Charities Commission speeches

William Shawcross - CFG/ NPC Impact Leadership conference
Public trust and confidence in charities

January, 2014

Good morning,
I am delighted to be here with you today at what promises to be an inspiring and challenging event. I hope it succeeds in focusing your minds and your energies on what ultimately matters – making a difference to the people and the causes that your charities serve.
I am especially pleased to have been asked to speak about public trust and confidence in charities.
Public trust is the cornerstone of charity. It is because people trust in the probity of charity that that they are willing to support them through substantial tax reliefs.
And it is because people have confidence in charities’ ability to make a difference that they give so give so generously to the causes they support.
So I welcome the theme for today’s event and for my session this morning, and hope that I can provide some food for thought.
I would like to talk about trust and confidence from three perspectives.
First, from the perspective of the Charity Commission itself.
Second, I’d like to look at what public trust and confidence requires from the leaders of individual charities.
Finally I will look at the charitable sector as a whole – how charities can work together to improve public understanding of and trust in the concept of charity.
***
So, to the Commission.
I hope I don’t have to convince you that what happens at the Commission matters to all charities, regardless of type or size.
Regulation provides the framework that helps trustees understand what the law expects of them and helps the public understand what they can expect from charities.
We know from our research that awareness of the Charity Commission is associated with higher trust in charities.
So how well we do our job determines, at least in part, how well you do in achieving your aims.
I am very conscious of that responsibility and I take it very seriously.
As many of you will know, the Commission has faced significant challenges over the past year or so.
It was my first year in office and I have likened it to year of firefighting. And also a year in which I recruited a brand new board to help put out existing fires and improve our fire prevention processes.
The fall-out of the Cup Trust case – which I am sure most of you are familiar with – has been difficult for us.
And we have faced intense scrutiny by the House of Commons Public Accounts Committee and the National Audit Office. As you may know, he NAO conducted a review of the Commission’s work in registering charities and dealing with abuse and mismanagement.
Its report was published before Christmas.
It did not make for easy reading. The NAO is critical of aspects of our work and calls on us to make significant changes.
We have accepted the report’s recommendations and I would like to reassure you that we have already started taking big steps in the right direction.
For instance, we are opening more investigations into charities.
Since 1 April 2013, we have placed 48 charities under statutory inquiry, our most serious type of investigation. In comparison, we opened just 15 inquiries during the whole of the previous financial year (2012-13).
We are also using our statutory powers more often – for example, we now automatically use our power to direct trustees whose charities are under inquiry to give us certain information.
In the past, we tended to ask trustees politely first, and often again and again, before using our powers to order trustees to comply.
I fear we can no longer afford to spend our precious resources in that way.
Using our powers automatically helps trustees understand the serious situation they are in and helps speed up the conduct of our inquiries.
And at the same time as employing the powers we do have in our arsenal more frequently, we are also making clear where our legal powers need to be strengthened in order that we can tackle serious abuse effectively.
For example: we can only remove a trustee from a specific position in a charity. We can’t simply disqualify individuals from serving as a trustee generally, regardless of how unsuitable we consider them.
And furthermore – we are required to give a trustee notice before removing them. This means the trustee in question can simply resign their position voluntarily, leaving them free to remain on the board of other charities or indeed join new charity boards. There is nothing we can do to stop them.
This is ludicrous and does nothing to promote trust in the regulatory system. We must, as regulator, be able to determine that some individuals are not suitable to serve as trustees.
We have been shouting quite loudly about these problems. And happily, we have been heard.
The Cabinet Office is now consulting on proposals to bolster our regulatory toolkit.
The consultation document suggests, for example, that the range of convictions that trigger disqualification as a trustee be extended to include money laundering and terrorism offences.
It also suggests that the Commission be given the power to issue official warnings to charities about which we have serious concerns.
The consultation launched last month and runs until 12 February.
Please do consider taking part, while there is still time. It is precisely the voice of the vast majority of honest charity trustees that needs to be heard in this consultation.
You are the ones who are unfairly damaged if your regulator cannot always take effective action against the few bad apples whose abuse of charity status risks blackening the good name of charity generally.
Another way in which we’re addressing the concerns raised in the NAO report is by reporting on our compliance case work more regularly and consistently.
We already do a good job of explaining the outcome of statutory inquiries. We almost always publish a report once an inquiry has concluded, so that the public understands what we have achieved and charities can learn the lessons arising from each case.
But we have not done as well at reporting on the outcomes of the full range of compliance cases.
Last year, our operations teams concluded over 1500 cases that involved serious concerns about a charity’s management. But we only published concluding reports on a handful of these cases.
That has contributed to an impression among some that the Commission is doing very little compliance work at all.
And that is damaging to public trust in us as a regulator and in charities.
So from now on, we will report on a much larger proportion of our non-inquiry cases, including all cases that have attracted press or public interest.
For example, we are today publishing a report on a non-inquiry case involving a wildlife charity in West Yorkshire, whose very high fundraising costs caused us concern.
The case attracted a great deal of interest, including among Parliamentarians and the local media and it is right that, now that our case has concluded, we set out what we looked at and what we achieved.
I hope this work will help reassure charities, and more importantly the public, as to the volume and quality of our work to tackle abuse and mismanagement in charities.
***
Unfortunately, we cannot continue to strengthen our compliance case work without at the same time scaling back on other aspects of our work.
Our budget is being continually cut – by 2015 our budget will have been cut by half in real terms since 2007.
The NAO report failed to tell us what we should stop doing to free up resources for investigations work.
Indeed, it failed to consider the full range of our regulatory functions, from providing online guidance to holding charities to account through the online register to granting legal consents and permissions.
The report seems to imply that the Commission should focus exclusively on tackling abuses. I’m not so sure that kind of regulator would encourage people to support charities with confidence.

