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Issue 4 Summer 2019 Fiduciary duties and obligations in the spotlight 6 16 17 Financial governance – ESG investing – a new Who makes the important what do Trustees need requirement from decisions for your charity’s to know? 2020? investments? Assessing a Trustee’s financial How Charles Stanley plans Trustees need to understand responsibilities to meet its ethical goals the overall risk
2
Welcome CONTENTS
4 Is China’s Belt and Road Initiative a threat to the West?
6 Financial governance – what do Trustees need to know?
Welcome to the latest edition of InFocus, Charles 7 Charities under the spotlight – the need to
Stanley’s magazine for the charities sector. In this improve governance
issue we take a look at how a charity can diversify
its investments through the commercial property 8 Property – an important diversifier for charity funds
sector. John Redwood, Charles Stanley’s chief Global 10 Inside the mind of an Investment Manager
Strategist, also looks at the issues Trustees need to take
into consideration when choosing an organisation or 11 Asset manager insight – investing in your CEO
individual to manage their money. We also take a look 12 Introducing ella Forums
at aspects of financial governance that all Trustees
need to know. 14 The charity reputation game
16 ESG investing – a new requirement from 2020?
In light of recent scandals, Trustees of charities
are increasingly aware of the potential risk to their 17 Who makes the important decisions for your
personal reputation, we take a look at this important charity’s investments?
issue and the steps Trustees can take to minimise any
risks. As trade continues to be a major issue between 18 Awards Corner
the US and China, Garry White, Charles Stanley, Chief 19 Energy demand, bad weather and the changing
Investment Commentator, looks at China’s Belt and
nature of the consumer
Road Initiate and the many criticisms it faces.
We are always keen to hear what you think. If you
have any thoughts on which aspects of the magazine
you like and where you think we could do better,
please email InFocus@charles-stanley.co.uk with your Important information
comments and questions. The value of investments, and the income derived from them,
can fall as well as rise. Investors may get back less than
invested. Past performance is not a reliable guide to future
returns. Charles Stanley is not a tax adviser. Information
contained in this publication is based on our understanding
of current HMRC legislation. Tax reliefs are those currently
Nic Muston, applying and the levels and bases of taxation can change. Tax
Director of Private Clients & Charities treatment depends on the individual circumstances of each
person or entity and may be subject to change in the future. If
you are in any doubt, you should seek professional tax advice.
The information in this document does not constitute advice or
a personal recommendation or take into account the particular
investment objectives, financial situations or needs of individual
clients. Investors should consider this newsletter as only a single
factor in making any investment decisions. Charles Stanley may
provide oral or written market commentary or trading strategies
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that are inconsistent with or reflect views that are contrary to the
opinions expressed in this publication.
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Registered in England No. 1903304 section of our Terms referred to above.C H A R I T I E S I N F O C U S Issue 4 Summer 2019
3
A personal view from
our Chief Executive
The Charity Commission has set out its As this issue of InFocus goes to press, the United
Kingdom’s proposed withdrawal from the EU has been
Statement of Strategic Intent for the next
delayed until 31 October 2019. At Charles Stanley we
five years. The statement acknowledges are taking steps to ensure that we continue to provide
that demands on charities are growing, the best possible outcomes for our clients, whatever
with many providing essential services happens.
and intervening when governments can’t As a UK-based business, we do not anticipate that
or won’t help some of our society’s most Brexit will significantly affect the services we provide
vulnerable people. our clients or the way in which we deliver them. Where
a client’s specific circumstances mean that this may
The Charity Commission reported that one of the not be the case, we will contact them on an individual
challenges facing the sector is a decline in public trust, basis.
in part as a result of recent high-profile cases, but also
a reflection of the times that we live in. In the face of We are closely monitoring the implications of all
this challenge, the Charity Commission has re-defined potential outcomes, in conjunction with the Financial
its strategic purpose “to ensure charity can thrive Conduct Authority (FCA), trade bodies and other firms
and inspire trust so that people can improve lives and across the industry, and are ready to react as needed.
strengthen society”. As soon as there is clarity we will provide more details
on if, or how, clients may be affected. Regardless of
The purpose is broken down into five strategic the outcome, HM Treasury and the government have
objectives, with the Charity Commission seeking stated there will be sufficient notice to put in place any
to increase its focus on regulation beyond legal new measures.
requirements to become more than a “statutory
regulator”. In order to deliver on this purpose the In the meantime, clients’ accounts continue to operate
Charity Commission proposes to ensure that charities in the normal manner. Should you have any questions
are held accountable for their charitable status and at all about how Brexit might affect your investments
the stewardship of charitable resources. Given the or the service we provide, please get in touch.
backdrop, we support this move.
Since the last issue of InFocus magazine, markets
have staged an impressive recovery from the gloom
that was prevalent at the end of last year. Much of
this is down to a welcome change in tone from central Paul Abberley,
banks. However, the strength of the gains so far Chief Executive,
this year implies a period of consolidation could be Charles Stanley
approaching.SECTOR FOCUS: LONG-TERM TRENDS
4
Is China’s Belt and Road
Initiative a threat to the West?
China’s “New Silk Road” aims to improve trade between Asia and
Europe, but the growing influence of Beijing and its tactics around
debt have got hawks in Washington worried. They argue that China is
using its wealth to buy influence across the world – and are preparing
for a decades-long fight for economic supremacy and influence. Is the
programme as much a threat as some US hawks believe?
