Governance In Philanthropy: A Gap Analysis

In today's inter-connected world, charitable and philanthropic endeavours play a vital role in addressing various social, economic and environmental challenges. These initiatives often require substantial financial resources, leading to the involvement of offshore jurisdictions such as Guernsey, known for their robust financial services sectors. In order to maintain public trust and ensure the effective use of funds, however, due diligence becomes paramount. This article explores the importance of due diligence in offshore charitable and philanthropic endeavours, with a particular focus on Guernsey.

Understanding International Finance Centres

International Finance Centres (IFCs) serve as attractive destinations for the central coordination of charitable and philanthropic activities due to their favourable tax regulations, legal frameworks and privacy provisions. Guernsey, a prominent IFC in the English Channel, offers a stable legal system, a robust regulatory regime and a long-held expertise in managing charitable and philanthropic structures. In many ways, the network of existing financial services on the island stands only to benefit the growth and development of current and future philanthropic structures with suitably evolved infrastructure. While IFCs provide various benefits, they must picked for their relative skills, benefits and enhancements.

The Need For Due Diligence

Due diligence serves as a critical safeguard against fraud, money laundering, terrorist financing, bribery, corruption and the misuse of charitable funds. It involves thorough investigation and assessment of the individuals, organisations and structures involved in charitable and philanthropic activities. This process not only helps prevent illicit activities but also ensures that funds are allocated to initiatives that have a genuine impact on society.

One growing area of need for due diligence in the charitable arena is evidencing to banks and similar intermediaries that the donor has adequately researched the recipient. This covers a range of investigations, spanning not only the managers and decision-makers at the beneficiary end, but also their policies and procedures in handling the funds received and ensuring that they are put towards the charitable purposes intended by the benefactor.

Legal And Regulatory Frameworks In Guernsey

Guernsey boasts a well-regulated and transparent financial services sector. The Guernsey Financial Services Commission (GFSC) serves as the regulatory authority overseeing many of professional intermediaries involved in the philanthropic structuring ecosystem. Organisations operating in Guernsey must comply with various laws and regulations, including the registration requirements of the Charities etc (Guernsey and Alderney) Ordinance, 2021 (as amended), which aims to protect the integrity and reputation of the island's charitable sector. Due diligence processes in Guernsey typically involve verification of the organisation's legal status, adherence to regulatory requirements and confirmation of the legitimacy of its activities.

Overarching the entire process is the fact that Guernsey is approaching its next round of mutual evaluation by MONEYVAL, so charities and non-profit organisations operating internationally are bound to attract additional scrutiny for compliance with minimum expected requirements domestically.

Assessing The Track Record

When engaging with offshore charitable and philanthropic endeavours, it is crucial to assess the track record of the organisation involved. This includes evaluating their past projects, partnerships and overall impact. By examining their previous endeavours, one can gain insights into the effectiveness of their initiatives, financial transparency and alignment with the intended goals. Conducting thorough research on the organisation's reputation and financial stability is essential to ensure that funds are directed towards trustworthy and impactful initiatives.

Engaging professionals in the monitoring and evaluation (M&E) field locally to the philanthropic project being supported can also enhance overseas development targets in building out M&E systems, processes and personnel, as a long-lasting benefit beyond the confines of the immediate project itself.

The Importance Of Governance In Philanthropy

Good governance serves as the foundation for transparency, accountability and responsible decision-making in philanthropy. It encompasses the structures, processes, and policies that guide the actions of philanthropic organisations and individuals. Effective governance ensures that resources are allocated efficiently, goals are aligned with mission and vision and stakeholders' interests are safeguarded.

Transparency And Accountability

Transparency and accountability are the cornerstones of effective charitable and philanthropic endeavours. In Guernsey, organisations are required to provide regular financial reports and in certain cases make them publicly available. Donors and stakeholders should demand transparency in the form of audited financial statements, impact reports and details of how funds are allocated. Transparency not only fosters trust but also allows for informed decision-making by donors, ensuring that funds are used responsibly and ethically.

Collaboration With Professional Service Providers

Engaging professional service providers experienced in charitable and philanthropic endeavours can significantly enhance due diligence efforts. Guernsey offers a range of professional services, including trustees, legal advisers, investment managers and audit firms, with expertise in managing charitable structures and ensuring compliance with regulatory requirements. Partnering with such professionals can help ensure that due diligence processes are robust, thorough, and in line with the specific legal and regulatory frameworks of the Bailiwick of Guernsey. Many of these professional firms are also allied to or grouped with the UK or mainland European parent undertakings of much larger commercial organisations also dedicated to support charitable and non-profit ventures.

