Governance, legal and compliance

You don’t need to be a charity to do good…but it helps!


A number of things have prompted me to write this piece, but the main driver was actually a question asked at CFG’s Annual Conference last Thursday from the audience. During a Policy Update that my colleague, Anjelica, and I gave someone asked what was being done to prevent money for public services being diverted into propping up the profits of private organisations. It was an excellent question, and not one that I could give a particularly good answer to. Part of my response was that the regulatory structure of charities is one of the many reasons why they are effective for delivering public services. All of their resources have to be directed towards their beneficiaries, and that focus should flow through everything they do. The same is not true for private companies. This got me thinking about the string of comments in recent weeks that have discussed the benefits and draw backs of being a registered charity. I’ve seen a number of conversations about whether we should get hung up on defending charities as institutions and recognise that the boundaries for doing good have come ‘fuzzy’, as a recent think-piece for Big Lottery Fund noted. Does being a charity even matter anymore? I also can’t count the number of times I’ve seen someone talk about how ‘Millennials’ (declaration: I am one) don’t care about what an organisation’s legal structure is, they just care about what it does. So should we just all become ‘vehicle neutral’ when it comes to social good? Perhaps you’d expect this from someone whose day to day job is batting for charities on policy issues, but my answer is emphatically no.

A logic of its own

One of the things that has enabled humanity to achieve so much progress over the past few thousand years is our ability to create institutions. These are structures and entities that can transcend individuals and direct our efforts towards certain goals (securing justice, worshiping God(s) or advancing science etc.). I also happen to think that Britain has been particularly good at institutional innovation. One of the greatest institutions that we have created is The Charity*. For most of human history corporate bodies have been either a legal form for government or a privilege given to groups of individuals acting in their own private interest. But charities are unique in that they are both private and existing to advance social good. Their structure is designed to prevent them become the creatures of individuals (or politicians) and to focus on the needs of those that they are created to serve. The structure defines the principles that govern the behaviour of an organisation through all the decisions that they make. Our legal structure creates principles which are unique, call it the ‘Logic of Charity’. Of course other organisations can create public benefit through their actions. But that isn’t their primary purpose. It is incidental to their work in generating profit for shareholders (or in the case of the state, survival). New forms such as Community Interest Companies or B Corps are seeking to blend private and charitable attributes, but it remains to be seen how they will be able to resolve the tension between the interests of their directors/shareholders and their intended beneficiaries. There may be practical tensions within the operations of many charities but the principle that underpins the operations of charities is clear and untainted: act only to advance your charitable purpose.

Worth preserving

It is this logic that is worth preserving. Take another part of our society – banking. The demutualisation of the 1980s & 1990s was considered a good thing at the time, building societies were primarily there to provide loan financing for house building, and some argued that their legal form stopped them growing big enough to meet demand. What was the harm in giving up their mutual status in order to become like the other banks – it would lead to more houses being built as they grew their books, getting access to larger amounts of capital and what was the value of the legal form anyway? A great deal, it turned out. It is always hard to make a direct causal link between events spread out over a long period of time. But it is generally accepted that ex-building societies such as Northern Rock and Bradford & Bingley had lost their way and their confused strategy was part of what led to their spectacular demise. The wider banking profession has also found cultural change (moving from just making money to ‘being a good citizen’) hard to achieve.  Any guesses for why? Perhaps it is hard to focus on the needs of wider society when all the structures of an organisation are geared towards making money. The ‘Logic of Business’ is good for many things, but perhaps not directing resources towards public benefit. It’s no surprise, therefore, that a lot of people are thinking about whether it time to go ‘back to the future’ and champion mutuals in the banking sector again.

Once it’s gone, it’s gone…

We need to be careful not to repeat the same mistakes. Yes, the regulatory and governance rules around charities can seem complex – even overbearing to some. But they are there to preserve that precious untainted ‘Logic of Charity’ so that we all have to approach achieving public good from an objective position. Not what is in my best interests or even the best interests of my company, but what is in the interests of my beneficiaries or charitable purpose? You can replicate this thought process anywhere, but the structures of a charity act like a barrier to all other concerns and when governance works well, preserves this logic from interference. It’s why charities can be so effective in delivering social change. It is also why the institution of charity is worth something in and of itself. For those who want to ‘move with the times’ and drop the obsession with legal forms, be careful what you wish for. Once you change an institution, its logic changes, and it is difficult to get any organisation to revert back to old models. We should, therefore, champion the unique value of charity. Especially to young social entrepreneurs that want to achieve social change. Yes, anyone can advance the public good. But being a charity certainly helps. *I use this to mean the legal form of charity.

This post was last reviewed on 27 February 2019 at 16:02
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