Category Archives: Sustainable Development

Given Diminishing Foreign Funding Are South African NGOs Effectively Using Social Media to Leverage the Potential Resource Pool Offered by Individual Donors? – A Cursory Literature Review

Introduction

The promise of the new democracy and the international response to HIV/AIDS in the mid-1990’s led to a sea change in the way South African NGOs could source and access funding. Whilst the available resources were larger the fundraising became increasingly project focuses (as opposed to programmatic) and donor driven (Krige, 2012). Since 1994 KZN in particular has received the second largest commitments from donor funding (Ewing and Guliwe, 2008).

This has led to many NGOs becoming captive to certain large foreign funders (Ewing and Guliwe, pp. 271; Wescott, 2009, pp.35). Like any industry captive suppliers are extremely vulnerable to any shift in their main client’s strategy.

“The World around NPOs is a fast changing one… and the conditions globally at the end of the first decade of the 21st century are far from favourable for agencies working in the development sector” (Trilogue, 2011, pp.89 & 91).

What is required is a new discourse in fundraising strategy and the identification of new income streams which allow NGOs to deliver on their visions and missions in an innovative, programmatic and unrestricted manner.  This environmental shift is taking place concurrently to the appearance of new technological and media opportunities for NGOs to strategically engage their communities through “dialogic and community building practices” (Lovejoy and Saxton, 2012) that were not available with traditional websites and communication strategies. This literature review will examine the changing funding landscape, appraise the state (and/or potential) of individual giving in South Africa, and finally examine the issues that arise when and where social media meets this need.

Shifting Sources of Funding

The International Stage

The South African NGO sector now finds itself in a straits brought about the confluence of the international financial climate and the country’s emergence as a leading democratic and economic force on the continent (Ewing and Guliwe, pp.275). Donor’s are shifting focus to other countries as South Africa “graduates from being a donor-funded recipient” (Ewing and Guliwe, 275, Trialogue, pp.88), and even those that remain in South Africa were not immune to the global economic recession (Ewing and Guliwe, pp.275).

While the argument for the retraction of donor-funding to South Africa asserts that South Africa is able to mitigate this withdrawal through macro-economic repositioning this is unlikely to happen given the ideological, political and socio-economic landscape (Ewing and Guliwe, pp.276). It is an imperative that local resources be mobilised (Ewing and Guliwe, pp.271).

Sources of South African NPO Funding

Local Corporate and Trusts,  and Foreign Donors lead the funding source log in 2003 and 2011 (first and second place, respectively), however, both Corporate and Foreign Donor sources show a significant drop between the two periods (there is no 2003 data for Trusts) (Trialogue, pp.33). Government comes in as the fourth leading source of funding across the two periods, also showing a marked drop (Trialogue, pp.33). Coming in at the lowest contributions are Self-Generated and Private Individual funding sources. Interestingly enough these two are the only two which show an improvement over the period (Trialogue, pp.33). Over the 2010 2011 period 16% of NGOs reported that self-generated income contributed the most to increased income. For the 10% that experienced decreased income for the period this was due to diminished trust, corporate and foreign donors.

Salaries are the 2nd biggest expense for NGOs representing an average of 33% of the budget; this is often an expense least likely to be funded by corporate. Further, 30% of the corporate participating in this study do not fund NPO operating costs as a matter of policy (Trialogue, pp.40).

The State of Individual Giving in South Africa

In national research conducted across 3000 randomly sampled respondents controlled against national demographic norms Everatt and Solanki (2003, pp.51) discovered a sample mean for money given to a charity/cause/organisation of R27 in the month preceding the study. This was accompanied by a sample mean for money given directly to the poor of R6.60, and a sample mean for time given to a charity/cause/organisation of 1.9hrs. While as fragmented a group as this nationally drawn random sample represents this reveals an astonishing total investment of R100800 and 5700 man hours in the month preceeding the study. While this study is not exhaustive it gives a sense of the potential individual donor resource that could be harnessed in a more strategic way by NGOs.

Pros and Cons of Private Giving for the Development Sector

The debates around this point can be distilled into a recognition of a need for coordination of private funding to the non-profit sector that protects it from fragmentation of effort and resources, but that also doesn’t result in paralysing government regulations (Ewing and Guliwe, pp.272, Wescott, pp.36).

