Trustee Exchange 2012
22 Feb 2012
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Risks in the charity sector: Learning lessons from Unicef Germany
A scandal within one prominent charity can have a devastating domino effect across the sector, says Martin Brookes.
At a recent conference in London on charity trusteeship, attendees were asked whether they believed the charity sector was beset with similar problems to those which afflicted banks and caused such problems during the past two years. Sixty per cent said yes.
This finding, though unscientific and unrepresentative, suggests a concern with how the sector is governed. That could be interpreted as meaning that charity governance leaves something to be desired, or that regulation is too lax, or both.
The financial crisis has highlighted the problems that can come from poor governance, soft touch regulation, and systemic risk. The last is one of the revelations of the financial crisis and has so far received no attention in the world of charities. It represents the risk of system-wide problems as opposed to those that affect individual institutions only, and it is far more serious.
A classic formula to prevent bank failures used to be making an organisation ‘too big to fail’. Alongside this is now the idea of being ‘too connected to fail’, a formula that could be applied to Lehman Brothers, AIG and others. Organisations which do not themselves merit help can be so connected that their failure threatens to bring down the whole financial system.
Such systemic risk needs to be understood and analysed within the charitable sector. One such potential risk is around reputational links between charities.
In Germany last year, the local Unicef faced problems when questions were asked about its management practices. An ensuing scandal escalated and involved government ministers right up to the Chancellor, Angela Merkel. The head of Unicef stood down in February 2008, to be followed by the whole board. Almost a quarter of income and 30,000 supporters were lost.
Most striking however was the impact on other charities. A survey by the ratings agency, DZI, shows almost half reported an impact on their work, even though none were implicated.
The lesson from Unicef is that charities’ reputations can be connected, whether rationally or not. Whether or not they can be ‘too connected to fail’, it is in the interest of all to ensure good governance and high performance. This lesson needs to be fully understood and then acted upon, by regulator and charities alike.
The Charity Commission, the regulator for England and Wales, has a duty to promote public interest and trust in charities. This sits alongside its duty to regulate individual charities. It therefore has a duty to minimise ‘systemic risk’. If the Commission thought the same as the conference delegates mentioned above, it might wish to monitor such risk more closely and change its approach to regulation. The implications of this are, as yet, far from clear but they could be far-reaching.
Martin Brookes is chief executive of New Philanthropy Capital
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Carl Allen
11 Aug 2009
I suspect that most staff in the sector who have to manage front end risk have not been adequately trained, those managing system risk did not come into post with the relevant skills and those in governance are not properly briefed or receive basic risk training at all.
While many talk about the growth in size, complexity and scope of activity of the sector, few admit that the skill set has not kept pace. Part of the voluntary sector, in some important aspects, reminds me of a donkey cart on a modern 5 lane highway at rush hour e.g. charity investments in Icelandic Banks.
Attending our one day courses is a highly effective way of ensuring new and existing trustees fully understand their role, responsibilities and liabilities.
MM
12 Aug 2009
Charity governance leaves a considerable amount to be desired, since most which were founded via grass root sectors, have now displaced them all with professional beggars, corporate has-beens, and part-time celebs.
Trustees have forgotten what their remits are, and it is assumed many are just second-hand service provision via state handouts and corporate funding via tax dodges for publicity, or some well-meaning people sitting in baked bean baths..... Where charities invest the money should be put to a grass root vote and not trustees be allowed to gamble on the markets.
The key wording here is INVEST not GAMBLE. We should perhaps question charities moving funds out of the UK or investing in dodgy research too.. The RNID investing in American and Australian cochlear research programs which are mass opposed by deaf people as unsafe and downright dangerous to deaf children is one example. Disempowering deaf people from employment so that hearing can get work, and the glass ceiling remains instead is another !
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