Association of Charitable Foundations (ACF) — Written evidence (CHA0082)

Association of Charitable Foundations (ACF) is the membership association for foundations and charitable grant-making trusts in the United Kingdom. ACF’s priorities include enabling trusts and foundations to achieve good practice in grant-making and helping them to be effective in the many ways that they use their resources, including their investments for charitable purposes.

There are approximately 12 000 independent grant-making foundations in the UK – defined as those deriving their income from private philanthropic sources either as ongoing income or in the form of gifts that are invested as endowments. According to ACF’s Giving Trends 2015 Report, in 2014 the Top 300 independent foundations were responsible for 90% of all giving by the sector, with annual grants of £2.4bn. The top 20, each making grants of over £20m, account for nearly half of all grants made by independent foundations. 

Beyond their financial contribution, foundations make a distinctive contribution to civil society. Unlike public sector funding bodies, foundations can take risks, offer long-term support and back causes that may otherwise struggle to gain attention. Crucially, unlike most other types of funder, charitable foundations can work independently of political time-scales, free from short-term market cycles, and counter to received wisdoms, allowing them to respond creatively to immediate need as well as take a long-term approach.

This written evidence supplements oral evidence given on behalf of ACF by the organisation’s Head of Policy, Richard Jenkins, on 12 July 2016 [Evidence Session No. 3 Questions 30-40]. It aims to refer the Committee to research and other data referred to in our oral submission, as well as adding context for to the points made in the course of the earlier session.
 

1.              The Committee seek views on the pressures and opportunities faced by charities. The following paragraphs augment our oral evidence by outlining the pressures faced by foundations and we give examples of the issues faced by charities based on the intelligence that foundations gain as funders.

Pressures and opportunities faced by Foundations
 

2.              With cuts in public sector funding for the voluntary sector increasing, the contribution of independent foundations to civil society is becoming more and more recognised. In 2014 the top 300 independent foundations were responsible for 90% of all giving by the sector, with annual grants of £2.4bn. By comparison, in the same year, central government grant-making to the voluntary sector amounted to £2.2bn[1]. NCVO research [2] concludes that foundations will not be able to make up the deficit of funding for charities predicted by continued falls in public sector grant-making. So, while endowed foundations maintained spending rates in the years immediately following the credit crunch[3], charities experiencing falls in other forms of funding will not be able to make up the difference through increased funding from foundations. In addition, when economic downturns result in greater demand for their support, this is just the time when pressure grows on foundations’ own resources which are so frequently dependent on investment performance. Indeed, while foundation giving has risen over recent years in actual terms, it has still not exceeded its pre-2008 levels in real terms.[4]

3.              In this context, foundations’ opportunities are our ability to change focus and adapt quickly to changing circumstances.

4.              For example, foundations have been refreshing their strategy. Some have increased their levels of giving by engaging with philanthropists directly[5]. Others have been developing new theories of change to help them work collaboratively with each other and across sectors. Foundations have also been at the forefront of growing the social investment market, providing over £100m of risk capital to social purpose organisations and increasing numbers of foundations have been exploring social investment and other innovative ways of using their investments to achieve their charitable objectives[6] 

5.              At the same time, foundations’ networks and relationships with the grant-holders and others provide an opportunity in themselves, in providing intelligence on how the charities, voluntary groups and social enterprises are experiencing a changing financial environment, and informing grant-making practice and wider discussion.             
             
Foundation feedback on the pressures faced by the charities they fund             
 

6.              For example, research published by Garfield Weston Foundation[7] commissioned following a drop in grant-applications, concluded that ‘Most organisations had confidence that their professional resources were sufficient for introducing change in the funding mix, including culture (74%), knowledge and information (79%), skills and expertise (78%) and contacts and networks (80%), but overwhelmingly felt they lacked the financial and human resources. The Catch 22 is that ability to change does not get ‘road-tested’ if organisations do not spend on it, and they cannot make a well-evidenced case to funders for investment.’ So, organisations have lacked the capacity even to seek the support they know they need.
 

