Report finds third sector governance “not up to scratch”

The governance of Britain’s £33bn voluntary sector is “not up to scratch” and charities could descend into crisis unless they rapidly strengthen their management boards, a report from an influential think-tank claimed yesterday.

New Philanthropy Capital, set up by a group of former Goldman Sachs bankers looking to improve the UK’s spending of social funds, says large charities should explore mergers as the recession bites to save money and protect vital services.

Eleanor Stringer, one of the report’s authors, said the charity sector plays a growing role in providing many social services, with the government pumping in about £12bn of the £33bn total income last year, according to the National Council for Voluntary Organisations.

In terms of income, the voluntary sector is bigger than the British media industry and manages assets of £86bn.

But the report found trustee boards that run charities were “not up to scratch”, according to the charities themselves and funders. The report’s authors spoke to public bodies such as the Charity Commission, charity chief executives, trustees and the trusts and foundations that provide funding.

The sector is also facing a recruitment drought, with trusteeship seen as an activity for “retired middle-class people”. About half of trustees are over 60.

Ms Stringer said, while trustees running charities were effective in basic roles, their lack of experience in running big organisations would be exposed by the economic crisis. “At the very least, this puts charities at risk,” she said. “And there is a chance this could lead to a crisis for some of them.”

Those who fund charities are also neglecting to check how their money is spent, according to the report, which says “they seem to pay little consideration to governance, neither rewarding good governance nor criticising poor boards”.

One donor said: “If we insisted on good standards of governance then we wouldn’t give many grants.”

While the report argues that trustee boards need to be as accountable as those in the private sector, which answer directly to shareholders, Ms Stringer said: “We’ve seen the high cost of poor governance in the commercial sector and the charity sector needs to take heed.”

An attempt by Age Concern England to set up a membership scheme, using benefits to encourage older people to join the charity, offers a recent example of poor governance.

The scheme, known as Heyday, tried to recruit 300,000 members in its first year, but only managed to attract 44,000. At a cost of £22m over four years, it had a devastating impact on its finances. The Charity Commission found trustees “did not exercise sufficient oversight and critical challenge”. Age Concern has now merged with Help the Aged.

The pressure on charities to improve their standards of governance is likely to intensify. While evidence remains inconclusive on whether the credit crisis has led to a significant fall in the public giving to charities, government funding will come under pressure over the next few years as spending budgets are slashed.

Source: Financial Times