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Making a case

06 February 2019 by Giles Peel

Making a case

The subject matter of remuneration for charitable trustees is a controversial debate

thought long and hard before putting pen to paper for this article. Why? Well the subject matter is controversial and the views I express do not in any way represent a personal desire, nor indeed a situation that, were it to come about, I would necessarily take advantage of myself. Nevertheless, things need to be aired on the matter of remuneration for charitable trustees – paying trustees for being trustees – and I feel that a case needs to be made.

The sector regulator, the Charity Commission is quite clear. In its guidance note (CC11 published in March 2012) it covers the vexed question of expenses and payments for trustees. The guidance is clear that it is allowable in some circumstances. Payment of trustees is allowed if ‘clearly in the interests of the charity and provides a significant advantage…over all other options.’ There is no general power in law for this type of payment – a charity would need specific authority from its governing document or obtain it from the Charity Commission.

However, the guidance also states that ‘unpaid trusteeship has always been a distinctive feature of charitable activity, and greatly enhances public confidence and trust in charities. There is a general expectation that charity assets should be used directly for the purposes of the charity’.

Challenging statements

My first challenge begins with these statements. I believe that public confidence has been undermined in a number of areas by recent failures in the sector, and far from being an exemplary area of public life, many charities are beset by identical problems that occur in other sectors such as inappropriate culture (especially bullying), fraud and operational incompetence.

There are also increasing numbers of examples of where the level of executive pay in charities has come under scrutiny. I would argue therefore that charities are not a special case, and that the view of pro-bono trustees increasing public confidence is anachronistic.

This issue of professionalism also applies to the ways in which some charities are employing younger people – charities need to set an example and many are offering far too many short terms roles, zero-hours engagements and unpaid internships rather than proper contracts. This should not be how junior staff are used in major charities.

The Public wants to know that charities are professional, that these organisations are well-led and well-governed, and a lack of payment to trustees does little to help. My argument goes the other way, namely that failure to pay trustees for their work is creating problems. Let me explain why.

“Charity regulation is still behind its corporate equivalents but is having to catch up to reflect the complexity of overseeing a modern charity”

To begin with, the charity trustee role has changed to make it almost indistinguishable from that of a NED in terms of the governance load and the plethora of time-consuming responsibilities that trustees face, in charities both large and small. This is an inevitable consequence of a digital world where the responses must be instantaneous and there is an ever-increasing demand for resources and attention, which charities must compete for like any other organisation.

I heard a compelling description on the radio recently, where a journalist described the behaviour of aid charities vying for space in a country stricken by a natural disaster, likening them to occupying armies, keen to plant their flags. Some of this charity work is hard-edged stuff, and requires complex and sophisticated management, together with corresponding and professional oversight.

Sector pressures

Charity regulation is still behind its corporate equivalents but is having to catch up to reflect the complexity of overseeing a modern charity. Recent charitable horror stories have added to this burden and it seems, at least from the outside, that the charity regulatory response is severe (quite properly). In order to have an effect it appears to be moving down a well-trodden regulatory path, with themes of greater accountability, more effective scrutiny and audit, and the suggestion in future of a need to assess the suitability of both trustees and executives in fit and proper terms – all in all a mixture that starts to look a lot like financial services (and other) regulation.

Some of the examples of more recent sector pressures include:

  • The huge sums of money that are now present in the sector, flowing into charities and between charities that fundraise and those that do not
  • Vast sums of money in terms of turnover or surplus– the scale of some charitable operations is mind-boggling and requires considerable investment in financial management and audit (both external and, critically, internal audit)
  • Vastly complex operational chains, often in multiple locations or countries. This demands skills and sophistication in areas such as communications (in reality command and control), logistics and jurisdictional management. All of this is extremely demanding and can test the largest multi-national companies, in spite of their larger resources and infrastructure

  • Charitable boards with a poor grasp on the realities of the work of their charity – it can be hard to visualise life in the front-line, or on the ground, and are boards selecting the right mix of experience and competence to oversee this stuff

  • An obvious gap between the executive expertise required to deliver strategic objectives and the people recruited for the board’s oversight of such objectives

  • The significant risk, and subsequent damage to personal reputations in the event of
    charitable failures

  • The increasingly difficult task of maintaining brand integrity and effective PR in modern charities

We need greater diversity on charity boards. It cannot just be the successful and wealthy or retired who have the time and opportunity to undertake pro-bono roles, and Trustees of working age are vital to ensure that employees and those in need of charitable assistance are understood and empathised with. Extending remuneration to trustees would enable those on lower incomes to consider trustee work and to contribute fully in circumstances that are not currently possible for many. This would also increase public confidence.

Clear expectations

Compensation might make people realise the responsibilities of the trustee job more clearly. It would help to set out a clearer expectation of commitment, foster a greater sense of accountability and responsibility, as well as showing external audiences that this charitable ‘business’ is being overseen by appropriate expertise, rewarded for their efforts. Compensation might also make charity executives take their trustees more seriously too. It is not uncommon to come across the disdain for the ‘great and good’ who can often gravitate to charitable board status in the latter stages of their careers. Many of these people are highly competent, so this label can be unfair, but the presence of the volunteer unpaid board member can create the wrong impression with stressed, hard-pressed executive teams, who often see themselves as the only professionals in the senior management hierarchy of their charities, whilst trustees dip in and out of their lives from time to time.

There is also a question of time commitment. In a modern charity of any reasonable size, this commitment is huge, and I am no longer convinced that it is reasonable to expect any individual to contribute significant amounts of time for no remuneration. The time load is especially increasing between formal board and committee meetings as the business of oversight cannot be neatly segmented in terms of diary appointments. Trustees also need to maintain regular contact to ensure a continued comprehension of what is going on. If an individual trustee feels that remuneration is inappropriate, then let them donate their fees to charity.

I have painted a deliberately stark picture in this article, and many readers will have direct experience of trustee work in well-run charities that may refute some of my points. To these people I would say this, do my points at least strike some chord in terms of the challenges that modern charities are exposed to? Do you also understand all the nuances of running a modern charitable organisation and the risks that are being taken in the name of the organisation? In my own experience my truthful answer is ‘not always’ and I fear that these pressures are only going to increase in the future. So, if they do, and if the regulatory response to all this is to increase the amount and robustness of charitable regulation (and moving it more towards models such as financial services), then we will need professional trustees more than ever before.

Perhaps the best pointer to this is the state of NED remuneration in smaller, non-listed commercial companies. This is increasing, and even where a single NED is hired, the expectation is that a fee will be paid. If we expect this in a small company, why on earth would we not want remunerated professional trustees in complex charities of any reasonable size? 

Giles Peel FCIS is a director at DCO Partners  

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