Social Impact Assessment

To maximise the impact of charitable and philanthropic endeavours, it is important to conduct rigorous social impact assessments. Such assessments enable organisations to measure the effectiveness of their initiatives, identify areas for improvement, and ensure accountability to beneficiaries and donors. Assessments may include evaluating outcomes, monitoring progress, and engaging with relevant stakeholders to gather feedback. By incorporating social impact assessments into due diligence processes, organisations can demonstrate their commitment to achieving tangible and sustainable change.

Ongoing Monitoring And Reporting

Due diligence is not a one-time activity, but an on-going process. Regular monitoring and reporting of charitable and philanthropic initiatives are crucial to ensure continued and timely compliance with regulatory requirements and the achievement of desired outcomes. Guernsey has implemented frameworks for ongoing oversight of charitable organisations, requiring regular reporting on financial activities and impact assessment. Donors and stakeholders should actively engage with organisations to stay informed about their activities and progress.

The Current Landscape Of Philanthropic Governance

While philanthropic organisations strive to uphold high standards of governance, there are still several areas that require attention and improvement. The following gaps can be identified:

• Lack of Standardisation: Philanthropy encompasses a wide range of organisations, from small family foundations to large institutional grant-makers. The absence of standardised governance practices makes it challenging to establish consistent expectations and benchmarks for accountability;
• Limited Transparency: Many philanthropic organisations are not required to disclose detailed information about their operations, decision-making processes, and impact. This lack of transparency hampers the ability of stakeholders to assess the effectiveness and efficiency of philanthropic efforts;
• Weak Governance: Managing committees (or equivalent decision-making organs) of philanthropic organisations often lack diversity, independence, and expertise. Limited board engagement and oversight can lead to a lack of strategic direction, inadequate risk management, and insufficient scrutiny of organisational practices; and
• Limited Evaluation and Learning: Philanthropy can benefit from a stronger culture of evaluation and learning. Organisations often struggle to assess the impact of their initiatives, collect meaningful data, and use those insights to inform future strategies and decision-making.

Enhancing Governance In Philanthropy

To bridge the gaps in philanthropic governance, the following strategies can be pursued:

• Standardisation and Best Practices: The philanthropic sector could benefit from the development of standardised governance frameworks and best practices. Collaborative efforts among philanthropic organisations, industry associations, and regulatory bodies can help establish guidelines and benchmarks for effective governance;
• Increased Transparency: Philanthropic organisations should proactively embrace transparency by disclosing relevant information about their governance structures, financial practices, and impact assessment methodologies. Transparent reporting enables stakeholders, including donors, beneficiaries, and the general public, to evaluate performance and hold organisations accountable;
• Strengthened Governance: Philanthropic organisations should focus on strengthening their governance practices. This includes diversifying management composition to ensure a broader range of perspectives, expertise, and experiences. Managing committees should also actively engage in strategic planning, risk management and evaluation processes to ensure effective oversight and decision-making;
• Emphasis on Evaluation and Learning: Philanthropic organisations should prioritise evaluation and learning as integral components of their governance practices. Investing in robust impact assessment methodologies, data collection systems, and knowledge sharing platforms can enable organisations to make evidence-based decisions and continuously improve their interventions; and
• Collaboration and Knowledge-Sharing: Philanthropic organisations should collaborate and share knowledge to foster collective learning and improvement. Establishing platforms for collaboration, such as networks, conferences, and online communities, can facilitate the exchange of ideas, experiences, and best practices among stakeholders.

The Way Forward For Philanthropy

Offshore jurisdictions like Guernsey can provide a conducive environment for charitable and philanthropic endeavours. It is, however, imperative to maintain a rigorous due diligence process to uphold transparency, legitimacy and impact. By understanding the legal and regulatory frameworks, assessing track records, demanding transparency, collaborating with professional service providers, conducting social impact assessments, and implementing ongoing monitoring and reporting, offshore charitable and philanthropic endeavours can create a positive and lasting change in society while ensuring accountability and trustworthiness.

Governance plays a critical role in ensuring the effectiveness, accountability, and transparency of philanthropic organisations. By addressing the identified gaps in governance practices, such as standardisation, transparency, board governance, and evaluation, philanthropy can enhance its impact and strengthen public trust. Through collaborative efforts, continuous learning, and a commitment to best practices, the philanthropic sector can achieve its potential as a catalyst for positive change in society. This is where fiduciaries and corporate service providers can help fulfil a benefactor’s good wishes.

Kit Hobbs
Kit Hobbs is Head of Legal at Bellerive Trust Limited in Guernsey, specialising in private wealth structuring and with experience in private equity and regulatory matters. He has previously worked in England and Guernsey in legal private practice. Kit is a Solicitor of the Senior Courts of England & Wales and holds an MBA from the University of Cambridge’s Judge Business School. He has a keen interest in sustainability and philanthropy as a member of the Sustainable Finance Guernsey Council and one of the Guernsey representatives on the UN FC4S TNFD panel.