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Organisational loss – the extent and reasons for the demise of organisations

The second article of a series of commentaries on the size, shape

and health of the Voluntary Sector in New Zealand

 

POSTED: 7 February 2018

The number of organisations that fail is surprisingly high given the level of passion, dedication and commitment that is generally required for their creation. But, there are clues to those failures that have significance from a fundraising perspective.

In the first of this series, the size of the sector was revealed. The whole of the Voluntary sector as a we know it in New Zealand comprises 114,000 ‘community based’ organisations. Of those, some 27,800 are Registered Charities. Records show that we have the highest density of Charities within the western world. And, we have been creating them at a staggering rate. The population of Registered Charities grew at the rate of 16 per week between 2009 and 2015.

Those statistics tell just part of the story however. Like any population figures, it is made up of a mix of immigration, births and deaths – yes, the analogy with the human population is relevant.

Immigration accounts for a significant proportion of the sector – most mainstream Churches, numerous sporting organisations and iconic community organisations such as St John, Red Cross, Barnardo’s, Salvation Army, Oxfam, Greenpeace, World Vision, etc.

According to Statistics NZ the whole industry grew from 97,000 to 114,000 between 2004 and 2013 – 17,000 in 9 years (36 per week!). But that is the population growth. In that same period, the ‘birth-rate” was nearly 27,600 … because nearly 10,600 Incorporated

Societies and Charitable trusts ceased to exist.

For some, their work was done and the ongoing need for the organisation no longer existed. Similarly, many were dissolved because of structural changes within a wider organisation.

The SPCA is the latest of these to pursue that path. That will result in the disappearance of fifty or so registered entities. IHC did the same back in the 1960s or thereabouts. They now operate as just one “organisation.” St John similarly, has reduced the number of separately registered entities. It is understood that Presbyterian and Methodist Churches are each considering changing the configuration with one group amalgamating – like SPCA – while the other is considering separating out its numerous entities. There are no rules that require organisations to be one way or the other.

The third group however, are those that fail for less constructive reasons. Collectively, these are the organisations that fail to survive because they run out of:

  • people (governance volunteers, members, delivery personnel, clients, etc)
  • money (they fail to manage their assets and expenditure outstrips income to the point where they ultimately can no longer survive) or
  • passion (their purpose no longer resonates, is no longer fashionable, or even defensible).

This is significant from a fundraising perspective. Each newly created organisation is a ‘new mouth’ to be fed – from donors, grant-making trusts and even the state through grants and/or contracts. So, when organisations fail, they can carry with them the reputation of the sector in general and fundraising in particular.

An analysis of 4,200 Registered Charities that disappeared from the register between 2009 and 2014, indicated that collectively, they had attracted during the five (or less) years they had operated before dissolving:

  • $716 million in government grants and contracts
  • over $87 million in grants from other sources and
  • a shade under $50 million in private donations and koha.

All-up they had spent over $1.5 billion in organisational support and service delivery – before they disappeared.

We know that 26% of deregistered Charities do so at their own request – so that is the likely pool of bona fide merges/amalgamations/reformations. A further 25% are classed as being ‘wound up’ and a high proportion of those may also be for the same bona fide reasons.

A whopping 49% however, simply disappear. It is probably unfair to divide the figures above by that sort of proportion – but – it is possible that it is fair. That means that over a five year period, up to $350 million in government grants and contracts were granted to organisations that no longer exist today. And a further $44 million in community sourced grants and maybe $25 million in private donations and koha were consumed by Charities that no longer exist.

Given that Charities which reckon they can access sufficient revenue to fund the needs they face are about as rare as the proverbial hen’s teeth, chances are that there is significant wastage of funds – more than any of us would like.

So, why is it likely that organisations in general, and Charities in particular, go belly-up for illogical reasons?

Well, the reasons are predictable.

  1. It is just far too easy in New Zealand to create a new organisation. Don’t like the organisations you have? Never mind, just find someone else and go out and make a new one. We have no reasonable form of organisational contraception in New Zealand.
  2. There is no particular expertise required to establish an organisation. Levels of justification are not stringent – you don’t even necessarily have to risk your own money. The power of persuasion can be sufficient.
  3. Egotism reigns. Many organisations are established simply because the founder(s) do not believe that their intentions could possibly be achieved through a currently existing organisation. The flip-side is the refusal of existing organisations to broaden their horizons to incorporate anything beyond the current. The sector is characterised by organisations always regarding themselves as being “different” when the reality of that can be tenuous indeed. We almost ‘encourage’ duplication.
  4. The passion used to start an organisation diminishes over time and is usurped by a focus on simple revenue generation and organisational survival – ‘being’ becomes more important than ‘becoming’ if that makes sense.

If we are to preserve an excellent reputation for our sector in general and fundraising in particular, we all have a role to play to address these factors in our work and to minimise the unnecessary demise of Charities. Part of that is to encourage only sensible growth with the remainder responsibility being to ensure the real success of all those we have.

In the next issue, we will discuss the role of Charity governance and the relationship between governance and fundraising.

Failing Charities

 
 
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