At Work: Finance and IT - Strategy - The dilemma of the short or long term

Paul Palmer is professor of voluntary sector management at the Cass Business School.

Should charities outlast their founders? A popular view is that a charity should exist only for as long as the purposes for which it was founded remain.

This view ignores the existence of grant-making trusts, which have been established for perpetuity. However, emerging between these two distinct charity types are service-providing charities. How long should they exist, and what strategies should they follow to ensure their survival?

Organisational longevity has long been the subject of management research.

A hundred years ago, about half the value of companies listed on the stock exchange was related to railways. Today, such a category is no longer recorded.

Were the managers of railway firms aware of technological changes, and what could they have done to prevent their demise? Management research looks at two different approaches to understanding and analysing these issues: the internal workings of the organisation and its interaction with its external environment.

Different types of organisation are required to deal with different types of environment. The result is that, as environments change, so must the organisations that operate within them.

Grant-making trusts are not immune from such influences. The purposes that they support can change and their financial strategies must be kept up to date. For example, £1m left in a bank deposit account 30 years ago, with just the interest distributed, would still be £1m - but its purchasing power would now be less than half of the original value.

Campaigning charities need to be in tune with and, if necessary, change with their environments. For example, the homelessness charity Shelter could be said to have achieved its founder's wishes with the passing of the Homeless Persons Act in 1977. Liberty is another case in point - as debate rages on about getting the balance between terrorism and civil freedom right, the role of Liberty is as important today as it was when founded.

Research into longevity finance poses an interesting dilemma for charities that also act as service providers. Financial strategies that have involved conservative policies, such as no debt and paying and investing from internal resources, have been a common feature of commercial organisations. But many of these institutions have remained small.

As charities consider a greater role in public services and are, for example, encouraged to consider loan finance, they face a dilemma. Should they borrow to invest and expand, or does borrowing pose an unacceptable risk to their own longevity?

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