Charities need to show responsibility in every area, not just their relationship with their beneficiaries, says John Williams.

For anyone who has worked in the corporate sector – as many of us who are trustees have – the last year’s scandals and criticisms in the sector should have come as no surprise. Indeed, there are trends we should have spotted and risks we could have anticipated.

Several crises of trust and confidence in business over the last 20 years and more - from environmental damage to misleading marketing - have driven the rise of “Corporate Social Responsibility”.

At its best this is an acceptance that companies must take responsibility for the impact they have on society, that what matters is not just what you do, but how you do it. And I think that lesson applies equally to the charity sector: CSR should also mean “Charity Social Responsibility”.

Now you might say that sounds a bit daft. While companies are focused on profit and shareholder return, charities exist fundamentally to benefit society and deliver public benefit.

But the problems of the last year suggest that charities have forgotten they impact not just their beneficiaries, but the full range of stakeholders around them. They have a wider duty than just to their beneficiaries. Kids Company was so focused on beneficiaries that they turned none away, a model that bankrupted them, ultimately wasting their donors’ money and putting their staff out of a job. Some major fundraisers are accused of putting the needs of beneficiaries ahead of caring for vulnerable donors. And more than one charity has been caught investing their reserves in sectors like tobacco that contradict their charitable mission.

So there is a case for charities accepting a wider sense of responsibility for their activities and their impact. Most do, but all could learn something from the lessons of the corporate sector:

I list a few:

You have to earn your ‘licence to operate’

The steady decline in deference to our national institutions has gone on for a long time; for charities it has just arrived. You have to earn the right to be trusted. Indeed, the right to exist. And that earned trust is fragile. As Andrew Hind put it to the Association of Chairs recently, we have gone from unconditional to conditional trust. And that is why we need to embrace transparency and accountability for all we do. It is the start of renewing trust. Not just in reports, but in actions - from tell me, to show me.

All stakeholders matter – they grant you your licence

You could say that charities put the needs of beneficiaries above all, in the way that companies used to put the interests of their shareholders above all. But today it is more complicated than that. Ironically it was the rise of charities and NGOs challenging business behaviour that has done much to change business attitudes. But charities are now subject to the same challenge and scrutiny – from media, politicians, think tanks. And, of course, from our regulator. So we have to acknowledge their right to challenge us, and respond by engaging willingly with them and explaining better what we do.

The behaviour of our suppliers is our responsibility

A harsh lesson from the corporate sector is that you are responsible for your ‘supply chain’. No matter how remote. There are still recurring scandals about child labour and the conditions that produce some of the cheapest clothes in our stores. You cannot hide behind sub-contractors. Yes, it’s hard to be completely confident; a journalist or a whistle-blower may unearth something your audit missed. But it’s the reality.

CEO pay won’t go away

You may not remember British Gas CEO Cedric Brown, and the Cedric the Pig pay protests – it was back in 1994. But that’s a reminder that CEO and senior remuneration has been an issue for decades and won’t go away for the charity sector. It’s not a challenge you can fix – but you can ensure you can justify the decisions you make, and be well prepared to defend them.

There will be more bad apples

In spite of all the commitment by business to responsible practice, reputation management and enlightened business values, there are still scandals and lurid headlines. It is not that the corporate sector has not learnt its lesson. There will always be countervailing pressures and complacency can set in. All you can do is anticipate your vulnerabilities and be alert. And ensure reputation is on your risk register. One bad apple can, well, upset the apple cart. Who anticipated VW would get in the ethical mess it did over manipulating emissions?

Some Future Trends

But it’s not totally helpful to say we should have seen last year’s problems coming. Or shrug and say it’s unavoidable. There are emerging issues in corporate responsibility that send out warning signals for us in charities. I offer three:

Pensions risk

You will have read about the collapse of BHS and the massive, underfunded pensions deficit. Years of a flat economy and low interest rates have put some defined benefit schemes into serious deficit. And every charity should look to their own. It’s clear that pensions issues have stymied some charity mergers, and there is a big reputational risk if you find yourself raising thousands, maybe millions from your donors merely to close your pensions funding gap.

Wellbeing at work

There is an increasing push in the corporate sector to take active responsibility for the well-being of staff. This started with physical health and fitness, but thanks to campaigning by Mind and Business in the Community and others, there’s an increasing focus on mental health at work. The charity sector is facing a perfect storm of pressures over sustainability in this flat economy with the threat of more closures and redundancies, and pressure to cut costs through zero hours contracts, not paying the living wage, or overuse of interns.

In this context, the next media challenge may be: how well do we really treat our staff (and volunteers)?

Anti-establishment feeling

From Trump to some of the Brexit rhetoric, there is a theme of anger and frustration with our institutions which has fuelled the sort of media and political scrutiny we have seen. We may feel we are buccaneering, campaigning outsiders, but it is easy to paint our larger charities as part of the privileged 1 per cent. We have to stay humble, lean and efficient. And earn that trust, every day, by what we do, and the way we do it.

John Williams is vice chair of the Association of Chairs