For Canada's charities, this is a time of crisis and a moment of opportunity

Share

This is part of The Globe and Mail's in-depth look at the evolution of philanthropy. Read more from the series here.

Philanthropy in Canada is in the midst of unprecedented upheaval. An uncertain economy threatens to send already dwindling donations from an aging base of givers into permanent decline, while deficit-fighting governments are cutting their support and imposing tougher regulations on agencies that issue tax receipts for the money they collect.

For the country's charities, it is an undeniable crisis – but also a moment of unprecedented opportunity. New technology is allowing Canadians to flood emergency zones instantaneously with massive amounts of capital. And while governments like our own are beginning to apply tough, performance-based measures to their grants, a new breed of lean business-like charities is emerging to meet that challenge.

The situation is so pressing that Imagine Canada, an umbrella organization for the nation's non-profit sector, has called its first-ever emergency summit. A month from today, hundreds of delegates from across the country will gather in Ottawa to discuss everything from how to shore up their finances to how to attract volunteers, recruit professional managers and engage more Canadians.

The summit's three days of debate will feature addresses by Governor-General David Johnston and Calgary mayor Naheed Nenshi aimed at inspiring delegates, but the focus will be on the need to adapt to structural shifts in the charitable universe.

Around the world, the social-service landscape is being transformed. Billionaires such as software titan Bill Gates and investing magnate Warren Buffett have generated huge buzz by pledging to "give back" the fortunes they have amassed.

But in Canada, donations dropped for the first time in 30 years during the recent recession, and scrutiny of charities has never been higher. Contributors, including corporations, are seeking far more control over what is done with the gifts they bestow, even as the rise of the online microdonor is changing the climate for traditional agencies and the nation's elected officials are rethinking the role charities play in delivering social services.

As revealed by The Globe and Mail on Friday, the government of Prime Minister Stephen Harper is about to begin making changes to how it finances charities and looking at linking financing to how well they perform.

Ottawa also is considering joining a growing global move to broaden the scope of charities by allowing them to become "social enterprises" able to generate profits that help to underwrite their social missions. Organizations would be asked to become more professional in how they are managed and more businesslike in how they raise money.

There will be losers. "Leaders of charities now are facing a much more complicated world ...," says Hilary Pearson, president of Philanthropic Foundations Canada, which represents private foundations. "A lot of them need to rely on skills that they don't necessarily have."

"A lot of forces are coming to bear at the same time," adds Ken Mayhew, chief development officer for the Multiple Sclerosis Society of Canada, and some agencies simply won't survive.

Others, however, will emerge much improved, he adds.

They welcome the challenge and feel that, in the long run, the opportunities offered by the new businesslike approach to public service will reinvigorate a sector that employs hundreds of thousands of Canadians and, according to a 2007 report by Statistics Canada, generates more than $31-billion a year in economic activity.

The transformation springs from a trend – the aging and shrinking of the donor base – that has been taking shape for years but accelerated greatly in the three years since the recession took hold. Between 1990 and 2007, charitable donations in Canada almost tripled, from $2.9-billion a year to $8.6-billion. The number of charities soared as well, more than doubling from 42,000 in 1980 to 85,000 in 2007 (another 80,000 non-profit groups provide services, such as running a minor baseball league, but can't issue tax receipts).

Yet the number of Canadians who donated slowly began to fall, from about 30 per cent of those who filed tax returns in 1990, according to Statistics Canada, to an all-time low of 23 per cent two decades later. Charities could cope as long as their remaining backers picked up the slack – and they did. The median donation increased from $120 in 1990 to $250 in 2007, even as those giving the money aged notably, from 47 on average to 53.

Then the recession hit. In 2008 and 2009, donations fell by almost $1-billion, an alarming figure only partly offset by the fact that Revenue Canada was cracking down on illegal tax shelters, and disallowing contributions to some charities.

Again the sudden decline sprang from a long-standing trend. A recent study by the Conference Board of Canada found that virtually all of the wealth created in the past 30 years has gone to the top 20 per cent of income earners, about one-third of it to the top 1 per cent.

The middle class, meanwhile, "are feeling, not just poor, but insecure," says Anne Golden, the Conference Board's chief executive and a former head of the United Way of Greater Toronto. "And I know from talking to charity heads that it's not just not feeling rich that causes people not to give. But if you feel anxious about your current income or your future retirement income, that is a big factor in your life."

Such anxiety resonates with current United Way head Susan McIsaac, whose campaign kicked off in earnest this week in the hope of collecting $116-million by Christmas.

One of North America's largest annual fundraising drives, it provides the lifeblood for 200 social agencies and in the past could count on double-digit growth every year. But now, Ms. McIsaac says, the United Way is looking to the future and "preparing for the worst."

Tax deductions are often proposed to remedy the donor decline. Imagine Canada advocates a "stretch tax credit" for people who make small donations. "We are targeting this to young donors, young families who haven't yet gotten into the habit of giving," says Imagine CEO Marcel Lauzière.

In recent years, the biggest breaks have largely benefited the well-off by making donations of publicly traded securities and other assets more tax-friendly. This has translated into major gifts, especially for larger charities and foundations.

But increasingly those willing to donate large sums are determined not just to write a cheque but to become more involved.

After retiring from the federal civil service a few years ago, Calgary resident Elizabeth Marshall joined forces with her sister and some close friends to set up their own charitable foundation. "I wanted to find a way to make the donations count," Ms. Marshall says. "And I wanted some control over where it went."

Now volunteering with a local literacy program and as a tutor, she is pleased with the outcome. "It is wonderful when you see something you worked on get done."

So many Canadians have begun to follow in Ms. Marshall's footsteps that the number of private foundations has nearly doubled in the past decade to about 5,000. Soon they will outnumber public and community foundations, and already control far more in assets – about $13-billion.

As a result, existing charities can no longer just send out appeals and hope donors will respond. They often have to work with benefactors individually and figure out what they want; securing a major gift can take years of negotiation. The popularity of "donor-advised funds" ("accounts" created by agencies to let donors decide where their money goes) has left many charities with so many pockets of committed cash that launching a new program can be difficult.

Big donors aside, attracting support has become more complicated and costlier. The traditional workhorses – direct mail and telephone solicitation – are being overshadowed by the Internet and social media. But raising money online isn't as easy as it may appear; social-media donors tend to give relatively small amounts and have little long-term attachment to a cause. That means charities must spend more on fundraising, even as increasingly savvy donors are scrutinizing their administration costs.

"We've all had to become a lot more entrepreneurial," says Brian Levine, executive director of the Glenn Gould Foundation in Toronto, which has just launched its first major fundraising drive, hoping to raise $30-million.

"We are going to have to work very, very hard," says Mr. Levine, acknowledging the danger in greater competition for finite resources. "We 're going to have to find new pools of money, because we don't want to just be cannibalizing someone else."

There is also a serious push among charities to be more transparent about financial reporting, governance and even what they pay top staff. Many are joining a national verification program that will issue a sort of stamp of approval to those that meet certain standards.

"We have to ask ourselves, 'Do we do this because we want to feel good about ourselves, or do we do it because we really want to change things?' " asks Imagine Canada's Mr. Lauziére. "If it's the latter, well then we have to look at how we bring in the right talent, how we have the right infrastructure and if we have the right resources."

Said like a true entrepreneur.