Opinion: The market model is a snare and delusion

Peter Cardy

While we wait for GuideStar to go live, yet another set of fatuous financial comparisons reaches me, this time from a network in the cancer field that ought to know better. It coincides with an outbreak of interest among major donors in appraisals that tell them how well their money will be spent. It's an excellent idea - if only it were so simple. The examples so far are not encouraging.

The market analysis familiar in the corporate sector is deceptively attractive, gutting and filleting the market data and telling investors where to buy equity or acquire businesses. The charity market reports I've seen are models of how not to do it, full of misinterpretations based on shallow investigation, carried out with inadequate understanding of the organisations, their contexts and what their funds do.

The basic fallacy is to try to measure performance by money alone, ignoring other important asset flows. Reputation, for example, is intangible but fundamental, and not the same as commercial 'goodwill'. Personal motivation is another - it's rarely measured, especially when it comes to volunteers. Knowledge is a third, frequently stored in the heads of individuals rather than in databases. Services to beneficiaries are the most important, yet rarely represented in financial or other metrics.

A common assumption is that all charities should be efficient as the corporate sector understands it, whereas what many charities do is not susceptible to this thinking. It is not uncommon for the process rather than the product to be the overriding goal. All charities are established as the result of someone's motivation, which may be burning zealotry - this same motivation is what makes charity mergers and takeovers even more difficult than in the corporate sector, yet these too are frequently advised. Another fallacy is that charities will come into line with major donors' priorities, whereas debate about independence from funders has been raging across the sector for many years.

We certainly need sound advice for donors, but it can't be done through financial comparisons alone, and it won't be cheap or quick. GuideStar and the Charity Commission will have important data to contribute, but it also requires better analysis and intelligence-gathering capacity than currently exists in the sector. It also requires think-tank debate to test and validate comparisons. Nuffield and Chatham House have a lot to teach us.

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