the health of the relationships between the parts within that system.
There is a legitimate debate to be had about this - the researcher Genevieve Maitland Hudson wrote an interesting response to Lankelly Chase's proposal.
But it does speak to other talking points I have heard mentioned in the foundation sphere. Do foundations too often offer sticking plasters for problems when systemic change is required? Should foundations speak out more loudly against government policy and against injustice?
Also in this month's issue of Charity Finance, we hear from the Garfield Weston Foundation, which was commended by charities in an nfpSynergy survey earlier this year for the quality of its grant-making practices.
Unfortunately, the survey saw charities reporting some gripes with other funders, such as their failure to provide unrestricted income and a lack of feedback on unsuccessful applications.
It is to be hoped that the message will soon get through to funders on these issues and that they will do their bit to make the charity marketplace more efficient.
Gareth Jones is editor of Charity Finance