Remembering bear markets past - Charity - Profit vs planet? - Brewin Dolphin

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Remembering bear markets past - Charity - Profit vs planet? - Brewin Dolphin
Charity

THE BREWIN DOLPHIN CHARITY MAGAZINE
SPRING 2020

Remembering
bear markets past

Profit vs planet?
The challenge of climate change

Building resilience
How your reserves policy can help
Remembering bear markets past - Charity - Profit vs planet? - Brewin Dolphin
Welcome
Welcome to this edition of Brewin Dolphin’s Charity Perspective. When we were
considering the topics to cover this time, we did not realise just how pertinent
and timely some of them would become.
In this issue, two articles in particular may resonate for charities and their
funders as they adjust to the extraordinary issues the sector is grappling with
this Spring. Gillian Benjamin of Haines Watts looks at the importance of a
clear reserves strategy and policy; and Alex Hulkhory looks at several distinct
investment styles and their implications for those charities seeking income.
On the environmental front, Paul Mathias looks at fossil fuels in a practical
manner and the implication of making specific investment (or disinvestment)
decisions. Robert Nieri looks at collaborations and the issues charities need to
consider, including the considerations for the variety of stakeholders with whom
they deal.
As we produce this edition, investment markets are volatile. We always say
that investment is for those with a long-term horizon, but we also recognise
that this makes it no less unsettling for charities when they face uncertainty.
It is important to remember in extraordinary times that the investment world
has cycles and our Head of Research Guy Foster looks back and forwards
considering the nature of ‘bull’ and ‘bear’ markets.
We are very grateful to our external contributors and to colleagues for their
articles in this issue.

Ruth Murphy
Head of Charities
Brewin Dolphin

  Charity Perspective brings you the latest news and views from our in-house Research
  Team and investment managers. Visit brewin.co.uk/charities/insight-for-charities for
  the latest updates.
  Follow us:    @BrewinCharities        Brewin Dolphin Charitieso
Remembering bear markets past - Charity - Profit vs planet? - Brewin Dolphin
CONTENTS

                   04 Remembering bear markets past
                        Guy Foster, our Head of Research, reflects on the last two
                        bear markets and the lessons they provide for investors today

                   06 The challenge of climate change –
                      profit vs planet?
                        Paul Mathias examines current thinking on climate change
                        and the implications for charity investors

                   09 Value vs Growth and what it means when
                      investing for income
                        Alex Hulkhory discusses the different investment styles and
                                                                                         04
                        what these can mean for charities seeking income

                   11 How can your reserves policy help your resilience?
                   	   Gillian Benjamin highlights the importance of having a
                        reserves policy, particularly in times of economic uncertainty

                   13 Charity collaboration with others
                        Robert Nieri explores a scenario where a charity engages
                        with the business world in response to the climate emergency

                   16 Interview with Catriona Williams of
                      Children in Wales
                        David Myrddin-Evans talks to the recently retired Chief
                        Executive of the charity about her distinguished career
                                                                                         06              09

                   19 Stakeholder primacy
                        For businesses to thrive short-term, shareholder-led thinking
                        needs to make way for long-termism and stewardship

                        charity perspective   is published in-house by Brewin Dolphin
                                                 brewin dolphin
                                              020 3201 3924
                                           brewin.co.uk/charities
                                          charities@brewin.co.uk
                                              @BrewinCharities
                                  12 Smithfield Street, London EC1A 9LA
                                                                                         11

Important notes
The value of your investment may go down as well as up. Past performance is not a reliable guide to future
performance.
All information within this publication is for illustrative purposes only and is not intended as investment advice;
no investment is suitable in all cases and if you have any doubts as to an investment’s suitability then you
should contact us or your financial adviser.
We or a connected person may have positions in or options on the securities mentioned herein or may buy,
sell or offer to make a purchase or sale of such securities from time to time. In addition we reserve the right to
act as principal or agent with regard to the sale or purchase of any security mentioned in this document. For
further information, please refer to our conflicts policy which is available on request or can be accessed via our
website at www.brewin.co.uk.
The opinions expressed in this publication are not necessarily the views held throughout the Brewin Dolphin
Group. The information contained in this publication is believed to be reliable and accurate, but without further
investigation cannot be warranted as to accuracy or completeness.
Remembering bear markets past - Charity - Profit vs planet? - Brewin Dolphin
REMEMBERING BEAR
     MARKETS PAST
     Guy Foster, our Head of Research, reflects on the last two bear markets and the
     lessons they provide for investors today

       W       e are now suffering the third bear market in the
               last twenty years. The first two came in
     relatively quick succession in 2000 and 2008. Since
                                                                  investors have shorter, or longer-term, outlooks but
                                                                  companies will be valued not just based upon next year’s
                                                                  profits or dividends, but on the basis of the flow of profits
     then we have been blessed by a decade of generally           or dividends into the future. It would be convenient if
     healthy returns before this latest bear market has arisen.   each company’s profits grew year after year in the same
     There are many of us here who have invested through          way that interest on deposits compound (or used to). We
     these three, and other, challenging episodes.                even try to seek out these qualities in the companies that
       “History doesn’t repeat but it rhymes” said Mark Twain     we invest in. But from time to time most company profits
     and so the lessons of the past can inform our                will decline for any number of reasons. As long as those
     understanding of the future. Bear markets come in            reasons are temporary, then investors needn’t fear much
     various forms. The bursting of the technology bubble was     change in the company’s value.
     an arduous slog. The global financial crisis was sharper.      Hence the market impact of such declines should be
     This current response to the emergence of the coronavirus    limited and does not justify truly extreme declines like
     has been sharper still.                                      those seen in recent weeks. Those falls had definite echoes
       As we have commented before, it reflects not the health    of the financial crisis and reflect concerns within the
     concerns but the economic impact of efforts to contain or    market that what could be a temporary hit to economic
     delay the spread of the virus. Those measures should be      activity might become more severe and longer lasting.
     temporary and that economic shock should pass. Some          The concerns investors would have in that regard would be