I think it’s important to remember that most charities on our register are tiny – nearly half have an income below £10,000.
These charities are run exclusively by volunteers who want to do the right thing but very often need guidance.
I worry about the impact on such charities were we to stop producing guidance based on charity law.
Just before Christmas, we became aware of a company that was charging charities more than £50 for a ‘summary’ of our revised public benefit guidance. Guidance, I should add, that is available for free on our website, together with a summary.
We had to make quite clear, including through a letter to a national newspaper, that our guidance is freely available and trustees do not, therefore, have to pay through their teeth for it.
We don’t know how many charities might have been prompted to pay for the guidance.
But I do worry about what this little anecdote tells us.
If the Commission had to scale back the guidance we provide, how many more companies would start charging charities exorbitant prices for their interpretations of charity law?
Of course, we don’t produce our guidance simply to save charities money. We are not a champion of charities, we are a regulator and our rationale for producing guidance is to promote sound management and provide the public with reassurance that there is a framework against which they can judge charities.
But when so many charities are tiny, I fear that by pulling the guidance rug from under their feet, we would store up enormous problems for the future.
We know that one high profile case of alleged abuse, such as the Cup Trust, can do real damage to the reputation of the sector.
But let’s not ignore the potential long term impact of widespread small scale mismanagement and poor governance which would result from a lack of guidance and direction from the regulator.
In the next few months, we will be announcing who our new chief executive will be. He or she, together with the Commission’s board and our senior team, will need to thoroughly review the Commission’s strategy and make some very tough choices.
As part of that process, we will be seeking the views of charities and others. I encourage you to get involved in the debate.
Another matter that has been a challenge for the Commission since I joined as Chairman is the case of the Preston Down Trust, a Brethren meeting hall that applied for registration and which the Commission initially rejected – this was before my time – because it was not satisfied that it had demonstrated public benefit.
I am delighted that we have been able to come to an agreement with the Preston Down Trust.
It agreed to change its governing document which sets out the church's core religious doctrines and practices, on which basis we were able to register the charity.
The response to this outcome has been overwhelmingly positive, from both supporters of the Plymouth Brethren and those who are critical of their practices.
I mention this case because it highlights how important it is that an independent regulator exists to make judgments about charitable status.
*****
Of course, not even the most well-resourced and effective regulator can guarantee public trust.
Public trust is a privilege, not a right and charities have to earn it.
And that means trustees must get the basics right.
It means making sure you are squeaky clean in terms of your governance and are making an impact to the causes and people you serve.
Good governance may not sound exciting. Most trustees, I imagine, feel more inspired by their cause and their beneficiaries than by conflicts of interest policies.
That is understandable, perhaps.
But too often our case workers come across trustees who seem to think their legal duties and responsibilities are a bureaucratic distraction.
These trustees put their charities at terrible risk of harm, including from theft, fraud, reputational damage, or the abuse of beneficiaries.
Being a trustee means you have to care about good governance in your charity. It means, in effect, being grown-up, taking responsibility for protecting your charity against the harm that could come its way.
This is of course what makes trusteeship such a rewarding experience, and why we encourage young people in particular to consider trusteeship. And why employers favour those who have served on the boards of charities.
A really important part of good management is accountability. Reporting to the public about how you’ve spent your money and what you have achieved.
We know the public feels strongly about this.
In a recent independent survey, three out of four people said they would not give to a charity that had failed to file its accounts on time.
And yet, sadly, some charities persistently fail to report on time.
That is not acceptable, and the Commission is getting tougher in tackling non-compliance in this area.
We now have a class inquiry open to investigate all charities that have failed to file accounts for two or more years.
That inquiry is progressing in stages – we started with charities with incomes over £500,000 and are steadily working our way through defaulters of all sizes.
Don’t allow your charity to get caught in that inquiry – make sure you file your documents before your deadline – and ideally well in advance.
Of course, good governance is just the foundation of a strong, effective charity. It is not an end in itself.
The ultimate aim for every charity must be to further its mission for the public benefit.
To demonstrate that your work has had an impact, made a difference, achieved its aim.
That requires leadership and the courage to think beyond the narrow confines of existing organisations and established ways of doing things.
I suspect some charities assume that they are necessary and plod along, justifying their existence by reference to the worthiness of their cause.
That’s not good enough in my view.
All leaders in all charities should be driven by a constant hunger to do better for their beneficiaries. To achieve their aim and make the need for their charity redundant.
I know that demonstrating impact is not easy – it can be incredibly hard. It is a challenge for the Commission as much as it is for charities.
