Third Sector Organisations: Legalistic Practices
Last Wednesday I started to explore the differences between small businesses and third sector organisations. The main difference is small businesses can be more responsive to their customers because they do not need the bureaucracy to manage accountability for grants or contracts. Perhaps the most common drag on third sector organisations is legalistic practices.
The bureaucratic nature of third sector organisations is partly down to their need to be accountable to funding bodies. But the problem goes deeper than that. The organisations that advise third sector organisations pass on the bureaucratic model. This means they saddle small organisations with structures they may not need.
A self-employed person can work for many years at their own risk. If their business fails they risk bankruptcy but many of them carry on successfully for many years without incorporation.
Third sector organisations do not normally belong to one person and so they need some sort of agreement about how a group of neighbours or people with a common interest will work together. So, they draw up a constitution and for many such organisations an unincorporated association is all they need.
Incorporation and Charitable Status
But under certain circumstances, such as employing staff, they must apply for registration as a charity. Then they must opt for incorporation to protect their Trustees. Soon, they find they must send in annual returns or else they will be liable for fines. I’ve seen several social enterprises, which would have worked as self-employed businesses, bogged down in these structures.
Incorporation and charitable status may be essential to receive substantial funding and then accountability to their funding bodies is added to the bureaucratic burden. Many self-employed people avoid the bureaucracy that ties small community organisations, just to get on with what they thought would be a simple piece of work.
The result is many organisations become over legalistic. Some of this can accounted for simply because they have registered as a charity and as a company. It becomes a part of the mindset. Someone told me the other day, a tiny voluntary organisation should have had a whistle-blowing policy. The Trustees knew what they needed to do; a policy would not decide whether they do it. This legalism is fueled by fear of what the authorities might do if certain activities are not carried forward in a prescribed way. But the authorities are not interested in the minor issues most organisations encounter. It is the Trustees’ responsibility if something goes wrong and most issues are easily resolved.
Trustees and Directors
Most small businesses get on with the job and do not have to pass every decision through Trustees or directors. Larger companies need them. So why do we think community groups need them? Many groups struggle to find people to sit on committees and then find they comprise people who mostly have a limited understanding of either the legal constraints or of the work of the organisation.
Once you get into the legalistic mindset, there are always excellent reasons for not doing things. Ask a solicitor whether you can do something and they’ll tell you why it isn’t a good idea. This is the wrong question. The right question is how do I do the new thing? I’ve made the decision and I don’t want to know it’s too risky, I want to know how to do it without unnecessary risk.