04   Charity Perspective Spring 2020
Remembering bear markets past - Charity - Profit vs planet? - Brewin Dolphin
REMEMBERING BEAR MARKETS PAST

that companies suffering a temporary hit to sales might          caused the crisis by borrowing irresponsibly. People
need to shed some staff or find it difficult to repay their      worried about the moral hazard of such a bailout. No
debt. These are the conditions which could turn a short-         such concerns exist today. Rather than a moral hazard,
term downturn into a longer vicious recessionary cycle.          policymakers are facing a moral duty to protect
   Even after ten years it is natural for investors to look at   businesses and consumers against something they could
the events of 2008 and fear them being reprised. Some of         not have foreseen.
these circumstances are the same but some are different.           Perhaps the most important experience gained from
For one thing the very specific over-leverage of the             bear markets past is that they do end. We have invested
banking system has been systematically corrected by              through each of them, taking the opportunities they
policymakers. We can also observe that policymakers              provide and using it to enhance our clients’ wealth.
themselves recognise the folly of allowing a bank to go            Speaking entirely personally, I have had the dubious
bust and we can assume that through both proactive and           pleasure of working and investing through two severe
reactive measures a major bank failure will not be allowed       bear markets. They are not pleasant experiences and yet I
to happen again.                                                 have no regrets because the ends of growing wealth have
   At the time of the financial crisis, central banks worked     been justified by the means of enduring some risk.
on the basis that they could cut interest rates in order to
support the economy. They rapidly expanded their
arsenal to include such wonders as quantitative easing
and various other measures involving the printing of new
money. The expanded unconventional toolkit of central
banks is the counterpoint to its diminished potential to
lower interest rates much further. Nonetheless, one
policy maker’s chalk is another’s cheese as lower interest
rates give governments more ability to spend to support
the economy at very little cost (in some cases negative
cost) for the next few years.
   In this case the flesh is strong but is the spirit willing?
It should be. There was reticence at using extraordinary         GUY FOSTER
                                                                 HEAD OF RESEARCH
monetary measures during the financial crisis as it was
                                                                 guy.foster@brewin.co.uk
perceived to rescue consumers and businesses which had

The value of investments can fall and you may get back less than you invested.
Past performance is not a guide to future performance.
No investment is suitable in all cases and if you have any doubts as to an investment’s suitability then you
should contact us.
If you invest in currencies other than your own, fluctuations in currency value will mean that the value of your
investment will move independently of the underlying asset.
The information contained in this document is believed to be reliable and accurate, but without further
investigation cannot be warranted as to accuracy or completeness.
The opinions expressed in this document are not necessarily the views held throughout Brewin Dolphin Ltd.

                                                                                              Charity Perspective Spring 2020   05
Remembering bear markets past - Charity - Profit vs planet? - Brewin Dolphin
THE CHALLENGE OF CLIMATE
     CHANGE – PROFIT VS PLANET?
     Paul Mathias examines some of the current thinking on climate change and the
     potential implications for charity investors

       C    limate change has become one of the major global
            social and political issues of our time, with the
     subject gaining considerable prominence in the public
                                                                       ‘Divestment’ - challenging investors to sell their holdings
                                                                     in such companies, thereby potentially removing not only a
                                                                     source of capital from public and private markets but also
     consciousness in recent years.                                  their “social licence to operate.”
        The landmark Paris Agreement, an addition to the               In terms of ethical investment, as stewards of their
     UN Framework Convention on Climate Change, is the               charities’ funds, many Trustees are understandably
     major globally co-ordinated political effort to strengthen      re-considering their own charity’s approach in this area in
     the response to the threat of climate change. It entered        the context of changing societal attitudes, and how best to
     into force in November 2016, setting out a framework to         balance the charity’s ethos and values with their duty to
     keep a global temperature rise this century well below 2        maximise financial returns on behalf the charity.
     degrees Celsius above pre-industrial levels and to pursue         In the UK, many charities have issued their own
     efforts to limit the temperature increase even further to       individual pledges. 79 universities have pledged to sell their
     1.5 degrees Celsius.                                            shares in at least some fossil fuel companies after pressure
        The status of the Agreement was subsequently                 from People & Planet, a group co-ordinating student
     undermined when in June 2017 President Trump                    protests1. Many Christian institutions have announced
     announced his intention to withdraw the US from its             their divestment from fossil fuels, as part of Operation
     application. Activism in this area has since gathered real      Noah’s ‘Bright Now’ project, with a global “divestment
     momentum.                                                       announcement” planned for the end of March 2020.2
        Images of natural disasters, pollution and changing
     habitats have been shared around the world. Activists           WHAT ARE A CHARITY’S DUTIES?
     such as Extinction Rebellion and Greta Thunberg have               Ethical investment means investing in a way that
     captured the public’s attention in their attempts to            reflects a charity’s values and ethos and does not run
     convince governments to declare a ‘climate and                  counter to its aims. The Charity Commission’s guidance
     ecological emergency’ and set ambitious targets to be           is contained within Charities and investment matters: a
     ‘carbon-neutral’ – reducing greenhouse gas emissions to         guide for trustees (CC14). Trustees of any charity can
     net zero by 2025. Climate change, and the topic of “How         decide to invest ethically, even if the investment might
     to Save the Planet” was the key discussion point at this        provide a lower rate of return than an alternative
     year’s World Economic Forum in Davos.                           investment. This must be a collective decision on behalf
        Fossil fuel companies have been particularly targeted        of the charity and not merely reflect individual views.
     by activists as the perceived key contributor to climate           As it currently stands, the main point is that Trustees
     change. In the investment world, this has been                  must be able to justify why they are investing in a
     manifested in two main ways:                                    certain way or making certain ethical exclusions in
        ‘Engagement’ – shareholders bringing forward                 accordance with the following reasons:
     resolutions to company AGMs in an attempt to challenge          • a particular investment conflicts with the aims of
     and change their business models from within.                      the charity

     1. https://peopleandplanet.org/fossil-free-victories
     2. https://brightnow.org.uk/news/join-the-global-divestment-announcement-march-2020/

06   Charity Perspective Spring 2020
Remembering bear markets past - Charity - Profit vs planet? - Brewin Dolphin
THE CHALLENGE OF CLIMATE CHANGE

• the charity might lose supporters or beneficiaries              guidance as “permissive”. They go on to reiterate their
   if it does not invest ethically                                position that:
• there is no significant financial detriment.                       “[We] want to ensure charities are aware of what they can
   More recently, in the context of rising concern about          do in this area, to understand their options when it comes
topical issues such as climate change, a coalition of 20          to investing responsibly, and if necessary, equip them with
charities formed in 2019 to seek a ruling from the                tools to help make thoughtfully considered decisions. In
Attorney General and Charity Commission on whether                short, we want more trustees to feel empowered to take a
the public benefit of charities means they should be              fresh look at their financial investments and make
required to align their investment policies with their            informed decisions that are right for their charity.”
own objectives and commitments to wider society3.
   The most recent ruling on charitable investments was           OPTIONS FOR INVESTORS
in 1992, and their solicitors, Bates Wells, argued in the           We are always looking to assist our clients in making
light of changing societal attitudes, trustees need               informed decisions in this area.
reassurance they would be protected from sanction if,               In terms of engagement, Brewin Dolphin’s
for instance, they chose to align their investments with          Stewardship Committee takes professional advice and
the goals of the Paris Agreement.                                 votes on behalf of our clients.
   Whilst the Charity Commission is yet to respond                  For example, BP faced two shareholder resolutions
formally, a recent development on 15 January 2020 that            on climate change last year, both of which we voted in
has been welcomed by the aforementioned coalition, is             favour of:
their launch of a consultation into charities investing in        • The first was brought by pressure group Climate
line with their purpose and values4.                                Action 100+, encouraging BP to make further
   In it, they note the Commission already encourages               disclosures on how its investments and business
Trustees to consider whether their investments are                  strategy align with the Paris climate goals to limit
consistent with their charity’s aims, encourages greater            global temperature rises. This was supported by the
transparency in disclosures and describes the existing              Board and carried by 99.14%.

