hands shaking

Should charities do deals with the commercial sector?

By Iona Joy 31 March 2016 4 minute read

Confusion reigns on how charities should behave in relation to the commercial world. On the one hand charities are being told: ‘be more entrepreneurial, more business-like’, ‘generate new income streams’, and ‘stop pestering elderly widows for donations’. On the other we have Age UK being attacked in the press for its profitable tie up with E.ON. We need to clear the fog.

At this point I must declare an interest. I come from the dark side—having previously worked in finance. So ideologically I don’t have a problem with making money. Where I have a problem is making money at the expense of vulnerable people who can’t afford it.

So how should we think about commerce and charities?

A charity’s mission is more important than generating revenue.

This principle must be the starting point. It seems obvious to say but it is important enough to keep repeating: if a commercial activity compromises a charity’s mission then the charity shouldn’t do it. Simple as that. Always ask yourself, ‘Could this activity damage my beneficiaries?’. If you are concerned about gambling addiction, for example, don’t invest in online casinos.

Mission and commerce can align to achieve greater impact.

Take SolarAid, for example. Its mission is to eliminate smokey, dangerous, expensive kerosene lamps in Africa and replace them with clean, safe, cheap solar lamps. But scale can’t be achieved through philanthropy alone. SolarAid knows a vibrant commercial market will spread solar lamps much faster, so the charity is helping to build the market for solar lamps, while generating revenue from its enterprise, SunnyMoney. So far 10 million people now have access to solar light, saving families millions of dollars in kerosene and giving children longer time for study without coughing. Relying on consumer appetite rather than just donations can achieve scale much faster and result in greater reach and impact.

Charities do need to manage commercial, social and reputational risks.

Charities need to know what they are doing. If, like Age UK, you aim to broker fair energy supply deals, then you need to invest in the necessary manpower to keep on top of the market and ensure your deal really is fair and genuinely benefits your beneficiaries. And generating profits is hard—I can testify from my previous life. If commercial companies can make losses, so can charities.

But there are also subtler risks. In Age UK’s case, we saw that getting into an exclusive arrangement with a provider (in return for a payment to Age UK) ended up risking Age UK’s reputation for fairness and independence. So as a trustee I ask my colleagues to run a ‘Daily Mail’ test—ie, how would it look if the Daily Mail ‘investigated’ us?

Being vigilant about the needs of the vulnerable is crucial.

Goods and services sold at a profit generate unrestricted surpluses that can be spent on the charity’s mission. So if Age UK can make money selling travel insurance to affluent ‘silver cruisers’, it can spend the proceeds on providing advice to the vulnerable and befriending services to the isolated.

The challenge arises when the very people charities are trying to help cannot afford to buy what you are offering. Do you stop selling your new mobility aid to the general public because your target group cannot afford it? Or do you find a way of supplying it to your target group for lower cost or free?

Solutions exist. A product, such as a mobility aid that helps maintain independence, that is shown to reduce local authority social care bills or NHS costs should be provided as part of statutory care. If a service or good achieves social benefit  charities could campaign for the service or good to be paid for by the state. If the state won’t pay, charities can also use surpluses to subsidise supply to the disadvantaged.

Not everything can (or should) be for sale.

A lot of the time charities are helping people who cannot pay in circumstances where the state is backing off—there is no commercial opportunity in expanding palliative care to deprived communities when the NHS covers only a third of the cost. The state’s willingness to cover legal advice costs diminishes daily—and who can afford it? So charities like Community Links meet the need anyway, using donations and volunteers.

As a sector, we need to be imaginative as well as pragmatic. We have to move with the times and find new ways of creating impact. Richard Hawkes recently praised the dynamism of India and how it embraces the private sector when solving social problems rather than rejecting it. So if that includes making money without compromising your mission and values, then do it. Save your donated pennies for dire unmet need that no business model can solve.