Profitability almost rhymes with philanthropy. It’s close, but not quite.
The for-profit CEO SleepOut Initiative took the South African philanthropy industry by storm in 2015, and now appears to have raised more than R50 million over three years for various charities.
It seemed a new fund-raising model had been born.
However, over the last three years, a few cracks appeared in the CEO SleepOut’s public edifice. A significant beneficiary abandoned a potentially lucrative three-year relationship after just one year, and the initiative interdicted the beneficiary from infringing its alleged copyright in a list of donors, claiming the beneficiary was using its intellectual property to compete with the initiative to raise money for charitable causes.
Some questions also emerged regarding financial transparency and how much money reached the destined beneficiaries.
Before this story continues any further, a few points need to be made.
Firstly, it is extremely difficult to write an article about fund-raising initiatives for charities, as it may harm future potential beneficiaries of such events. Even more so when the subject matter is a seemingly successful initiative.
Secondly, we make no allegations of financial impropriety. The information in this article comes from numerous interviews with key stakeholders and former employees, most of whom were not willing to speak on record.
Thirdly, it is concerning that the CEO SleepOut Trust has not been forthcoming with information or transparent about its finances.
The first interaction was in May this year, and despite many e-mail exchanges with the founder of the initiative, Alison Gregg, a number of questions remain unanswered.
Within this context, readers should draw their own conclusions. But first, some background.
Australian concept meets American business model
The CEO SleepOut initiative started a few years ago when Gregg brought the brainchild of Australian philanthropist Bernard Fehon to South Africa. The aim was to get C-suite executives out of their warm, luxury homes to spend a cold winter night on a pavement to reflect on those less fortunate than them and to raise funds for charity.
Gregg married this noble concept with the for-profit business model mooted by the international philanthropist Dan Pallotta who is seen as a pioneer of the for-profit philanthropy industry in the US.
Pallotta’s theory is that a business run on sound business principles with well-paid executives would do a better job at raising money than NPOs could do themselves, and his achievements are impressive.
His venture, Pallotta TeamWorks (PTW), raised a staggering $556 million in donor contributions between 1994 and 2002 through various multi-day, mass-participation events. After all expenses, a total of 55% or $305 million was paid to selected charities.
PTW, as a for-profit entity, charged 4.01% or approximately $22.8 million for its professional services. (PTW also publishes detailed information about every event showing significant transparency into how donor funds were used.)
Inaugural event a spectacular success
The first rendition of Gregg’s CEO SleepOut was in 2015, where the 58-year-old charity, Girls and Boys Town (GBT), was the sole beneficiary. It was a spectacular success.
A total of 246 CEOs of some of South Africa’s top companies camped out on the pavement next to the JSE in Sandton and raised a whopping R26 million for GBT – the single largest fund-raising event ever for a charity in South Africa.
The 2016 event was also successful. A total of 167 CEOs faced the cold tarmac of the Nelson Mandela Bridge and raised R20 million for the ASHA Trust, Columba Leadership and the Steve Biko Foundation.
The 2017 event, the SheEO SleepOut, was hosted in August at Constitution Hill where about 57 female CEOs spent a night in the cold, raising roughly R4.8 million between them for the Door of Hope. (These numbers have not been audited and confirmed.)
Overall, the three events are said to have raised more than R50 million for various charities, suggesting that a new era of charitable fund-raising has arrived.
But shortly after the 2015 event a few hairline cracks appeared.
GBT, the sole beneficiary of the 2015 event, severed ties with the initiative, despite an initial three-year understanding being in place. The break-up was less than amicable, with Gregg later taking GBT to court in 2017 for copyright infringement.
(The gist of the case was that GBT contacted several donors of the 2015 event from contact details captured during their financial administration process. The court found that this was in breach of copyright and ordered GBT to stop using the list and to delete it, and slapped the charity with a cost order. GBT strongly deny they did anything wrong, but have put an application for leave to appeal on hold due to concerns of mounting legal fees).
The relationship with media partner Primedia, which was seen as a pivotal contributor and name sponsor of the 2015 event’s success, also came to an end after the first event.
Sun International terminated its sponsorship following the 2016 event, despite previously committing to a three-year involvement, citing a strategic direction change as reason for the termination.
Several former employees of Gregg’s businesses Moneyweb spoke to, also expressed their discontent with their working environment.
One staffer, who was dismissed earlier this year, said staff turnover was close to 100% a year, and that virtually all the staff employed in 2016 had since left. Several of their replacement appointees have also been terminated or resigned.
It is important to note that there were significant structural and operational differences between the 2015 and 2016 events. The CEO SleepOut Trust could not acquire NPO certification prior to the 2015 event and could therefore not issue 18A tax certificates to donors, enabling donations to be claimed for tax.
