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Hodgson's proposals on payment of trustees are ill thought through

Hodgson's proposals on payment of trustees are ill thought through
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Hodgson's proposals on payment of trustees are ill thought through1

Governance | Gareth Jones | 18 Jul 2012

Gareth Jones argues that Hodgson's reasoning for payment of trustees at large charities is flawed and calls for a better compromise.

Lord Hodgson’s proposal that large charities should be able to pay trustees has reopened an old debate, with opinions split down mostly predictable lines. However, it is illuminating to take a close look at how his argument is framed in the review document.

While he makes a fairly convincing case that a decent portion of charities have trouble recruiting trustees (though it does not state what size of charities these are), he then goes on to make, at different points, the following two statements:

  • “Interestingly, very few organisations mentioned the inability to pay trustees as a barrier to recruitment. Where it was reported, the issue was more the uninitiated expecting payment and being discouraged when this was not forthcoming rather than otherwise strong candidates being unable to take roles due to lack of payment.”
  • “Considering the limited concrete evidence on this issue, there is no real indication from sectors that do have the general power to pay trustees that they have found this helpful in recruiting and retaining quality trustees. Universities submitting evidence to the Review could see no clear benefit, and many have actively decided not to use the power they have, with one citing a wider survey they had conducted among universities that supported this conclusion. Similarly, evidence from housing associations is that paid boards cannot be shown to have delivered an increase in quality (though arguably in quantity) of applicants.”

As such, it appears that contrary to expectations, the shortage of trustees cannot be the driving force behind this proposal.

It is here that any pretence to evidence-based policy ends. There are other convincing theoretical arguments in favour, notably that payment will increase diversity in what is indeed a woefully homogenous role, but in Lord Hodgson's summary, these seem finely balanced by the theoretical arguments against.

However, because a section of the sector wishes to pay trustees, Hodgson appears to feel that something has to be done, regardless of the concerns. His compromise is to give the ability to pay trustees only to larger charities, as unlike smaller charities, these are on “the public ‘radar’.  The public’s radar system will be assisted in preventing abuse by the requirement that there are “clear disclosure requirements on the quantum and terms of any remuneration in the individual charity’s annual return”.

Yet this is likely to be woefully inadequate. Firstly, regarding annual report disclosure, this isn't just about pay, it's about what work goes on behind the scenes and the strategic direction that trustees decide for the charity to take. Secondly, at the risk of making a somewhat populist point, the public has disapproved of banker behaviour for some time, but has been unable or unwilling to force change. Thirdly, is the public really interested in the back-room activities of charities, especially those that do not fundraise? And finally, the public is not really best placed to judge - it already disapproves of paying charity chief executives the amount they currently earn, but rightly this does not stop charities paying a competitive rate.   Therefore, as with most Conservatives, Lord Hodgson's faith in the market and public scrutiny to preserve good behaviour is overreaching.

If payment of trustees must go ahead, a better compromise would be that a majority on the board must remain voluntary, in order to preserve the altruistic principles if the charity, but still give the flexibility to recruit diverse and skilled staff. Although this could of course be divisive within the boardroom, it would be a necessary measure to protect the primacy of the charity mission. As it stands, Hodgson's measures are ill thought out and have not presented a strong enough case to convince the doubters.

 

Hilary Barnard
Principal Consultant
HBMC
18 Jul 2012

Perhaps one of the reasons for the largely negative reaction to this proposal is the lack of evidence that payment of Trustees will actually improve the effectiveness of charity governance. Hodgson acknowledges this but fails to follow the logic, and insists on making an unnecessary proposal that will probably bite the dust.

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