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This discussion has been happening for many years and shall continue for many years. There is no clear answer and opinions on both sides are based on sound arguments. Bill Gates, one of the most vocal proponents of the ‘like a business’ meme understands that

“….to have a sustained and strategic impact, philanthropy must be conducted like business—with discipline, strategy and a strong focus on outcomes. Organizations receiving your support should be as accountable to you as a company’s board is to its shareholders. You are a stakeholder. And that means, above all else, that you have to know your return on investment.”

Let us unpack this position:

  • Sustainable & strategic impactNo one denies that charities need to deliver sustained and strategic impact. The nature of ‘sustainability’ and ‘impact’ will however differ on whether one is evaluating ‘life saving humanitarian’ interventions or the more longer-term ‘development interventions’. Humanitarian interventions deliver outcomes for shorter-term impact over a time horizon measured in weeks or months. For instance, reduction in risk of disease through sanitation and clean drinking water interventions, alleviating starvation through food interventions etc. The sustainability of these outcomes is limited;  take away the food intervention without an improvement in the underlying conditions and the risk of starvation returns.  Development interventions are expected to be more robust and bring about changes in behaviour and policy. The impacts live well beyond intervention phase but also take time to materialise, often years.  
  • Discipline / strategy / focus on outcomes – I know of no good charity which meanders along in an undisciplined, ragtag manner aimlessly doing some activities. Most charities are built on the foundation of a strong vision and have systems in place to ensure its progress towards the goals. There are of course charities whose internal governance systems are weak. They are poorly run and work opportunistically. Thankfully, their influence on development thinking is rather limited.
  • Accountable to donors – There is absolutely no doubt that this accountability is required. However, let us be clear that it is not a question of accountability only to donors who are seeking return on investment. Charities have a larger accountability to their stakeholders namely the communities they work with, the local organisations they partner and the governments in host countries. These are at least as important as the donors. In an ideal world the priorities and demands of all these stakeholders would be aligned and life would be easy for the charities. In real life  it seldom works that way. Many a time charities struggle to align priorities of communities, governments and donors with their own vision, and to design sensible programmes where every stakeholder sees an advantage.

This is not all it takes to ‘operate like a business’. There are other things that charities do like businesses.

  •  They lobby governments – A key difference is that most lobbying by charities is to help the underprivileged and the voiceless. Rarely do charities lobby for themselves or for appropriating profits of shareholders, sometimes at the expense of the stakeholders. How often does one hear of an agitation led by a charity asking for favourable tax breaks or waiver of oversight or curtailing competition?
  • They manage people – The pool of people that charities can access is severely restricted. Being an aid worker necessarily means that one is forced to choose between making a difference and making money. There are few challenges to businesses on how much they pay their staff and CEOs, at least so long as they are making profits. However most donors, individual and institutional, expect charities to operate on shoe string budgets, not pay staff well and yet deliver fantastic results.  This creates a different kind of challenge in recruiting and retaining staff.

In my view the question whether “Charities should operate like businesses” is a pointless one to keep raising.  Charities do run like businesses. Or rather in a ‘business-like’ manner. At least the good ones do.

The only issue is that it is a different business. The rules of the game, the objectives and the priorities are different.  For instance, a business may outsource its business operations to off shore entities so they can be more economically delivered. Charities have no such option. In fact the worse the situation in their ‘business environment’ the more the need for the charity to work there.  After all aid to the starving Somali people cannot be delivered in India just because it is easier to operate there from the security point of view.

It is important not to confuse ‘operate like a business’ with ‘follow the rules of businesses’. If the playing field is not the same, the rules of the game cannot be the same. In this case it is not even the same game. That means metrics for measuring success need to be different.

From my experience of 18 years as a development professional in India, Afghanistan and Africa, I find that

  • Most good charities know what ‘business’ they are in.
  • They know that they need to deliver on sustainable change in lives of people.
  • They know they need to be accountable to stakeholders.

It is time that the ‘business’ proponents understood this too.