John Studzinski's Speech on Philanthropy in Hard Times

Britain's largest one-day conference for third sector leaders is called Raising Funds from the Rich.  Attended by 1,200 people last year, the conference is attended by some of Britain’s most generous charity donors, and leading experts on how to secure major donors - the fastest growing source of charity funding in the UK. One of this year’s key speakers was Genesis Founder and Chairman, John Studzinski. Here is the transcript of the presentation by John Studzinski to Raising funds from the Rich conference for charity leaders, organised by fundraising consultants, Action Planning, and the Association of chief executives of Voluntary Organisations and held at Central Hall, Westminster, London on 8 October 2008.

Good morning.  It is always dangerous when someone tells the audience that you have flown overnight, because I think they are expecting someone who is in desperate need of hair and makeup but I do not believe at the moment that I am in need of either, though you may wish to comment later. This was the space where a number of us celebrated Anita Roddick’s memorial service, and some of you may remember that memorial service which was very much entitled I Am an Activist.

This morning I had just come back from New York, and I was speaking to someone at the Bank of England about this morning’s announcement.  I said it was very interesting that I had to make some remarks later on this morning about philanthropy.  They said it is very appropriate because today, of course, is all about philanthropy to the banking system, rather than from or of the banking system.  That is the environment in which we operate.  The Chinese give us that great proverb, “May you live in interesting times”, and, for those of you who do not really know what that means, it is a curse to test your mettle and how you can survive with the extremes of human nature.  There is no question that what we have been going through so far is what I call “banking nonsense”, and the real recession, the real play which is what Arthur Miller would describe as the new steroid version of Death of a Salesman, has not started yet.  The real recession is just about around the corner and it is important for you to take that on board as people who are working in the philanthropic sector.

It is important to embrace this and, given that we are in the culture of the spoken word, having lived here for almost 30 years and proud to have a British passport, Shakespeare would describe this in several of his tragedies as being “at sixes and sevens”.  This is an analogy that Shakespeare uses to describe things as being in a state of flux and volatile.  I have many good business colleagues who are very smart at making money, and they say that, when you are dealing in this environment, you do not panic, you do not get upset, you do not feel sorry for yourself.  You take a step back and say, okay, what is really going on here and how am I going to make money in this environment or as a result of this environment?  How, from the standpoint of what is going on today, are we going to learn some lessons that we can apply to our own purpose in life, namely philanthropy and charity, and all the things that people stand for in this room as far as the values that they bring to their job and to their – I use the word – ethos.  I believe that philanthropy is for the good of mankind, and there is that wonderful word “ethos” which has to do with the heart of ethics.

This will be a tough period and what is interesting about it is that I believe we can gain a lot from this period.  We have had an extraordinary 10-year period where there have been many new philanthropists who have appeared on the stage, many new support systems, wonderful thoughtful research and insight like New Philanthropy Capital.  We now have a body of work and we have a much broader group of philanthropists: old money, old foundations; new money.  One of the things that you all know about new money is that it is very flaky, it is very insecure.   Those of you who have tried to raise money from new money will know that new money is very nervous. It is like the worst investment decision or the best investment decision they could ever make.  They could have all the money in the world but it is like riding a bicycle: if you do not know how to ride the bicycle, you have to get on and fall off a few times before you start to pedal.  The same thing applies to new philanthropists who have not quite learned what giving is all about: namely, what giving is and what you get in return for it.

As far as philanthropists in this period, you will get to see some very interesting behaviour, and let me make four or five observations about what will happen among philanthropists in this environment.  First, foundations will cut back on grant-giving because they will have lower investment income - we do not need to be very smart to figure that out - and they will probably be more careful about making multi-year commitments.  When I look at some of the best run foundations in this environment, such as the Weston Foundation which I always regard as a model, and many of you probably benefit from the Garfield Weston Foundation, they give you a one-year commitment and the money arrives within five business days.

The second thing that will happen in this environment is that donors will be much more aggressive with all of you about seeing that a larger portion of money goes into the real purpose of the project or the programme and not into operating costs.  So you will have much more scrutiny about how much money is being spent on overhead.

Thirdly, corporate giving will fall but I believe we all learned the lesson a long time ago that you should not depend on corporate donors: they are very self-interested, they are very short-term, they tend to treat it as marketing more than philanthropy, and you should not take corporate donors too seriously.  I am really sorry to say that because I have been very involved with the homeless, with a whole range of high quality projects with people like Marks & Spencer and Barclays, who have invested enormously in homeless projects, in training projects in the community, they alone deserve five stars.  However, they are the outliers, they are looking at the community as part of their client base.  Not every corporation has the people on the streets of London or New York or Hong Kong as their community.  Those are examples of outliers but if the average corporate donor in this environment has to decide between laying off people and cutting back on donations, they will choose to cut back on donations.

The fourth thing that will happen is that individuals are going to panic and they will reduce donations as unemployment and economic insecurity emerge.  There are some interesting twists here and you need to pay attention to this: you will see polarised behaviour.  Your very loyal patrons in this environment will want to know exactly if you are having financial problems, and they will become more loyal, more generous and more committed, because they will want to be there as your anchor, your glue. Therefore, it is very important for all of you to make sure that you know who are the donors who have supported you for the longest, who are the donors who are the most loyal.