The One Belt One Road initiative, or the Although this ambitious initiative by China
Belt and Road Initiative (BRI), is the name has the potential to benefit the countries in
given to a Chinese government mega- which it invests, it has proved controversial
project to improve trade and economic in participating counties. The main criticism
growth between the countries of Asia and involves the amount of debt China has piled
Europe, primarily through infrastructure on poorer counties in an attempt to embed
investments. It is the largest infrastructure these developing nations in its sphere of
project envisioned in modern times. influence. Critics argue that this borrowing
trap will be used to exert significant
First proposed by Premier Xi Jinping in 2013,
leverage on participating counties and their
the initiative will involve countries hosting
leaders when they inevitably find themselves
some 68% of the world’s population and
in financial distress. Indeed, last year, as
40% of global GDP. The final investment
it creaked under a $1bn (£760m) debt
cost is expected to stand at between $4
obligation to China, Sri Lanka was forced
trillion and $8 trillion.
to hand over the strategic Hambantota
The “belt” refers primarily to connecting Port to companies owned by the Chinese
countries on the traditional Silk Road government. This is a good example of the
route from Asia to Europe. An example debt trap critics have argued is a deliberate
of this would be the direct rail freight part of the scheme.
route between Chongqing, China and
The Maldives has already asked Beijing
Dusseldorf, Germany which passes through
to reduce the debt accrued as part of its
Kazakhstan, Russia, Belarus and Poland.
participation in BRI, with the island state’s
The “road” refers to countries connected new finance minister claiming that the value
by the “Maritime Silk Road”, an oceanic of its debt was inflated through corruption “[The former government] knew what
trade route that encompasses south Asia, and graft. “This was wilful corruption,” they were doing, getting kickbacks from
Oceania, east Africa and southern Europe. Ibrahim Ameer told the Financial Times. contractors . . . That’s why the contract
prices were too high.”
There are also important geopolitical
China’s One Belt, One Road Initiative considerations too – as Washington and
Beijing battle over their global influence.
Last month, China Merchants Port Holdings
took over operations at the strategic
Doraleh container terminal in the small
East Europe Heilongjiang
(excluding EU members) African nation of Djibouti. This is significant
Jilin
Liaoning for the Trump administration as Camp
Lemonnier, the US’s only permanent military
Central Asia Chongqing base in Africa, is located about two miles
Silk Road Economic away. Now, the Italians want the Chinese to
Belt (land route)
invest in the port of Trieste in order to make
Maritime Silk Road
(maritime route) it the Asian nation’s gateway into Europe.
South Asia & This has proved a very provocative move,
South-East Asia for both Brussels and Washington.
China and the US are currently locked
in a conflict over their future spheres of
Source: Bloomberg, Straits Times Graphics influence. The current trade war is a smallC H A R I T I E S I N F O C U S Issue 4 Summer 2019
5
Garry White
Chief Investment Commentator
company obeys regulations in all countries
in which it operates.
There are some concerns that there is a
military aspect too. In December, the New
York Times reported that it had reviewed
a confidential plan about China’s military
projects in Pakistan under BRI. According
to the proposal, a special economic zone
will be created to produce fighter jets, while
navigation systems and other military
hardware will be jointly built at factories
in Pakistan. China was “for the first time
explicitly tying a Belt and Road proposal
to its military ambitions,” the newspaper
concluded.
As well as this military aspect, there are
worries that participating countries will
make themselves too reliant on China.
While many of the countries benefiting from
the BRI are in dire need of infrastructure
and modernisation, China supplies almost
part of this battle for dominance. In October in 2015. The policy targets many fields all the workers to carry out the projects,
last year, US Vice President Mike Pence including robotics, artificial intelligence (AI), which limits the scope for local involvement,
declared that there was a new “cold war” smart appliances and electric vehicles. The creating tensions with “excluded” younger
developing between the two countries. So, Crowdstrike report suggests that, while host-country populations. This has caused
any resolution of the trade war will be a making positive diplomatic noises in trade some to argue that the BRI could even end
small truce in this longer-term battle. This discussions, cyber-espionage by China has up creating infrastructure networks for
means the new cold war is being fought in now increased significantly. extreme and radicalised organisations in
other arenas, particularly online. unstable countries.
This supports fears that Huawei, the
Since Donald Trump started his trade world’s largest manufacturer of telecoms China and the US are in the midst of a
war with Beijing, cyberattacks on equipment, could spy on behalf of the struggle for dominance. China insists that
the US by Chinese state actors have Chinese government if its components BRI is benign, but it is likely to continue to
increased sharply. US cybersecurity group were used in telecoms networks. The build tensions with the US. Coming at a time
CrowdStrike, the company which revealed company is now banned from bidding for when the “America First” Policy is resulting
the Russian hack on the Democratic US government contracts; New Zealand in the US becoming increasingly isolationist,
National Committee in 2016, recorded a and Australia have blocked local telecoms the BRI is a threat to the West as it increases
significant “increase in tempo from China- operators from using its equipment in their the “soft power” of China in a number
based adversaries” since the middle of 2018. fifth-generation networks – and Germany is of strategically important countries.
It is no co-incidence that industries targeted mulling a similar ban. In the UK, BT Group However, these countries are starting to
in cyber-attacks are in sectors central to has removed Huawei components from a conclude that that the BRI is not a magic
the Asian nation’s technology strategy system it is developing for the emergency pot of gold – and it is likely to come with a
as laid out in Premier Li Keqiang’s Made services and GCHQ is looking into the issue. significant sting in the tail. This is a welcome
in China 2025 (MIC 2025) plan, unveiled Nevertheless, Huawei executives argue the development everywhere but Beijing.FINANCIAL G OVERNANCE
6
Financial governance –
what do Trustees need By Jonathan Orchard
to know? Partner at Sayer Vincent
Jonathan Orchard works with a broad portfolio
of external and internal audit clients. He has
Jonathan Orchard of charity accountants Sayer Vincent looks dedicated his career to building the effectiveness
of social purpose organisations. He speaks
at the financial responsibilities that charity Trustees face. regularly on subjects including charity risk
management, internal audit & assurance and
fraud prevention. He is a qualified chartered
The Charity Commission guidance – CC25 management secures short-term survival. accountant and treasurer of INTRAC.