To unpack this the benefits of pursuing individual donors can be seen in that as opposed to corporate of foreign donors, individuals are less concerned with “earmarking” their specific donations (Trilogue, pp.89). So while “designation” as mentioned above may be a draw card it is not as rigorously audited per specific individual amount as it would be in the case of a corporate or foreign donor. This means that funds generated here can be used to cover core operating costs, or as unrestricted funding which places the organisation in a position to “experiment”. In the face of decades worth of “traditional” methods still not having succeeded in eradicating social ills and injustice the need for innovation and risk-taking is significant (Wescott, pp.21). Being able to leverage unrestricted funds through a successful Individual Giving strategy will not only contribute towards and NGO’s sustainability and autonomy of mission and vision, but will also give it the much needed freedom to strategise outside of the box, and to potentially make mistakes towards developing increased efficiencies whilst not risking its financial sustainability through earning the ire of a disgruntled project-specific foreign donor.

Determinants of Personal Donations

In determining the factors and characteristics of an NGO that influence individual giving Nunnenkamp and Ohler (2011) identified the following characteristics as having positive corollaries with individuals’ decisions to donate: a large fundraising expenditure,; being in receipt of significant funding from donor foundations; and being able to generate significant self-generated funds; and when donations could be designated towards a specific activity. The latter point might explain the surprising finding that an NGO’s increased level of specialisation, either in sector or geographical focus did not have a positive correlation to the amount of donations received. The authors make the assumption that the belief that the individual can designate funds doesn’t require them to fund an organisation that deals solely or explicitly with the specific issue of greatest import to the individual donor. Whilst the following correlations did not meet statistical significance they are still interesting: the availability of an online donation option was negatively associated to the amount of donations received, whilst the option of being able to donate periodically was positively associated with donations received. Another interesting mention in this study revolves around competing NGOs (whether that competition is explicit in a corporate sense, or merely referring to the efforts to secure resources from a common and finite basket is immaterial), that is, that diversion of funds away from an organisation due to another NGO’s fundraising efforts are typically cancelled out by the “awaking” of awareness this activity performs in society. This research is severely limited in that it was conducted with US subjects and organisations. While there is no evidence to suggest a similarity or difference between this and the South African context it provides an interesting point of departure for this thesis.

 

What Strategies are Used to Leverage Individual Giving

The Internet

In the last 15 years the internet as become a new channel through which NGOs have sought to communicate their messaged and leverage funds (Treiblmaier and Pollach, 2006, pp.808). Despite this NGOs typically have limited skill in maintain online content, or justifying expenditures in this regard and despite the potential offered by this channel its current efficacy is questioned as many standing donors of an organisation may never actually visit its website (Treiblmaier and Pollach, pp.809).

What does become clear (Treiblmaier and Pollach, Shier and Handy (2012), Hou, Du and Tian (2009)) is that simply having a web presence is not enough and that consideration has to be given to concepts that belong in the realm of classical marketing and cognisance must be given to brand equity and individual self-concept.

Building Trust in a Virtual Space

Research into the efficacy of “Donation” buttons on NGO websites revealed that trust plays an important role in determining action once the base levels of marketing communication have played their part (Gibbons, 2010; Lassila, 2010, pp.30). What this study discovered was the strongest levels of trust were induced when the donate-button design incorporated photographic evidence of both the need that was targeted and the response delivered by the organisation, and that this medium was well suited to conveying relevant information and promoting certainty amongst potential givers (Gibbons, 2010).

Social Media – Leveraging an Ubiquitous Presence

The most well known social media platforms are Twitter and Facebook, and like the myriad applications which have become household names in recent years these virtual communities are built to be integrated across the user’s life and digital experience (Lassila, pp.18). The fine line here is to engage in these community members as a community member and not be perceived as a disconnected externally intruding marketer (Lassila, pp.18). If this is successfully navigated then salience, the base level of many classical marketing frameworks including Keller’s Customer Based Brand Equity Pyramid model (2000), can be achieved. The weakness for most NGOs lies in the fact , mentioned above by Treiblmaier and Pollach; that if NGOs don’t have the ability to maintain websites, which are far more static than social media applications, they will struggle to remain relevant on these platforms unless they make a concerted and strategic effort. This need to be more engaging may negate the benefits of social media for NGOs that Lovejoy and Saxton (2012) identify, namely: they are more intuitive and purpose designed for interaction than traditional webhosting. Part of this effort, as mentioned above, is to understand the individual’s self-image concept, and to appreciate that social media platforms are used by individuals to “enhance their self-presentation” (Lassila, pp.28), and that through allowing the individual’s donation behaviour to become a part of their repertoire of self-presentation enhancers NGOs can further leverage and induce individual giving.

