Religion and NGOs

The Charity/Business Duet: Harmony or Discord?

The International Journal
of Not-for-Profit Law

Volume 6, Issue 1, September 2003

By Andrew Phillips (Lord Phillips of Sudbury)*

It is by now commonplace for charities to be warned against being co-opted, if not corrupted, by a state anxious to shed publicly funded social services onto a compliant third sector. That process has been called nationalization of the voluntary sector.

I want to contemplate a related but different danger, namely inappropriate commercialization or professionalization of the charity sector. It touches sensitive issues, not least the fact that charities are usually cast in the role of supplicants to the private sector.

In discussing the charity/business relationship, I am unable to quite share the converts’ zeal that pervaded Gordon Brown’s keynote speech recently to the Social Market Foundation – A Modern Agenda for Prosperity and Social Reform – where, besides unexceptionally supporting market forces, he seemed to outbid traditional capitalists in his belief in the transforming and cleansing role of competition. In his words, “we should normally tackle the market failure not by abolishing markets but by strengthening markets” through state intervention to “enable markets to work better.” Some of us think that that approach has been tested to destruction and found wanting, that capitalist fundamentalism is going the way of all isms, and that the problem is bred in the bone.

Indeed, my long and close observation suggests that the very complexity of financial market regulation has contributed to the death of any lingering sense of fair play on the part of most marketeers. You now just call up the lawyer. The evidence from the United States, for example, with its uniquely fierce regulation via the Securities and Exchange Commission, points that way, with the latest “laddering claims” scandal involving fraudulent rigging of the new technology stock markets and initial $1.4 billion fines levied on ten investment banks, mostly household names. It is in this general context that I would hope that, long term, the values of third sector could have a revitalizing influence on the state/market duopoly.

Gordon Brown’s dissertation only touched glancingly on the voluntary sector, but my hope was perhaps implied when he commended the new Archbishop of Canterbury’s Dimbleby lecture and a recent book by the Chief Rabbi, which point out, to quote Mr. Brown’s summary, “that there are areas where to impose market transactions in human relationships is to go beyond the bounds of what is acceptable, indeed where to do so corrodes the very virtues which markets rely upon for success.” It is those virtues that I want to dwell on.

The charity sector is very used to being told that it should be more businesslike, which is of course true up to a point. The reverse analysis is rarely suggested. It was interesting to see, therefore, that James Strachan, now head of the Audit Commission and former senior city banker turned CEO of RNID, a charity representing the deaf and hard of hearing, commented in a recent speech that “with our [the charity sector’s] ability to harness passion, we can teach business just as much as they can teach us.”

But what are the signs that charities may be becoming too businesslike?

Against stagnating personal generosity and, as the Charities Aid Foundation has estimated, a major downturn in corporate giving since 1998-9 (the total cash figure for 2000-01 was under £300 million), charities are understandably turning ever more to trading as a means of generating income.

The No. 10 Strategy Unit Review of charities published before Christmas, which is likely to be legislated, goes as far as to propose – under the heading “Encouraging Entrepreneurialism” — that charities should in future be allowed to trade tax-free themselves, rather than through arms-length trading companies; that there should be no limit to that trade either in amount or type (which could therefore be completely unrelated to the charity’s objects); and that the only constraint should be a statutory duty of care.

If such a reform occurs, it would only take a few well-publicized disasters to undermine the magic of charity, which is still very real, and with it the priceless public trust. Such a reform would also wholly cut across the altruism that is still the essential legal and moral characteristic of charity. It would distract trustee boards from their charitable purposes. It would expose the assets of the charity – most of them publicly donated – to unlimited trading losses. It would tilt the composition of trustee boards even more toward dominance by business people, which may already be becoming a problem. And it would stoke the resentment of private-sector competitors (alias potential donors) who would see charities using tax-exempt assets to support tax-exempt unrelated trades, as well as receiving rate exemption for the premises from which they were conducted.

The fact that this proposal made it through to become a Review recommendation is evidence of the extent to which prominent parts of the sector, certainly at its larger end, are now influenced by those who may not fully understand the fundamental difference of the sector they are in. It is the same pressure that has led the Association of Chief Executives of Voluntary Organizations to lobby for remuneration for their members comparable to public-sector rewards, and to significant elements in the sector pushing for remuneration for charity trustees. Or perhaps it was all down to the crusading Mr. Brown again.

