A gloomy picture was painted in a recent report (sign-up required) by New Philanthropy Capital on the state of corporate governance in the British charity sector. The failure of boards in the financial sector is a hot topic at the moment. “But while the recent costly failure of banks has highlighted the weakness of much corporate governance,” say the NPC authors, “the problems of charitable governance remain largely hidden from view.” Boards, they say, are not holding charity executives to account for performance. As a result, “charities may begin doing work that is ineffective or outside their mission.”
The report argues that the problem stems from the lack of accountability of charity boards. Directors of private sector companies know that they are (supposed to be) accountable to shareholders, whereas charity trustees’ responsibilities are diffused across donors, beneficiaries and regulators. Yet in these challenging economic times, it is essential that boards do not allow charities to coast and that they are willing to take tough decisions. Sadly, it seems that few are up to the job.
The solution rests in part with donors. Philanthrocapitalists should echo the for-profit sector by playing the role of activist non-profit shareholders, putting pressure on boards to ensure that managers deliver. But this is not just the responsibility of wealthy donors. As NPC points out, there is a dearth of willing trustees with the right skills. Giving time to support better charity governance is a high leverage donation that many people could and should make – and they do not even need to be rich to do it.