A BBC news report last year on the credit crunch made the point that wherever the word ‘capital’ has been used to describe the crisis in the economy (eg, the ‘shortage of capital’) we could just as easily replace it with the word ‘confidence’. Recent events show us how much the economy relies on confidence – of investors to invest and consumers to buy.
The charitable sector too relies on confidence: the confidence of donors to part with their money. This is partly to do with a general willingness to spend money, and partly to do with the reputation of charities – how much we believe that they are doing a good job.
We know that confidence in financial markets is fragile, but what about confidence in charities?
History has shown that the general willingness of individuals to spend money on charities is remarkably robust. Even during recessions when people cut back on other expenses, they still tend to maintain their giving.
Reputation is a more difficult issue. We do not really know how fragile or robust confidence in charities is. For example, how does an incident of fraud or maladministration change confidence? Does it affect just the organisation directly involved, or does it have an impact on all charities?
One of the challenges NPC faces is how to publish criticism of individual organisations, whilst minimising the risk that it has an effect on confidence in all charities. This is a tough balance to strike.
The challenge is further complicated by the notion that greater accountability can also increase confidence. (This is what MPs are hoping in the wake of the recent expenses scandal in the UK parliament.) So if NPC is successful at making charities more accountable then hopefully it will also result in more confidence among donors, and more money for charities.
This means that confidence in charities is an issue that it is worth wrestling with. The questions are complex, but are also important to working out how greater scrutiny of charities can help to create a more effective sector.