The commercialization is also occurring in the escalation of charities’ marketing, PR, and expensive television advertising, which sets them alongside the great multinationals. There has also been a fairly rapid increase in deployment of professional fundraisers, whether on the streets or via telephone canvassing, as well as in commercial events that use charity goodwill to push sales in exchange for payment. Similarly, there has been a great growth in sponsorship and affinity deals.

Lastly, I think one can begin to detect a lack of enthusiasm amongst the paid staff of some charities to maximize volunteer input other than as menials. Apart from anything else, volunteers may put jobs at risk, and they have the disturbing freedom to vote with their feet as well as invulnerability in speaking their minds.

That charities are a unique species is a fact of law and history. I have already mentioned the core characteristic of altruism. I think it is widely realized that that essence can inadvertently but irreversibly be undermined by inappropriate commercialization, especially where it impacts on the norm of volunteering, whose dilution or even displacement calls into question the very appellation “voluntary sector.”

To be true to its nature, the charity sector should always find an honored place for those untutored human gifts of care, compassion, and attentiveness that are at its heart and indispensable to its public magnetism. Importantly, those gifts are not dependent upon qualifications or training. Indeed I sometimes think that the latter can impinge on the former. I do have concerns about the extent to which the reasonable wish to “improve standards” may be devaluing those heartland qualities and frightening off volunteering by those with few if any formal attainments.

Criticism from within and without the sector of its amateurishness is mighty ironical, given that the word derives from amo, to love, and charity itself from caritas – Latin for love itself.

The traditional values of the charity sector are after all increasingly different from those of modern big business, though it is no monolith. I say big business, thinking particularly of quoted and multinational companies, because they are legal constructs answerable to very attenuated constituencies and demands. As the chairman of a large family business put it when they finally went public, “[O]nce we became a quoted company, we were answerable to our shareholders in the same way as any other company and subject to the same external disciplines. We are, therefore, not in a position to make any special claims about the way in which the business is run and the values which lie behind its management, nor would it be right for us to do so.” How sad, and how diminishing for our society.

The fact of the matter is that the only stakeholders of the modern limited company recognized by law, beyond a side glance at employees, are the shareholders. Indeed, the government report recently by a business luminary, Derek Higgs, on the role of non-executive directors, reinforces that narrow focus. In over 100 pages there is scarcely a nod in the direction of the wider public interest or of corporate citizenship. He repeatedly asserts that the required attributes of such directors are those of “skills, knowledge, and experience” without reference to character, judgment, and wisdom. This reflects the reality, namely that most such businesses operate within exceedingly introspective, two-dimensional parameters.

Whilst charities have a bias toward the poor, companies are interested in those with money to spend. Charities usually have a constitutionally explicit mission. Few companies do. Furthermore, for charities to engage and hold volunteers and donors (and less than 5 percent of our third of a million charities have employees), and to relate to beneficiaries in a way that maximizes the impact, calls for priorities and values differing from those of the corporation.

Altogether, the relationships between a charity and its various constituencies – donors, beneficiaries, staff, community — are complex and multifaceted. If the charity serves an interest group, for example a disabled class, its functioning will generally need to exemplify its altruistic purposes if it is to thrive. Beneficiaries will need to be psychologically empowered as well as financially or materially assisted. In this context, means and ends can become indistinguishable. That is why the learning-disability charity MENCAP pioneered in the 1990s direct involvement of handicapped members in its governance, reserving them places up to main board level. That was controversial. But it has worked brilliantly in all sorts of transforming ways — none of which show up in its accounts, of course.

Business, on the other hand, has to concentrate inexorably on financial measurables, which is about all that markets, traders, and analysts bother with. Indeed, the vital but painfully slow-growing ethical investment movement may – I hope does – represent a long-term Trojan Horse in this regard. But, as of now, financial markets hate the uncertainties and delays of ethical intervention in their affairs.

