Social entrepreneurs need people willing and able to say ‘hold on, slow down, let’s rethink this’. They’re called Trustees & they’re not easy to find!
The Charity Commission has issued its first official warning under new powers which came into force late last year. Following an investigation, the Commission found that Wendy Watson MBE, founder of the National Hereditary Breast Cancer Helpline was unlawfully paid £31,000 by the charity whilst she was one of its Trustees (see full story on the BBC’s website here: www.bbc.co.uk/news/uk-england-40887949).
Unlike private companies, which often have a mix of full-time senior managers and outside Non-Executive Directors (NEDs) serving on their Board (which may even be headed by the company’s Chief Executive Officer (CEO)/Managing Director rather than an independent chair); UK charity law requires a strict separation between those entrusted to oversee the charity on behalf of its funders and beneficiaries (the Trustees) and managers engaged by the charity to run its day-to-day affairs (the CEO/Executive Director and their senior management team (SMT)). In particular, even if not directly employed by the charity, Trustees cannot be paid (at least not beyond out-of-pocket expenses) by the organisation whose finances they control in trust for third parties.
The Charity Commission was therefore absolutely right to issue the warning it did in the the National Hereditary Breast Cancer Helpline case, even if (as has been claimed by Mrs Watson’s lawyers) the payments were simply made in error rather being a deliberate or careless disregard for the law.
That having been said, social entrepreneurship is a great thing and certainly should not be discouraged. People willing to invest their talents, time and money to set up a new organisation dedicated to improving the lives of others and making a positive social impact ought to be have a reasonable expectation that, if and when the finances of the organisation they have founded are robust enough to do so without compromising its overall mission, they can and should be at least minimally financially compensated for the work which they do (we do all have bills to pay, after all!)
People considering setting up a socially-minded organisation or enterprise could therefore take advantage of the relatively new Community Interest Company (CIC) model. This organisational setup was introduced into English law primarily with social enterprises in mind. CICs are not charities, and so are not bound by charity law nor regulated by the Charity Commission. Instead they are a special class of company, having to meet the normal requirements of company law (i.e. having Directors, submitting annual accounts to Companies House etc.) but also regulated by an independent CIC Regulator. The key difference between a CIC and a regular private limited company is that the assets of the CIC have to be used ‘for the benefit of the community’ and there is, as such, a limit to the financial returns investors (i.e. shareholders or members) can receive from their investments.
Not being charities, founders of CICs can (as is the case with private enterprise) both serve as a company Director and (company finances permitting) be remunerated for their work. However, speaking first hand as a former Non-Executive Board Member for a small CIC, there are quite a few drawbacks to this organisational setup. The most serious of these is that, as a relatively new kind of entity (CICs were established under the Companies (Audit, Investigations and Community Enterprise) Act 2004) many organisations – including public bodies such as local authorities – don’t seem to fully understand that a CIC is a not-for-profit entity, often treating them more like regular private limited companies. For example, there are automatic exemptions and discounts to charities liable for business rates that do not apply to CICs.
For these reasons I tend to advise those minded to set up new charitable or social enterprises to instead seek to establish a charity. I advise would-be social entrepreneurs to find other people to be their charity’s Trustees, with themselves instead taking on the position of CEO/Executive Director. This has the added benefit of allowing the possibility of remuneration for one’s work once the charity is established and, crucially, when doing so is both financially feasible and morally defensible in the judgement of an independent Board of Trustees.
Nevertheless, social entrepreneurs can be reluctant to follow this model on the grounds that formal control of the charity rests with its Board, of which they will technically not be a member. However, I would argue that would-be founders should view this dichotomy between Board and CEO/Executive Director as a good thing!
Firstly, in order to set up a charity you need at least three people to be Trustees – so if you are the sole founder having secured two volunteers to work with you as additional Trustees, you could still be outvoted anyway! It therefore makes little difference whether you are formally a member of the Board or not.
