How Past Performance Influences Funding Decisions in a Crisis

by | Apr 27, 2020

The performance of all types of institution is more visible in a crisis. You find that mediocrity (perceived or actual) is less likely to be tolerated by funders: customers stop buying from businesses; investors cut funding; and businesses exit industry service organisations (ISO’s). 

A stark example recently, was the US President withdrawing funding from the World Health Organisation. Whatever the motives and merit in that decision, it reminds us that public and private investor funding support is a powerful lever for accountability and reform of institutions. 

Accountability requires consequences.

The not-for-profit sector is especially vulnerable as it lacks the explicit metric of profitability that applies in the private sector. Herein lies the challenge for groups such as industry service organisations. 

ISO’s with outstanding performance can struggle to demonstrate the value they create, making them vulnerable to unwarranted criticism. Conversely, other ISO’s can mask underperformance with populism, busyness and blame-shifting behaviours.

In a crisis, how do investors decide whether they should allocate more or less money to different institutions? Money could easily flow towards the mediocre and away from the high performers.

All this points to strengthening how ISO’s measure, monitor and communicate performance on an ongoing basis. For example, imagine if industry representative bodies were more transparent: 

• What if they all revealed the number of industry businesses and percentage of industry production in membership on their website home page?

• What if they routinely collected and acted on independent evidence of business satisfaction with their performance?

The fuzziness around performance of ISO’s is one factor that stifles their innovation. For example, major Australian agricultural industries such as dairy and red meat have been struggling and failing to modernise their industry institutions for many years.

Insisting on better information and more transparency on the performance of ISO’s will go a long way to avoiding kneejerk reactions by their investors in times of crisis. 

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