– gives chapter and verse on the financial Reserves and working capital are often
responsibilities that rest with Trustees. It is considered together and while they are
important reading for any Trustee and a related it is perfectly possible to have
helpful reminder for experienced Trustees. strong working capital and no reserves Charity fraud is very much in the Charity
But, in practice, for charities with more and vice versa. The funding environment Commission’s spotlight – a high proportion
than a handful of staff, the day-to-day is increasingly requiring pre-financing of serious incident reports relate to fraud.
practical implementation of many of those or sufficient working capital to absorb Nothing harms a charity’s reputation more
responsibilities will rest with the CEO and funding in arrears. Headline income growth than the risk that donor funds are lost
their finance team. I want to focus on can mask working capital difficulties which, through fraud. Yet in too many cases, fraud
those areas that I would expect to be at if combined with high fixed costs, can bring risk only hits the Trustees’ radar after an
the forefront of the Trustee board at the a charity down. incident has happened. To help Trustees,
current time. the Charity Commission has produced a
short document on the 10 questions that
Charities are facing greater Trustees should ask in relation to fraud.
pressures than ever and
many of these pressures Trustees also have an important
are giving rise to role in setting the policy for how a
increased financial charity’s finances are reported
risk. And, in my on externally. Obviously, the
view, it is aspects of annual Trustees’ report
financial risk and an and accounts are one
understanding of aspect of this. I read many
the charity’s business Trustees’ reports and am
model that should often disappointed at the
be focusing Trustee quality of the financial
attention. Financial risk commentary. There is a real
arising out of a charity’s missed opportunity to use
business model should be the the Trustees’ report to tell the
key driver behind its reserves policy. A story of how a charity converts
bland policy for three months or six months its financial inputs into social
of income/expenditure suggests to me impact. This is ultimately what
that the Trustees do not fully understand a potential donor is looking for
This when they read a set of accounts
the financial risks. Such policies can lead is why
to either too low a level of reserve or (for those that do). This can be done
Trustees by explaining more about the financial
the unnecessary tying up of charitable should expect
resources. The kinds of financial risks that model and how critical resource allocation
management decisions are made.
should form the basis of a reserves policy accounts to include
include: balance sheet trends and cash flow But there are other ways in which charities
• income security forecasts as well as an income and communicate their finances. Simplistic use
• nature of cost base expenditure account. of cost ratios – eg x% of income goes on
• level of long-term commitments ‘charitable expenditure’ – might strictly be
Trustees should therefore ensure that they true per SORP definitions but be misleading
• future strategic investments know their charity’s business model and
• other risks that may draw on in the eyes of the general public and result
the key financial risks that arise. They also in reputation risk. The question of what
unrestricted funds (foreign exchange, need appropriate assurance mechanisms
matched funding, donor clawbacks) messaging is and isn’t appropriate is a
in place to give them the confidence in how valid one for Trustee consideration.
Reserves help to secure medium term those risk are being managed.
financial viability. Working capitalC H A R I T I E S I N F O C U S Issue 4 Summer 2019
SPOTLIGHT
7
Charities under the
spotlight – the need By Nadeem Azhar
to improve governance Associate, Hempsons
Nadeem specialises in advising charities and
social enterprises, focusing on their governance
and commercial activities. He also works with
Why it very important that Trustees ‘know their charity’ the broader social sector, from campaign
bodies to employee-led organisations, as well
as on collaborative projects delivering health
and social care. He is part of a team that advises
It would be easy to conclude that the pressure, and is still feeling the effects of household name charities, including Zoological
charity sector is in freefall – that its its budget being slashed in half. Delays Society of London, The Royal Exchange
reputation is being eroded. Recent in obtaining advice and/or decisions are Theatre and Letchworth Garden City Heritage
Foundation. He has been a Trustee of the
press reports have linked scandals to now inevitable. An increasingly common National Maritime Charity, Seafarers UK and
the breakdown in trust contributing to a approach seems to be allowing Trustees to the grant-making Sylvia Waddilove Foundation,
downturn in charitable giving. To some simply get on with things. Empowering as it and continues to work pro-bono with theatre
extent this is true (CAF UK Giving May 2019). may be, there are obvious risks with such a companies in London.
‘hands off’ approach – a failure to maintain
There is, however, another picture. Reports some very basic standards of governance
also show that donor relationships are being one.
changing – fewer donors, that are giving • Senior staff and management need to
more, and who want to see where their understand the role of Trustees and their
Common Failings oversight function – not just the board
money is going. In fact, Charity Financials
recently reported an overall increase in A key issue seems to be charities failing of Trustees
giving among the largest fundraising their ‘primary’ legal duty. This is to ‘know • Trustees and management should
charities. your charity’. This is not limited to knowing work together to identify skills gaps
the charity’s legalistic objects. It is about and improve recruitment and induction
understanding how these actually match processes
delivery, and whether a charity’s core • Trustees should be willing to challenge
purpose is being properly fulfilled. the charity’s overall strategy, and set
Reports show that donor the ‘know your charity’ agenda. They
relationships are changing – Understanding purpose goes hand in should input into the charity’s core set
fewer donors, that are giving hand with the legal obligation to act in a of values
charity’s best interests. These were the key • Communication needs to be open
more, and who want to see learning points from the Save the Children, and simple, with information shared
where their money is going. Oxfam and the Presidents Club scandals. throughout the organisation. Trustees
Charities are starting to acknowledge a should foster a culture of collaboration
need to place their staff, beneficiaries and and integration.
values ahead of reputation management,
The sector seems to be taking a good
or a need to maximise their commercial
look at itself. Save the Children released
edge. This can of course be a challenge, as
its independent report into harassment in
charities are also under a duty to safeguard
October 2018. Oxfam recently disclosed
and make full use of their assets.
its investigation into sexual harassment in
Haiti. Another key failing can be accountability,
and the ability to recruit a diverse and
The regulatory climate skilled set of Trustees who are then able,
There has been a raft of recent changes and willing, to hold their management
designed to improve governance. The and/staff to account. Where the board
Charity Commission was given new powers lacks skills, they will usually fall short in
under the Charities (Protection and Social other areas, such as failing to identify
Investment) Act 2016 which it has started key risks, and failing to properly manage
to use. We have a Fundraising Regulator, conflicts of interest.
a sector developed Charity Governance
Code, and a revamped version of the ‘The What can be done to bridge the
Essential Trustee’. accountability gap?
