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Interview: Doug Taylor

A change of conversation between not-for-profits and their funders is needed to ensure that charities remain sustainable, says Doug Taylor, CEO of The Smith Family.

He points to the Paying What It Takes report by Social Ventures Australia and the Centre for Social Impact which, he says, assumes that many not-for-profits experience ‘a not-for-profit starvation cycle’.

‘In other words, the funding they get doesn’t cover the full costs of what it takes to deliver outcomes because funders, such as philanthropists and governments, have an aversion to funding overheads in not-for-profits,’ he says.

‘Most funders say, we’ll give between 10 and 15 per cent for overheads, but the true indirect costs of not-for-profits are around 30 per cent (still less than the 35 to 40 per cent of many businesses). Overheads include costs for training, IT, risk mitigation, fundraising and measuring outcomes, all essential activities.

‘The result is that increasingly, not-for-profits are becoming unsustainable. Many are running deficits or can’t generate sufficient surpluses to create sustainable organisations and adequately manage the risks of working with vulnerable people or investing in innovation.

‘The way I think about this is, if I go to a hospital, I’m interested in the safety record of that hospital and how well it helps me or my loved ones address our health issue. Why would I ask a not-for-profit about its overheads? It’s the wrong question. The right question is, tell me about your outcomes and how well you’re delivering on your mission. However, that’s not to say that overheads are not important. Efficiency and governance matter.’

Taylor says funders need to be educated about this issue and the not-for-profit sector needs to be clearer about how it talks about its costs. ‘Sometimes, in the past, there’s been a bit of a race to the bottom in terms of who’s got the lowest overheads.’

He says getting the funding ratio right is crucial, especially in the current environment where costs and demand for charitable services have increased.

Taylor believes that not-for-profit governance requires a different way of thinking. He says it builds on classical corporate governance but also requires two other tiers of governance: governing for better outcomes and governing in the system in which you operate.

He notes that while The Smith Family is focused on getting better educational outcomes, outside factors such as schools, parents and carers also have a big impact. ‘So, you have to think about how you govern in the system in which you operate and the dependencies on other kinds of organisations and stakeholders,’ he says.

Taylor believes governing these two tiers is harder than for-profit corporate governance because they are more difficult to measure.

‘In a business, it’s pretty clear what you’re governing for – for example, sustainability, shareholder returns or profitability. But in a not-for-profit, you are governing to improve people’s lives. This is where it’s important to focus on measuring outcomes and being clear about what you want to achieve.’

To measure outcomes, Taylor says The Smith Family’s Learning for Life program, for example, closely tracks the degree to which students attend school, whether they are progressing to years 10 and 12, what they do after school and what they are doing to complete their tertiary education.

‘We use that data to improve our practices and innovate. We report publicly so all our supporters can see how we’re doing,’ he says.

Taylor has spent 30 years in the social sector since he first began volunteering and then working with people in Sydney’s King Cross and Woolloomooloo.

‘That’s where I cut my teeth and learned a lot,’ he says. ‘I’ve stayed in the sector because it’s a compelling way to combine the head and heart and live out your values while also working on very complex challenges.’

Before joining The Smith Family in 2021, Taylor held various roles at Uniting NSW and ACT and United Way, the world’s largest privately funded not-for-profit. He currently sits on the board of Wayside Chapel and is chair of Warakirri College and the National Strategy for Volunteering Council. He is also a member of the Centre for Social Impact advisory board and the Sydney University Equity Advisory Group.

Taylor says The Smith Family’s focus has evolved over its 102 years in existence. It now concentrates on helping to break the cycle of poverty by addressing educational inequality. It has 67,000 disadvantaged students in its Learning for Life program and is in over 800 schools in disadvantaged communities.

Taylor says the organisation provides financial support to low-income families for items such as school books, excursions, digitally connected laptops and uniforms so that their children don’t feel different to other students. It also offers a range of learning and mentoring programs and works on improving parent and carer engagement.

‘The evidence shows that the children that make a great transition from school to further education or employment aren’t necessarily in the best schools. Their success depends on the degree to which their parents or carers engage in their education.’

Taylor believes that changes in our society make education incredibly important today. ‘The economy is very different to what it was. We need more skilled workers than we have, particularly those with knowledge skills,’ he says.

‘Research shows that nine out of 10 jobs of the future will need tertiary education. So, it’s much more important to have as many young people as possible completing school and going on to further education or employment.

‘We also know that education systems are currently struggling in developed economies, with some of the lowest metrics we’ve seen around school attendance and school completion. They face big challenges.

‘We focus on playing a complementary role for disadvantaged students and sharing our expertise with governments on what needs to change in education.’

Taylor says The Smith Family would like to see public education funded the way David Gonski recommended years ago.

‘Eighty per cent of students who experienced disadvantage are in that public system,’ he says.

‘They often have complex needs and require additional support. Currently, there isn’t this needs-based funding that was talked about. But it’s not all about money. It’s also about using those funds for good evidence-based education practices and getting good outcomes.’

Taylor says The Smith Family has had to adjust to changes in giving in Australia. ‘Fewer people are giving, even though the average gift is higher thanks to the growth in philanthropy. The financial contribution from businesses, foundations and major donors has been rising, particularly because of the intergenerational transfer of wealth that’s underway in Australia.’

Employee and customer expectations are also having an effect. ‘They expect different things from businesses than they did in the past. That drives corporate giving, but the big growth is coming from trusts and foundations. The Paul Ramsay Foundation, for example, manages around $3 billion. There are more funds of that size in Australia and there will be more in the future.’

Another change The Smith Family has had to deal with is the drop in the proportion of Australians who volunteer. ‘That’s because we now often have two heads of the household working so the time people would have for volunteering is not where it was,’ says Taylor.

‘Organisations like us just have to adapt to the way Australians live their lives today. We’re doing a lot in terms of digitising our giving opportunities. We’re creating online volunteering opportunities and shorter time-bound volunteering experiences to ensure people can contribute and give back to the community.

‘That’s not just to support the work of charities. It also brings huge benefits in social cohesion and the strengthening of our social fabric.’

 

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