Reflections on the Charitable Sector: Lord Michael Grade
2nd November 2017
Delighted to be here.
I’ve been asked to share with you some reflections on the charitable sector. I will do that for the most part in a personal capacity, not as Chair of the Fundraising Regulator.
So first a bit of personal history. I remember in my office at the BBC being told by my receptionist that there was a man called Bob Geldof on the telephone. I had never heard of him and was about to have him put off but, no doubt, he would have come back so I had him put through. There was something in his voice that told me this was important and, of course, the 1985 Live Aid concert followed!
We live in interesting times and you will all have your own list of the key challenges facing the sector. Here’s mine, not in any order of priority:
- Public and media understanding
- Demographic changes
- Public funding for charities
- Salaries of senior staff
- BREXIT; and inevitably
- Fundraising, with particular reference to data protection.
First, governance. A great deal of ink has been spilt over this across the last thirty years, not least by the Charity Commission and the key umbrella bodies such as NCVO and ACEVO.
I suspect that, certainly in the larger charities which are big businesses, the modern trustee has gone through a rigorous induction process, is generally aware of his or her legal and statutory responsibilities, has read the relevant Charity Commission guidance and understands the proper relationship between the executive and the Board. On complex governance issues, there will be an experienced Secretariat and, if necessary, specialist lawyers and financial experts on hand to advise.
The vast majority of the 167,000 charities registered with the Charity Commission are, however, small and 50% of the total can be described as micro, the large majority without paid employees. Although the scale of the governance and financial risks facing these charities is vastly less than those confronting, say, Cancer Research or Macmillan, their trustees still have to grapple with a complex web of legal requirements and best practice. And they are often ill-prepared for that task. Passion for the cause and dedication to a charity’s social purposes are by themselves not enough.
We are all only too aware of what can happen when the right governance arrangements are not in place or where, as in the case of Kids Company, a charismatic chief executive who was also the founder was out of control and somehow overrode the concerns of the trustees. Kids Company was perhaps an extreme case – and by no means a small charity – but it exemplifies the dangers when passion completely displaces professionalism.
I am not offering a solution to this, except to ponder whether it is all too easy to set up and register a charity, without necessarily having any comprehension of the onerous responsibilities placed on trustees. Do we, for example, really need 2000 military charities, most of them tiny? Is that the most cost-effective way to meet the needs of ex-servicemen and women?
A quick word about public and media understanding of the charitable world. In general, the public and the media seem to want to believe that charitable activity is carried out by willing volunteers in a cost-free environment where all the funding generated goes directly to the beneficiaries. Volunteering is of course a crucial resource for charities, but the revelation that charities may have running costs and many may pay their staff often causes public consternation – and, of course, even volunteering is not cost-free for the host charity.
The media no doubt have their own reasons for fixating on charities’ expenditure, whether that be chief executives’ salaries or the proportion of each donation that reaches the beneficiary. And that fixation reflects some genuine concerns.
I believe, nonetheless, that charities, not least those who are successful and effective big businesses, could do much more to educate the public through messaging that is far more transparent and courageous about legitimate and necessary expenditure on running costs.
Demographic changes are now with us in a big way. An ageing population is putting even greater pressure on both public and charitable services – yes, we are living longer but often with chronic and costly medical conditions and increased dependency.
Society is also becoming more diverse and atomised – more single person households and a weakening of family links, both geographically and in terms of mutual support. Again, this makes greater demands on public and charitable services, at a time when, politically, the state is contracting.
Although charities have a key role in supporting individuals and communities in most need, they should not be expected to fill the gaps that are emerging in many areas of public provision; nor should they be expected to ‘deliver on the cheap’ on behalf of the state, through public sector contractual arrangements which drive down costs in complex areas that in fact demand greater investment in time and expertise.
Roughly one third of charitable income – £15bn out of £45bn – comes from the public sector funding. In real terms, this income is now diminishing and, in particular, smaller and medium-sized charities have been losing local government grant and contract funding.
It is not unreasonable to debate the extent to which the charitable sector should be dependent on public sector funding or, indeed, should be delivering statutory, as opposed to additional, services. The boundary between essential core services and optional extras is rarely, however, cast in stone. Leaving aside the intellectual and theoretical context, the reality is that reductions in public sector funding are threatening the financial sustainability of many smaller and medium-sized charities.
A quick word on chief executives’ salaries, which have been a favourite media target over the past two years. Some of the more vitriolic criticisms have been neither balanced nor nuanced. In whatever sector, there is an argument that you need to pay the rate for the job. But in a sector that depends on the goodwill of donors, decisions on pay need also to take account of public perceptions and the ratio between the lowest and highest paid in the organisation.
Charities have generally not responded very effectively to media attacks in relation to pay and the NCVO’s recommendations for a great deal more transparency in relation to senior salaries have received a mixed reception from the sector. That needs to change.
The prospect of Brexit presents the sector with several challenges – general uncertainty as the negotiations continue, loss of funding, possible changes to regulation and, potentially, a reduction in opportunities for collaboration with European colleagues.
