Peter Drucker

This past weekend I was part of a facilitation team taking a group of individuals and organizations through a course on starting a social enterprise.  The workshop was hosted by Canada Bridges and there were about 25 individuals ranging in age, ethnicity, and most especially in the ideas that they felt they could get to market that would make meaningful social change. Read more »

This morning I gave a presentation to the Centennial Rotary Club of Calgary on Dexterity Consulting's business model of Karma & Cents - The Business of Philanthropy.

What follows is a copy of the speech.  It is not a direct transcription.  Thanks for reading!

Good Morning!

It’s so nice to be in a room of morning people – we are a rare breed.  Thank you for allowing me to start your day off.  I am truly honoured to be a part of this group.

Over the next twenty-five minutes or so I want to talk to you about Business Karma and Common Cents.  Cents as in dollars and cents…  If there is one thing that you take out of this lecture, it is the direct correlation between business growth and effective corporate citizenship.

I want to start by taking a show of hands survey:

Who here is has some concerns about our country’s economic future?

Without disclosing personal business secrets, who thinks there is going to be an adverse effect on your business as a result of the economy?  You are talking to someone who helps people give their money away – This is a fear that I can totally relate to!

Last question – who here is seriously looking at their charitable giving practises this year, and is really thinking about where they are investing their community money, either personally or corporately?

If you aren’t thinking about it – this is going to be an interesting lecture for you, because you will walk away with some tools for understanding the BUSINESS OF PHILANTHROPY.  If you are thinking about your charitable giving, you will walk away with some questions to direct to your recipient organizations so that your relationship is one of a strategic business partnership as opposed to an unknown but required expense.

Yes, you heard me correctly – THE BUSINESS OF PHILANTHROPY.

“…the single most important thing to remember about any enterprise is that results exist only on the outside. Inside an enterprise, there are only costs.” 

Peter Drucker - was a writer, management consultant, and self-described “social ecologist.”  Widely considered to be the father of “modern management,” in his essay ''Management as Social Function and Liberal Art,'' he defines both for-profit and non-profit management as essentially human endeavours.  

So if for-profit and non-profit management is based on the human endeavor, should we not treat relationships between these two entities from the same starting point?  If the key differentiating factor is the profit motive, then is a business only there to create profit? 

Drucker argues, that profit is not the explanation, cause or rationale of business behaviour and business decisions. 

Rather, profit is the test of the validity of those decisions.   What is the typical life-span of a start-up company?   

UNDER THREE YEARS!   

When I started my company, I received funding from the Canadian Youth Business Foundation.  As part of the funding requirements I have to write a quarterly report back stating how my business is doing.  One of the questions that is asked is, is the company is still operating?  Keep in mind, this is for ONE YEAR FUNDING.  So, if companies measure their success based in annual increments and celebrate at year three mark – how are they determining that success?  The traditional model states that they determine it by profits.   

So back to the original question – what is a business? 

As Robert Urbanowski points out in his book Kickback, which I have a copy to give away today, a business is to fulfill a need.  I need a widget and you have one to sell.  You are fulfilling my need.  A hospital fills a need – to heal the sick.  The Rotary Club fulfills a need – to provide resources for eliminating polio in developing countries.  So when you boil right down to it, charities and non-profit organizations are just as much businesses as businesses are. 

There are currently just over 161,000 charities and non-profits in Canada.  The average Canadian spends less than 0.75% of their annual income on community investments.  We spend almost 2% of our income going to the movies and eating expensive popcorn. 

Knowing these statistics how can you as an individual or business owner possibly generate social impact?  You make your charitable decisions the same way you run your business.  If you run your business based on the need to make a profit as opposed to based on the need of the consumer, then your decision making will be based on decreasing cost to increasing profit margin.  That cost savings may be reflected in the offering of a cheaply manufactured product and one that possibly had little thought as to the long-term societal impacts.  Your customers’ satisfaction may be #2 or #3 in the decision-making process. 

However, if you make a product that fulfills the need of your customer, you will undoubtedly increase your sales because people will TRUST you more. It is the TRUST factor that plays in the Karma and Cents business model. 

My father always said, that TRUST is something you earn and can easily be lost, and then is hard to regain.  The charitable sector is built on this concept of trust.  As community investors we are sometimes duped into believing that they are a charitable organization therefore they must be trust-worthy. 
 

How many of you have experienced a charity being less-than-forthcoming with their information? 

How many of you made a donation and then found out a few months later that the money wasn’t directed where it was supposed to go? Did you know that you, as a donor you have rights? 

On my website is a copy of the donor bill of rights.  I invite you to review it – see if your “rights” are actually being honoured. 

I would like to share with you two examples of two large national organizations who jeopardized the trust that their donors had in them – 

Who has heard of the Banyan Tree Foundation?  What have you heard?   

In essence it was a poorly crafted tax shelter scheme that ended up costing the individual “donors” millions in back taxes and impacted the operations of several large-scale organizations. The Banyan Tree Foundation was based out of Toronto that had made multi-million dollar pledges and transfers of funds to major charities like the Special Olympics.  The commitments were based on dollars that were not available for donation and were collected and falsely reported back to the CRA.  They lost their charitable status mid-2008 because of the tax shelter scheme they were running.  It is also important to note that the donors were held accountable for the false tax receipts they were issued as part of this scheme.  If you do not know the proper questions to ask and that you are ALLOWED to ask those questions, then it is easy to be suckered into a concept that purports helping community but is really not. 

The other organization that had lulled its donors into a false sense of trust was the Red Cross in response to the Tsunami.  The overwhelming response to the call for support was so incredible that the organization did not have the capacity to manage all the gifts and ended up taking a large portion of those dollars and redirecting them to other initiatives without donor permission.  When the story leaked to the press that this had occurred, the Red Cross was forced to go back and inform their donors that the dollars weren’t spent as instructed.  They not only had this ethical obligation to report back, but they had a legal obligation because otherwise they could have lost their charitable status. It is important to note that to my knowledge they have rectified this situation and there are no questions pending as a result of the Tsunami donations. 

When entering into a relationship with a charity, the same approach should be adopted as if entering into a business partnership with another company.  Why?  Depending on the nature of the community investment, your corporate name is directly affiliated with that business.  If that organization ends up losing face, not following through on commitments, not managing its finances properly or otherwise not addressing the need that they are mandated to follow, you and your company can be adversely impacted.  On the flip-side a well constructed partnership agreement can see huge returns. 

So how do you enter into a well thought out business partnership with a charitable organization? First you look at yourself and your business.  What are your true business values?  How do they align with the charities you are currently supporting?  Then you look at your community, however you define that, and you ask yourself – what is my vision for what society should look like?  Do my values mirror that vision?  Does my business feed into that vision?  Do my community investments support that vision?  Do my actions strengthen that vision?  After you have asked these questions you are ready to start looking for community partners.   

The partners are not necessarily with charities.  You can be generating social capital and making positive societal impacts through your customer base, your vendors/suppliers, your employees and your Board of Directors.   You won’t have to look too far to find the partnerships.  Nor will you have to wait too long to see a marked Return on Investment, both socially and financially.  People are attracted to people who are innovative and outwardly focused.  They have an energy that draws people in.  Businesses are simply a collection of people who are working towards the common goal of fulfilling a need.  By translating your vision and values into your business model you will be creating the Karma and the Cents that will carry your business forward, even during these tough times. 

Thank you so much for your time.  I would be happy to answer any questions.  While we are doing questions, there are feedback forms on your table.  If you could please take a moment to complete them.  I will draw a name at the end of the breakfast for a copy of Robert Urbanowski’s book that I referenced during this lecture.