Secondly (and I say this from experience as the founder of my own enterprise dedicated to recruiting the very best talent for values-led organisations), entrepreneurs have to do an enormous amount of legwork just to establish the organisation, trying to get it off the ground and in a position to undertake the activities necessary for achieving the objectives they set for it; they are thus acting as a manager, not a governor.
The distinction between management and governance is oft written about at length, but it can be easily summarised with a simple example – that of schools. Schools have a Headteacher (their CEO/Executive Director) and a wider SMT whose job it is to manage the day-to-day education of local youngsters – everything from timetabling, to staffing matters, to student disciplinarians etc. The aptly-named Governors are their to hold the Headteacher to account, especially (but not limited to) use of financial resources and the continuing financial health of the school, as well as its educational outcomes (i.e. certificates and grades achieved by students, as well as students’ wider fitness to progress into employment or further study following their time at the school). The Headteacher will attend meetings of the Board of Governors, present reports, answer their questions, propose policies and strategies for their consideration and approval, and ultimately have to explain him/herself if the Governors aren’t happy with any aspect of the school’s performance or management.
This distinction between management and governance clarified then, one can easily see that entrepreneurs are (typically) working as executives and managers, not governors. Their rightful place is at the helm of the organisation as CEO/Executive Director; not one of several Trustees supervising a more disinterested person, simply in virtue of the fact that they themselves didn’t found it, who is managing the charity for them.
Lastly (and most importantly), entrepreneurs – regardless of whether they go on to take on the role of CEO/Executive Director or formally become a Trustee – simply can’t do it alone. This is because the role of independent governors in any organisation is absolutely critical to its success!
The mistake many entrepreneurs make (whether they be seeking to establish a charity / social enterprise or private business) is massively undervaluing the importance of having access to high-quality objective, slightly removed but still informed opinions and independent scrutiny regarding their activities, objectives, outcomes and performance. Even the Bill Gates’, Steve Jobs’ and Mark Zuckerberg’s of this world still get it wrong sometimes!
Remember that old adage: ‘you can’t see the wood for trees‘, well the more you invest everything you’ve got into a project the more likely that you will miss (what may even be fairly obvious) flaws in your aims and activities. Having trusted colleagues who have the intellectual ability, confidence, temperament, knowledge and experience to say ‘hold on, slow down – let’s rethink this‘ is absolutely essential for ensuring not only the essentials of good governance (i.e, sound finances, strong regulatory compliance, effect risk management etc.) but for the overall success of the organisation itself.
Consequently, it is of fundamental importance that Trustees not merely defer to a founder or CEO/Executive Director, but instead always exercise their independent judgement in protecting the interests of both funders and beneficiaries. One can see therefore that it is critical to have the right people serve on the Board of Trustees, not merely yes-men or Trustees in name only (those who like the Board-level title and perhaps want an entry on their CV, but without either the time or inclination to actually do the essential work required).
Of course identifying, engaging, onboarding and retaining excellent Trustees is a massive challenge in and of itself, quite separate from the myriad other concerns any organisation will have, regardless of whether it’s newly founded or more established. That is of course where people like me come in (i.e. recruitment and executive search consultants). We are here to help you find the best people for the job, addressing the talent search and engagement challenge with the experience and expertise necessary to get it right.
So, in summary. there is no excuse for breaking company law or breaching regulations, especially those related to a charity’s fiduciary duties. But that shouldn’t mean would-be social entrepreneurs have to feel overly constrained. By engaging good people to assist you on your social mission from the get-go: trusting them to be your watchful overseers whilst you embark on an incredible but challenging journey, listening to their advice, and above all accepting that you can’t do everything yourself no matter how talented, experienced, or qualified you may be; you can set yourself up for far greater success that might otherwise have been likely. And exactly the same goes for CEOs/Executive Directors of more established charitable and social enterprises seeking to lead their organisation into excellence.
Anyone interested in a free and confidential preliminary consultation regarding Trustee recruitment, or any other matter mentioned here, can contact me on 020 8133 4684 or via email at ED@accessambition.co.uk