But often the hardest tasks are also the most worthwhile. And I am convinced that the public is becoming ever more demanding when it comes to evidence that their generosity is making a real difference.
Last week, Sir Ronald Cohen gave a lecture at Mansion House as part of the Lord Mayor’s series of lectures about charities and the city. I was honoured to be asked to give the first lecture last November.
As I’m sure you know, Sir Ronald is Chairman of the G8 Social Impact Investment Taskforce and of Big Society Capital. Previously, he played a crucial role in developing the venture capital market in the UK.
In his lecture, Sir Ronald spoke about the need for a revolution in philanthropy – radical innovation in the way in which we address social problems.
He advocates impact investment as a vehicle through which social change can be supported and funded at a time at which national governments are increasingly stretched.
Now it’s not for me or the Commission to advocate one form of funding over another.
But what struck me in listening to Sir Ronald was the emphasis he placed on impact.
He said that one of the inherent weaknesses in the traditional approach to philanthropy is that “it focused on the act of giving, rather than on achieving social outcomes”.
That mind-set, he argues, has contributed to a misguided obsession with distinguishing between overhead costs and ‘pure’ charitable expenditure.
He said that the only question that really matters is whether or not the charity is achieving is mission.
Of course prudence and economy are important in charities – we know that they are a factor in driving public trust in charities.
But I agree with Sir Ronald that, ultimately, charities should be judged by the difference they make.
And, incidentally the public agree to.
Independent research into public trust and confidence in charities conducted for us by Ipsos MORI in 2012, found that “ensuring charities make a positive difference to the cause they are working for” is the strongest driver of levels of trust in charities .
When asked, people say that it matters to them that charities don’t spend excessively on overheads. But analysis of their responses to a wide range of questions reveals that what people ultimately expect of charities is to make an impact.
*****
Which brings me on to the responsibility that the sector as a whole has to promote public trust and confidence in charities.
Here I mean charities collectively as well as the infrastructure and umbrella groups that represent and support charities.
I believe the sector has an important duty to help the public understand what it takes to run a 21st century charity that actually achieves its mission.
For example – why it is sometimes necessary to pay high salaries to attract the most able people to your charity;
Why charities consider campaigning such an important way for them to help and support their beneficiaries
Why and when charities think it is their role to tell uncomfortable truths to those in power.
These matters have all been the subject of some controversy over recent months. Charities have faced considerable criticism in Parliament and the press for some of their methods and approaches.
I am not here to add salt to the wounds that these debates have caused.
But I would like to say that I have, on occasion, been surprised by charities’ response to criticism.
My impression, especially in the debate around executive pay, has been that the sector was taken aback, affronted even, by the very notion that charities might be criticised or questioned.
I suspect that this is rooted in a sense that charities deserve to be handled with kid gloves simply because they are charities, and therefore inherently good.
Indeed, charities have occasionally expected us as regulator to defend them for decisions – such as salary levels – that are not within our remit at all.
It is not our role to defend or represent charities. Charities are responsible and accountable for themselves.
And being accountable means answering the difficult questions – and occasionally, responding to public concern.
I welcome the leadership the NCVO has shown in setting up a commission to develop guidance for trustees on executive salaries.
That is, I think, the right response to public debate.
It is right for the sector itself to demonstrate leadership on the big issues of the day.
Another example of such leadership is the work of the Panel on the Independence of the Voluntary Sector, which last week published its third report.
The report highlights what its authors consider to be threats to the independence of the sector, for instance as a result of a successive blurring of boundaries between charities and other types of organisations.
It also rightly identifies independence as one of the fundamental principles of charity which must be protected.
The report suggests that the Commission as regulator should play a more active role in assessing and promoting charities’ independence.
This is where I disagree slightly with the authors. I think they have demonstrated by example that the sector is perfectly capable of demonstrating leadership in these kind of areas without the Commission’s help.
Because, as public expectations of charities increase, so I imagine will the frequency with which charities are challenged and questioned about the way they operate and the role they play.
Rather than fearing this exposure, charities should, I believe welcome public debate as an opportunity to explain how you work and how much difference you are making to lives of your beneficiaries. This is what impact leadership is all about.
So in summary – public trust is a precious commodity and it must be earned again and again, by the Commission as regulator, by individual charities and by those representing the sector as a whole.
I have no doubt that charities will continue to maintain high levels of trust, because of the crucial role they play in our society.
But it will require hard work.
I promise that the Commission will play its part to the very best of our ability.
I hope you will do the same.
Thank you.

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