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Independence of charitable foundations key to independence of sector

30 Oct 2014 Voices

Preserving the independence of foundations is essential to the future health of civil society, say Richard Jenkins and Keiran Goddard. This is one of a series of extracts from a forthcoming book of essays on the future of the voluntary sector, Making Good: The Future of the Voluntary Sector. 

Richard Jenkins, policy adviser, the ACF

Preserving the independence of foundations is essential to the future health of civil society, say Richard Jenkins and Keiran Goddard

It is easy to forget how important the independence of charitable foundations is for the voluntary sector – as funders, allies and agents in their own right.  This must be preserved over the next decade.

Perhaps the best illustration of the changing relationship between the public sector and the voluntary and community sector is the dramatic and seemingly inexorable shift in the ‘currency’ of state funding for voluntary organisations, from grant to contract. This shift poses a number of well-documented threats to independence, where voluntary organisations are inhibited from voicing criticism, fearful of losing future funding, or even being legally prevented from speaking out by gagging clauses.  

How does this affect charitable foundations? As charities themselves, they form part of the voluntary sector but occupy a particular position within it as a source of funding that is completely independent of the state. Increasingly they are by default becoming one of the few remaining sources of grant funding. At £2.7bn, their annual spending-power is small compared with government expenditure – just 0.4 per cent.  That said, despite their relative size, they punch far above their weight – supporting innovation, taking risks, backing causes that may otherwise struggle to gain attention and, crucially, providing access to money that does not involve the potential restrictions that state funding may entail.

However, the resources that allow foundations to operate independently of public sector funding have themselves become the goal of policy-makers’ incursions on the freedom of foundation trustees to decide how best to pursue their charitable objectives.  In recent years, as the public pot has shrunk, there has been a heightened focus on foundation funds. This,  coupled with a lack of understanding about how  ‘endowments’ function – the invested legacies and gifts that charities rely  on over the long-term in order to support their day-to-day activity – has meant we have heard wildly unrealistic political aspirations for the part foundations might play in bridging gaps in public welfare provision.  This is not only problematic for foundations, but also for those charities which benefit from their funding and the independence it affords.

So, when public expenditure began to fall, the government proposed a minimum percentage spend for foundations that, given the expectation of long-term low investment returns, would have put many organisations out of business in a generation.  Another example of trustees’ independence being threatened came in the shape of foundation endowments being mooted as a low-hanging source of capital for social investment, despite the fact that foundations already making social investments report that what stops them doing more is a lack of suitable deals.  

What these illustrations highlight is that perhaps the greatest risk that foundations, and the wider voluntary and community sector face, is ignorance.

The last decade has seen a shift in the way the state operates –a good example of which is the fact that, increasingly, central government formulates its policy informed not on advice from established in-house civil service experts but from teams drawn together on a project-by-project basis. It’s more efficient, but when teams break up and individuals move on, it increases the risk of amnesia.

Policy advisers, and therefore ministers, are in danger of failing to grasp the unique and particular value the voluntary sector brings to society and the place of independent foundations within the wider the funding ecology – what makes them thrive, what constricts and suffocates them. Instead, policy makers attempt to recruit civil society organisations wholesale to the current administration’s latest technocratic innovation. Because it no longer fully understands it, government risks neutralising the passionate and plural, engaged and argumentative independent voluntary sector that has contained and shaped British society’s values and aspirations just as much as our formal political structures have.

The state is forever in danger of killing the thing it loves, and foundations are one potential example. Policy-makers see only the money, yet foundations, with their overriding emphasis on their charitable mission, add far more than just financial value. Trustees can creatively use their expertise, reputation, convening power, networks and intellectual resources in the service of their specific charitable aims – ranging from groundbreaking medical research to work with society’s most marginalised. Foundations also have time. Unlike most other types of funder, foundations can work independently of political time-scales, free from short-term market cycles, and counter to received wisdoms, allowing them to weather storms, to conserve social good that is under threat and to catalyse it where it is absent.

At their best, foundations are the most transparent, intentional and efficient way of transforming private wealth into public benefit.  Policy-makers have an important role to play in ensuring that foundations continue to thrive as something distinctive to state funding and state-supported action – a role we sincerely hope they both understand and support.  

Richard Jenkins is a policy adviser and Keiran Goddard is head of communications at the Association of Charitable Foundations

  • This is one of a series of extracts from a forthcoming book of essays on the future of the voluntary sector, Making Good: The Future of the Voluntary Sector.  The collected extracts are available at Civil Exchange.