Not long ago I was in the company of a youngish fund manager who invested in first-generation companies with prospects. When I said how fascinating it must be to be involved with the progress of the businesses, he quickly said his company made a point of only looking at the figures. To visit them, or get to know the people, would only obscure the relevant facts, he asserted. Which was the same point of view put to me by the CEO of a multinational company I encountered, who had a policy of never visiting overseas subsidiaries for fear of contaminating his objectivity. That attitude is widespread, I think, and deathly.

Again, in absolute contrast, charities are in the people business first and last, and sometimes efficiency of a conventional kind will not be a useful yardstick of their effectiveness. I can vouch for this from my 30-year immersion in the charity world. Some of the most chaotic outfits have also been some of the most imaginative and creative, whilst others, which would win every Kitemark certification, have been lackluster, with far fewer multiplier effects and “hits.”

In my early days after setting up the law firm Bates, Wells & Braithwaite in 1970, the difference between small charities and the owner-occupied businesses I acted for were not as great as people might suppose. Apart from having a self-selecting clientele, charities more easily approximated businesses when the ethos of the latter, in which I include the professions, was broader and more liberal than it is today (though owner-occupied business still have freedom as to ethos and goals).

I well remember dealing with the remarkable inheritance of the remarkable Jackson Cole. He, some will know, was a successful businessman who intentionally welded his businesses and charities together with the intention that the disciplines of the former would be at the service of the latter. Thus it was that World in Need, Helping Hand, and others of his charities enjoyed many common directors and trustees with some of his businesses. The experience the businessmen gained on the charity boards, and the fact that the charities at least partly owned the businesses, lent impetus and purpose to the latter.

I may say that this arrangement reminds me of my upbringing in Sudbury, Suffolk. In those days of local self-government, with the great majority of shops and businesses locally owned, there was an unavoidable intertwining of business, social, and community life. Self-interest was rewarded by civic engagement, which in turn created communal solidarity, out of which naturally flowed good works. Not just that, but the benefits were invariably two-way, so that givers in some roles became receivers in others, which offered everyone a place and a purpose to the mutual esteem of all. That reciprocity is, I believe, a crowning achievement where it is to be found.

I have also been fortunate enough to act for the organization Business in the Community since its early days, when some big-company grandees of the postwar business world determined to reconnect their enterprises with the community and civic life from which they were even then fast detaching. Much enlarged, BITC carries on the same broad mission today, with considerable success but within a context which, whilst more attentive to corporate social responsibility and so on, is in truth having to compete in ever more rootless and ruthless markets and financial centers.

I recall two further telltale incidents that have stayed with me down the years. One was a lunch hosted by the then-prestigious merchant bank Morgan Grenfell, to which came the crème de la crème of the city. The occasion was to drum up support for Full Employ, a charity seeking to persuade city houses to employ blacks.

One speaker after another couched tentative support for the idea in terms of the benefit to his bank, broking house, or whatever. Eventually one speaker rather impatiently said that as far as he was concerned it was only right that the city should do its bit in this way, and he really did not see why one had to beat about the bush in saying so.

It was like lancing a boil. The prisoners were unchained, and got down to some lively, useful talk. Would it be any different today, I wonder? Perhaps it would, though the public relations people might be doing much of the talking.

Then I remember going to the Financial Times at the invitation of Richard Lambert to discuss what was then thought of as a rather radical report by the Church of England entitled “Faith in the City.” Again the room was full of big hitters, and the chair of one of the clearing banks, a revered city figure, started the proceedings.

He opined that Christ’s insights should not be allowed to infect – that was his repeated word – the deliberations of company boards. I think that that sentiment would find a ready echo today, when lawyers, accountants, and possessors of M.B.A.’s are the new priesthood, the new Pharisees, with a dry-as-dust agenda and outlook.

Today, with communism dead and buried and socialism almost as moribund, free-market capitalism is the only ideology still on its feet. Christianity is either in a very deep trough akin to its plight in the mid-18th century, which presupposes a recovery, or in terminal collapse. Yet the limited company, a 19th-century invention, was never designed to exist in a moral vacuum, or to be solely – and I think hopelessly – controlled by purely legal constraints à la Gordon Brown.