3. https://www.ft.com/content/a4d8b8c6-3e57-11e9-9bee-efab61506f44
4. https://charitycommission.blog.gov.uk/2020/01/15/how-do-charities-approach-investing-in-line-with-their-purpose-and-values-we-
   want-to-know-and-we-want-to-help/

                                                                                                   Charity Perspective Spring 2020   07
Remembering bear markets past - Charity - Profit vs planet? - Brewin Dolphin
• The second was brought by pressure group Follow This         Conventional fossil fuels refer to companies involved in
        on targets encouraging BP to accept responsibility for    the oil and gas industries. In contrast to the other three
        the climate impact of the end users of products – this    activities, the UK stock market is home to two of the
        was not supported by the Board, but we were among         world’s “oil majors”, and the sector made up 13.8% of the
        the 8.4% who voted in favour of this.                     FTSE All Share as at 31 March 20205. Applying negative
        We also give our clients the option to vote themselves    screening to this sector therefore has a material impact
     if they have a particular view on a certain resolution,      on the available investment universe, even before it is
     ensuring your ‘voice’ is heard.                              combined with any other restrictions already in place.
        In terms of divestment, there are four main areas of        If their contribution to the income generated by FTSE
     concern – tar sands, oil shale, coal and conventional        All Share companies is considered, this number has
     fossil fuels.                                                historically been even higher. Royal Dutch Shell and BP,
        Whilst the full extent of their impact is disputed, tar   the most commonly held oil and gas companies and
     sands are acknowledged to produce carbon pollution at        cornerstones of many charity portfolios for decades, have
     a much higher rate and require the usage of a lot more       been renowned for their dividend paying characteristics,
     water than conventional oil extraction.                      with both consistently ranked in the top five payers in the
        Because oil shale requires mining and energy-             UK every year since 20126. Their dividend yields have
     intensive processes, it is again accepted to be a            consistently compared favourably with the FTSE All
     substantially ‘dirtier’ energy source than conventional      Share and therefore have contributed materially to
     oil extraction.                                              meeting client income targets. These are the sorts of
        Coal can be categorised into metallurgical coal (also     considerations we are helping Trustees take into account
     known as coke or coking coal, used primarily for             when considering tackling the problem of climate
     steelmaking and accounting for around 70% of global          change. There is no “one size fits all” answer and we are
     steel output) or thermal coal (also known as steam coal      on hand to assist achieving the right balance for your
     or energy coal, the heat source for around 40% of            organisation.
     electricity generated globally today). Thermal coal is
     again accepted to be a particularly polluting energy
     source and is generally the target of divestment plans,
     rather than metallurgical coal.
        Given the majority of tar sands and oil shale deposits
     are situated in Canada and the US, and that readers will
     be familiar with the decline of the coal industry in the
     UK, very few UK listed companies are now involved in
     these activities, with only one company deriving more
     than 5% of their revenues from these according to Vigeo
     Eiris, an international provider of responsible
     investment services, as at 31 March 2020.                    PAUL MATHIAS
        A negative screen on direct investment in UK              INVESTMENT MANAGER,
     companies involved in tar sands, oil shale and coal, the     ASSISTANT DIRECTOR
                                                                  paul.mathias@brewin.co.uk
     most carbon-intensive of industries, would therefore have
     a negligible impact on what companies are precluded
     from investment. Indeed, this screen is already applied to
     many of the portfolios under our management.

     5. Refinitiv Eikon, 31 March 2020
     6. Link Asset Services’ Q3 2019 Dividend Monitor Report

     The value of investments and any income from them can fall and you may get back less than you invested.
     All information within this publication is for illustrative purposes only and is not intended as investment
     advice; no investment is suitable in all cases and if you have any doubts as to an investment’s suitability
     then you should contact us or your financial adviser.

08   Charity Perspective Spring 2020
Remembering bear markets past - Charity - Profit vs planet? - Brewin Dolphin
VALUE VS GROWTH

VALUE VS GROWTH AND WHAT IT
MEANS WHEN INVESTING FOR INCOME
Alex Hulkhory, discusses the different investment styles and what these can mean
for charities seeking income

  T     his article will consider the impact of investment
        style, particularly value and growth, and
importantly what this can mean for clients who rely on
                                                               This leaves much to be answered. Are we in a bubble
                                                             for growth assets? Is value about to have an extended
                                                             period of outperformance? Or those fateful words in
the income generated by their portfolio.                     investing, is it different this time?
   Value investing, championed by legendary investor           Whilst one could make the argument that we are
Benjamin Graham, involves buying undervalued and             indeed in a bubble for growth assets. Given that the
often unloved businesses that are trading at a discount to   dispersion in valuation between growth and value is
the market and or their industry peers. Generally, these     near the highest it has been since the dotcom bubble
are mature businesses with perceived stable cash flows,      (although admittedly nowhere near), there are a few
that can offer investors an attractive level of income.      signs that growth assets could continue to perform well.
   Growth investing on the other hand looks to identify
companies that can continue to grow their earnings over      OLD VS NEW ECONOMY – 2000 ALL OVER AGAIN?
the longer term at above market rates. These companies         A key investment theme over the last 10 years has
may be on relatively rich valuations and often offer very    been the impact of technology. Many established
little in income. However, it’s their ability to compound    business models have been disrupted by more efficient,
their earnings over an extended time period that makes       technology driven, new entrants to the market.
them a good investment.                                      Competition has always been an important aspect that
   Another feature of growth investing is that the holding   drives strong companies and punishes weaker
period tends to be materially longer, versus value           businesses. What is most stark at present, is the pace of
investing. As Philip Fisher, considered by many as the       ascent for the winners and decline for the losers.
godfather of growth investing put it, “the perfect time to     An example to highlight this would be ITV vs Netflix.
sell is almost never”.                                       ITV (current dividend yield of 10.34%) has offered a
                                                             5-year total return of -40.55%1 and has struggled as new
WHY NOW?                                                     subscription-based entrants have made the advertising
  As investors we are constantly challenging ourselves       landscape more difficult. Netflix on the other hand pays
and our ideas to ensure that our clients are achieving the   no dividend but has offered a total return of 464.30%
best total return for the risk being taken, whilst meeting   over the same time period. This is an extreme example
their objectives (be that a regular income or otherwise).    (and possibly unfair given they are listed in different
  To contextualise why the value vs growth debate is so      geographies, with the US favouring buybacks over
important now, it is important to look back at historical    dividends); however, the broader market dynamics are
returns. Over the longer term, value as a style has          not too different.
consistently outperformed growth. In addition, value has       If we look at the US, source of much innovation and
tended to offer a higher income stream and offered more      home to many of the world’s leading technology
downside protection versus its growth counterpart.           businesses, we see a similar picture. Comparing the
  However, since the financial crisis growth has             Russell 3000 growth and value indexes of the last 10
significantly outperformed value and has even provided       years, the value index has underperformed by an
better protection in falling markets. In fact, it is the     enormous 148.2% (365.2% vs. 217.0%).2
longest period of underperformance by value versus
growth since records began.

