Spotting a ‘good’ charity is harder than it looks

The idea that ‘good’ charities spend less on administration than ‘bad’ charities is not necessarily true, says Merryn Somerset Webb. It’s much more complicated than that.

What makes a good charity? The obvious answer is the one you will hear most often: a good charity supports an excellent cause and spends more on that cause than on administering itself. But not everyone agrees that this is in any way true.

Caroline Fiennes, author of It Ain't What You Give, has long been working to convince us that most of the things most people think about the charitable sector are wildly wrong.

So, now that the Public Accounts Committee has started to mutter about limiting the amount that charities spend on administration, she wasted no time in forwarding to me the details of a study undertaken by Caroline's organisation, Giving Evidence, using data takenfrom GiveWell, a US non-profit organisation run by some ex Wall Street analysts.

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Giving Evidence spent a substantial amount of time doing "some of the most rigorous and detailed charity analysis on Earth", with a view to finding the charities that can give donors the most bang for their buck.

Look at their 2011 reviews and recommendations. It turns out that their top tips spend on average 11.5% of their total funds on admin; those that Giving Evidence didn't feel confident recommending spent only 10.8%.

In 2009, the group produced four different rankings. Those rated gold' had admin costs of around 16%; those that were not rated at all came in at more like 9.5%.

This isn't the end of the debate on the subject. Maybe all charities would be better if they were never allowed to spend more than 7%. Or maybe not. But what it does show very clearly is that spending slightly more than average on admin is more likely to suggest that a charity is working hard to make sure that every pound it does spend is used effectively than that it isn't a good charity.

PS To show how spending on admin can work, here is an example from Giving Evidence:

"Chance UK provides mentors for primary school children who are at risk of developing anti-social behaviour and possibly being permanently excluded from school []

"The charity spent some money evaluating its work. It found that male mentors were best suited to children with behavioural difficulties, whereas children with emotional problems responded best to female mentors The money spent on that evaluation would normally count as admin', but for the children receiving support which has improved because of that insight, it was money well spent."

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.