This article first appeared in Third Sector magazine.
Esmee Fairbairn Foundation (a large UK grant-making foundation) has launched a fund to encourage mergers. It’s ironic, because Esmee’s own rules penalise them
Fairness, presumably, is behind the Esmee Fairbairn Foundation’s rule that it (normally) will only give a charity one grant at once. But it’s misplaced. One effect is that it discourages mergers which, through a new fund announced last week, Esmee Fairbairn Foundation is – somewhat ironically – trying to encourage.
I personally have seen mergers killed by this rule, which sadly isn’t unique to Esmee. Once upon a time, I was exploring a sensible merger between two charities, both of which fitted Esmee’s areas of interest. Separate, we were eligible for two grants. Combined, we’d have been eligible for just one. By merging, we’d automatically forfeit our eligibility for a second grant. For us, that price was too high and it nuked the deal.
The evil twin of the ‘one at a time’ rule is some funders’ obsession with small charities. For example, the Polden-Puckham Charitable Foundation will only fund charities with revenue below £300,000. So, separately, two charities each with revenue of, say, £200,000 might be eligible for two grants, but combined, they’d be eligible for none at all.
Notice that in each case, those charities are disqualified irrespective of the quality of their work. What?? Surely, now that we’ve all noticed that some charities perform better than others, foundations and others should allocate charitable money solely on the basis of performance, rather other spurious criteria like these.
Notice too that the disqualifications are irrespective of the logic of the merger. The case for mergers is very strong, for two basic reasons. Firstly, large organisations can normally do things more cheaply. For instance, two charities each with revenue of £500k will pay two audit fees, whereas one of £1m will only pay one. And secondly, staff in bigger organisations are typically more productive. The Economist recently reported that, for example, workers in European manufacturing companies with over 250 workers create 30-40 per cent more value each than workers in firms with fewer than 10 employees. This is partly because they can ‘focus on a specific problem [and will] not be asked to fix the boss’ laptop as well’. If we could solve global poverty or nail cancer 30-40 per cent sooner just by mashing some organisations together, then we should do so without delay.
But what about fairness? The problem is that Esmee has got the wrong unit of analysis. It’s trying to be fair to charities. But who cares about charities? We should all, charities included, obsess instead about what’s best for beneficiaries. We can see this by doing a thought-experiment for a second. Suppose there are three charities in a particular sector, two of which are brilliant at serving beneficiaries and one is rubbish at it. Is it ‘fair’ to beneficiaries to support those charities equally? Hell, no! The beneficiaries are best served if the good charities are enabled to grow and take over the work of the rubbish one, which is killed off, toute suite.
These foundations’ arbitrary rules are not based on evidence or merit, and therefore do not promote performance. Just as evidence-based medicine has saved a squillion lives, and evidence-based policy is saving squillions of tax-dollars, it’s time for philanthropy to be based on evidence about what works – and that alone.