There are number of ways to improve
But the funding has not followed the
accountability between the Trustees and
changes. The Commission is under
the rest of the charity. To list a few:CHARITIES: PROPERTY
8
Property is an important
diversifier for charity funds By Harry de Ferry Foster
Savills
In the past, most charities’ investment portfolios have consisted
mainly of equities and bonds, but in today’s volatile economic
environment it has never been more important for charities to
hold a diversified portfolio of investments.
One of the best performing asset classes of simply being restricted to buying and
over the past three, five and ten years has selling, investors can improve returns
been commercial real estate, which can through active management of their Turning to current market
help add an extra element of diversification investments. This can include, for example, conditions, the commercial
and stability to investment portfolios for refurbishment and extension of a property
several reasons. or a change of planning use class to real estate market delivered
facilitate a higher value use. It might also remarkably stable returns last
Firstly, commercial property delivers a include taking a surrender of a unit in a year of close to 7%.
high (and relative to bonds – very high) multi-let property in order to secure a new
level of income. This income also tends to letting at a higher rent thus creating rent
be relatively predictable – even in times of review evidence for the other units. having bounced back strongly. Elsewhere
economic uncertainty when companies
the outlook is much more positive – logistics
may issue profit warnings, announce Turning to current market conditions, the
has been performing particularly well due
redundancies and suspend dividend commercial real estate market delivered
to the growth in online retailing. In the
payments, tenants still continue to pay their remarkably stable returns last year of
alternatives sector, the budget hotel and
rent as they have no choice if they wish to close to 7%. However the devil is in the
self-storage groups have been on a roll
continue trading. detail and there are areas of both strength
and are expanding quickly. London has
and weakness. Shopping centres and
Secondly, commercial property has performed very well since the referendum
the majority of high streets are in decline,
historically been a less volatile investment vote (contrary to many people’s
with a number of high-profile occupiers
than equities or bonds, partly because of expectations) with record occupational
entering administration (Debenhams, LK
this high and stable income component take up and record overseas investment.
Bennett, Maplin, Toys “R” Us) or using the
(circa 5% per annum on average over the All these sectors are being helped by a lack
CVA mechanism to shed stores and reduce
last 5 years). We don’t see this significant of new supply as the prevailing cautious
rents (i.e. Carpetright, Mothercare, Arcadia
advantage being eroded any time soon, atmosphere in light of the continuing
and Homebase). This sub-sector is best
with base rates and gilt rates remaining Brexit negotiations hold back speculative
avoided for now. However, the supermarket
low for the foreseeable future. Unlike other development.
operators have been doing well, with Aldi
investment classes, property represents and Lidl continuing to expand and Tesco
a tangible, real asset. Therefore, instead So how should one invest in this
sector?
Fig 1 - Property yields continue to offer a significant yield advantage 1. Investing directly
Just like buying your own house, investing
12 Spread directly has the benefit of owning the
10 Industrial property outright and being in complete
8 Retail control. However, remember that direct
6
Gilt yield property can be illiquid due to the long
4
UK base rate sales and marketing process compared
Office
2 with shares and bonds, plus you will also
All Property
0 equivalent yield need to manage the building yourself and
-2 decide when is the best time to sell – one of
Source: MSCI 2019
2003 2005 2007 2009 2011 2013 2015 2017 2019 the most difficult things to judge with any
investment.C H A R I T I E S I N F O C U S Issue 4 Summer 2019
9
You would also need to decide whether others have been launched subsequently.
you will be able to maximise performance Some also specialise in a particular
by exploiting all the potential angles: sector (such as INTU – shopping centres
refurbishment, redevelopment or change – and Supermarket REIT). As part of their
of use, and would you be prepared to suffer requirements to be granted REIT status, a
the fall in income whilst you do this or if a property owning company must distribute
tenant became insolvent? 90% of their rental income directly to its
shareholders in the form of a dividend.
This may depend on your charity’s In return, the REIT becomes exempt from
constitution — if you are a total return paying any Capital Gains Tax.
fund this may not matter, but if you are buildings charities can manage their
permanently endowed it may be more There is a tax downside, however, in that overall exposure to real estate and adjust
problematic. Generally, owning directly REIT’s have to pay stamp duty land tax their portfolio weightings more easily;
tends to appeal to larger charities because (currently levied at approximately 5% on Lot size – Larger pooled portfolios can
they have the scale to be able to afford any commercial transaction) and dividends acquire larger buildings than individual
a large diversified portfolio of buildings will be subject to withholding tax. Neither of charities acting on their own account.
let to multiple occupiers. This means they these apply in a CIF. This may also allow access to markets
are insulated in the event of, say a tenant previously out of reach (Central London for
default on an individual property. 3. Investing indirectly through a Common example).
