Governance, regulation and compliance

Panorama - moral dilemmas for the charity sector

It’s difficult to avoid noticing the fallout of Tuesday’s Panorama investigation into some of the UK’s leading charities

Post byJane Tully

The documentary looked at a mixed bag of the sector’s perceived hypocrisies; complaints largely guided by the assumption that being charitable is synonymous with ‘moral’. There are a number of things which on initial inspection may appear to fit neatly into an ‘inappropriate for charity’ box. But it’s not that simple. Charitable status itself (granted on meeting the public benefit test) accommodates a wide range of moral values, expressed in a charity’s mission. These values may be inconsistent from organisation to organisation – and, consequently cannot be expected to match neatly with each and everyone’s moral expectations. We need to be wary not to make the fallacy of equivocation between ‘moral’ and ‘charitable’.

So you could call this a moral quagmire, but let’s not forget that charities have governance and accountability mechanisms in place to deal with difficult questions around how their decisions connect to their charitable values. Charity trustees (and the staff they delegate authority to) must constantly work to strike a careful balance between risk and return, between the short and long-term interests of their beneficiaries. Sometimes (you could say inevitably given the pressing social issues that charities deal with) decisions involve weighing up options which cannot satisfy everyone’s moral inclinations, be those the publics or even a charity’s staff. For example, Justin Forsyth’s description of Save the Children’s relationship with GSK highlighted some interesting possibilities for positively influencing a company’s activities. Like it or not, charities exist in the same sphere as the big Pharma, and the drugs they research are essential to solving some of the world’s most socially crippling medical problems.A charity may decide that working with such companies, even when they don’t agree with their wider agendas, is a better route to achieving real change. Trustees and accountability structures are there to help organisations navigate their way through these difficult decisions – and if they get it wrong, to ensure that lessons are learnt.

Let’s look at some of the finance-related questions thrown up by the programme.At first glance, a charity’s response to these questions may appear disagreeable. But look closer and it may turn out to be a well thought through decision. (Equally it may not be!) We don’t have all the answers, but we can provide some tools to help people make their own judgment and to understand that factors that may influence these decisions.

One of the accusations in the programme was that Comic Relief held on to cash raised from public donations for up to 8 years. This is not uncommon. In fact quite the opposite– few charities raise funds today to spend today.There is almost always an intervening period; it could be weeks, months or years, depending on what projects are being funded, for how long, and the charity’s planning cycle. At a basic level this is an essential aspect of maintaining the sustainability of grants and services for any charity.

As with all assets charities hold, ensuring money is not losing its value in the waiting period is the sensible and prudent thing to do. Hence, investing it.

Comic Relief commits to the public that their entire donation is spent on the end activity, covering their core costs using investment income.

For Comic Relief, this helps them with their fundraising message. Talk of staff costs and maintaining and office doesn’t lend itself to the level of enthusiasm we witness in Comic Relief’s and Children in Need’s evenings of fundraising. But on the other hand, not making this small print explicit may mean that donors don’t have a full understanding of what it takes to deliver services, encouraging the myth that operating costs are ‘waste’ – rather than helping people see that these costs as part of delivering of the end activity.>

This is another difficult one. Legally, charities are required to invest in a way that maximises financial return for a managed level of risk. This law exists to ensure that charities are making the most of their assets, placing primacy on financial sustainability. The Judge in a seminal case on ethical investment for charities (commonly known as the Bishop of Oxford’s case) said, ‘most charities need money, and the more of it there is available, the more the trustees can accomplish’. It did however also highlight circumstances when charities can accept a lower return, notably where there is clear harm to the charity’s aims or severe risk of reputational damage.

Applying common sense, and as a minimum, avoiding investments that might directly harm mission seems logical. Certainly charities should strive to achieve the best balance; the public, often their lifeline for funding, clearly expect them to do so. However, this isn’t always as easy as it looks.

Firstly, while there are new and emerging funds that in the future may fit the bill, traditionally classic blue chip companies are the most reliable in yielding return. Screening out all of the possibly contentious areas could narrow investment options to the point where they result in an unacceptably low financial return.

Secondly, many charities invest indirectly, using ‘pooled funds’. This is where the charity’s money is combined with that of other investors. While the charity may have an overarching policy on ‘what not to invest in’, and this can be applied fairly easily with direct investments, with indirect investment being that step further removed, it can more difficult to have control.

Finally, even if we could avoid these complications, there is (perhaps more importantly) the matter of determining how your mission relates to those companies you invest in; trustees can’t simply screen out companies they don’t like the idea of, there has to be a mission-related reason. This isn’t necessarily easy when the mission is broad - where does a charity draw the line, and what evidence is it using to inform its decisions?

So our message here is not to jump to rapid conclusions where there are perceived hypocrisies. Ask what decisions have been made, and on what basis. And remember decisions made will not necessarily be ones that everyone agrees with. Be tolerant of risk too, remembering that sometimes risks back-fire.What matters is that a charity has tried to get it right, and can explain why they make the decisions they do, and what values have framed it and that they are lessons are learnt when they get it wrong.

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