Charity governance need not be a guilty secret

The charitable sector has to work harder to explain to the public why spending resources on governance enhances rather than diminishes impact

A new report from the Charity Commission has revealed that public trust in charities has failed to reverse its recent decline and now stands (on a methodology slightly tweaked from previous years) at its lowest point since the regulator began collecting data in 2005. With a mean score of 5.5 out of 10, Trust in Charities 2018 finds the sector commands less confidence than the average man or woman in the street, although, perhaps unsurprisingly, performs better than banks, MPs and government ministers.

The current level of trust, at a time when the sector is feeling the impact of high-profile scandals at Oxfam and Save the Children, is comparable to that recorded in 2016 when the public was reacting to stories emerging from charities such as Kids Company and Age UK and, more widely, relating to practices around fundraising. In both years, the surveys’ proximity to attention-grabbing headlines may in part explain the results. However, the responses also point to a more chronic disaffection.

This may need to be set in some context, of course. Trust in institutions generally is suffering, both domestically and internationally, as the Edelman Trust Barometer illustrates on a yearly basis. NGOs, the category in the Edelman surveys most comparable to the charity sector, perform better than government, media and business in the UK, but have still struggled, scoring just 46% in each of the past two years.

Trust is a vital commodity. And in perhaps no area of the economy is this more true than in the charitable sector, which relies enormously on the goodwill it generates and whose organisations are held in distinction by – and judged relative to – the values they espouse. On a solely financial view, ‘Trust in Charities’ demonstrates that a loss of trust and confidence is related to donation behaviour, so low levels in these areas are clearly problematic for charities.

It should come as no surprise that the most commonly cited reason for a decrease in trust was recent stories about poor conduct and behaviour out of keeping with what the public expect from charities.

But another theme is apparent throughout the report. It is by no means a new issue, but a frustrating one nonetheless. Three-fifths of those who reported a loss of trust referred to a suspicion that too great a proportion of funds did not reach beneficiaries and was spent instead on costs such as advertising, wages and administration.

This is more troubling given that, when asked what was important in deciding whether or not charities could be trusted, key factors identified by respondents included that they were well-governed and well-managed (8.3 out of 10) and were capable, expert and skilled (8.0). Although the latter may refer to the charity’s area of operation, it could equally be applied to the strategic, technical and administrative capacities of those who work in a charity. This is particularly the case when it is considered that third in the list of factors leading to trust, and ranking higher than those just mentioned, is the efficient use of a charity’s resources (8.4 out of 10).

It can be difficult for charities to know how to predict allocations and withdrawals of trust. On the one hand, the public lose confidence in charities on the basis of media stories of poor behaviour and governance systems being found wanting (which is entirely understandable). On the other, the public also lose trust when they consider that too great a proportion of income is spent on the processes and personnel that can avert those episodes in the first place. Charities could be forgiven for feeling that they are damned if they do and damned if they don’t when it comes to back office expenditure.

The problem lies in the discrepancy between how the public expect charities to be run and what in fact it takes to keep a modern charity, particularly a large, complex organisation, operational and thriving.

An investment in a charity’s governance and personnel is an investment in its sustainability, its reputation, its accountability and ultimately its ability to deliver on its charitable objects. It should be seen as such. When money is spent appropriately on systems, advertising, fundraising, staff/volunteer training and, yes, executive pay, that money really is being spent in furtherance of the charity’s aims and with beneficiaries, present and future, in mind. Because the organisation as a whole is better run. The key is that it is an appropriate amount and also that it is communicated correctly to an audience that is better conditioned to understanding this than is perhaps currently the case.

This is where the sector needs to up its game.

In our submission to the recent consultation on the civil society strategy, ICSA suggested that the sector needs to more consistently extol the benefits of good governance and the need for resources to be spent on it.

Transparency about where money goes, top of the list of factors determining whether a charity is trusted (8.8 out of 10), is only part of the solution. Certainly, a small experiment in the report – which tested four versions of the same advertisement, each with slightly different content – indicates that openness about where money is spent has a positive impact on trust. But what happens when the number reported as spent away from the front line is too high for some people’s tastes, particularly when donated income is concerned?

Donors, funders (including the government) and the public must understand that not every penny of every pound that leaves their pocket ends up in the hands of a beneficiary. A portion of a charity’s income must go elsewhere to make the charity more effective at what it does. Some of it may well be used to generate yet more income which will reach more beneficiaries or extend the charity’s services in another way. The skills and attributes that those surveyed in this report feel enhance their trust in charities come at a cost. So too does programme evaluation to ensure that impact is maximised and that funds are expended most effectively.

Of course, the public want to know that a reasonable proportion of donations reach beneficiaries. But the sector needs to actively manage expectations to ensure that any disparity between perceptions of what is reasonable and what is necessary to maintain and improve charitable operations is kept to a minimum. Trust is vulnerable when expectations and actuality do not line up. This is clearly true of behaviour and also of use of charitable funds.

The sector must not be shy of investing behind the scenes and needs to be confident in explaining why it does this. In its foreword to the report, the Charity Commission sounds the warning that ‘we must not wait for donations, and other means of support for charity, to be hit, before we act’. This is quite right.

Craig Beeston is policy officer, not for profit, at ICSA: The Governance Institute

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