Tuesday 18 April 2017

Tweaking Governance Incentives

Societies’ need for the work of charities is complex. It is affected by the social and political systems, the economy, population growth, government policy, private sector’s social responsibility, and climate & environment, to name a few. 

Charitable endeavour is likewise affected by need itself, as well as levels of donations, professionalism, governance, public opinion, government policy & relations, voluntarism, and philanthropy. 

There are lively debates in the third sector on fundraising practices, on the use of Randomised Control Trials, the best ways to demonstrate impact, and the nature and practice of individual altruism.  There has also been some focus on governance itself, as displayed in the House of Lords Select Committee on Charities’ recent report: Stronger Charities for a Stronger Society.

Rather than propose a big shock-and-awe intervention in governance, this blog is an attempt to think through the incentives and disincentives that affect those engaged in it. There is no silver bullet for fixing charity governance, no easy-to-follow formula. A board can have a diverse set of talented people who meet at appropriate intervals with adequate information – they can look  perfect on paper – and still fail the charity they are meant to steward. Likewise a board that by description sounds chaotic can, with devotion and passion, steer a charity to robust growth. As we know from experience, governance is both about good process and strong dynamics in the organisation. 

We know that weak governance can cause serious problems for charities, and that boards which just keep a charity ticking along, without effectively challenging and stimulating the executive team, fail in their duty to help their charge be the best it can be for beneficiaries. We also know that if the relationship between a Chair and a CEO is bad then this will affect delivery and effectiveness. 

One way to think about this is to go back to basics, at least so far as management studies and behavioural economics would say: what are the incentives and disincentives for people becoming trustees and doing their duty as well as possible? 

Once we’ve established those, we can look at suggesting tweaks to the system to minimise the deterrents and boost the encouraging factors.

The list below is far from exhaustive and we’d welcome more suggestions. The list does not assign weight to each factor, so more items in a column doesn’t mean we think that column is overall more compelling. The factors certainly don’t all apply to all boards equally, or at all.

-         Belief in charity’s purpose, goals and work
-         Interpersonal reasons (favour for friend/family)
-         Warm glow/ advancement of spiritual enlightenment/ faith 
-         Enjoyment of the trustee role
-         Social status/acclaim
-         Social expectation (those of high standing; religious obligation)
-         Career advancement (looks good on CV; builds experience; contacts & prestige)
-         Good relationship between board and senior team

-         Time commitment (including holiday days taken up, evenings reading, fundraising events; opportunity cost over leisure or earning)
-         Weight of responsibility and tough board choices (even if you vote against)
-         Pecuniary liability if things go wrong
-         Legal and regulatory scrutiny (and related stress)
-         Risk of media and moral hazard, community distrust
-         Costs of travel, sundry expenses
-         Learning strain (trusteeship training or self-education) or feeling out of depth
-         Boredom/diverts from passion of frontline volunteering
-         Competition from other non executive posts that offer remuneration

This prompts a few simple ideas to minimise the latter column. They would not revolutionise charity governance by any stretch, but taken together, could increase diversity, attendance, enthusiasm and confidence.

A. Volunteer days in law
If the state made employers offer 3-4 days, or even half-days, as paid leave specifically for volunteering this would free up countless individuals who would like to join boards but cannot justify taking so much time off. The third sector often discusses the personal growth benefits to serving on a board – these could be useful to the trustee’s main employer too, so volunteer time should not be seen simply as holiday, but as a form of constructive training. 
The flip side would be: hold all board meetings outside work/study hours. This presents travel problems but is often the easiest solution…

B. Normalise travel costs being paid by the charity
The cost of travelling to and from board meetings is a barrier to entry for some potential trustees. Charities are already encouraged to expand their capacity for holding meetings using digital communications technology, but this too presents affordability challenges (laptop, microphone, broadband line). Charities that can should consider normalising the cost of travel (and other similar expenses) to and from board meetings – many already do.

C. Recruiting and paying trustees
As discussed by New Philanthropy Capitalit may be appropriate to consider paying trustees in more cases than we currently see. Recruitment should also be open (at least on the charity’s website and social media if not through an HR firm) to avoid any accusation of bubble-headedness or cronyism. Payment need not be shockingly high or comparable to a salary, but could compensate those who really can’t give up working time, however much they’d like.  This is often a constraint for having proper beneficiary/service user representation on a board and should be considered deeply as a matter of diversity – only with genuine diversity rather than tokenism can a board fulfil its proper function of testing and challenging the executive. Modest payment also allows a charity to demand adequate time from its board to take appropriate reading and training/development steps if available.

Some argue that this changes the dynamic of what volunteering is about, what board service means. Is this really a problem? Are we willing to accept less-than-optimal governance for the sake of a vague Victorian sense that voluntarism is inherently noble, to the detriment of those unable to work for free?

Of course there are myriad other suggestions that would affect governance, and hopefully have a knock-on effect in charities’ impact – reform and support for and from the Commission; a public better educated in the realities of fundraising and charity action; better training and resources for boards of all stripes – but these are fuzzy, indistinct. The improvements suggested above are simple, and B & C can be done by charities tomorrow, without any long legislative process. Idea A can be supported by individual employers tomorrow, again, if the private sector sees what it can do to help (and to promote its employees’ responsibility and skills). The ideas explored here could apply equally to social enterprise directors, small charity boards or global research foundations.

Sir Stephen Bubb