how the law is perversely stopping charities and social enterprises from being able to 'trade they way out' of the crisis (unlike private businesses...)

I blogged recently about why we need to stop using the word 'pivot' - but we should keep encouraging everyone to think about how they might make changes to what they do and how they do it (one thing most people seem to agree on is that whatever world we emerge into from this pandemic, it won't be the one we were in when it started...).

And for private businesses, this is fine - they're designed to be orientated to changing marketplaces, and their legal forms mean that they can diversify (relatively) easily.

But this isn't necessarily the case for charities, and social and community enterprises - many of whom are on the 'second line' behind the NHS in supporting communities and people in need.

Now, just as there have been lobbies on government to widen the eligibility of business support schemes that have been introduced, and to introduce new ones, so there have been attempts to get the State to also develop support packages for social and community businesses to help them get through these crisis months.

But there's something else that this all brings up that no-one seems to be talking about (or maybe doesn't want to, because it's too uncomfortable?) - MANY CHARITIES AND SOCIAL ENTERPRISES ARE NOT ALLOWED BY LAW TO CHANGE HOW THEY TRADE. 

Let me explain: 

- private businesses are usually incorporated with governing documents that say they can trade however they want (as long as it's legal).

- charities have to prove to the Charity Commission when they form, that what they are being set up to do (and how they will achieve this) is in keeping with charity law. And there are clear and strict rules about how they can approach undertaking or developing trading activities within these. Even if they think they will be able to make a change within these, then they need to get the agreement of the Charity Commission first. If they fail on either of these points, then what they're doing will be technically illegal - I don't know of any grant making bodies who would be happy to fund a charity that was doing something illegal. The same also goes for insurance policies: if you needed to make a claim and its discovered that you weren't supposed to be doing that activity because of charity law, then the policy becomes void and the charity is left exposed to its Trustees carrying unlimited personal liability...

- But this doesn't just apply to charities - Community Interest Companies (CICs: the much hyped and promoted legal form for social enterprises) has similar restraints as set out and enforced by the CIC Regulator (albeit with much less clear guidance).

* The Charity Commission shows that there are over 150,000 charities in the UK

* Social Enterprise UK says that of the nearly half a million social enterprises in the UK, nearly 1 in 4 are CICs (so roughly another 170,000)

That means that of the organisations who are stepping up the most in this global emergency to support local communities, roughly 320,000 of them are constrained by law from being able to easily adapt to introduce new trading services or to best respond to meeting the changing needs of people.

And that's why there needs to be more explicit and dedicated support to the sector from the State.

why spin the bottle beats psychometrics in getting Boards to perform better

I often find myself working with the Boards of various social enterprises, charities, and other types of businesses as part of wider packages of support - my time with them is usually spent helping them reflect on how well they're collectively performing in supporting their respective ventures to further pursue their mission, and that can take all sorts of forms...

Case in point: I recently completed several months of working with the Board of an up and coming social enterprise as part of supporting the venture explore and pursue social investment - any venture seeking investment will find it's Board coming under scrutiny sooner or later as part of the due diligence process of any financing body, so I was concerned to make sure that it was fully 'fit for purpose': not just for now, but also for future scenarios it may face.

I agreed with them how we'd approach this and over the space of 4 months developed codes of governance, terms of reference, formalised a range of procedures and practices, and also did some psychometrics (group and individual) with them to help Directors reflect on their individual role and how well they supported each other's performance. And at the end of this process, the only outstanding decision to be taken was who should take on the role of the Board's Chair. 

And that's when everyone suddenly found they needed to check their phones, shoelaces, and bottoms of mugs... formal and professional governance development practices and psychometrics could only take them so far, so I resolved to break this sudden impasse by taking a relatively unconventional process which everyone was surprisingly excited about and wholeheartedly agreed to abide by the outcome of: spin the bottle! (they don't call me #notyourtypicalconsultant for nothing!).

Moral of the story?

It's your venture, not your consultants - if you don't like the approaches being used and suggested, use your own, however 'unprofessional' they may appear as it'll mean you can continue to enjoy working on what you're creating rather than having to compromise yourself into fitting into someone else's expectations of you.

chase the money and don’t worry about keeping it legal – the new world of Charity Trustees...

I generally have a lot of admiration for Charity Trustees: people who are willing (and able) to commit their time and energy in pursuit of a dream of a supporting a better community, without expectation of reward or recognition of any type.

There will always be odd ‘rogues’ who see being part of a Charity’s governing body as a means to add a gloss to their career aspirations, but such people are usually the exception, and don’t usually stick around long enough to do too much damage...