Investment Fund (CIF)/ Unit Trust Management Time – Property investment
Commonly known as pooled funds (as is a management-intensive, specialist
they are set up with the aim of “pooling” field. Investment through pooled schemes
together multiple investors), the rationale reduces this onerous burden for Trustees
being to gain economies of scale and while enabling access to specialist property
increased purchasing power. They allow investment managers;
access to a much larger and diversified Stamp duty land tax (SDLT) – Whilst levied
pool of assets than you would be able on a sliding scale, most properties incur
to afford individually and access to SDLT of close to 5%. Charities are exempt.
professional management. Property is a By acting collectively, in a special charity
capital intensive asset requiring critical vehicle, this gives a clear performance
mass to maximise returns and minimise advantage.
risk – we estimate that the minimum size ESG – Being seen as a ‘responsible investor’
2. Investing indirectly through a REIT of property portfolio to achieve these is becoming increasingly important to
Real Estate Investment Trusts (REITs) are objectives is some £50 million. Hence, Charities and a charity specific Common
an easy way for individuals to invest in for the majority of charities, which are Investment Fund will actively promote
commercial property without the need to unable to run their own segregated environmental, social and governance
buy any one building outright or to take portfolios of such size, investment through (ESG) aspects in its investment philosophy.
on the associated hassle of dealing with pooled vehicles is perceived to offer many They will also have an ethical policy. The
tenants. Whilst REITs are well established as advantages, such as: Fund Management team will work together
a form of investment worldwide, they were with a third-party sustainability consultant
only launched in the UK on 1 January 2007. Property diversification – First and to follow an ESG Roadmap, specifying
foremost, by pooling their interests the targets and objectives to enhance ESG
If you choose to buy shares in a REIT charities can access much larger portfolios performance throughout the portfolio.
you will not be buying into an individual which provide the required diversification These funds can also apply a Negative
property but instead putting your money by type and geographical spread; Screened Investment Approach, avoiding
into a fund which buys properties for Asset diversification – By holding units investment in properties whose tenants
letting purposes. This eliminates the risks rather than large, “lumpy” individual could potentially cause embarrassment to
associated with ‘having all your eggs in
unitholders e.g. arms and tobacco.
one basket’ as the fund will own various
properties, potentially over various sectors Those few charities of sufficient overall size
of the property market. So, effectively, able to run their own property portfolios
you will own lots of tiny slices of many can achieve for themselves all the benefits
properties. Nine UK property groups outlined above. For the majority of
elected to convert to REITs at the outset on schemes, however, it is only through a
1 January 2007, and they include the likes pooled approach that they will achieve the
of British Land and Land Securities and similar rewards of investing in property.INVESTMENT MANAGER INSIGHT
10
Inside the mind of an
Investment Manager By Will Walker-Arnott
Investment Manager
London-based Will Walker-Arnott, a Trustee of two
charities, explains the benefits of the personalised
service provided by Charles Stanley across the country.
Charles Stanley prides itself on the service and challenge the
we provide our clients and we work hard investment process.
on maintaining some of the highest From an investment
client-satisfaction scores in the industry. manager’s point
Part of our success comes from the quality of view, this means
of our digital systems, as we invest in that we are directly
propriety technology through our Charles accountable
Stanley Direct division. Significantly, to the client for
we also continue to place an emphasis the underlying
on the human touch and believe in the performance of
reassurance and confidence this provides the portfolio and
our client base. With this in mind, I thought this added scrutiny
it might be insightful to elaborate on some certainly helps
practical examples from my experience focus the mind on
of how we look to differentiate ourselves achieving the best
through a superior client experience: possible returns.
1. A broad skillset. We have a large
number of charity clients at Charles
Stanley and we appreciate that
Trustees have to navigate a plethora
of legal and moral responsibilities. In
We prefer to pick up the phone prefer to pick up the phone or meet
an increasingly competitive market or meet clients face-to-face clients face-to-face rather than
place, we recognise that we need to rather than relying on electronic relying on electronic correspondence;
provide clients with strong investment correspondence; creating creating rapport, trust and working in
advice but also provide wider support a collaborative manner leads to better
rapport, trust and working in a investment outcomes. My team has
to Trustees in helping them to comply
with their regulatory obligations. I collaborative manner leads to recently been through an intensive
myself am a Trustee of two charities better investment outcomes. communication course, where we were
(Haileybury College and the Amber assessed by an external provider to
Trust) and I think that my charity clients make sure that our correspondence
benefit from regular discussions about with clients is as effective as possible.
my experiences on both boards. It helps 3. An alignment of interests. I am a In addition, I am a regular guest on the
me to provide a more holistic service firm believer that there needs to be Today Programme on BBC radio where
that does not just centre on investment an alignment of interest between the I am often questioned on significant
advice. client and the investment manager. market events and clients find these
There is no better way to understand regular updates useful.
2. No relationship managers. An and appreciate a client’s mood at the
important distinction with many of our various stages of the market cycle than As we travel through an increasingly
competitors is that clients have direct to invest your own money alongside digitalised Twenty-First Century, Charles
contact with the very person making them. I run my own pension in the Stanley continues to place an emphasis on
the underlying investment decisions. same manner as the client base which providing a quality personal service to our
We do not have a model whereby we illustrates a conviction in the investment client base. We have a firm conviction that
keep investment analysts locked away philosophy and allows me to anticipate the future of wealth management will be a
in our basement and only allow smooth, any potential worries or concerns my marriage of an empathetic, personalised
well-polished “relationship managers” clients may have. investment service with high quality
to liaise with clients. We think that our digital systems. We will continue to work
model provides a better experience for 4. Communication. Timely and clear hard to maintain and improve our client
the client as they can speak directly communication remains an important satisfaction scores over the coming year.
to the individual running the portfolio tool in servicing our client base. WeC H A R I T I E S I N F O C U S Issue 4 Summer 2019
ACEVO
11
Investing in your CEO
At ACEVO, we believe that investing in leaders By Vicky Browning
CEO ACEVO
creates a ripple effect.