GBT had such certification, and in 2015 GBT was in total control of the financial administration, from receiving donations to issuing 18 A certificates.
In 2016 this structure changed.
The CEO SleepOut Trust had by then received NPO certification and the financial administration moved to the Trust. The Trust took over full control of the event, including the responsibility to determine the quantum of funds to be paid out to beneficiaries after the event, and to actually pay these amounts.
The Trust was to be administered by trustees who would consult a Working Group consisting of various other stakeholders of the initiative. The 2016 event also saw Gregg’s new business The Philanthropic Collection Proprietary Limited (TPC) becoming involved. This business came about after Gregg converted her previous business Alison Gregg PR from a CC to a company. TPC was a for-profit enterprise and owned and managed all the CEO SleepOut events and trademarks. It would charge the CEO Sleepout Trust for the professional services it rendered, as Gregg’s PR business had done the previous year.
One of the first questions asked of any philanthropic venture is how much of the donated money reaches the actual beneficiaries. This is even more so in the case of a for-profit fund-raising effort.
GBT’s audited statements for 2015 confirm that the initiative raised R26 million and that this amount was received directly into its bank account. The statements also confirm that GBT paid an amount of R1.3 million (ex Vat) to Gregg after the event, via her business Alison Gregg PR, as compensation. This amount was calculated as 5% of the R26 million raised.
Unfortunately, no audited or unaudited amounts are yet available for the 2016 event, as BDO is still busy with the audit process – six-and-a-half months after the Trust’s year-end, and more than a year after the event.
But there are unaudited amounts disclosed in the public domain. From the CEO SleepOut website it is clear that R20.2 million was raised in 2016 and R46.2 million for both 2015 and 2016.
The website also states a total of 75% of the R46.2 million was paid to beneficiaries and that this distribution “exceeds international norms of events of this nature”.
Thus, around R11 million was retained from the funds raised in 2016 to cover operational expenses and to allow for a profit for TPC. It also suggests, through the manner in which the amounts are disclosed, that a portion of the funds raised from the 2016 event was used to cover expenses related to the 2015 event. This amount excludes the R1.3 million already paid to Gregg the previous year.
In response to a question, Gregg denied that this assumption is accurate, but did not provide an explanation. This is relevant as the CEO SleepOut Trust took full administrative control of the event in 2016, and could therefore decide how much of the raised funds could be used to cover expenses.
The retained amount of R11 million is significant as it represents around 55% of the R20.2 million raised in that particular year.
How does this chime with international benchmarks for charity running costs? Research by Giving Evidence and Givewell in the UK provides the first empirical data on charity admin costs. It looked at 265 charities between 2008 to 2011 and found that charities recommended by Givewell spent an average of 11.5% of their costs on administration.
However, in response to an earlier question relating to the R11 million, Gregg said: “At the time (December 2016), we budgeted roughly R9 million in costs (over the 12-month period) and held back a further R3 million for the 2017 (and where relevant 2018) working capital requirements. This was on advice from our accountants. Depending on the reconciliation and final accounts, further payouts will be considered.”
Regarding the disclosure of the R1.3 million, Gregg stated: “It was disclosed to the 2015 Working Committee, in court papers, to Sars, to you, and would likely have been disclosed in GBT financials.”
What she will not divulge, however, is how much of the retained R11 million remains in the Trust and how much was paid to TPC, either as professional fees or to cover operational expenses or as licensing fees, and what profits were made by TPC.
Gregg wasn’t prepared to disclose unaudited amounts, but these will be confirmed once the audited statements of the Trust become available.
The decision-making authority within the Trust is also concerning. The CEO SleepOut was registered in 2015 with four trustees. They were Gregg, Patricia Stewart, Dick Sher and Darren Olivier.
Moneyweb has been able to confirm that Stewart, Sher and Olivier have subsequently resigned as trustees, leaving Gregg as the only remaining trustee. Gregg failed to respond to several questions related to these resignations and whether any new trustees have been appointed.
It is not clear who decides on the allocation of funds to charity. In a published Q&A document on the website, it is stated that once the revenue was audited, “the allocation (net of costs and working capital requirements) is presented to the Trustees and the members of its Working Group who are comprised of Founding, Title, City, Media and Stakeholder Partner representatives and the Beneficiaries. After that process, the monies are paid out to the appointed Beneficiaries, with total transparency.”
From this, it is not clear how the decision-making process works and whether it is material that only one trustee, who is seemingly conflicted as she is also the owner of TPC, remains.
Many questions regarding the initiative are yet to be answered. Hopefully, more information will become available once BDO signs off the CEO SleepOut Trust’s financial statements. The philanthropy industry is built on a trust relationship and ultimate transparency entrenches this relationship.
By Ryk van Niekerk for MoneyWeb