1. Source: Refinitiv Eikon 31 March 2020
2. Source: Morningstar Direct 31 March 2020

                                                                                          Charity Perspective Spring 2020   09
Remembering bear markets past - Charity - Profit vs planet? - Brewin Dolphin
opportunities for value investors. However, a risk with
                                                                 this approach is that the market may take far longer
                                                                 (possibly never) to realise the fair value of a company,
                                                                 creating stranded assets and eating away at your
                                                                 annualised return in the process.
                                                                   Another issue in declining areas of the market such as oil
                                                                 and tobacco, is that investors may be unwilling to assign
                                                                 valuations that they would have done historically to these
                                                                 businesses. These can offer very attractive income streams;
                                                                 however, as additional regulation and a realisation of the
                                                                 true social costs such industries carry, we must be
                                                                 pragmatic and appreciate previously undiscovered risks.

                                                                 IMPORTANCE OF DIVERSIFICATION
                                                                   It may appear that the outlook for value investing is
                                                                 bleak. However, we would argue this is not the case.
     THE INCOME DILEMMA                                          Undoubtedly the landscape is more difficult, but this is
       Following on from the financial crisis and a decade of    where we can leverage off the skill of our in-house
     extraordinary monetary policy, the hunt for yield has       research team and specialist investment managers. In
     become ever more challenging. Investors seeking an          our approach to portfolio construction we would stress
     above average level of income have often been faced with    the importance of diversification, across style and sector.
     a below market level of total return. Looking at the          Ensuring portfolios have a blend of styles can provide
     FTSE 350 lower yielding stocks vs high yielding stocks.     attractive levels of income and capital returns. It also
     The former has outperformed its higher yielding             means that portfolios can perform well in different
     counterpart by 30% over the last 10 years.3                 market environments. It certainly is a challenging time
       As charities, many of our clients require a significant   for income, although we remain confident that we can
     level of income to meet the needs of their beneficiaries    continue to deliver an attractive level of income and
     and as such may be precluded from investing in certain      capital growth for clients.
     areas of the market and more invested into others. This
     need for income also influences investment style across
     the portfolio. As a broad generalisation, many higher
     yielding investments would be categorised in the value
     bucket, and lower yielding investments as growth.

     MELTING ICE CUBES
       The rise of ESG (environmental, social and
     governance) also presents a challenge to certain
     investments. Investors and consumers alike are
     increasingly growing mindful of the ESG impact of a
     business. If these negative factors outweigh the            ALEX HULKHORY
     investment case, many will be unwilling to buy these        PORTFOLIO MANAGER
                                                                 alex.hulkhory@brewin.co.uk
     companies, and may even sell holdings based on poor
     ESG ratings. This may lead to depressed prices creating

     3. Source: Morningstar Direct 31 March 2020

     The value of investments and any income from them can fall and you may get back less than you invested.
     Past performance is not a guide to future performance.
     No investment is suitable in all cases and if you have any doubts as to an investment’s suitability then you
     should contact us.
     If you invest in currencies other than your own, fluctuations in currency value will mean that the value of
     your investment will move independently of the underlying asset.
     The opinions expressed in this document are not necessarily the views held throughout Brewin Dolphin Ltd.

10   Charity Perspective Spring 2020
HOW CAN YOUR RESERVES POLICY HELP

HOW CAN YOUR RESERVES
POLICY HELP YOUR RESILIENCE?
Gillian Benjamin highlights the importance of having a reserves policy, particularly in
times of economic uncertainty

 I    n today’s society everything is becoming more
      stringent, from core costs to public trust. On top of
this, we’re still facing a period of economic uncertainty,
                                                                REVIEWING YOUR POLICY
                                                                  After deciding on a suitable amount, the policy then
                                                                needs to be reviewed by trustees on a regular basis. This
due to the current coronavirus crisis and the Brexit            ensures that the policy aligns with your organisation, as
transition period.                                              time progresses.
   These pressures can have detrimental effects on the            Even though there’s no timescale set in stone, you
financial health of charities. With all of this in mind, it’s   should consider reviewing your policy if there is any
becoming increasingly important for charities to set out        significant change within your organisation, or on an
a clear and robust reserves policy.                             annual basis.
   Despite this, the same problems seem to arise time
and again regarding charities’ reserves policies. One           WHAT IF MY RESERVES AREN’T ON TARGET?
issue is the fact that policies are not reviewed by trustees      If you regularly review your reserves and financial
often enough. Another more pressing issue is that there         information, it will not come as a surprise if your
is still a lack of understanding of what a reserves policy      reserves aren’t on target.
actually is, even at board level.                                 But, if your reserves don’t seem comfortable, keep an
                                                                eye on your cash flow, as this will likely be affected first.
WHAT IS A RESERVES POLICY?                                      Additionally, prepare your budgets and forecasts, which
  A reserves policy offers charities the opportunity to         are monitored and questioned by the board. When
show existing/potential funders, donors and other               approving financial statements, the board are
stakeholders, why it is holding an amount of funds.             confirming that the charity can continue as a going
In turn, the policy should give your stakeholders               concern for 12 months (from the date of signing the
confidence that your finances are being well managed,           accounts).
whilst also indicating when future funding might be
needed.                                                         ADVANTAGES OF A CLEAR RESERVES POLICY
  When outlining your policy, you need to reflect upon             Amongst other advantages, having a robust reserves
past trends, as well as assessing your current and future       policy gives your charity a resilient edge when faced with
needs. You can then determine why your reserves are             financial trouble. Having lower reserves puts you at
being kept or spent.                                            higher risk of being left in a vulnerable position in times
                                                                of uncertainty, and may determine whether or not you
HOW MUCH SHOULD I HOLD?                                         can be deemed a going concern.
  When deliberating over what the appropriate amount               However, having too much set aside will arouse
of reserves for your charity should be, a whole raft of         questions over where your funds are actually being
factors come into play, from commitments and risks to           spent. This can potentially deter future funders, so it’s
future needs. The forecast expenditure and income levels        important to paint a clear picture as to what the charity
for current and future years also need to be considered.        intends to do with its reserves. With funding becoming
  It’s important to bear in mind that the level of reserves     less widely available, and more charities applying for the
has to be an appropriate amount for your charity - there        same grants, competition for funding is high. So, proving
isn’t one standard rule that applies to everyone.               that you’re aware of, and able to deal with potential

