Service Charities - Another View

Discussion in 'Current Affairs, News and Analysis' started by meridian, Sep 28, 2007.

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  1. meridian

    meridian LE Good Egg (charities)

    We all know the role service charities play and the fact they are perennially underfunded. I have been looking through the various petitions and posts on this site and thought I would offer another view or proposal and be interested in hearing some feedback.

    I want to make this clear from the start it is not a criticism but an objective look at an alternative.

    There are a plethora of service charities run by dedicated and committed staff


    Charities are not run as a business so the dynamism, cost control discipline, innovation, risk management and entrepreneurship found in corporate life is to a greater or lesser degree, absent.

    Charities rely significantly on the good will of others for their income and as we all know there is always another good cause round the corner. How do you prioritise, is a respite centre for veteran’s families any more deserving than clean water for an African village or keeping Child Line open in the UK.

    Difficult choices abound with charity so people tend to donate based on their own experiences, limiting exposure.

    Not for profit business are not charities. They are run as a business, can hire, innovate and raise finance as business, enter into commercial partnerships as a business, issue shares as a business, pay tax as a business and fundamentally, make profits as a business.

    The crucial difference is that those profits are not divided between corporate shareholders but ploughed back into the business to be used for whatever it deems necessary, that could be almost anything. Its shareholders could be the very people it is servicing, its customers. It is they who would decide via the mechanisms of stakeholder governance where those profits went, better care for veterans, improved facilities for families or whatever.

    Service personnel, past and present, need a wide range of products and services; housing, insurance, communications, other financial products, medical, education and welfare services.

    I cannot understand why service personnel are more or less forced to procure their housing and welfare provisions from a single service provider i.e. the MoD and their agents. For its customers it is the worst of all worlds.

    A no choice monopoly where the service provider has to make a profit, they are bound by company law to seek the best return for their shareholders.

    If you are a business you have to have a product and a market.

    The proposal is that a not for profit business is set up and enters the market with a range of products and services aimed squarely at the service market but as competitive one.

    Make no mistake it is a significant market and given the choice between a Tesco’s credit card and a ‘Service’ credit card what would you have, if you knew that the profits from that scheme are being ploughed directly into services for your community.

    Service providers would be queuing up to provide services not only because of the cachet of being associated with such a ‘good cause’ but because of the commercial advantage of being able to take advantage of such a large and loyal customer database whose churn rate would be very small.

    Keep it on a business level on not on a charity level.

    This company would also replace the plethora if limited issue charities and provide those services as an extension to its business activities.

    Of course there would have to be some capital injection and asset transfer, perhaps renegotiating the PFI scheme for housing and transfer the existing stock to this entity but make sure it is run as a business where you can take your business elsewhere and have proper customer service accountability.

    Given the appropriate levels of commercial rigour and the ability to think outside the straight jacket of PFI’s, bureaucratic control and public sector lethargy the net result would be a dramatic improvement for all.

    Awaiting incoming...
  2. Just think, wihtout those ex-servicemen you could well be the person in a village with no clean water....
  3. Meridian,

    I can see the value in what you propose a Bank that understands the Forces and that you move around a lot or into a Qtr that is blacklisted would be good. Army Visa card or other services would work for the same reasons, if run by a not for profit company ploughing cash back into Forces charities happy days.

    Could get a Chelsea pensioners Visa and my interest payments would pay for my penthouse suite when I check in in about 25 years!
  4. meridian

    meridian LE Good Egg (charities)

    One of the observations of my post was that a lot of charities (forces charities included) are very focussed but this focus creates duplication and a lack of economies of scale across the sector.

    So the proposed company would not simply fund these charities out of profits but perhaps integrate with them to improve efficiency by achieving these economises of scale or ultimately replace them.

    Although the notion of just passing on profits to these numerous charities is superficially attractive this approach does nothing to improve efficiency as a whole, simply reinforcing the status quo.

    I would argue for something more radical, integrate the services they offer into the larger organisation ultimately replacing them.

