Should I set up a charitable structure to support my Social Value strategy?

Short answer: No, not really, but if you’d like to consider options, read on…

This blog is based on a conversation I had recently with a commercial organisation who asked my advice about setting up a charitable structure to co-ordinate their Social Value activity. I hope my advice was useful for them, and I hope it’s useful for you too.

However, before we start, I cannot state clearly enough:

1. Commercial organisations (‘businesses’ for the sake of reference in this article) exist to make money. They can be ethical, responsible and impactful in the ways they do this, but ultimately they exist to make profit.
2. Charities or other not-for profit organisations exist to tackle social and environmental issues. Charities are usually operating in environments of market failure, i.e. if someone could deliver a social or environmental solution for the client and make a profit, a business would probably be doing this[1].
3. Social Value legislation is not expecting that businesses become charities.

Accreditations like B Corp support businesses to be held accountable to society and the environment. I, and other sustainability professionals could talk at length on the complexity of this issue – but for simplicity - the three points above keep it nice and clear in everyone’s mind.

The business I was talking to already gifts both money and time towards several social causes and is wondering about creating a separately constituted organisation to facilitate this. My advice was as follows:

Why are you thinking of this? What are you looking to achieve and why is the ‘status quo’ of what you already do not fit for purpose? Only by understanding exactly what you want to achieve from your Social Value will you arrive at a fit for purpose solution. Do you want to seek grant funding? Do you want to employ people to deliver charitable activity? Do you want to distribute your own funds charitably?

Be careful about the legal structure of any ‘charitable purpose’ structure. I have been advised very badly in the past, by people who swear blind it will be easy. I’ve changed a Ltd Co to a Charity (easy) and a BenComm (Co-operative) to a Charitable Incorporated Organisation (CIO) - that one aged me by about a decade and cost thousands of pounds in legal fees. I’ve also seen a friend lose hair (and money that could have been well spent on better things than lawyers) transferring a Community Interest Company (CIC) into a CIO. Many of these legal structures are very difficult to change once in place. Don’t rush into anything, and by gods, don’t believe that just because someone is a charity consultant OR lawyer that they have ever actually done what they are telling you they can do. Get a reference. Do your own homework.

Think about duplication. Do you really need to set up your own structure? Think about it for a moment. Any organisation costs money to run – a website, overheads, accountant fees – all of this is money that otherwise would be going DIRECTLY to someone who needs the support. Every time I hear about a new charity being set up in memory of little Johnny, I sigh. Not because I’m heartless towards the often desperately sad experiences of the family members who frequently set these new charities up[2], but because I know there are probably a dozen charities already in existence that are set up to tackle the same issue. And they’ll all be desperate for financial support and they’ll all have their own overheads. Just think about the economies of scale (and strength of voice!!) if you all worked together. Create a Business Plan for your new structure. What is its purpose? What is it going to do that no other existing charity is already doing? Do you need to invent this new wheel?

What’s your income strategy? If you’re looking for charitable funding please don’t set up a BenComm or CIC. And yes, the big funders will tell you that’s fine, they can fund you – but much of your income will likely come from smaller trust funds who probably won’t know what the heck a CIC is, never mind be prepared to fund it. Also remember that CICs can’t claim Gift Aid (which increases the value of a donation by 25%) so if you think that individual giving is likely to be significant, this should factor in the decision.

If you’re mainly looking for a way to structure giving, why don’t you approach your local Community Fund or CVS to see if they can administrate funds for you? They can provide a charitable bank account and a full management service to ensure your funding makes best impact within the communities that are important for you. The advantage of a managed fund is that you can invite other companies and individuals (even your clients and customers) to donate to the fund to maximise collective impact.

If you’re setting up a separate organisation to facilitate staff volunteering in some way, just be really aware this can be a minefield. In the past I’ve had to manage employee timesheets with hours charged across several different organisations, and trust me, it’ll not endear your accountant or HR manager towards you.

Be aware of accountability. If you set up a charitable purpose organisation, you can either be employed by it, or govern it voluntarily (CICs are slightly different, but you still need a Board of Directors). This means it’s not your baby anymore, baby. I’ve seen many founders of a mission driven organisation lose control – in more ways than one – as they realise the Trustees have different ideas to them. And it often doesn’t end well. Most entrepreneurs are control freaks (it comes with the territory) so take the time to consider what shared or gifted control will feel like.

If at the end of the day you’re convinced that creating a charity is for you, then absolutely go for it. You’ve only got to look at organisations like The Eric Wright Charitable Trust - Eric Wright Group to see an inspirational example of values led leadership. All I’m suggesting is to have a strong and clearly articulated WHY? before you start.

[1] For example: Older People’s Care Homes = the government funds this activity and therefore many homes are operated by privately owned businesses. Supporting Adults with Mental Health problems = very little funding from government and therefore frequently the focus of charitable organisations, operationally supported by charitable donation.

[2] And there are many, many other wonderful ways to commemorate someone’s life and create positive social change that should be supported and applauded.

TSVB does not help businesses constitute new structures. But it can help you design or review your systems for making a positive difference for the world. We're always here for a chat. Merry Christmas!