Charities must take some risks

Charities constantly battle with the issue of successfully delivering long-term projects while appeasing donors who want to see quick results.

In his role as chair of The Smith Family, James Millar understands these pressures. However, he believes the key for not-for-profits is having the courage to take calculated risks that deliver results – both in the short-term and long-term.

NFPs, like their for-profit cousins, should not be afraid to take some risks to achieve their purpose, says Millar.

A former chief executive officer of Ernst & Young and now a non-executive director of Mirvac, Fairfax Media and Helloworld, Millar says NFPs and corporations should not become "gun shy".

"If we are to make the decisions we need to make and change what needs to be changed, then we have to take some risks," he says.

"You just need to be aware of the risks and the effect on your capital base if it’s a public company, or your reputation base if you’re an NFP.

"I fear we are becoming a little clogged with process and avoidance of risk when we should be taking more risk on."

But, he adds, "that doesn’t mean becoming risky".

Supply demand is the big issue

Millar says the biggest shift in the NFP sector is that, increasingly, donors want to be involved in determining how and where their money is spent, whereas in the past money was often given "untied".

While that’s reasonable, says Millar, "it becomes complex".

Supply, not demand, will always be the key issue for NFPs such as The Smith Family as they grapple with short- and long-term goals, he says.

"Our big need is the supply of revenue or cash from donors or our businesses."

Once the cash is in, activities can be scaled up or down depending on the level of supply.

For broad-based charitable groups, the key is to have multiple sources of income. The Smith Family gets 25 per cent of funding from government, with the remainder coming from private individuals, corporations and philanthropic interests.

Listed companies are different in the sense that they are under pressure to deliver quick results for shareholders. They have a capital base to invest together with a lot of intellectual capital at their disposal."

"You put the two together and you hopefully create magic and that delivers returns for shareholders and people want to back you and stay with you."

Regardless of spending priorities, Millar says protecting the brand is crucial for NFPs.

"At The Smith Family, everyone from the board down through to the executives know they are brand ambassadors," he says.

"Trust can disappear very quickly, whether it’s through the way you account for yourselves financially or the way you account for yourselves as individuals.

"It takes a long time to build a good brand, but it can be destroyed very quickly," Millar says.

In other words...

• NFPs could consider taking on more risk to achieve greater success
• A broad array of funding sources helps to ensure revenue
• Greater risk should always be balanced against potential damage to the brand