By Penny Dick
“Funding remains the single biggest concern among charities, the survey of 200 charity leaders found, with cuts in public sector grants and increasing uncertainty in the economy leaving many charities on the brink” (Charity Today, May 6th 2020)
Charitable organizations can struggle for funding at the best of times, never mind during a global pandemic, which is having massive and (as yet) unpredictable economic consequences. Even when economies are buoyant, funders want to feel some certainty that any donation will further the “good causes” endorsed by the charitable organizations.
One problem facing the ever-expanding charitable sector is the lack of consensus about what constitutes a “good” cause. This is especially the case for charitable organizations whose “good causes” are not directly related to alleviating the violation of basic human rights, such as poverty, inequalities, or health.
But even those charities, whose good causes are more likely to be perceived as laudable, need to make sure that they do not act in ways that jeopardize these perceptions. In the UK, one way that charities communicate their ethicality is by adhering to charity governance principles, which represent a form of “soft regulation”.
In this paper, we examine two charities (a museum and a disability rights organization) that were in breach of this soft regulation; however, we suggest each faced different levels of reputational risk by doing so. We argue that charities are most at risk of being perceived as acting inappropriately when they breach regulations that are aimed at financial propriety.
This risk can be mitigated, we argue, if the charity can present a case for its actions that makes sense to potential audiences. They can do this by presenting their apparent financial impropriety as being motivated by the imperative to survive in a context where funding is increasingly competitive and scarce. This is especially effective in the case of a charity whose overall mission (such as the museum in this case) may not be universally beheld as worthy. Such a charity can use this drawback to its advantage when seeking to justify activities that run counter to the regulator’s guidelines for financial propriety. For example, the museum did not adhere to the rule that trustees should not take on additional roles that might constitute a conflict of interest, such as those that are financially remunerated. One of the trustees was also appointed as CEO of the museum’s commercial concern and remunerated accordingly.
On the other hand, a charity, whose breach of soft regulations is presented in such a manner that the regulations are exposed as being inappropriate for the achievement of its particular goals, is not likely to incur any reputational risk. This is especially the case where such regulations are aimed at operational propriety.
In such cases, the risk falls completely on the regulator who could be seen as the organization acting inappropriately should it make any attempt to chastise the charity. Thus, the disability rights organization decided to ignore the rule that boards of trustees should have ultimate authority and be in control of strategic decision making. They purposefully ensured that staff were heavily involved in such processes because, they argued, conforming to the rule undermined their mission. It is not difficult to see how the regulator might look should it chastise this organization for its non-conformity with this rule.
Regulation, then, whilst aimed at promoting so called “best practice”, cannot work in every context. But charitable organizations are not naïve about this situation. They can exploit the contradictions, challenges, and problems inherent to their sector to stretch and shape these regulations in ways that enable them to survive. The general public should not be concerned about this in spite of high profile cases of apparent financial misconduct. Instead, we should seek to understand what we can learn about the creative capacity of the third sector as they attempt to navigate the complex web of values and beliefs that comprise contemporary society.
Reference:
Dick, P., & Coule, T. 2020. Nonconformance With Regulatory Codes in the Nonprofit Sector: Accountability and the Discursive Coupling of Means and Ends. Business & Society, 59(4).