Enhancing performance and effectiveness              
 

7.              When it comes to tackling these deficits in financial and human resources, recent research from Institute for Voluntary Action Research (IVAR) – again based on the experience of those in receipt of foundation funding - makes it clear that there are no simple answers, quick fixes or ‘one size fits all’ solutions, but that in order to seize the opportunities that there are, charities need flexible funding arrangements that guarantee strategic capacity and the means to redesign operations mid-stream in order to maintain unwavering focus on mission[8]. Successive research by IVAR has richly documented both the experience of particularly small and local charities, and the challenges facing funders attempting to support them in ways which enhance their performance and effectiveness. One repeated finding was that organisations need ‘thinking space’ to know how best to adapt in constantly changing circumstances. This relates very closely to the Committee’s concerns around Governance and Leadership.             
 

8.              Foundations are responding to these concerns, in part by looking at how their funding sits alongside that of others, by collaborating across sectors,[9] funding field work[10] and adopting, formally or informally, a ‘funder plus’ model which offers practical capacity-building support alongside other forms of funding.[11]             

9.              Finally, in our oral session we highlighted the ways in which foundations work to monitor and demonstrate impact. ACF is a member of, and helps lead, the Inspiring Impact, a UK-wide collaborative programme, working with the charity sector to help organisations know what to measure and how to measure. While monitoring impact can be key, to ensure that foundation money is well spent, there is increased questioning among funders of the assumptions behind some thinking on impact measurement.  In particular, where organisations are tackling multiple disadvantages or supporting work in densely collaborative structures, the imposition of outcome measures can distort action in the same way excessive targets provided perverse incentives in public sector management. In such contexts a ‘relational’ model works better where foundations remain supportively engaged with organisations throughout the lifetime of the grant.[12]

Accountability and the role of the Commission             
 

10.              Accountability in the charity sector is complex, with trustees balancing the needs of beneficiaries with other stakeholder interests including donors, commissioners, and increasingly investors. For the long term health of the sector, trustees must maintain their ultimate accountability to their charitable objectives, and not the interests of particular groups, individuals or even public opinion. At the same time, public concerns about the health and integrity of the charity sector have grown, and it is the particular role of the Charity Commission to maintain public trust and confidence in the sector itself. This situation has created a number of complexities to which we feel it is important to draw the Committee’s attention.              
 

11.              In the first place we note that these heightened concerns about the governance of charities have arisen at a time when the Charity Commission itself has had to deal with significant reductions in its funding. It has reconfigured itself to focus on its core regulatory, or ‘policing’ function. That is logical and we are supportive,  however we believe this reconfiguration comes with significant unintended cost that could itself further undermine public trust and confidence in charities.
 

12.              As an umbrella body, we register the loss of the Commission’s advice and support functions, through receiving increased calls from the public, members and advisors seeking technical information. While online Charity Commission guidance is well-crafted, it cannot fill the gap left by staff at the end of a telephone – and we doubt that all previous enquiries are now being directed to umbrella bodies. In this context, as well as being a loss to charities, the loss of its support function has robbed the Commission itself of a key lever, essential to the delivery of its task, because such accessible advice amounted to preventative action. Now if trustees are in doubt about what to do, in the absence of a Commission hotline, they may choose instead the wrong path rather than seek other sources of advice.
 

13.              The Commission’s greater activity in cracking down on non-compliance, while essential and appropriate in individual cases, itself must be carefully explained because, devoid of any attempt to provide the bigger picture and to inform and educate the public about the wider charitable environment, it again risks affecting public confidence.             
 

14.              We would draw attention to the analogous success of community-oriented policing models, which focus on building ties and working closely with community members, taking a proactive approach to addressing the concerns and fears of the communities themselves.  A regulator that emphasises only enforcement action risks undermining the very trust and confidence it seeks to preserve, much in the same way that press and media attention focusing on crime statistics exaggerates fear of crime in the public mind in a way that corrodes social trust.              

15.              To conclude, in order to fulfil its statutory remit, it seems essential to us that the regulator’s policing function sits alongside active outreach and even advocacy on behalf of those members of the sector whose good reputation suffers because of the bad behaviour of a small minority. The public therefore needs more context about and understanding of charities; and the Charity Commission, as part of its statutory duty, needs to think more about how it contextualises its regulatory role so that the public can be better educated about the charity sector and trustees aided in their tasks.             

Conclusion
 

16.              This submission is additional to the points raised in our oral evidence session. A list of the main publications is contained in footnotes attached and we are happy to provide further information and assistance if required.               

5 September 2016