                                                                                                Charity Perspective Spring 2020   11
financial pressures, can really lend you favour here.          • If your charity already has a reserves policy in place,
        Ultimately, your policy should act as a shop window           when was the last time it was reviewed? Does it align
     for trustees and funders, showing how your charity is            with your charity’s current financial position, and
     performing – no matter how good or bad the current               reflect your future goals?
     situation is. With the array of bad publicity that charities   • Are your reserves on target? If not, are there gaps in
     have received in the years gone by, it’s crucial that you        funding which need to be addressed? Or if they are
     remain as transparent as possible in your financial              above target, could the reserves be reduced, so more
     statements, to build trust, and your reserves policy gives       funds are being spent on your charitable cause?
     you the opportunity to do so.

     GOING FORWARD WITH RESERVES
        Preparing your charity’s reserves policy can determine
     the stability of your charity. A robust policy means that
     you will be able to face unforeseen financial challenges,
     whilst also helping build stakeholder trust. Overall, a
     well thought out policy will make your charity better
     equipped to deal with today’s social and economic
     climate.
        Going forward, it’s worth keeping these three points
     in mind:                                                       GILLIAN BENJAMIN
     • If you don’t have a reserves policy, you should consider     ASSOCIATE PARTNER,
        outlining one as soon as possible, as they can underpin     HAINES WATTS
                                                                    gbenjamin@hwca.com
        the longevity of your organisation

     The value of investments and any income from them can fall and you may get back less than you invested.

12   Charity Perspective Spring 2020
CHARITY COLLABORATION WITH OTHERS

CHARITY COLLABORATION WITH
OTHERS: AN ANALYSIS OF SOME OF
THE LEGAL ISSUES THAT MAY ARISE
Robert Nieri explores a hypothetical scenario where a charity looks to engage with the
business world in response to the climate emergency

CLIMATE CHANGE AFFECTS ALL CHARITIES TO                        increasingly prudent for trustees to consider the factors
SOME EXTENT                                                    affecting the long-term financial sustainability of their
   With ever greater frequency we experience the effects of    investments.
climate change: more storms as we struggle to keep
naming them, heat waves in February and snow in April.         CHARITIES ENGAGING WITH THE CORPORATE
The language changes to “emergency” to reflect the             SECTOR
immediacy of the threat, which is not just an                     But even if a trustee board is prepared to look at the
environmental issue. The Funder Commitment on                  bigger picture, what issues might it encounter in looking
Climate Change makes clear that climate change is a            to do so? Increasingly charities engage with business
health issue, an equality issue, an educational issue, an      in many respects, not just in the investment of their
economic issue, a cultural issue, a scientific issue and a     free reserves.
local community issue, as well as an environmental issue.         The Autumn 2019 edition of Charity Perspective
   Things cannot just carry on as they are. A growing          highlighted the commission’s guidance on charities
coalition of foundations, NGOs and faith groups urged          dealing with non-charities and the key message of how
the Charity Commission and the Attorney General to             it is important for trustees always to act in their charity’s
refer important questions about charity trustee                best interests. Such engagement can lead to a host of
investment duties to the charity tribunal for a                legal issues for charities to address. Let’s explore some of
contemporary and authoritative ruling.                         these through a fictitious case study (any resemblance to
   To date the commission has resisted this demand but         actual persons or events is purely coincidental).
can still see which way the wind is blowing (figuratively         Arkan is an international energy group, previously
as well as literally). While the law remains that trustees     implicated in various environmental disasters. It is a
have a duty to maximise the financial returns generated        bête noire in the eyes of green campaigners. Recently
from their assets, charities can take ethical and other        there has been a change in its senior management, in
non-financial considerations into account when                 part driven by an effective campaign of shareholder
deciding how to invest their assets in a number of             activism led by environmental groups. The new CEO
scenarios, such as where there is a conflict with the          made his name at another energy business which he
charity’s purposes; where the investments would                successfully led towards a “greener” future. This doesn’t
hamper the charity’s work; or where there is no risk of        seem a “greenwash”: Arkan realises things really need to
significant financial detriment. This is set out in existing   change, not just because of the turning tide of public
Charity Commission guidance CC14, last revised in              opinion but because a continued reliance on oil
August 2016.                                                   production and usage in a low carbon age just won’t be
   Up until the end of this March the commission asked         an option. Already the new senior team has shown a
charities how they approach investing in line with their       greater willingness to engage and be open to change.
purpose and values because it wants to know, and it               As part of its engagement listening to activists and
wants to help. While noting trustees’ duties to maximise       organisations Arkan has approached Greener Now, a
their returns, the commission has recognised two key           charity working to achieve a zero-carbon society.
drivers: shifting public expectations and how it is            Following productive discussions with the charity’s

                                                                                              Charity Perspective Spring 2020   13
trustees and executive team Arkan wants to support the      wrong with this: the commission recognises in its
     charity’s ongoing work. Arkan offers to give Greener        guidance that trustees don’t always agree and that
     Now 1p for every litre of lead-free petrol sold on its UK   dissent can be healthy. The intensity of the debate
     forecourts for a week at the beginning of November in       reflects its importance and how decision-making in this
     the run up to the UN Climate Change Conference,             area is nuanced and exclusively for the trustees, who
     “COP26.” This is estimated to be worth up to £700,000       must in good faith decide what they consider to be in the
     to Greener Now and could fund 500,000 tree packs.           best interests of the charity.
     The arrangement would be set out in a commercial              Finally, the trustees emerge blinking into the daylight
     participator arrangement under which the money would        to share with Arkan their views (actually reached
     be allocated between a donation and payment for use of      following a close vote albeit, once made, all trustees
     Green Logo’s brand and logo.                                publicly back the decision).
       Moreover, Arkan is happy to put forward its new CEO         Although the money from a commercial participator
     to act as a trustee of Greener Now, explaining that the     arrangement would allow Greener Now to plant
     CEO genuinely wants to continue to learn while at the       500,000 more trees, the trustees consider such an
     same time offering his leadership expertise to the          association would betray the charity’s values and risk
     charity.                                                    ruining its good reputation.
       The charity board trustees meet and have a very long,       Nor, after further discussion with Arkan, will Greener
     frank and at times fraught discussion. There is nothing     Now countenance a straightforward donation from

