In the commercial world a company researches and develops a new product, produces a business plan and takes the proposition to potential investors. The investors - once happy with the viability of the plan, the cost of bringing the product to market and the level of risk involved - invest their cash and wait for the return on their investment. Having taken the decision to invest, they trust the company and their executives to deliver within the agreed parameters of the business plan. So long as the company is demmed to be delivering an acceptable level of return, all is well. What is more, if successful they are guaranteed funding into perpetuity.
Why is the funding model, typically employed for Charities, Social Enterprises and their ilk so lacking in similar levels of trust? A bold statement, but read on and ask yourself whether the following scenario resonates with you or your organisation...
A charity develops a proposed new service, or further funding of a successful one. The potential funders will examine the service and often cut costs, frequently leaving an organisation in a position of cross subsidy; despite the supposed migration to full cost recovery. They rarely allow for a surplus (for future investment), yet a business not only fully allocates all costs (direct and indirect) but, in addition, pays bonuses, pension fund contributions and shareholder dividends. Why do investors trust companies to spend wisely and not charities? I suspect people do not trust charities as the return is so much more challenging to evaluate - the return on human capital versus that of financial capital. Evaluation is important, but so is trust and a better society is without real measure.
David Gold - CEO, Prospectus
