How to make money from charity organisations 11 comments

(P.S: Sorry for any disturbances the advertisements above may have caused you)
Note: For all serious charity organisations, please forgive my unwitting trespasses.

From my observations the last year or so, it appears that starting a charity organisation is a really good idea. Registration red-tape is minimal (as has been pointed out in the papers today), revenue source is relatively low-cost because you don't have to show as much value-add as you have to tug at people's heart-strings, and what's even better, these contributors don't really care where the money goes to because generally the contributions form a small part of their income and they feel they have "done their part" after forking out the money.

Let's look at a few ways to make money in a charity organisation:

Paying yourself high remuneration
A concept immortalised by the "peanut" salary of $600k/year paid by TT Durai to himself, approved by a remuneration committee in a board dominated by himself. In addition to monetary compensation, why not pay yourself in kind as well, through necessary luxuries like first-class travel, gold taps etc. See a related article on the NKF.

Another example to emulate must be Mr Vincent Lam of Youth Challenge who cashes in $13k/month (or $156k/year) on an organisation revenue (read: funds raised) of ~$400k/year and reserves of ~$100k. What a high expense ratio the organisation has. Depending on how one interprets the profit margin, it is a really good business proposition (How do we interpret profit here? Benefits accruing to the beneficiaries of course. The youths? Of course not, stupid.)

After slogging for several decades and being entrepeneurial enough to found the charity organisations, this remuneration is only what you deserve. Besides, your peers are all earning substantial amounts as well, so why not you?

Related-party transactions
Although the charity organisation was founded by you, strictly speaking you do not have a share in the organisation.... it is a public organisation, with equity from the general public. You are a trustee/manager. However, it is possible to own stakes in private companies on the side to which you can farm out the various outsourcing services required by the charity organisation you are empowered to manage.... for example IT, marketing.

The "float"
This is the investment concept made famous by Warren Buffett. In his early days he was managing a small fund and was thinking it was a shame he could not parlay his investing skills that yielded >20% annual returns to a larger capital base. Then he discovered the insurance float which gave him access to huge insurance premiums where the cost of capital could be deferred to a period far back. As long as charity funds are kept in reserve instead of being paid out to the intended beneficiaries, they essentially are the "float"; imagine what a private full-time investor can do with these funds!

Now for some constructive opinions .... a definite requisite of any critical blog article nowadays. I guess the newly-formed charity supervisory council should have covered all the angles, in particular the governance aspects which appear to be the most lacking. Corporate organisations increasingly try to align management objectives with shareholder objectives by payment of options rather than fixed salaries, such that management will try to create shareholder value (ie. higher profits, higher shareholder total returns). Who are the shareholders for charity organisations? It is either the giving public or the receiving needy, but the common objective must be to maximise assistance (both short-term and long-term) for the target audience. Pegging the performance of charity organisations to the number of people helped and the quality of help rendered relative to the funds raised/in reserve, and then pegging management remuneration to such performance, may provide some form of objective alignment similar to options (if we see greater assistance rendered = greater shareholder value). In other words, somebody should really come up with a set of key performance indicators to judge value-add objectively. While over-regulation runs the risk of being counter-productive, perhaps one should tighten the screw and then release it gradually, when there is increasing evidence of slack governance.