From Traditional to Networked NGOs – the Challenges.

Immersing itself into the realms of social media can be difficult for traditional organisations which emphasise controlling communication in order to protect the organisation from harm (Kantner and Fine, 2010, pp.49). The fears that paralyse a traditional organisation from leaping into this interactive social media  realm include: social media norms appear unprofessional; the transparency it nurtures can expose organisational weaknesses/vulnerability, it could provide a platform for public criticism, it could damage the brand, or its use presents the risk of a staff member inadvertently writing something damaging about the organisation or stakeholders (Kantner and Fine, pp.50).

Conclusion

 

The research drawn on above clearly depicts the changing funding climate that South African NGOs are experiencing, as well as where and how NGOs changing sustainability needs are converging with social media strategies on a general and global level. What is clear is that less resources are going to be available for South African NGOs from foreign donors, and that a potential strategy to mitigate this is the deployment of social media strategies. Conspicuous by its absence in this literature review is a detailed examination of to what extent, and with what level of success, South African NGOs are using social media to leverage individual giving; which, as shown above, is not and has not been a traditional primary fundraising focus.

References

Everatt, D. And Solanki, G. (2008) A nation of givers? Results from a national survey of social giving. In Habib, A. and Maharaj, B. (Eds.) Giving and Solidarity: Resource Flows for Poverty Alleviation and Development in South Africa. Cape Town, HSRC Press.

Ewing, D. And Guliwe, G. (2008) Foreign Donor Funding Since 1994. In Habib, A. and Maharaj, B. (Eds.) Giving and Solidarity: Resource Flows for Poverty Alleviation and Development in South Africa. Cape Town, HSRC Press.

Gibbons, S. (2010) The Effects of Non-Profit Agency Website Donation Button Design on Aid Agency Trust and Donation Compliance. Department of Applied Psychology, University of Canterbury. (Masters Thesis)

Kantner, B. and Fine, A. (2010) Creating a Social Culture. In: Kantner, B. and Fine, A. The Networked Nonprofit: Connecting with Social Media to Drive Change. San Francisco, Jossey-Bass. pp. 41-58.

Keller, K., (2000) The Brand Report Card. Harvard Business Review, February, p.2000. Cited in: Kuhn, K., and Alpert, F. (?) Applying Keller’s Brand Equity Model in a B2B Context: Limitations and an Empirical Test.Griffith University. Publication details unknown. [available online] http://www98.griffith.edu.au/dspace/bitstream/10072/2338/1/26187_1.pdf

Krige, K. (2011) Individual Giving: The Holy Grail of Fundraising.

Available at: http://www.ngopulse.org/article/individual-giving-holy-grail-fundraising

Hou, J., Du, L. and Tian, Z. (2009) The effects of nonprofit brand equity on individual giving intention: mediating by the self-concept of individual donor. International Journal of Nonprofit Volunteer Sector Marketing, (14), pp.215–229 (Abstract Available Only).

Lassila, H. (2010) Humanitarian Non-Profit Organizations Marketing Effects on Donor Behavior in Social Media. Department of Marketing and Management, Alto University. (Masters Thesis)

Lovejoy, K. and Saxton, G. (2012) Information, Community, and Action: How

Nonprofit Organizations Use Social Media. Journal of Computer-Mediated Communication, (17), pp.337-353.

Nunnekamp, P. And Ohler, H. (2011) Donations to US based NGOs in International Development Cooperation: How (Un-) Informed Are Private Donors? Discussion Paper Number 117 – February 2011. Center for European Governance and Economic Development Research.

Shier, M. L. and Handy, F. (2012) Understanding online donor behavior: the role of donor characteristics, perceptions of the internet, website and program, and influence from social networks. International Journal of Nonprofit Volunteer Sector Marketing, (17), pp.219–230. (Abstract Available Only).

