Protecting the culture of giving; the importance of governance in Not for Profit Sector

A desire to fulfill a social duty to the wider community led to more than 1.3 billion people worldwide to donate money to charity in 2012, according to the World Giving Index. As the third pillar of Islam, Zakat prescribes the payment of a fixed proportion of a Muslim’s assets for the welfare of the entire community. The Integrated Regional Information Networks, launched by the UN Office for the Coordination of Humanitarian Affairs, has estimated that somewhere between US$400 billion and $1 trillion are spent in Zakat as well as voluntary charity, or Sadaqa, across the Muslim world every single year. A desire to fulfill this duty, and a sense of responsibility by people from all faiths, means the Arab World has a thriving sector of charitable initiatives and organisations.

Many of these not-for-profit organisations have characteristics akin to leading corporates in the Middle East and North Africa. They can employ large numbers of people, and are responsible for vast sums of money donated to them with their donors’ trust that these sums will be used ethically towards their prescribed charitable goals. However, due to the distinct absence of formalised governance requirements requiring not-for-profits and charities to deliver robust annual reports in our region, many do not formally report in a structured manner, if at all, and as such their commitment to good governance is left unsaid.

Strong governance enables all organisations to respond effectively and quickly to emerging risks and therefore greatly increases their chances to effectively deliver their prescribed objectives. The principles of best business practice are applicable to all types of organisations, from public and private firms to not-for-profit organisations, including charities.

As a not-for-profit itself, the Pearl Initiative is very familiar with the trials and tribulations of registering these types of organisations in the GCC. Aside from securing a Royal Decree, which in itself is an option only available to very few, official registration required to formally recognise a not-for-profit in most GCC countries can take many years to achieve. In the UAE, for example, the Department of Islamic Affairs and Charitable Activities provides licences to organisations operating within Dubai, but it can take many years to complete this process. It is therefore vital that we explore the imposition of a simple, formalised registration processes for non-profits and charities across the GCC.

We could look to other parts of the world to see how other jurisdictions register their not-for-profit entities: In the UK, for example, there are four clear steps which enable the relevant authorities to collect the applicable information to demonstrate the public benefit for the charities’ existence in order for it to qualify. Typically it takes five weeks to complete this process. The ease of this system perhaps explains why there were 163,361 charities registered in the UK as of September 2013. According to the National Centre for Charitable Statistics, in the US there were 1,424,918 registered non-profits which collectively held $2.87tn in assets at the end of 2011. These examples are in contrast to only a few hundred registered non-profits across the whole of the GCC.

The lack of streamlined procedures in most of the Gulf region to properly register not-for-profits means that in the meantime their founders are left with no option (save to completely cease operations) but to operate unofficially while being virtually ungoverned. It is therefore left to the founders of these entities to ensure that they live by the ethics on which their organisations were founded. To do this, they must strive to use essential governance tools, such as robust and clear annual reports, to manage and communicate their activities transparently and more effectively. Doing so, will build greater trust with their benefactors, generating greater chances to attract further support.

Good governance in general must by definition be transparent and open, encouraging trust within, and of, an organisation. It extends far beyond mechanics such as board composition and the frequency of committee meetings. It should be weaved, as a premise, through every aspect of an organisation; its people, culture, and its public face. However, these fundamental governance principles are all too often regarded as time-consuming and difficult and therefore passed over in the pursuit of the organisational objectives. Working specifically for the public benefit, however, the not-for-profit sector is arguably in a position of even greater responsibility and therefore has a unique opportunity to demonstrate good governance, setting the tone and showing best practice for others to follow.

In terms of upholding the precious reputation of the charitable sector, being seen to adhere to good governance principles is no less important than the practice of good governance itself. Without the trust of those supporting the charity, the entity simply cannot exist. In the UK, for example, poor governance and basic failures in trusteeship featured in some 85 per cent of cases of charities which were shut down by the UK’s Charity Commission.

There is a growing recognition across the Gulf that businesses should be “held to account”; that the social responsibility they choose to practice should be mandatory, and not optional. With non-profits, accountability is not just about satisfying the reporting appetite of existing and potential funders. It is about the organisation taking responsibility to embrace practices that will inevitably enable it to scale. It is the Government’s role to set the regulations we all follow, but it is up to individual organisations across the GCC to create positive social and environmental impact, beyond legislation; and this must propagate from the examples set by business and by civil society. The value-driven objectives of most non-profits and charities mean they have a robust ethical foundation. Good governance in these organisations is therefore not an added bonus; it’s at the heart of what makes them successful.

As featured in The National on 3rd November 2013