Charity trustees have taken a bit of a battering over the last few months. During the summer silly season there was the charge that charity CEO pay is out of control; and some of the sector's leading bodies (including the charity commission and the NCVO) felt that trustees needed guiding in order to be able to set pay levels.
More recently we've seen Panorama's investigation into the investment practices of some of the country's largest charities, and the implication that by investing to prop up the world of big finance they are doing more harm than good.
The CEO pay issue was a red herring. Trustees are perfectly well capable of setting a market rate for top talent in the sector. Comparisons with business and public sector roles consistently show that CEOs earn less in the charity sector than they would for the same level of responsibility in other organisations.
The expose on charity investments, however, should come as a major wake up call for the sector. We are all the business of social impact, changing the world for the better and trustees must consider the social impact of all the decisions they make, not just when they are spending their money, but also when they are managing it. Yes trustees have a duty to manage their resources effectively to ensure that they can maximise the impact of their organisations, but we've learned that in some cases the management of those resources may undermine that impact.
Trustees should stop seeing the management of their money and the delivery of their impact as unconnected. Social investment provides trustees with the opportunity to invest their money for a blend of both a social and financial return. The charity commission has updated its guidance to trustees on how they manage investments, recognising that trustees care about more than just maximising financial return. The traditional understanding of investment risk is changing as investors look at both financial return and social impact.
Recently a small group of foundations in the US committed 100% of their endowments to investing for social impact. Some UK foundations and large charities are considering moving significant amounts of their money into this space. But the experience to date suggests that charity trustees are being left behind by other social investors.
Social investment fund managers are creating a range of products into which charities can invest, covering a broad spectrum of financial and social risk and return. Charity trustees need to start demanding that their investment managers are seeking out and bringing them these deals, so that they can maximise their impact in all that they do.