14   Charity Perspective Spring 2020
CHARITY COLLABORATION WITH OTHERS

Arkan, estimated to be worth around a third of the              see how things work out. After more lengthy debate the
anticipated return from the commercial participator             trustees decide to continue to engage with Arkan but to
arrangement, where Arkan wouldn’t gain any leverage             keep things under review and to communicate regularly
in the marketplace from an association with Greener             with their stakeholders on that engagement. They
Now, where it was prepared to forego any publicity and          record their deliberations and decisions in the board
instead where the donation would simply have been               minutes. Some of the children are not happy but others
noted in the charity’s next set of annual accounts filed        are prepared to see what happens.
with Companies House and the Charity Commission.
Accepting such a gift would run counter to the charity’s        KEEPING THE REGULATOR IN THE LOOP
donations policy.                                                 The trustees submit a serious incident report to the
  Instead the trustees go back to Arkan having learnt           commission, outlining their proposed relationship with
about its specific plans to invest more in green energy         Arkan, the controversy this has provoked and the
and the charity accepts the gift of a significant               possible risk to the charity’s reputation but explaining
shareholding in a green solutions start-up company              that, on balance, the trustees consider critical
ultimately owned by Arkan and in which the group’s              engagement with Arkan is the right approach, that they
CEO will be heavily involved.                                   have documented their decision-making, updated their
                                                                policy on corporate engagement and will keep matters
ADDRESSING ANY SKILLS GAP                                       under close review.
  The trustees respectfully decline the offer of the CEO          Not everyone would agree with Greener Now’s
to join their board, explaining they were concerned by          approach of critical engagement, but it is difficult to see
the conflict of interest issue this would create and which      how in the circumstances its trustees have failed to make
they don’t think could be adequately managed, but also          decisions within a range of decisions that a reasonable
the reputational damage they anticipate would ensue. At         trustee body could make.
the same time the trustees are always looking to draw             Only time will tell whether its strategy is the right
upon skills they do not have and ask Arkan if a relatively      one!
junior marketing manager would be prepared to be
co-opted onto the charity’s fundraising and marketing
sub-committee, chaired by a trustee but otherwise
comprising individuals from the outside who volunteer
their time and expertise in helping the charity become
more effective in its fundraising and in raising its profile.
This suggestion is accepted: it also works for the junior
marketer to gain valuable pro bono experience outside
the corporate world and inform herself of the work
being done to further the green agenda.
  Separately, the Greener Now chief executive accepts           ROBERT NIERI
an invitation to join an Arkan “critical friend” advisory       CHARITY LAWYER
group – to speak truth to power.                                robert@nieri.org.uk

LISTENING TO STAKEHOLDERS
  Some Greener Now supporters are in uproar.
“You cannot engage with these people; you would be
dancing with the devil.” A group of children write a
moving open letter to Greener Now explaining how
collaboration with Arkan would be a barrier to their
engagement with the charity.
  There is no right answer. It’s for the trustees to decide.
But they meet with a group of children and explain their
position. The trustees urge their supporters to wait and

The value of investments and any income from them can fall and you may get back less than you invested.

                                                                                              Charity Perspective Spring 2020   15
INTERVIEW WITH CATRIONA
     WILLIAMS OF CHILDREN IN WALES
     David Myrddin-Evans talks to the recently retired Chief Executive of the charity about
     her distinguished career and what advice she would give her 20 year-old-self

                                                                  the organisation from scratch. It had a real “start-up”
                                                                  feel to it and it was exciting to be able to drive the future
                                                                  direction of the charity from day one.

                                                                  SO, WHAT DOES CHILDREN IN WALES DO?
                                                                    The charity’s aim, and my lifetime’s work, has been to
                                                                  make the UN Convention on the Rights of the Child a
                                                                  reality in Wales. We provide national and international
                                                                  influence, particularly focusing on Article 12 of the
                                                                  Convention – giving children a voice and listening to the
                                                                  things they care about.

     BACKGROUND                                                   YOU’VE HAD SUCH A DISTINGUISHED CAREER
       Catriona Williams OBE has been a champion of               – WHAT HAS BEEN YOUR BIGGEST
     children’s rights and social justice her entire career,      ACHIEVEMENT?
     being instrumental in securing Wales’ reputation               I think mobilising an international family of bodies
     internationally as a leader in incorporating the United      dedicated to promoting and protecting children’s rights.
     Nations Convention on the Rights of the Child into           [Catriona founded and was the inaugural President of
     policy and domestic law. We caught up with her               Eurochild, a Europe-wide network]. We have all learnt
     following her recent retirement from Children in Wales,      so much from collaborating with each other, which is
     having led the charity since its creation in 1992.           what Children in Wales has always been about.
                                                                    Wales is proud and confident in its achievements in
     CATRIONA, TELL US ABOUT YOUR                                 terms of the language and culture, and quite rightly too.
     BACKGROUND BEFORE CHILDREN IN WALES?                         But in an ageing population it continues to be a
       I grew up in Poole in Dorset and came to University in     challenge to keep children and reducing child poverty as
     Cardiff to study Social Administration, defying my           a priority. I do want to emphasise however just how
     Headteacher who insisted to my parents I should study        good Wales has been in terms of this, as we are
     Classics even though I was a science student. I then         recognised as a leader in the UK, Europe and
     qualified as a social worker, and when my children were      internationally.
     born I embarked on what would now be described as a            We had the first Children’s Commissioner of any UK
     “portfolio career”; doing an MSc, lecturing and practicing   nation, structures for children and young people to give
     in social work, working as a research assistant in           their views to both Welsh Government and the National
     educational psychology and also managing children’s          Assembly for Wales, a Wellbeing of Future Generations
     services, including fostering, adoption and safeguarding.    Act and Future Generations Commissioner that has
       The Welsh Office at the time encouraged the creation       wide-reaching implications in recognising the needs of
     of Children in Wales as a means of connecting with           young people in Wales, and next year’s Welsh Assembly
     those working in these sorts of disciplines, and so I was    elections will include votes at 16 for the first time,
     delighted to be the first ever member of staff, starting     amongst many examples.

