Getting the measure of charities

Again, the charity establishment declares itself outraged by a plain speaking outsider. In February it was Dame Suzi leather, Charity Commission chair, who gave a withering critique of charity governmance and financial controls.

Last night it was Martin Brookes, head of research at charity analysts New Philanthropy Capital.

His message, essentially, was that we cannot easily tell whether charities are are as good as they say they are, and for the sake of sustaining donor trust, organisational efficiency, and the welfare of charity beneficiaries, it is about time we found out (for a richer exposition of Brookes' thesis, expounded at the Royal Society of Arts last night, see our extract).

To an outsider, this does not seem that contentious a proposition. If we accept the idea that millions of pounds of donor and taxpayer money may be going to waste because we give to charities that do not neccesarily provide a good social return on investment, then Brookes' contention that we sharpen up our assement of charity performance is persuasive.

Charities, he argues, have for too long traded on the public belief that they are intrinsically good. But charities' performance - as with all industries and sectors - varies. If we were to assess them, and identify top performing charities - and this is not a question of merely measuring their success in fundraising, say, but judging their wider performance against their stated values and objectives - then there would be three positive outcomes: charities would get an incentive to raise their performance; and donors would have a clearer view of how well their money is spent (and so are likely to give more). Perhaps most importantly of all, the people charities serve would benefit.

But it is a proposition strangely guaranteed to induce apoplexy in some quarters. The intemperate response of Stuart Etherington, chief executive of the National Council for Voluntary Organisations, made in a statement to the Guardian last night, is worth repeating in full:

This is a headline grabbing stunt by Martin Brookes, which is a pity as he is blowing the hard won reputation of New Philanthropy Capital. There is already serious regulation of charities and considerable efforts have been undertaken by the sector to improve their performance in this area. There is not a shred of evidence to support Mr Brookes' assertions.

Setting up such a body would be regulation gone mad and would severely damage civil society in this country and have precisely the opposite effect of his intentions. I hope that New Philanthropy Capital will distance itself from such ridiculous proposals and focus on assisting charities to have the greatest impact for the people they support and serve.

How far Etherington correctly reads the mood of the wider charity sector on this is an interesting question. Shelter's chief executive Adam Sampson offers a more measured critique.

Sampson accepts that while there are legitmate concerns about the potential risks of adopting a crude clumsy performance management assessment, the arguments for greater scrutiny are nonetheless formidable. "While most charities are well-run and effective," he says, "there are obviously those whose public name conceals waste and poor service."

In those words he gets to the nub of charities' insecurity on this issue. As Brookes has said in the past, performance analysis is "a disruptive technology". In other words, it has the potential to overturn the established order in which it is assumed the richest charities provide best value. In a static charity market where the same old well known brands are getting ever more powerful and wealthy at the expense of smaller charities, Brookes' model offers a mechanism for redirecting scarce donor capital to small, innovative and potentially higher performing charities. NPC's report on child abuse charities which offers a fascinating (and diverging) assessments of the performance of NSPCC (annual income around £116m) and a Eighteen and Under, a tiny but dynamic Dundee-based charity with income of just £100,000 a year, is a good example of this, as I have noted before.

Finally, the Cabinet Office is thought to be cool on Brookes' proposals - of course, they might well present a political risk - although privately ministers say are keen on finding ways of measuring and improving third charity performance. The office of the third sector, for example, last month hired one of Scotland's leading social entrepreneurs to work on ways to "measure social return on investment".