When leaders are at their best, their vision 58% have no statement of it serves. In July 2018, ACEVO published a
and impact spreads to their teams and delegated authority report in collaboration with the Institute
organisations and on to their beneficiaries of Fundraising on diversity in the charity
Trustees are ultimately responsible for
and the wider world, to win support, sector. This established eight leadership
the decisions and actions of the charity,
change lives and make a difference. principles CEOs can sign up to, to take a
but the board cannot and should not
But to be at their best, CEOs need support lead in improving diversity and inclusion.
do everything. A formal statement of
and development. ACEVO’s latest Pay and
delegated authority makes it clear what Leaders are asked to:
Equalities Survey, published in March 2019
decisions the board will make and where
revealed a number of concerning issues
it delegates authority to the executive 1. Acknowledge that there is a problem
related to personal development and
team. This will include financial and related with racial diversity in the charity sector
support programmes available to CEOs.
controls, business planning, HR and and commit to working to change that.
ACEVO’s annual survey is the only one that
statutory duties as well as the reporting 2. Recognise the important role leaders
looks at CEO pay, benefits and equality in
arrangements that enable the board to have in creating change by modelling
charities of all sizes. It reveals some positive
oversee these delegated matters. positive behaviour and taking action.
developments as well as identifying areas
3. Learn about racial bias and how it
that can be improved. This article looks A scheme of delegated authority should impacts leadership decisions.
at some of the key challenges identified in be worked out between the CEO and chair 4. Commit to setting permanent and
the report and provides advice on how to and then agreed by the board. This should minimum targets for diversity that
address them. be developed before problems arise as reflects the participants, donors,
once a problem is recognised it is often beneficiaries and the population of the
46% of CEOs have no formal too late to start the process of developing area that their charity operates in.
salary review on a regular basis a new one. ACEVO has a number of 5. Commit to action and invest resources,
Trustees and chairs should be providing resources you may find useful when where necessary, in order to improve
their CEO with the same HR support (such considering your relationship with your racial diversity in their charity.
as regular one to ones, annual appraisals, chair such as our ‘Leading the CEO and 6. View staff as the sum of many parts
salary reviews and benchmarking) that Chair to Effective Governance’ publication. rather than a single entity and recruit to
the CEO provides to their staff. ACEVO’s build a diverse group of talented people
Good Pay guide sets out five principles 35% of CEOs have no regular collectively working towards a shared
of good pay-setting which Trustees appraisal vision.
can use to review their CEO’s salary. Huge responsibility lies with the CEO so 7. Recruit for potential, not perfection.
These are transparency, proportionality, it is important for there to be system of 8. Value lived experience, the ability to
performance, recruitment and retention, appraisal and feedback which can help a draw from one’s lived experience and to
and process. CEOs can use the data from chief executive develop. If CEOs do not have bring insights to an organisation that
ACEVO’s annual pay survey to benchmark a good relationship with their chair they can develop its work.
their own salary against peers. are often apprehensive about asking for an
appraisal in order to not jeopardise their Summary
40% of CEOs receive no support relationship further. However, there needs The findings from the Pay and Equalities
for professional or personal to be a culture of mutual feedback around Survey 2019 suggest that there is potential
development leadership, performance and development. for better structures within charities which
No one should ever stop learning, and The Association of Chairs has a guide can create healthier relationships and
promoting a culture which suggests to appraising the chief executive which cultures to make the biggest difference
that any staff member has reached their is free to download (https://www. and, in turn, lead to greater impact. Good
capacity for personal growth is harmful. associationofchairs.org.uk). governance is not the sole responsibility of
Not all development needs to be costly: for the board, CEOs must work in partnership
example, CEOs can undertake mentoring Just 26% of CEOs are satisfied with Trustees, but it is the responsibility of
programmes in which the only cost is time, with the ethnic diversity and 30% the board, and especially the chair, to work
but it is time well spent if it leads to a rise in with the diversity of ability of collectively with the CEO to ensure they
the effectiveness of the charity. ACEVO also have the support, structure and skills they
their boards
offers free online leadership development need to do their best job possible.
There is less racial diversity at leadership
resources on its website (www.acevo.org.
level in the charity sector and, as a result, it
uk).
does not currently reflect the communitiesELLA FORUMS
12
By Danny Kalman
CEO, ella Forums
For more information, please contact
Phil Thompson at phil@ella-forums.org
Introducing
ella Forums
ella Forums supports and inspires leaders in charities
and social enterprises. It’s chief executive Danny,
Kalman, explains how this is done.
The intent of our ella Forums is to place • Absence of robust processes for the by facilitators who bring to the group a
emphasis on the best practices of good recruitment and training of new talent wealth of knowledge, experience and a
leadership in the charity sector. We coaching mindset
recognise the crucial role that charities At ella Forums we deliver a unique • Learning with leaders so that we all
and social enterprises play in our society experiential leadership programme. become better leaders
and the positive impact they have on the By adopting strong collaborative • Continuous personal development and
wider environment. We also recognise that partnerships, we work with others who self-awareness to develop humility,
leaders of charities and social enterprises have a passion for developing inspirational, wisdom and patience leading to
can face far greater challenges than motivational and happy working improved happiness and success as a
those typically seen within a commercial environments in the charity and not for leader
organisation. This can result from a profit sector. More specifically, we bring • An impactful, measurable, valuable
number of factors: CEOs and emerging leaders together in learning environment full of integrity
small, diverse and inclusive workshop • A focus on improving individuals’ self-
• Governance structures which may groups (typically 10 to 15 members) on a esteem, together with the esteem of the
slow decision making and effective monthly basis, building trust and empathy charity sector
leadership across the group through regular meetings • A spirit of possibility, curiosity, creativity
• Restrictions imposed by legislation, that foster a sharing and caring learning and courage
regulation and stakeholders environment for members. The workshops
• Restrictions on remuneration levels of typically feature: Case study: Rosalind Bluestone,
executive leaders, impacting self-esteem
• Experienced external speakers selected Goods for Good
and confidence
• Minimal effective professional to challenge, support and promote At the age of 59, (four years ago) I founded
development for leadership and improvement in business and life skills GOODS FOR GOOD (GLOBAL) when I
management teams • Peer to peer active, issue-led learning led was made redundant from the charityC H A R I T I E S I N F O C U S Issue 4 Summer 2019
13
I worked for. I wasn’t ready to retire, support and encouragement of my ella doing, and where you’re going. People
when I knew that I could help millions business mentor has helped me harness will only be able to follow if they
of refugees overseas by sending them strategies to enable this growth and understand the destination, and how
trucks of warm blankets, shoes, clothing, success. you’ll get there.