Treiblmaier, H. And Pollach, I. (2006) A Framework for Measuring People’s Intentions to Donate Online. Proceedings of the 2006 Tenth Pacific Asia Conference on Information Systems.

Trialogue, 2011. The CSI Handbook (14th ed.) Cape Town, Trialogue

Wescott, H. (2009) Individual Philanthropy in Post-Apartheid South Africa – A Study of Attitudes and Approaches. Department of Sustainable Development, Planning and Management, University of Stellenbosch. (Masters Thesis)

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Faced With a Growing Need for Sustainable Development Should Corporations Aim to Maximise Profit?

In order to discuss and answer the seemingly straightforward question each element that comprises it will be unpacked and engaged. Namely in terms of defining the role of the corporation in a 21st century globalising world, and in terms of defining profit. The latter cannot be limited to one-line financial textbook definitions; it will need to probe these definitions and unpack the essence of the elements that make up those definitions. This must then be married to economic definitions of profit which will lift profit out of the microcosm of a single corporation and deal with it in a way which appreciates the interconnectedness of business and social systems on a global level. Implicit in this discussion will be the broader issue of how corporations can and should maximise profit.

Following this the significance of maximised corporate profit for the social and physical world, as we know it, will be discussed. Finally and in conclusion an answer to the problem question, supported by the discussion will be given.

Unpacking the Question Elements

The Corporation

Businesses exist in a range of forms, these will not all be laid out here but the characteristics of one of these forms, the corporation will be defined. A corporation is a business in which the business itself is constituted as a legal entity separate from the individual owners. This is called limited liability, and protects the owners from liabilities arising from obligations of the business (Graham and Winfield, 2010, p.3). The legal entity of the corporation therefore is recognised by the law to have rights and responsibilities, as if it were a person. Of interest to this discussion Wikipedia goes further to define corporations as being able to exercise human rights against individuals or the state, and very importantly, corporations themselves can be responsible for human rights violations, criminal offences, fraud and manslaughter.  If corporations can be held responsible for these things where does the imperative for the individuals, who constitute corporations, to act justly and legally come from? Jeffrey Immelt, CEO of General electric is quoted as saying, “It’s up to us to use our platform to be a good citizen. Because not only is it a nice thing to do, it’s a business imperative” (Savitz, 2006, p.21). What Immelt  is alluding to here is not an idealistic call for business to become more philanthropic but the recognition that financial investors and creditors are becoming increasingly sensitive to issues of corporate citizenship; and how good corporate citizenship is seen to decrease the chances of any future social risk or potential corporate liabilities (Tialogue, 2004, p.13). Investors are learning through the “Enron, Global Crossing, Imclone, Tyco, World Com and Martha Stewart” scandals that socially irresponsible business not only loses shareholder value but has dire consequences for larger financial systems and stakeholders (Hollender and Fenichell, 2004, p.vii). In the 21st century corporate reputation is not only as important as financial outcomes (Trialogue, 2004, p.13), but is in fact its most crucial asset (Hollender and Fenichell, 2004, p.54) which ultimately underpins a corporation’s ability to generate shareholder value.

The second characteristic of a corporation is that because it exists as an independent legal entity the business’s lifespan is not tied to specific individual owners, and the business can continue to exist in perpetuity despite change in ownership. This characteristic is called perpetual succession (Graham and Winfield, 2010, p.293). It is paradoxical then that the behaviours which erupted in the financial scandals at the start of the 21st century and during the 2009 recession were characterised by traders and CEOs employing blinkered short-term projections and strategies (Hollender and Fenichell, 2004, p.32; The Smartest Guys in the Room). The pursuit of quarterly figures and reports were leading (in some case majestic) generations old corporations by the nose towards the abattoir of catastrophic share-value collapse. This “frontier mentality” (Savitz, 2006, p.233) and its blindly optimistic short-term profit seeking ultimately depleted shareholder wealth; and destroyed corporations which, all things being equal, could have generated profit for generations to come had a longer-term approach been employed.

Profit

Financial accounting textbooks will define profit as: The residual amount that remains after expenses have been deducted from income (Graham and Winfield, 2010, p.293). This can be simplified to read as profit = revenue – costs.