It is against this backdrop that, it seems to me, the charity sector has a greater burden on its shoulders than ever before. For it clearly still stands apart from the state and private enterprise, however closely and needfully it engages with both. It is still, despite commercializing threats, genuinely diverse (anarchic, even), truly organic, intrinsically cooperative, wholly people-centered, open-hearted and generous-spirited, trustful and widely trusted, often informal and largely unbureaucratic, inclusive and nondiscriminatory (apart from its moral bias), mutual in method and communal in attitude, egalitarian in the profound sense of valuing all equally, collaborative rather than competitive, selfless rather than selfish, and giving-centered.

One only has to recite that litany of virtue to realize just how indispensable charity is to the common weal today, and how at this strange juncture it is a unique repository of our cultural genes. One also has to recognize that a similar critique of 21st-century big business would come up with diametrically contrasting characteristics described in entirely different language – a bit like juxtaposing the Sermon on the Mount with a company prospectus.

In so saying, I really am not condemning business people (of whom I have always been one) so much as the system. My sense, indeed, is that modern business and professional people are as decent and well intentioned as ever. Having worked in and around the city for nigh on 40 years, I think I hear the death rattle in modern capitalism so long as it is so utterly dominated by insatiable moneymaking and driven by obsessive selfishness mitigated (if at all) only at the margins by wider civic concerns. Global enterprise seems to me to be in a more vulnerable state than even the recent plummeting of stock markets might indicate.

Competitiveness and acquisitiveness carried beyond a certain point place such demands upon their practitioners that their lives become obsessive and unbalanced, and their private and personal needs, let alone any obligations to the public interest, get displaced. That, in turn, makes them less good business people as well as less good citizens.

It is pure delusion to pretend that one can unleash the dogs of competition and acquisitiveness and then control what follows. That myth, I have to say, is most believed by those who have no direct experience of the markets they are theorizing about.

The only real constraint on acute selfishness is character and a lively sense of right and wrong, best learnt by experience. To ramp up competition merely ramps up materialist ambition (what used to be called greed), which Shakespeare correctly analyzed 400 years ago in Troilus and Cressida: “appetite, an universal wolf, so doubly seconded with will and power, must make perforce an universal prey and, last, eat up himself.”

Despite the efforts of a few companies, many individuals, and such organizations as Business in the Community and the Princes Trust, the world of business has largely vacated the public realm. Local communities thus deprived of business-led leadership become additional victims of the slash-and-burn culture that grips the great financial centers of the world and the companies that make them up. Is it any wonder that we suffer from such intractable problems as a society whilst enjoying unprecedented wealth (albeit differentially enjoyed)?

So, much of modern business has much to learn from the charity sector — from the refreshment and restoration to be gained from taking on board a little of its magic formulae and remembering that a single act of unalloyed generosity can be transforming for life, that a single demonstration of unmerited trust can be liberating for life, that companies are made up of people who need people.

In a recent article in the Harvard Business Review, Dr. Charles Handy, as acute an observer of all this as one can find, asks, “What’s a business for?” His answer is that “enlightened companies exist not just to make a profit, but to use profit to achieve a nobler end.… We should, as charitable organizations do, measure success in terms of outcomes for others as well as for ourselves.… Companies achieve this purpose by gathering a community of individuals who want to accomplish something collectively that they could not do separately – people eager to make contributions to society.”

I leave you with one fascinating thought. The hundred, probably the thousand, oldest institutions in this land are all charities. What is the secret? I have hinted at the answers here. Certain it is, however, that there can be no endurance without endearment. In profound ways, dare I say it, business has considerably more to learn from charity than it may realize.


* Andrew Phillips (Lord Phillips of Sudbury) is a member of the Advisory Council of the International Center for Not-for-Profit Law. A specialist in charity law, business law, and defamation, he founded the law firm Bates, Wells & Braithwaite, London, in 1970. He is cofounder and first chair of the LAG, a legal aid charity; founder and president of Citizenship Foundation, an education charity; cofounder and president of the Solicitors’ Pro Bono Group; and a member of many charitable and business boards. Lord Phillips is also a working Life Peer. This article is adapted from his lecture before the Allen Lane Foundation in February 2003.