For example, for many years the sector has benefitted from substantial European funding. The NCVO has estimated that, post-Brexit, the sector is likely to lose between £350m and £450m per annum, plus, of course, the match funding required from the UK Government.
And, whatever your views on Brexit, the referendum has revealed worrying divisions in our society by class, education and region, with many people feeling ‘left behind’. Those divisions present a challenge not only for government but also for charities, who are well placed to understand and meet the needs of those who are most marginalised and hard to reach.
Lastly, I can hardly avoid talking about fundraising, since it is a key challenge facing the sector. I do this as Chair of the Fundraising Regulator.
You all know the history of this over the past three years – a series of media stories about poor fundraising practices leading to a reduction in public and donor confidence in the charitable sector, the recommendations in the Etherington Review and the creation of the Fundraising Regulator.
We are committed to working with the sector and with donors to restore public confidence. Charities need to re-evaluate their relationships with donors, ensuring that all forms of fundraising are consistent with the best practice set out in the Code of Fundraising Practice. In short, a cultural change, focusing on the quality of the donor experience.
The Fundraising Regulator embodies a system of voluntary regulation. For that to work, the whole sector needs to take collective responsibility and demonstrate its commitment by registering with the Regulator and, where applicable, paying the levy.
I am encouraged by the support we have received from large parts of the sector – from the NCVO, the Institute of Fundraising and, of course, many individual charities. We have over 1400 levy payers and, recently, in addition, our 1000th registrant. With very few exceptions, charities and fundraising agencies have cooperated fully with our complaints process; and the 13 charities fined for breaches of data protection by the ICO have worked closely with us to put in place remedial action plans. Change is already underway.
Perhaps the biggest challenge facing the sector over the next few months is to ensure compliance with the legal requirements in handling donors’ personal data, including the forthcoming General Data Protection Regulation. As you will be aware, we have issued detailed guidance on this and we are now consulting on changes to the Code of Fundraising Practice to reflect the law and best practice.
Finally, let me end by busting a few myths about fundraising regulation, favourites of the sector media and some commentators –
- Myth 1 – the Fundraising Regulator only regulates fundraising related to voluntary income. Some charities have sought to excuse themselves from levy payment on the basis that their fundraising falls outside this definition. Both propositions are wrong – we regulate all forms of fundraising and the Code of Fundraising Practice reflects that.
- Myth 2 -the Fundraising Regulator and the Charity Commission should have checked the fundraising expenditure figures provided by charities in their 2014 Annual Returns, upon which the levy calculations were based. Wrong again – it’s the responsibility of charities to provide accurate information to the Commission. Rubbish in, rubbish out.
- Myth 3 – the Regulator has been using a sledgehammer approach to collecting the levy. Completely untrue. We have spent endless hours negotiating with a wide variety of charities who have queried their levy payments. What we have been unable to do is to negotiate with the 100 who have not responded to any of our communications. I have described their failure to respond as unprofessional and I do not retract that. This is time that we could better spend on effective regulation.
- Myth 4 – publishing a list of payers and non-payers is bullying and unfair to the non-payers, not least since the levy is voluntary. I disagree. We are committed to fairness and transparency. Both those charities who have willingly paid and the general public are entitled to know about those that haven’t. This is about our accountability as well as the accountability of charities.
- Myth 5 – we are failing to be a friend to the sector. The suggestion here seems to be that we should never criticise charities. That indicates a complete misunderstanding of the regulatory function. We are neither friend nor enemy, but independent, fair and balanced, with a clear commitment to encourage excellent fundraising practice for the benefit of donors and the public. As a result of complaints and casework, we criticise charities when they have breached the Code of Fundraising Practice but praise them when they have taken action to put things right. We want to build a positive relationship with the sector – and, of course, with the donating public – but we are not in the sector’s pocket. Over the past 20 months, we have spent a great deal of time and resource engaging with the sector, with the umbrella bodies, with individual charities – over 150 events, presentations and seminars, plus consultations on the FPS and the Code of Fundraising Practice. Some charities, reluctant to pay the levy, have asked ‘what’s in it for us?’, when the real question should be ‘what’s in it for donors?’ An improved experience of fundraising for donors will help to restore public confidence and ultimately benefit charities and the social purposes they are committed to funding and delivering.
- Myth 6 – we should stand up publicly for the sector against the Information Commissioner. This assertion presupposes that the Information Commissioner has somehow been unfair to charities in taking them to task for breaches of the data protection legislation. I don’t believe that to be the case – on the contrary, the Information Commissioner has been delivering her statutory responsibilities and we have been working closely with her and the Charity Commission to support the sector to get it right. If we have any issues with fellow regulators, we will resolve them behind closed doors, in the context of the Memorandums of Understanding we already have in place with them.
The challenges for the sector that I have outlined present a daunting menu – and the list is by no means comprehensive. I am confident, nonetheless, that charities will meet these challenges head-on and in doing so create new opportunities. The sector is nothing if not resilient, innovative and adaptable.