16   Charity Perspective Spring 2020
INTERVIEW WITH CATRIONA WILLIAMS OF CHILDREN IN WALES

  [Catriona is typically humble, choosing not to mention      I can’t remember a worse time than today to try to secure
her OBE received in 2013 for services to disadvantaged      funding. Not only have we been living in a time of austerity,
children!]                                                  but there are still so few sources of funds in Wales as for
                                                            historic reasons we don’t have the number of grant-making
WHAT HAS BEEN THE BEST PART OF BEING                        endowments that other nations do. We rely too much on
CHIEF EXECUTIVE?                                            the same handful of funders, and it has become the norm
  Nurturing our people to deliver our cause. I’ve seen      for grant funding to be restricted to specific project delivery
my role as ultimately being one of orchestration and        only, rather than contributing to the core funding we need
encouraging aspiration – empowering my staff to do the      to be able to rely on to not only keep the charity running
best they can for our beneficiaries. The culture of the     but to keep our staff in employment and provide security to
organisation and what we stand for is ingrained in all of   them and their families.
our staff.
  I’m still in regular contact with so many ex-colleagues   WHAT ADVICE WOULD YOU GIVE TO YOUR
and former Trustees who are passionate about children’s     20-YEAR-OLD SELF?
rights, and it was so fulfilling to see many of them          Don’t expect things to change quickly, so increase the
together at my retirement party last week, which really     pressure on governments and public bodies by facing
brought home how much of a family we are.                   them with the reality of children’s lives so they
                                                            understand the urgency of action. The challenges I faced
AND THE WORST PART?                                         early on in my career are in many ways the same today.
  Funding, and the ability to plan around the uncertainty   With the benefit of hindsight, as a third sector we should
that securing it or not generates, has been a perpetual     have worked together in a more focussed way to do more
challenge. As an umbrella organisation, we have always      to improve the funding climate in Wales. In my
had to balance not competing with our members with the      retirement I will be focussing on this as I still have
need to secure our own operational effectiveness. It has    interests in children’s work such as being Chair of Voices
been so frustrating that we can’t meet the many needs of    From Care Cymru.
our beneficiaries with the funding available, and child
poverty is still a real area of concern.

                                                                                            Charity Perspective Spring 2020   17
WHAT DOES LEADERSHIP MEAN TO YOU?                            make more applications and better demonstrate the real
       With the support and input of my staff and Trustees,       need that exists.
     establishing a vision and a clear plan that the                I will be helping recognise the impact of small, local
     organisation can implement and reflects the needs of         voluntary charities in Wales through my work with the
     members. Again, this comes back to the idea of               Queen’s Award for Voluntary Services MBE awards, and
     orchestration; supporting and empowering staff who           there are a few other roles where I’m considering how I
     want the best outcomes for our beneficiaries, as defined     can best help the sector.
     by them – the young people and their families that we          Finally, we have three children and eight
     deal with.                                                   grandchildren under 11 years old, so they will continue
                                                                  to keep me busy and hopefully young at heart. Outside
     WE ARE SPEAKING SHORTLY AFTER                                of the occasional art auction, I’m also keen to get fit
     INTERNATIONAL WOMEN’S DAY. WHAT HAS BEEN                     again now that I’ll have more time on my hands!
     YOUR EXPERIENCE AS A WOMAN IN A NUMBER                         It has been a privilege working with Catriona over the
     OF LEADERSHIP POSITIONS FOR OVER 25 YEARS?                   years and seeing Children in Wales thrive under her
       I’ve always felt the third sector within Wales has been    leadership. We wish her all the best for a very well-
     quite progressive in this area, with many examples of        deserved retirement!
     successful female leaders. We mustn’t forget the first
     Cabinet of the devolved Welsh Government in 1999 had
     more women than men, which would be considered
     remarkable today but was even more so at the time.
       There is still more to be done, and for future
     generations my concern is that many young girls,
     particularly those most disadvantaged, are being
     pigeonholed by the education system into future career
     paths based on lazy stereotypes.

     WHAT ARE YOUR PLANS FOR THE FUTURE?
       It feels like things have got progressively harder as      DAVID MYRDDIN-EVANS
     time has gone on, both politically and economically. I’ll    DIVISIONAL DIRECTOR
     continue to do my best to promote the rights of the          HEAD OF CHARITIES, WALES
     child as a Trustee [of Voices from Care] and I want to get   david.myrddin-evans
     more money into the third sector in Wales. The sector is     @brewin.co.uk
     in dire need of funding and can get overlooked by
     grant-makers the other side of the Severn Bridge, but
     equally charities in Wales need to have the confidence to

     The value of investments and any income from them can fall and you may get back less than you invested.

18   Charity Perspective Spring 2020
STAKEHOLDER PRIMACY

STAKEHOLDER PRIMACY
In order to thrive in capitalism 2.0, businesses will need to focus on the long term and
consider the needs of a wider cast of stakeholders

F    rom the late 20th century, and into the early part of
     the 21st, a singular economic motive of business has
reigned supreme; economist Milton Friedman was one
                                                             stakeholders. They can simply sell their shares to exit
                                                             their investments, whereas employees, suppliers and
                                                             communities are forced to have longer-term interests.
of its staunchest advocates. In 1970, he wrote in The        Consequently, shareholders often prefer strategies that
New York Times Magazine: “There is one and only one          maximise short-term profits and dividends from these
social responsibility of business – to use its resources     profits, usually at the cost of long-term re-investment,
and engage in activities designed to increase its profits    which ultimately weakens the company.
so long as it stays within the rules of the game.”              Stewardship and long-term investment could be part of
  Prioritising profits was presented as being in the best    the solution, while examples from other countries could
long-term interests of business.                             provide lessons. German ‘Mittelstand’ companies – small
  Some academics have argued that the pursuit of             and medium-sized businesses which account for 70% of
shareholder value is harmful to shareholders themselves.     all jobs in the country – are characterised by their
University of Cambridge economist Ha-Joon Chang              long-term outlook, sense of social responsibility and
points out that shareholders are the most mobile of all      workforce investment. In Asia, family-run conglomerates