Financial accounting textbooks, however, do briefly introduce a discussion around arguments that the objectives of a business need to go further than merely maximising profit for their owners but must also include the wellbeing of employees, the natural environment and the wider social environment. This is accompanied by the acknowledgment that these factors underpin and are critical to the long term achievement of the objective of maximising profit (Graham and Winfield, 2010, p.5). This has given rise to triple bottom line financial reporting, where profit as well as people and planet contribute to the bottom line.

While economics recognises the appropriateness of the accounting definition of profit (above) as being sufficient for the purpose of financial accounting, economics as a discipline also makes use of the concept of economic profit. Where the above accounting definition of profit being equal to revenue – cost, economic profit is calculated as revenue – economic costs (Schiller, 2011, p.112). The concept of economic costs is key to this discussion as economic costs don’t just include the explicit costs as used in accounting, but take into account implicit costs that are incurred through the use of resources that are not explicitly paid for (Schiller, 2011, p.112). This notion of implicit costs is important because it paves the way for the economic concept of social costs, which is defined as the full resource costs of an economic activity (Schiller, 2011, p.192); those costs that are borne by all of society, as opposed to private costs which are incurred directly by the producer. What this means is that there must be a recognition that every action undertaken by a corporation will produce two simultaneous outcomes: “an impact on profits, and an impact on the world” (Savitz, 2006, p.28). When looking at aggregated profit and cost data through an economic lens we are then able to include environmental degradation and social dissolution as costs of certain activities. An economic approach to profit needs to lead this discussion.

Profit Maximising

According to classical economic theory the production of goods and services, the core function of corporations and the means through which income is generated, is dependent on what are termed the factors of production (Schiller, 2011, p.6; Mohr and Fourie, 2009, p.6). The factors of production represent limited, or scarce, resources (Mohr and Fourie, 2009, p.4); and they include natural resources, labour, capital and entrepreneurship. Money is not a factor of production, merely a means of exchange (Mohr and Fourie, 2009, p.25). Therefore the generation of financial profit alone does not necessarily ensure a reinvestment into, or the sustainability of the factors of production. Where the factors of production are scarce or finite the production possibility curve can be pushed outwards by a more efficient use of resources (Mohr and Fourie, 2009, p.20-21), and the reduction of waste born from efficiency can create abundance, not limits (Hollender and Fenichell,2004, p.87).

Following on the above and the concept of social costs Hart (2005, p.33) argues that the global economy is in fact constituted of three superimposed economies: the money economy, the traditional economy and nature’s economy. The money economy is that sphere of industry and commerce making up the developed and emerging economies (Hart, 2005, p.34). 2 billion people participate in the money economy. The traditional economy refers to the activities of some 4 billion participants who engage very sparingly in the money economy but whose livelihoods are almost wholly based on subsistence activities, dependent on their natural environment (Hart, 2005, p.36). Finally and most critically is nature’s economy, this is the environment, its ecosystems and natural resources upon which the money and traditional economies are dependent (Hart, 2005, p.37). Some elements of nature’s economy are renewable (as long as their propensity for regeneration is not degraded) while others are non-renewable. The manner in which the money economy conducts itself directly impacts the well being and sustainability of nature’s economy and the traditional economy (Hart, 2005, p.40); that is the negative externalities of the money economy are borne by the other two economies. Based on this and the above acknowledgement that the factors of production are limited resources, choices need to be made as how best to use and allocate them (Mohr and Fourie, 2009, p.4) and these choices will be coloured by whether short-term or long-term profit maximisation is desired.

This discussion has already recognised that short-term profit strategies will need to operate within certain parameters if long-term profit maximisation is desired. These parameters may curtail the realisation of maximum short-term profit but will ensure the critical resources (including corporate reputation) for long-term profit maximisation are not depleted or degraded beyond a point from which they are able to renew themselves.

This is where sustainable development needs to enter the discussion. Sustainable development requires long-term thinking as it aims to meet current performance goals whilst both ensuring the long-term survival and performance of the company, and considering the wellbeing of future generations (Savitz, 2006, p.233; Hollender and Fenichell, 2004, p.81). Critically, however, Savitz(2006, p.244) that whilst sustainable development will require a move away from a short-term focus on maximising shareholder wealth, towards a greater focus on long-term stakeholder wellbeing it does not automatically translate to corporations needing to sacrifice profit or to be satisfied with diminished financial performance.

