A recent report in the UK makes for uncomfortable reading about governance standards and related matters in philanthropy. This should be a wake-up call for a sector that ought to be buoyed by the intergenerational wealth transfer opportunity that presents itself.

At the final stage of the year, it is common for the editorial team to look at philanthropy. This is “The Giving Season.” Already, we have mused on the role of philanthropy advisors and examined what their added value is for clients. Philanthropy, in spite or perhaps because of the difficulties many people today face economically, appears to be in rude health. 

But that doesn’t mean that the philanthropic sector itself, at least in certain countries, does not need to sharpen up its own act. A few weeks ago, Sorbus.org, which works with not-for-profit organisations, and is part of Sorbus Partners, a UK-based family office, issued a damning report on the industry. The front page of the 11-page document stated: “Charity scandals and widespread governance failures across the third sector are putting trustees, philanthropists and beneficiaries at risk.” To support that contention, Sorbus.org said it analysed data from 151,180 UK charities.

The report found that a “staggering” three quarters (75 per cent) of UK charities don’t implement the six policies and procedures that the Charity Commission expects most such groups to have. Some 28 per cent of charities that serve vulnerable groups, such as the elderly, disabled and children, don’t have a safeguarding policy. Trustees face heightened personal liability for governance failings. Another problem is that philanthropists increasingly carry out governance audits before they press the funding button, which means that charities which do not have their governance in shape will struggle to attract money. To round this all off, Sorbus.org said governance scandals have hit the reputation of individuals charities, founders and the wider sector. It doesn’t make for cheerful reading. 

At a time of multi-trillion dollar/equivalent intergenerational wealth transfer, there is much talk of philanthropy catching a large part of this wealth transfer wave. UBS says $18 trillion globally will go to philanthropy over the next 25 years. It would be nice to think that the sector in the UK – a small portion of the total – won’t miss out if potential donors get cynical because of poor governance and other failings. 

Just as the financial sector was hurt by the mistakes and failings (in government as well as the private sector) in 2008 – we are still paying the price – it would be tragic if badly managed charities damage the wider sector. The “greenwashing” that went on in ESG and sustainability a few years ago arguably played a part in undermining those pushing for renewable energy and reducing carbon emissions. Such an objective, whatever the rights and wrongs of the economics and science, is difficult enough without bad actors making it worse.

The Sorbus.org report spells out the problem well: “Unlike private businesses, where market forces eventually eliminate ineffective organisations, charities can continue operating in a state of mediocrity almost indefinitely.”

The report said that since January 2024, the Charity Commission has published 28 statutory inquiries into charities. In 16 inquiries, one or more trustees were later disqualified, and 10 probes led to charities being removed from the register altogether. 

Some failings garnered a lot of adverse media coverage. In recent years the collapse of the Kids Company charity and the scandal relating to Captain Tom’s Foundation have led to the censuring of trustees. It is all too easy for these episodes to lead to cynicism. 

Philanthropy is an important topic for wealth managers because it is a way to forge bonds with clients. It is an opportunity for a family to talk about values to their children, and a means of explaining and justifying the accumulation of great wealth. It taps into the benevolence of spirit that is, I like to think, a part of what a civilised society is about. It is therefore all the more important for governance to be tightened up. In that respect, Sorbus.org has done philanthropy a favour.