How much should charities care about transparency?

The ImpACT Coalition is all about encouraging charities to become more transparent to their stakeholders. But how seriously should charities take transparency? And if you do get serious about transparency—signing up to the ImpACT Coalition’s Transparency Manifesto, and taking practical steps to being more open about your work—will anyone notice?

In particular, will donors care? At New Philanthropy Capital (NPC), we’ve been working with donors for the past nine years—helping them to focus their giving on creating the greatest impact. But there’s no one-size fits all model for understanding why and how people give, and little research (so far) on how charities’ transparency influences their giving.

So what do we know?

Well, the Charity Commission’s survey of public trust in charities, launched this month, shows that charities are among the most trusted institutions in society, coming closely behind doctors and the police. It also tells us, worryingly, that the most important factor influencing people’s trust is the proportion of donations that ‘gets to the end cause’. Concerns about cost ratios were seen as more important than making an impact—a reversal from the last survey in 2008.

There is also a brilliant piece of research by Hope Consulting in the US, which looks at donors’ motivations for giving. It found that donors can be segmented according to different motivations. The report suggests a segmentation into six types of donor—Repayer, Casual Giver, Faith Based, See The Difference, Personal Ties, and High Impact. It also finds that ‘major donors’ share the same motivations as regular donors within these different segments.,

On a straightforward reading of these findings, charities would be forgiven for thinking three things:

1. that transparency isn’t an urgent priority because donors already trust them;
2. that any efforts to be more transparent should focus on showing how little money is spent on overheads; and
3. that any efforts to be more transparent about impact can focus purely on High Impact donors, rather than regular donors.

I’d warn against drawing these conclusions. Acevo’s survey last year showed that many donors’ perceptions of charities, and therefore of factors contributing to trust, are somewhat divorced from reality. Those that don’t work in the sector often have antiquated visions of charities staffed only by volunteers and funded only by donations, which should all be spent at the front-line and not on wasteful things like offices and chief executives.?

There is a big discrepancy between what donors say they want to know (how the money’s spent) as opposed to what they need to know (what that spending achieves). And charities often don’t make efforts to challenge this. It can be a lot easier to stick to working out your admin costs than it is to work out your impact. As NPC’s forthcoming paper on impact reporting shows, charities are not yet routinely communicating their outcomes or impact in their annual reports, annual reviews, impact reports or websites, tending to talk instead about outputs and internally-focused objectives.

So how much will donors care if charities get more transparent, particularly about what’s important—what they achieve? Some may not care too much, as long as a scandal doesn’t emerge that destroys their trust. But some will, particularly the High Impact segment of donors. And greater transparency may encourage donations from those that aren’t giving now because they don’t trust charities. In time, greater transparency will help all donors to become more informed donors (just like all consumers become more informed consumers), and their trust will become more directly linked to how well charities communicate the difference they make.

If I were a fundraiser, I wouldn’t be encouraging my board to invest in more of the same old fundraising techniques, with ever-decreasing returns. I’d be encouraging them to get ahead of the game and meet the informed donor’s needs. My message to fundraisers is this: Work hard to capture and communicate the difference you make. Use that to start an honest dialogue with donors based on trust and understanding. And don’t throw all your hopes into a major donor campaign—see what happens if you kick off an informed donor campaign instead.