    Pretty radical I realise but why go for half measures.
  5. That is a gross assumption that is factually incorrect. Any one involved in running a charity will tell you that dynamism, cost control discipline, risk managment (in their market investments for the larger charities) financial accumen, entrepreneurship AND marketing knowledge are just some of the key skill sets required of anybody undertaking the running of a major charity. Particulalry because they are competing in a business sense for the scare money that's out there.
  6. How can a "not-for-profit" business "issue shares as a business", without being prepared to distribute profits to shareholders?
  7. meridian

    meridian LE Good Egg (charities)

    As I said the post was not an opportunity to have a go at charities or their dedication and professionalism, but was making a very general observation about the charity sector as a whole and comparing it to the commercial sector.

    I fully agree that those attributes I mentioned are a necessity for the survivial of charities but I stand by the observation that in general they are not as well developed as the commercial sector and the restrictions placed upon them by their charitable status also have an impact. No doubt they have to have these skills at a micro level but in the wider context, not so sure.

    The simple fact is that profit is always a more effective means of revenue generation than charity. Always has and always will be. Yes, charities have to go out there and compete for the 'charity pound' and use semi commercial means to do so but when all said and done it is relying on good will. Ask yourself the question, how much to you give to charity and how much do you spend on your mobile/credit card/car insurance/housing etc etc.

    I realised it is was an inflammatory point but I stand by the observation although I absolutely don't want to insult anyone.

    With regards the the share issue I am sorry, I did not explain this very well. A business, unlike a charity, must have shareholders and therefore shares but these shares do not have to be publically traded and can have conditions of ownership placed on them. Unlike for publically traded shares. It a bit like a mutual building society, your ownership of the society is by virtue of the amount of money placed in it. The dividends are given as windfalls to those shareholders. In a not for profit business those windfalls are deployed back to the business to do with what it's directors and governance system sees fit i.e. service welfare. With a publically traded company, the stockmarket or its variants, those windfalls or dividends are paid to the shareholders in the same manner but these shareholders would be banks, pension company's etc and they would definately want the cash thank you very much.

    So in summary, you have ownership but the benefits of ownership are spent on services.

    This is not a rant about charities, its about suggesting an alternative where the attributes of a business are harnessed for the wider good, thinking less about rattling the tin to an unwilling populace and more about generating revenue from a profitable business that is used for the wider good.
  8. Thanks for that. To be honest I'm still not quite clear as to the legal format of the proposed business. As you are speaking as a business expert I assume you know about the various mechanisms available. What is the business incentive for the shareholders to take shares in the business? A simple way of answering these questions might be to give existing examples of your business model.
  9. meridian

    meridian LE Good Egg (charities)

    Its shareholders share the vision that its profits are not be used for their personal gain so share agreements are drawn up to reflect this. With a private limited company, directors are not obliged to pay dividends to shareholders, its usually the shareholders that demand them which is fair enough in the normal model. Shareholders also have the investment value of their shares, as the company grows the value of those shares grows. Disposal of shares is usually by a swap of shares for cash (or something else valuable).

    Fundamentally, you have to have shareholders that recognise their investment is not solely for personal gain. With a public limited company shares are bought and sold on the open market or exchange where they are listed, definitely no altruism here but the ability of these markets to raise capital is much greater. That is why large companies go public, to raise significant capital (institutional investors) that is then used to generate growth by acquisition or investment. Reporting obligations placed on publically traded companies are very demanding as a few of the football clubs have found out. When you play with the big boys you have to play by their rules.

    You have made me think a bit more about this; it limits the pool of available investors so perhaps it might be an idea to accept that some profits would be made and distributed to investors but at a reduced level, a hybrid. A better way to describe it would be an ethical business rather than a not for profit, dunno, what do you think?

    There are not that many examples to give but I understand there is a bottled water company that operates as a commercial entity but ploughs all its profits to clean water projects in Africa. People have a choice whether to buy their water or not but if they do they know that some of the profits are going to a good cause, not as charity though, they actually run the clean water projects themselves on commercial lines acting as business incubators in developing countries. Perhaps another similar example might be the fair trade movement, you can choose to or not buy a fair trade tea bag, yes it might cost a bit more but not much more and you get the warm feeling of ‘doing good’ when you have a cuppa. Not strictly the same thing but in the same vein.

    The legal entity would be a private limited company