However some recent research published by the Charity Commission suggests just how far Trustees of Charities are feeling compromised and pressured in a context of government cuts, recessionary pressures, and generally rubbish weather (2012 being one of the wettest on record!):

• last year, the biggest cause of complaints investigated by the commission (86%!) related to charities’ governance: how well (or not) they’re acting within their legal powers and rules, as well as those of the wider legislative framework that charities exist within. You’d therefore imagine that Governance and the law would be the area that most Board of Trustees are concerned with? Wrong – they list support with fundraising as being the most important thing. And 1/3 don’t offer new Trustees any support in understanding their role or responsibilities. http://www.charitycommission.gov.uk/RSS/News/pr_birth.aspx

 

• it also appears most charities are also recruiting new Trustees from within their own staff and volunteers (always highly risky owing to the heightened associated risk of conflicts of interest, amongst others...) . This means bad habits, mis-information and stagnation are all therefore likely becoming increasingly rife in charities as there’s little ‘fresh blood’ to challenge long-held assumptions that  may no longer hold true, or practices that need to be changed.

Is it any wonder then that charities’ reputations are increasingly under scrutiny and their reputation and place being questioned? Especially when a wealth of support exists for charities to recruit Trustees with little/no cost, and inductions for new Trustees can be structured very easily and cheaply using the materials freely available from the Charity Commission.

So what’s going wrong? Why aren't charities making the most of this (free) support? Why are bad practices emerging on such a large scale that risk damaging this sectors’ credibility? Could it be because the world they’re used to – the world where there were local funded advisors who would pro-actively keep them aware of issues, opportunities and risks through the likes of CVS’ is fast disappearing and they've not realised just how bad the fallout could/will be? Or more frighteningly, have charities always prioritised the money over compliance, and it’s only recently that we've noticed it due to more insightful research being undertaken and published?

Charities now being created at more than 1 every hour!

The charity commission published its annual survey of what’s happening on the Charity register recently, and I think it makes for slightly concerning reading.

With 3,003 new charities being ‘approved’ in the last year this means that charities are now being created at more than 1 per hour! (assuming 252 working days and 8 working hours a day).

What’s more, the median income of these new charities is less than £30,000 – suggesting that they’re what I refer to as ‘pet’ charities.

In an age of austerity measures, when resources for charities are getting harder and harder to come by, why are so many people feeling the need to form new charities, rather than engaging with, and supporting, exiting ones who are crying out for new blood on their boards and struggling to raise sufficient finance. Surely we need to be better educating people who are thinking of setting up a new charity to encourage them to consider carefully if their energies wouldn’t in fact be better used in supporting those that already exist; or perhaps, as I’ve argued before, charity legislation isn’t flexible enough to reflect our changing society and so people are being forced to create new charities to continue to meet the needs of those most vulnerable in our communities?

why you must change your chairs

a recent story highlights a charity that's has the same Chairperson for 35 years - (that's longer than I've been alive for!), and that following complaints into their management of the charity, there's an investigation being conducted by the Charity Commission about claims of inappropriate and mis-management and their subsequent removal from post.

It illustrates a key danger to the governance of our sector: entrenched board members.

Having a committed, keen and enthusiastic board is vital to the success of any organisation - and its increasingly difficult to find people who'll happily offer their time to do so.
However, having the same person in the same post for too long starts to bring inherent dangers - people can become complacent, stuck in their ways and as a result hostile to change, ("after all, we've always done it this/my way..."), even when those changes are needed because of changes to legislation or expectations and trends amongst our communities. Their being so long in post also deters new blood from coming forward to join the board, as it becomes seen to be a 'closed shop', having the same people in post for so long.

Just as we appraise and review our staff and volunteers performance and conduct, so we should with that of our boards - and if they're found wanting, we should be brave enough to say so and either support them to gain the necessary skills and knowledge, or else ask them to move on.

To put it another way, how well would notions of member participation and democracy be being manifest if a country had the same leader for over 3 decades?

do we really need another 5,000 charities?

I came across a sobering statistic recently - in 2008, there were 5,000 new charities created. That's roughly 1 new charity every 3 hours (allowing for weekends, Bank Holidays and tea breaks).

And it got me thinking about other statistics and 'headlines' in the third sector - about the difficulty existing groups have in attracting approriate trustees, about the increasing competition for dimishing grants, and about the growing bureaucractic overhead of mandatory reporting requirements that charities must comply with.

Surely, given all that, do we really need so many more additional charities when it must be better to combine forces, to collaborate more, and even dare I say, look to merge activies where they could be seen to make savings and so offer greater support and impact to the communities that charities are created to benefit.

Could it be then that the founders of charities aren't always as altrusitic as we might believe - perhaps more people than we'd care to admit like to feel that only they can solve particular issues in their own special way, and that to do so they need to control all aspects of their own projects, because they think that no-one else sees the world in quite the same way they do - "vanity, vanity, all is vanity...";

Or maybe its more to do with the legislation - after all, charities have to be very specific about what they do, who they do it to, where they do it to them (much more so than companies), and so as communities change, are existing charities unable to continue to meet these changing and evolving needs and so new charities are needing to be created to continue the work that charity legislation would otherwise prevent them from doing?

Or maybe... or maybe there's some really obvious and rational explanation that someone can share with me and others using the comments button below.

either way, I think most people would be shocked at this statistic...

(for comparison, in the same period there were 814 new Community Interest Companies)