Cash flow is king. Why consumers, not government, will decide the future of Oxfam.

The Oxfam scandal shows no sign of slowing down following the Chief Executive’s frankly disastrous interview (discussing “murdering babies” is never a good idea). Attention has thus far focused largely on the likelihood of UK and EU public money being withdrawn.

Any drop in funding is obviously significant, particularly when the public money in question makes up 43% of funding (£176m), according to the latest annual report. Government aid money is largely very specifically directed onto individual programmes that support the strategic foreign policy or aid objectives of that country. It is a long-term commitment, and no government is going to want to be responsible for toppling an organisation like Oxfam, no matter how tarnished the brand is currently.

What is more significant – and currently less reported – is the £199m of annual revenue that comes from consumers. Combined, this amounts to 48% of Oxfam’s annual income; a larger slice than that of the public sector funding. Crucially, the money from consumers comes with no ties as to what it can be spent on, and so will be vital to supporting the day to day operations of the business.

While some of this segment will be secure (e.g. long-term or residual legacies), this is a tiny proportion of this money – only £19.8m, according to the report. This means that 90% of this money is at the whim of consumers who can choose to cancel direct debits, stop shopping at Oxfam shops and stop fundraising for them at the drop of a hat.

For Oxfam’s finance and operations directors, this will be a huge concern.

According to the Guardian, Oxfam shops across the country are already reporting downturns in customers and people are cancelling direct debits. A drop in consumer money could cause problems for the charity, as the money is used for paying staff, suppliers and supporting the day to day operations of the business.

Oxfam has fairly healthy cash reserves (£28.3m) which the Trustees say gives a “reasonable expectation that Oxfam has adequate resources to continue in operational existence for the foreseeable future” and to “manage any foreseeable downturn in the UK and global economies”. However, while this may have been true a fortnight ago, today £28m looks like paltry cover for an organisation that is spending over £300m a year.

So what does this mean in practice?

While Oxfam has sought to assure the Government of their plans for reform, even agreeing to stop bidding for government funding until they can demonstrate that they will meet the required ‘high standards’, the charity urgently needs to address and assure their consumer base in much the same way.

The crisis has clearly been badly handled (as was covered by my colleagues last week) and they need to turn it around immediately.

The journalist who interviewed Mark Goldring, chief executive of Oxfam, reported that he arrived by himself without any support from his press team, which might have been a strategy to project confidence, but is not the best way to manage a crisis. It is also highly surprising from an organisation that has a substantial £15m p/a budget for communications work. The Times has already picked up on this, contrasting the 23-strong media team with the fact it spent just £250k on safeguarding.

Beyond a lesson in how not to do crisis communications, what we can learn from this is that all organisations need to take governance matters more seriously. Investors and activist consumers are putting their money where their mouths are and are refusing to support brands that are not responsible corporate citizens. Indeed, the FT has reported that the scandal will deter wealth donors from giving money not only to Oxfam but to other big charities too, as it will harm their reputations.

While higher risk industries have understood the importance of due diligence around organisations’ governance, it’s time for all businesses to pay attention to the risks of poor governance practices.

CSR (Corporate Social Responsibility) became a big part of corporate communications over the past 20 years, but savvy consumers and businesses now see through shallow PR stunts and want to support organisations that are run on ethical and responsible principles.

The investment community understand the need for good ‘ESG’ (Environmental, Social and Governance) practices; they are no longer just a ‘nice to have’, but should be a core part of the strategy as all evidence shows that it enhances corporate value and performance.

Oxfam may be learning that lesson too late, but it’s a good reminder to others to get their house in order. Let’s just hope that the consumers and businesses who have supported Oxfam don’t all vote with their feet or their direct debits.

If they do, the real crisis for Oxfam could be only just beginning.

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