governance

A Fable of Aesop

  Saint Anthony the Abbot Tempted by a Lump of Gold, Fra Angelico (1436)

Saint Anthony the Abbot Tempted by a Lump of Gold, Fra Angelico (1436)

There was a man who was so worried about the safety of his possessions that he sold them all and bought a lump of gold which he buried on the outskirts of town.

He had no greater pleasure than to visit it and to muse or dream. He did not own the gold, but the gold owned him.

One day he found the gold gone. He was distraught and told a neighbour of this loss.  The neighbour told him to put a stone in its place – “since you never meant to use it, the stone will be just as good as the gold”.

Aesop’s moral is that the value of money depends not on its accumulation but on its use. It remains as true today for trustees and advisers as it did 2,500 years ago.

Why charities need to engage

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At Yoke, we like to cycle to meetings. It keeps us fit and cuts our carbon footprint. While some say cycling in London or any city is dangerous, we manage the risks and take appropriate time between meetings, keeping within the law. The biggest risk on the road tends to be other cyclists or pedestrians, who do not appear to be aware of the rules of the road. 

We notice that it common for pedestrians at crossings wait for a bike to pass, when it is the person on foot’s right of way. This is because many cyclists think they are in charge and ignore the highway code by crossing red lights and zebra crossings, so pedestrians are naturally confused and avoidable accidents can occur.

An excellent recently published report entitled Time and Money highlights that charities who rely on investments to support their long-term mission can take advantage of their ability to make and spend more money and encourage good corporate behaviour. However, short-term thinking can get in the way.

Trustees can unwittingly be blown off-course and when investing for the long-term. It is important that Trustees should be committed and ambitious, not complacent, continually attending to the proper management of their assets but never losing sight of the main charitable goal.

Why do we link the poor pedestrian to a report about investment management for charities?  In many cases an investment manager attends the charity meeting and for usually 30 minutes, they entertain client with stories from the market. Rarely does the charity engage. Like the pedestrian at the crossing who is used to the cyclist ruling the road, charities tend not to challenge. 

Charities must engage, not be entertained, when it comes to investment. They must understand the risks and investment objectives. While the manager can advise, it is the charity that is in control and they must have the confidence to remind themselves of what they want from these assets, assess whether or not they are getting what they want, and if not, decide what action to take.   

Investment managers should also encourage their clients to be engaged by basing their presentation of how well they are fulfilling the mandate they have been given against the benchmark the charity has set. Fabulous tales of the far east and what’s going on in the Silicon Valley is simply entertainment and adds very little to the Trustees’ understanding of whether they are achieving their long term goals.

Like the pedestrian, trustees need to enforce their right and be in control of where they are going to avoid unnecessary accidents.  

Yoke is a year old. 10 things we have learnt about charities.

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Yoke and Company is officially one year old. The company founders are a lot older and we are amazed that the year has gone in a flash.  So what have we learnt and what has changed?

1.      Regardless of all the Charity Commission’s advice on financial governance, it remains normal for trustees to say ‘I don’t do money’. If it’s baffling, it is usually just because the issue has been badly explained.

2.      Being regulated means Yoke never hesitates about the investment advice we give, which goes beyond simply comparing managers; The FCA’s review on investment consultants having conflicts of interest or not being regulated highlighted many issues that have yet to be addressed.

3.      Charity decision making lurches from one quarterly meeting to another. They always have, and probably always will. Difficult decisions often get deferred. No decision is a decision in itself and it is usually the wrong one.

4.      Too many charities regard success as a growing pile of money. Surely this is a measure of failure because the money is there to be spent on charitable purposes.

5.      Charities tend to be cautious; trustees should take more risk for their beneficiaries, just as a parent would for their children. The parents don’t enjoy the rewards, but that’s not why they do it.

6.      Penny wise and pound foolish – investment managers can be expensive but not that different from each other. Getting your risk budget right is free and makes you most of your returns. Obtaining help in this area difficult to find.

7.      The rewards in winning new investment business are huge, so the industry is incentivised to get trustees to change managers frequently. Less change will provide better long-term results. 

8.      The public trust in charities has declined after successive years of media attention and bad practice from a few poorly run organisations. Kid’s Company is becoming a distant memory after Oxfam, but charities need to be less defensive and bolder about the great work they do.

9.      We continue to meet so many amazing charity executives who have passion and bold ideas. The problems manifest when these ideas are passed to the trustee board who struggle to share the confidence to take controlled risks with their assets.

10.   We keep looking for someone else offering independent financial assistance to charities, concentrating on the ‘upstream’ problems that concern the overall financial decisions. Combining this with regulated and totally independent investment advice to charities of all sizes. This currently makes Yoke fairly unique in the UK. 

 

Grant-making, a moral dilemma

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Q. When is a gift not a gift?

A. Most of the time.

A group of friends were discussing this question as we drank coffee sitting outside a café. A woman passed by and politely introduced herself as homeless and soon we had given her some money. Our friend said “you see – a genuinely gratuitous gift” to which we asked “…or did we pay her to leave?”

It is the fashion now to focus on impact and measurement in grant-making and charitable activity, but these terms are badges of commerce, not giving. ‘Getting better value from your gift’ is a laudable goal, but how often can an alcoholic return before our charity is exhausted? Limitless charity enables endless drinking, but only that would be a true gift, made regardless of the consequence. A requirement to stop drinking is no longer a gift but a transaction.

Once we set criteria we trade, and only haggle over the price. What matters is who sets the criteria.

How charities can avoid the Ryanair fiasco

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The recent debacle of Ryanair, having to cancel hundreds of thousands of bookings on their flights due to a cock-up over pilot holidays has some resonance with the charity sector.

 

Both offer a service to the public. They are both regulated, offering their services on a cost-effective basis. People with lower incomes rely on their service and both suffer from negative media attention when things go wrong. When things go wrong, people are adversely affected.

 

Of course, it would be impossible to suggest that Ryanair was a charity or shared many of the behaviours of a not-for-profit organisation. It is an airline that is driven by profit, with aggressive tactics creating one of the fastest growing airlines in the world.

 

But when things go wrong, for whatever reason, it can get out of hand quickly. This causes personal pain and long-lasting reputational damage. It is easy to compare the charismatic nature of Michael O’Leary, Ryanair’s Chief Executive, with the founder of a successful charity that goes array. It is called founder syndrome. A few senior people in the organisation who are driven by their own vision and in certain instances, have weak boards or controls to maintain a stable organisation.

 

Something as simple as a badly planned staff holiday rota has caused personal pain for many passengers, reputational damage to the airline and the media a field day. It is a salutary lesson for any organisation, listed, private or charitable that it is vital to have good governance, controls and processes in place to prevent simple errors escalating into a serious breach of trust.

 

Charites are not immune from the Ryanair affair and errors happen. The secret is to manage your risks accordingly and when things go wrong, have a concrete plan to mediate the issue as openly and honestly as possible.