I have seen this with a number of the projects that I support: our donations are down 30% in 2008 and we are not going to make our budget, so we may have to lay off two people.  I have said to them, fine, let us go to the following three people and ask them each for £20,000 or £30,000 and, you know what? If you do that in a very targeted way, because you really need the money during this tough period, you do get it.  Therefore, you need to be very disciplined about deciding who are the people who are really loyal, love you, respect you, are committed to your mantra, and who are the people who are lovely dinners, somewhat superficial commitment, delightful people but could be flaky and, for the most part, are still in the butterfly net.  These are a different group of people.

The last thing of which those of us who work in social welfare projects like the homeless need to be mindful is that central and local government will cut social services and spending on health and education.  They will have to do so because tax receipts will fall.  Therefore, those of you who work in projects where you share a certain amount of the budget with the City of Westminster, because I have many joint proposals with the City of Westminster, or in Emmaus across the UK through local housing authorities, have to remember that as taxes fall, the budgets will fall for these areas.

The next thing I want to talk about is what does it mean for the charitable sector. Some of these things you will not like.  I remember about two years ago I made some comment about there being far too many homeless charities in London, and I said there were 38 homeless charities when there should be about 12.  The Economist alone received about 30 letters to the Editor saying who is this fool, how could he possibly say this, we need all these projects, he is insensitive, all these charities have a purpose.  Do we really need 3,000 cancer charities in the UK? I don’t know, I am not the best person to judge cancer charities.  Do we really need 20+ homeless charities in London? Because I know a little about this area, I can tell you that the answer is no.

However, I do know that in this environment all your donors, particularly on the foundation side, will ask questions about governance, as I believe that governance is an important issue with charities going forward: is the board structured to be functional?; are board members there for a purpose?; are board members there not just for fundraising and for putting their nice names on stationery but are they there for doing different things such as providing guidance for governments, guidance for real estate, guidance for different aspects of professional and support services?  Therefore, I believe that during this period there will be a lot of pressure on consolidation.

I am a great advocate of the rich aunt with all the property marrying the younger gentleman – a bit of a Jane Austen story – who has quite a lot of chutzpah, drive and energy, and putting asset pools together in the charity sector.  There is a lot of potential for that almost in a merger and acquisition situation in this environment.  I believe you will have governments, foundations, philanthropists encouraging charities in this environment to look at the structure and say: can we combine resources, can we combine assets, can we combine property, can we combine balance sheets?

This type of shock in society is one of the best things to happen, because it will allow you to be very honest about your purpose.  The Genesis Foundation, of which I am particularly proud, is very focused.  It is all about nurturing young artists and giving them their first break. People may ask why do you care about that?  I care about it because I am interested in people’s self-esteem, I am interested in human dignity and I am interested in helping a young person get on their feet and have a sense of confidence.  The same thing applies to a homeless person and to someone who has had their basic human rights violated.

One of the observations that I would make about contemporary charities is that many of them have lost their focus, many have lost their purpose, and I often challenge boards to say what was the original mantra of this charity.  I hear the boards say, “we started on this project but we are doing six other things”, so what is really important? In this environment, what is our core business as a charity?

The next point I would make is about really being honest.  After we deal with the whole question of the changing nature of philanthropists in this environment, the changing nature of the structure of the sector, you need to be honest about what is your core business. More and more, donors will ask you and, even in a tough environment, your most loyal donors will be there to support you if you are honest about your core business and what you stand for.

I am also a believer that the government needs to be very open-minded about supporting NGOs in this sector.  When you look back at the history following the Depression in the early 1930s, it was the period of time when the greatest number of schools and colleges were built in this country and in North America.  Therefore, from great periods of economic austerity comes great inspiration for what is important in society.  There is no question that the government will have to be open-minded about supporting certain types of charities and it is incumbent upon all of you who get government funding – and many of you do as many of you do projects in the community, or the government out-source projects to you and, if they do not, I can explain to you how that works.  Even in this environment, that might be cut back but, particularly in this environment, the government need to be focused on continuing that.

As I stand here today, I do not want to be depressing, I want to be positive because, like the phoenix rising from the ashes, this means we are entering a period of austerity in terms of a new type of philanthropy, which is less about glamorous gala dinners and more about thoughtful, targeted outreach.  I believe that charities have three purposes, for those of you who focus on fundraising.  I always say that there are three legs to the fundraising table.  One of them is fundraising dinners, seminars, asking for money, and many of us know that and many of us are also sick and tired of that.

The second one is more powerful in this environment: focus less on fundraising and focus more on outreach.  By outreach I mean use this period to build your network, tell more people what your charity is about, what your values are, broaden the people who are ambassadors for what you are trying to do, focus on outreach.

The third area of the table of philanthropy is what I call advocacy.  Each charity in this room stands for something, whether is breast cancer, employing the homeless, helping young artists – you all play some constructive role in society that has a role of advocacy.  Charities can be seen as playing the role of advocates for certain segments of society and, if they broaden their network of outreach in this environment, the fundraising, even in a tough environment, will come more discreetly, more elegantly but it will be there from real donors, real supporters and not just people whom you have met at a gala dinner or at a one-off seminar.  Those would be my parting words.

John D Rockefeller who made a lot of money in the steel and the railroad industry, was a great philanthropist in America. He said in his 93 years of life – having lived through one Great Depression and many recessions – prosperity has always returned and it will again.  Every time prosperity came back, charity had to reinvent itself.  I want to leave that with you today because all of you are here with great love and passion for what you do, but it is really a chance to become bigger advocates, to focus more on outreach, to think of other ways to cling to your most loyal supporters and make sure that they really understand your needs in what will be a very challenging environment for the next two to three years.

Thank you very much.