Hard times for charities: A perfect storm or an opportunity? Charities may not be run for profit, but they still need to have high standards of corporate governance, writes Hans Zomer
THE decision by Labour senators to apply pressure on the Government to regulate the 7,800 charities in Ireland that receive about €6bn a year in taxpayers’ money, and the protracted, internal disagreements at Goal have placed the charity sector under closer scrutiny.
This comes when charities are under huge stress. Government funding has been cut, but demand for services is soaring. Charities find themselves more reliant than ever on the gener-osity of the public at a time when the public has less money to give.
Less money, greater demand, closer scrutiny: It sounds like a perfect storm. Instead, it’s an opportunity.
Transparency, accountability, and regulation are vital to any healthy institution. In the charity sector, they are all the more important.
This is because of the unique way that charities work. In the private sector, money acts as a reasonably efficient indicator of success and worth. If your service or product is below quality, people won’t pay for it, and you go bust. (There are exceptions, of course, as we have learned to our cost from the property bubble and banking crisis.)
But the charity sector, by and large, doesn’t sell its services to the end-user, so this basic accountability and feedback metric is missing. Instead, NGO services are funded by members of the public, or by government and other large donors — who can only gauge the quality of the work in a more indirect fashion.
This makes it vital that charities have strong values of transparency and accountability, and that the sector as a whole is well regulated. Charities have to build in mechanisms to ensure they are fully accountable to the people who give them money and to the people who use their services. They should also be accountable to each other and to the wider public.
Charities are a vital source of social solidarity and support. According to figures published this year by Irish Non-profits Knowledge Exchange, more than 560,000 people volunteer for the 12,000 “non-profits” in Ireland, many of which provide vital social services; a further 100,000 people are employed in the sector. These organisations, driven by shared values rather than pursuit of profit, play a key role in knitting the community together and promoting “active citizenship”. They are significant forces in Irish cultural life, the social safety net, and foreign policy.
Overseas development NGOs — which Dóchas represents — are some of the most prominent in the country, and their work is a key ingredient in our country’s international reputation. They have a significant economic impact, too: The 200 development NGOs in Ireland employ about 1,100 people here, contribute €12m per year to the exchequer, and are worth about €68m to the economy. Dóchas members are supported by 767,000 regular donors.
Many charities (or non-profits) start as volunteer initiatives, founded by people of great drive and passion, with a commitment to fighting injustice or building communities. Whether providing local services or bringing people together in a celebratory fashion to support fundraising for overseas programmes, they play a key role in the community. Thanks to their non-profit ethos and volunteer support, they do so at minimal cost. In short, charities are expressions of “people power” at its best.
Some of those strengths are all the more vital now. The energy and social solidarity epitomised by smaller charities can be a critical force in seeing us through the current crisis. Yet these strengths can conceal weaknesses.
Research in this area shows that many smaller charities are let down by challenges relating to poor financial management, a vulnerability to groupthink at board level, or the difficulties relating to the “founding father syndrome”, where the organisation can become overly associated with one central, charismatic figure.
Charities working to fight poverty abroad face a further challenge in making sure they are accountable to the people they are helping, who live and work in cultural and economic contexts very different from our own.
The best way for a charity to protect against these risks is by ensuring it is fully open and accountable to all those who have an interest in — or are affected by — its work. Dóchas has rolled out a mandatory code of corporate governance for its member organisations in order to strengthen their accountability to all their stakeholders. The code provides practical tools for charities and commits them to a number of transparency standards, including, for instance, the full disclosure of the remuneration package for their chief executive.
Donors, rightly, are increasingly looking for evidence that the charities they support are delivering value for money. Public trust can be challenged when groups appear to be struggling with internal matters rather than concentrating on delivering much-needed services. The Dóchas code is one step to ensuring high standards — and it has recently been strengthened by the publication of a governance code for the wider non-profit sector.
The key measure for ensuring standards and building confidence is the implementation of the Charities Act. Passed in 2009, the act has since languished on the statute books because of a lack of commitment and financing. As Irish charities attempt to respond to unprecedented levels of need, filling the gaps being left by reduced state services, regulation is an even more urgent issue.
It is a continuing perception in this country that non-profits are perhaps the last sector to enjoy a high degree of unconditional trust from the public. If there’s one thing Irish society does not need, it is to lose faith in yet another core institution.
Non-profits can work to improve their own standards of corporate governance, and can work together to promote self-regulation and sector-wide transparency, but regulation can only come from government. This is an issue vital not just for non-profits, but for society as a whole.
* Hans Zomer is director of Dóchas, the Irish association of non-govern-mental development organisations
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