Savitz (2006, p.22) writes about the sustainability sweet spot, a way to conduct business in a manner that simultaneously meets and furthers company and stakeholder interests. Savitz (2006, p.243) argues that a corporation that can find and leverage this sweet spot, through being sincerely socially responsible, will make more profit than its competitors in the long run. Hollender and Fenichell (2004, p.27) support this view when they argue that visionary corporations, those driven by core-ideologies which are not primarily centred on profit maximisation, ultimately generate greater profit than their profit-driven competitors. But Hollender and Fenichell (2004, p.27) also underscore a point made earlier in this discussion about long-term orientation; they state this is a critical component because the tangible impact (maximised profit) brought about through sustainable approaches and social responsibility requires a longer time frame to manifest itself.

The Significance of Maximised Profit for the Social and Physical World

Corporations’ value chains are now global and sustainable development with an eye to profit maximisation must be discussed at a global level (Hollender and Fenichell, 2004, p.111). Hart (2005, p.33) states that the achievement of global sustainability, in the face of population growth and limited resources, will require the creation of trillions of dollars worth of new products, services and technologies. Supporting this, Dr. Brundtland (in Hollender and Fenichell, 2004, p.80) when addressing the 1985 World Commission on Environment and Development claimed that given the exploding world population, “the problems of poverty and underdevelopment cannot be solved unless we have a new era of growth in which developing countries play a large role and reap large benefits”. Echoing this, Hart (2005, p.32) argues that the wellbeing of the poor [assumedly including the traditional economy, global value chains and ultimately every human being] will “require the creation of new wealth on a massive scale”. The global population is projected to peak at between 8 and 10 billion people by 2050 (Hart, 2005, p.32). Because poverty and population growth are each positive functions of the other, and birth rates have an inverse relationship with education levels and standard of living (Hart, 2005, p.32) sustainable development without economic growth is not enough to ensure global sustainability. Hart (2005, p.32) hazards to suggest that global economic activity will need to grow to ten times its current level to support this future population.

The above paragraph highlights the fact that in order ensure the basic survival and upliftment of our social and physical world we will not only require an almost unfathomable amount of economic growth but a simultaneous fundamental shift in the way the money economy conducts itself. This demands a fundamental increase in the efficiency and sustainability with which mankind uses natural resources; and the adoption of a new paradigm of working in a socially responsible way.

 These most critical needs will be met through the outcomes and positive externalities of the corporate long-term profit maximisation behaviours discussed above.

[If] yesterday’s businesses were often oblivious to their negative impacts and today’s responsible businesses strive to reduce their impacts, tomorrow’s businesses will learn to make a positive contribution [because it is in the interests of profit maximisation].

(Hart, 2005, p.33)

In closing, “Should corporations aim to maximise profits?”

All things being equal, absolutely.

References

Books

Graham, M. and Winfield, J., 2010. Understanding Financial Statements. 2nd ed. Cape Town: Cape Business Seminars.

Hart, S., 2005. Capitalism at the Crossroads: The Unlimited Business Opportunities in Solving the World’s Most Difficult Problems. New Jersey: Wharton School Publishing.

Hollender, J. and Fenichell, S., 2004. What Matters Most: Business, Social Responsibility and the End of the Era of Greed. London: Random House Business Books.

Mohr, P., Fourie, L. and associates, 2008. Economics for South African Students. Pretoria: Van Schaik.

Savitz, A., with Webre, K., 2006. The Triple Bottom Line. San Francisco: Jossey-Bass.

Schiller, B. 2011. Essentials of Economics. 8th ed. New York: McGraw-Hill/Irwin.

Trialogue, 2004. The Good Corporate Citizen: …pursuing sustainable business in South Africa. Inaugural ed. Cape Town: Trialogue.

Websites

Wikipedia:

URL: http://en.wikipedia.org/wiki/Corporation

Date Accessed: 3/9/2011

DVD

The Smartest Guys in the Room. 2005. [DVD Documentary] Alex Gibney. United States of America: Based on the 2003 book of the same title by Bethany Mclean and Peter Elkind.