nappies, medication, shampoo, soap
and hospital beds. I couldn’t sit back and Case study: Nick Aldridge, PayPal • Other people have ideas too. Many
watch the news of millions of refugees leaders are too busy with their
Giving Fund
displaced and traumatised; having lost own thinking, and how they come
The most effective charities tackle across to others, to take in the ideas,
everything they’d ever owned. I knew how
complex and intractable problems with encouragement and wisdom that can
to get donations of vital, overstocked
thoughtfulness about their work, empathy come from the people around them, let
goods free of charge from UK companies,
for those they help, and determination to alone foster that contribution. The most
whilst helping them fulfil their zero-waste
make a difference in spite of the obstacles valuable form of leadership enables
policies. I knew how to export and deliver
they face. To thrive in an uncertain others to come forward and lead.
a life-line of these donated goods from
environment, where grant funding is hard
the UK as humanitarian aid to overseas
to come by, and donors increasingly expect • Be flexible and resilient: remember
charity partners. This is what I am good at.
a real return on their investment, charities that any plan is a living document,
I had built up both UK industry and charity
must constantly improve by reinventing and you’ll need to adapt, improvise
contacts in my previous role with a London-
themselves and their work. Their ability and learn as you go. Change and
based international charity.
to do so depends on the quality of their challenges bring opportunities to show
However, I lacked both confidence and leadership, in which too many charities your team’s strengths and develop
higher-level management skills. So, though have under-invested. new ones. When things go wrong,
filled with drive and enthusiasm, it was fail quickly and learn – you’ll have a
As the CEO of PayPal Giving Fund, which stronger foundation to help address the
daunting. Nine months on, I received
last year raised $178m to grant to 73,000 next challenge. And if those challenges
an invitation to attend an ella meeting.
charities, I focus much of my attention were simple and easy, you wouldn’t
I was told this was a forum of charity
on developing leadership within and need leadership in the first place.
CEO’s and social entrepreneurs. This was
around our organisation, so that we
the beginning of another life-changing
have the capacity – and enthusiasm – to • Cultivate feedback: criticism from
milestone for me. Working alone on the
respond to new challenges and seize new others is (at worst) an opportunity to
day-to-day running of a huge project alone
opportunities. In the last few years I’ve better understand their perspective
isn’t easy. It’s a very lonely place, despite the
benefited from the chance to meet with and build your own resilience. At best,
backing of my Dutch charity colleagues.
other leaders from across the sectors, and it’s a valuable insight into how you
I was invited by one of the ella organisers to learn from a range of experts on topics can develop. Seek out feedback and
to attend a group meeting and, before I from governance and setting KPIs through criticism wherever it’s available, and
knew it, I found myself on an accelerated- to public speaking and giving feedback in push for suggestions on how you can
learning scheme. Whilst benefitting from a one-to-ones. improve.
one-to-one business mentor and monthly
• Words count: how you frame goals,
group meetings of experienced leaders
problems, questions and feedback
and heads of charities, we were sharing
has a huge impact on people on the
challenges, experience and advice with
receiving end. Be thoughtful and
one and other. It was the perfect personal
considerate, and think hard about
development scheme and support
“what’s in it for them?” – whether that’s
mechanism I could have ever wished for.
your customer, your employee, or your
l attend regularly; have a dedicated family at home.
mentor, and cherish the time for monthly
• Focus on yourself: the more you invest
learning sessions, professional friendships
in your own leadership, the more
and sharing of knowledge. This unique
energy, enthusiasm, and judgment you
experience has enabled me to build my
All of this has been organized by ella bring to the role, and the more your
charity from a dream into a reality. It has
Forums. It brings together charity leaders team benefits. If you don’t develop your
helped me plan and cope with stress and
in small groups to discuss the issues they own leadership, you’re letting down
life/work balance.
face, and learn from each other’s expertise. your team and your organisation.
Despite the support of my own amazing It provides a safe space to be candid about
your worries, and ambitious about your Participating in ella has given me the
Trustees, I doubt I would have had this
goals – both professional and personal. confidence and self-awareness to become
kind of focused personalised support from
a more thoughtful and empathetic leader
elsewhere. It has meant that my charity
within my organization, and to start to
has greatly benefitted from my personal So what have I learned? develop others through a culture that
growth and development. Over a short • Develop your vision. Don’t take your empowers and supports the whole team.
time, of under five years, working for most strategy, story and vision for granted. If you’d like to help your charity succeed
of the time alone, the charity has exported Make sure you can clearly articulate in ways you hadn’t thought possible, you
over £16m-worth of redundant essential where you’ve come from, what you’re should do the same.
overstocks from British industry. TheM A NAG I NG R E P U TAT I O NA L R I S K
14
The charity reputation game
The scandals reported in the corporate and charity sectors, pose a
dilemma for leaders – how do they manage their reputational risk?
In light of recent scandals, Trustees of this may be, is there anything that charities
charities are increasingly aware of the can unite around to minimise harm to
potential risk to their personal reputation. reputation? The answer is; perhaps.