                                                                                          Charity Perspective Spring 2020   19
“
     The more forward-thinking businesses are
     taking a bolder stakeholder-centric approach

     are common, where a sense of responsibility and legacy
     are built into the fabric of the corporation.
       Today, Friedman’s view appears both dated and narrow.
     While we still see the strong influence of his ideas in the
     concepts of ‘shareholder primacy’ and ‘shareholder value’,
                                                                   management, is currently divesting from coal- and
                                                                   oil-related assets and increasing its allocation to
                                                                   renewables. Governments are pressing companies to
                                                                   adopt a less legally aggressive and more socially
                                                                   conscious attitude to tax payments. In the UK,
                                                                                                                       ”
     businesses are increasingly realising that the path to        Starbucks and Facebook have changed their tax
     long-term survival and success depends upon ensuring          practices, despite not having acted illegally.
     that all stakeholders are being taken into consideration.       “The businesses we talk to are asking themselves:
     The pursuit of short-term profit is not enough.               ‘How are we responding to these societal changes?’ , ”
                                                                   says Turner.
     CALLS FOR CHANGE                                                The more forward-thinking businesses, he continues,
       A fast-growing and increasingly credible chorus of          are taking a bolder stakeholder-centric approach, more
     voices is demanding that businesses place a greater           closely aligned to the public discourse, but ultimately all
     emphasis on the interests of a wider stakeholder base.        businesses will need to respond. “Capitalism 1.0 with its
     “It’s the perfect storm pushing businesses in this            narrow focus on shareholders will simply become an
     direction,” says Chris Turner, Executive Director of B        unacceptable way of doing business. Capitalism 2.0 will
     Lab, which certifies companies on their sustainability        mean those businesses that have replaced shareholder
     credentials. “Investors, governments, employees and           primacy with stakeholder capitalism will have a licence
     consumers are all demanding change – but in my                to operate from governments and from the social
     opinion, it’s led by the consumer. There has been a           contract, and be better positioned for the long term.”
     change in the public consciousness regarding the huge
     challenges faced by society today, such as rising             EARLY ADOPTERS
     inequality and climate change, and also a sense that            Paul Polman, CEO of Unilever in 2009-18, has shown
     these problems need to be dealt with urgently.”               that this change can be business-led. In 2009, shortly
       Evidence of the pressure from the other stakeholders        after his appointment, he told shareholders that
     Turner refers to is easy to find. The growth of impact        quarterly reporting and earnings guidance would be
     investing is making it relatively easier for more socially    scrapped and that, under his leadership, Unilever would
     conscious and environmentally sustainable businesses          be acting to achieve its long-term objectives without
     to raise capital, compared with those which are less so.      obsessing over its next set of financials.
     For example, Norway’s Government Pension Fund                   The message did not go down well initially –
     Global, with around US$1tn of assets under                    Unilever’s share price fell by 8%. However, over

     The value of investments and any income from them can fall and you may get back less than you invested.
     Important note: We or a connected person may have positions in or options on the securities mentioned
     herein or may buy, sell or offer to make a purchase or sale of such securities from time to time. In addition,
     we reserve the right to act as principal or agent with regard to the sale or purchase of any security
     mentioned in this document. For further information, please refer to our conflicts policy which is available
     on request or can be accessed via our website at www.brewin.co.uk

20   Charity Perspective Spring 2020
STAKEHOLDER PRIMACY

                                                             in over 30 states; directors are legally required to
                                                             consider the impact of their decisions on stakeholders
                                                             other than shareholders. In the UK, B Corps are required
                                                             to amend their articles of association.
                                                               Luke Fletcher, partner and co-leader of the impact
                                                             economy practice at solicitors Bates Wells (itself a B
                                                             Corp), says the implication of this requirement is that it
                                                             provides a mandate that protects the company’s
                                                             directors, thereby encouraging long-term thinking. So
                                                             in practice, directors could decide to pay a ‘responsible’
                                                             level of tax (despite tax avoidance opportunities being
                                                             available), or pay workers a living wage even if jobs
                                                             could be filled by paying only the legal minimum. The
                                                             change in legal status would protect and justify – even
                                                             encourage – these decisions.
                                                               Over the longer term, Fletcher suggests that
                                                             businesses might expect regulation to be more helpful in
                                                             rebooting capitalism. He says that because free-market
                                                             capitalism has been designed around a shareholder
Polman’s 10-year tenure, shareholders were richly            primacy model, businesses that do not fit the model are
rewarded. The share price increased by around 250% in        potentially at a disadvantage. So regulators and
this period, compared with the 150% rise of the FTSE         policymakers might look to level the playing field in
100. The returns were underpinned by Unilever’s              order to encourage investors to channel their money to
flagship Sustainable Living Plan, which successfully         sustainable, responsible businesses.
combined economic and sustainability goals.
‘Sustainable living’ brands (those with the strongest        MISSED OPPORTUNITIES
social or environmental purpose) grew almost 50%             It is becoming clear that corporate leaders are going to have
faster than other Unilever brands, and focusing on           to embrace a new form of capitalism in order to thrive.
energy reduction in factories delivered environmental           In some cases, businesses seem to have left self-reform
benefits and cost savings.                                   too late. Big tech is seen as dragging its feet when it
                                                             comes to addressing the negative impacts of its products
NEW BUSINESS MODELS EMERGE                                   on society – such as tech addiction, election
  Back in 2009, Polman’s stance was highly unusual.          manipulation and promotion of extreme content – and
But today, momentum is building and becoming more            heavy-handed regulation looks all but inevitable. Most
formalised. The Investment Association is now                of the 2020 US presidential hopefuls are making tech
campaigning to abolish quarterly reporting because it        regulation a key part of their campaign promises.
thinks this will increase productivity – a sign that         Meanwhile, Europe is leading the way on regulating big
investors recognise they can be their own worst              tech, with European officials handing down anti-trust
enemies.                                                     fines and drawing up digital rules.
  The number of B Corporations (companies that are              In the UK, there is increasing criticism of a failure to
certified on their sustainability credentials and required   self-regulate excessive executive pay, and businesses may
to legally commit to act in the interests of all             have to deal with more draconian regulation as a result.
stakeholders, not just shareholders) is approaching          In the 2019 report of the House of Commons Business,
3,000 around the world, with high-profile names              Energy and Industrial Strategy Committee, Executive
including Patagonia and Danone Fresh Dairies UK.             Rewards: paying for success, few punches were pulled.
There are just over 200 in the UK. B Corps undergo a         The report concluded that at times when pay growth for
formal impact assessment that measures governance,           ordinary workers is stagnant or minimal (such as our
worker, community and environment metrics, the results       current time), business leaders have a responsibility to
of which are made public. But what really distinguishes a    avoid giving their executives the kind of enormous pay
B Corp from being the next socially conscious fad is that    bonuses that have been the cause of such
companies are required to change their legal status. In      embarrassment and resentment in the past. This is not
the US, Benefit Corporation legislation has been passed      easy though, as the international market for talent has

                                                                                            Charity Perspective Spring 2020   21
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