What could bring them peace of mind that
their and the charity’s reputation remain The Charity Governance Code (the ‘Code’)
intact? has guidance for Trustees to safeguard and
limit damage to the charity’s reputation.
The reputation game is just that; you don’t
own your reputation, others decide that for
you. Unfortunate – yet true. Reputation is
‘It takes many good deeds to a condition of the conduct of your charity
build a good reputation and whilst remaining true to its aims and
only one bad one to lose it’ purposes. That needs to be demonstrated
and is linked to your charity’s governance.
- Benjamin Franklin (one of the Good governance trumps poor governance
founding fathers of the United States) every time. And one more thing, it is a
process, not an event, and needs to be kept
under continuous review.
For charities and the charity sector, the
evidence is clear and well documented. The responsibility for governance rests with
Surveys confirm how reputational damage Trustees. The buck stops there and it is a
has led to a decline in public trust and collective responsibility. Demonstration
confidence that impact negatively on of good governance is challenging and
fundraising efforts. must ultimately reference best practice and
that is documented in the Code. As the
What does this mean for charity Trustees? Code is voluntary, Trustees are faced with
Many bring both corporate and/or public a dilemma; do we or don’t we? However, Code with its mandatory ‘comply or
sector experience to their Trustee roles. that does not imply that good governance explain’ principle, preferring ‘apply or
Mostly, they understand why reputation is voluntary, as that will not meet the explain’. ‘Apply’ was decided by the sector
matters for both the charity and their own standards expected of the charity: (represented by the Charity Governance
personal standing. The Nolan Principles Code Steering Group) yet in every sense
support this, by setting out what is ‘You and your co-Trustees is a clear statement that the Code, while
expected of those who serve in public life, must ensure that your charity voluntary, does require attention. If paying
including charities. Yet, when things go complies with the law, and attention to the Code creates any anxiety,
wrong at a charity, negative media reports should be able to demonstrate this can be overcome by conducting a
can have a huge impact on the reputation that it is legally compliant, well governance review and bring peace of
of the charity, its Trustees and supporters. mind for the Trustee board.
run and effective in carrying
The BIG ask out its purposes. If you can’t Taking action
The Charity Commission is clear about demonstrate these things, you Is anxiety about a governance review a
Trustee responsibilities for the charity’s should be able to explain what question of time and money? Or is it driven
reputation, stating Trustees: steps you are taking to address by events? What reasons might influence
any difficulties.’ the need for a review or board evaluation?
“Have a duty to avoid exposing Charity Commission CC3
the charity’s assets, beneficiaries • Difficulty recruiting Trustees with the
or reputation to undue risk.” The Code can be seen as the charity’s required skills
The Essential Trustee (CC3) diagnostic, to find out where the charity • Appointment of a new Chair or CEO
is doing well or what needs attention • Unexplained resignation of Trustees
The Commission is also highly vocal before things deteriorate and become • Misappropriation of funds
about the need to bolster public trust and problematic. • Supporting a grant bid or to attract a
confidence in the sector. Intense scrutiny of corporate sponsor
events at Oxfam and Save the Children not Apply or explain • Due diligence for a merger or acquisition
only harmed those charities, but also cast The Charity Code adopts a different • It’s the right thing to do!
a shadow over the whole sector. Unfair as approach to the Corporate GovernanceC H A R I T I E S I N F O C U S Issue 4 Summer 2019
15
By Frank Bennett
Co-Founder Digi-Board Limited
The future
The Charity Commission’s Five-Year
Statement of Strategic Intent (2018-23)
asserts ‘Holding charities to account’,
tipping its hat to:
‘providing effective regulation
with a purpose: to ensure that
those we regulate are able to
inspire even greater levels of
public trust and confidence’.
The question for Trustees is; where do you the application of digital to a governance
start? Analysing governance against the review is something recent. It is also a Holding charities to account must be
principles of the Code is the baseline to compelling alternative to the cost of a time- equitable and the basis for that is by
know what risks might prejudice trust and consuming pen and paper exercise. With reference to the Code. The idea of a
confidence in the charity, which of course, the direction of travel towards greater use governance review for the sake of saying
underpins the charity’s reputation. Yet, of digital then who will start the ball rolling? ‘done’ is not appealing. It certainly won’t
the challenge for many charities is that That is signalled in the Charity Digital Code be rewarded with the same plaudits as a
they see a governance review, as complex as its Leadership principle: successful fundraising effort. However,
and challenging, as governance skills, if attention to governance bolsters the
and time may be in short supply. Will the “Charity leaders must lead charity’s reputation and influences the
advancement of a digital agenda for the on digital as a way of helping outcome of a fundraising effort, how is
sector offer a solution? their charities be relevant and that recognised? For that matter, how does
sustainable. Digital isn’t just demonstrating good governance influence
This way, that way? about channels. It’s a strategic recruiting new Trustees, or retaining
There are different approaches to existing Trustees, attracting volunteers and
conducting a governance review. Many and governance issue and donors/sponsors?
rely on a paper and pen exercise, usually charity leaders need to know how
delegated to someone with knowledge of digital could help realise their The connection of good governance and
the Code. Or, the task may be outsourced vision for their charity. Equally, reputation is vague for some, but only
to a third-party. These are lengthy digital raises questions about too real for others who are careful about
processes taking months to complete. conducting due diligence before getting
traditional ways of leading, involved as Trustees or supporters of a
When you think some boards meet four offering opportunities for
times a year, it is cumbersome and a charity.
reason to look for a better way.
leaders to build networks and
collaborate further.” To guard against either being left behind
In recent times, and in particular with the or caught out, it is wise to consider what
charity sector’s focus on the use of digital And who is responsible for governance? priority is given to governance – your
(promoted by the Charity Digital Code), Surely, it’s clear – this sits with the board of reputation is at stake.
Trustees collectively.You can also read
