In a blog a few weeks ago I asked how you know whether an arts organisation is socially successful. I touched upon the role of the Board, and particularly whether the Limited Company is the best structure for an arts organisation. Here are a few more thoughts.
Many if not most arts organisations are companies limited by guarantee (rather than with shareholders) registered with Companies House and they also register with the Office of the Charity Regulator in Scotland (OSCR) or the Charity Commission (in England). The rules about charitable status have been strengthened recently, but there remains a tension between the two registrations. Companies House is focused on commercial companies and their shareholders. The annual reporting is all about the financial records (an audit or independent inspection of the accounts) and the financial governance by the Directors. The Directors are liable if it can be shown they have been financially negligent and allowed the company to trade while knowing it to be unable to meet its commitments. Meanwhile the Charity regulators do set down limitations on how Directors can act – they can’t be paid for being Directors of a charity, they have to avoid conflicts of interest – and the charity’s annual report has to report on the activities undertaken to further its charitable aims. But the focus is still on financial reporting. As long as I have been reporting to or on Boards of arts organisations, the financial reporting has always been paramount.
The Scottish Charitable Incorporated Organisation (SCIO) is a new structure for charities which doesn’t have to be registered with Companies House – a SCIO exists only as a charity and has only to report to OSCR. That reporting still focuses on the finances, but the charitable purposes of the organisation are no longer trumped by the financial purposes of the Limited Company. Moreover all the members – not just the Directors – are required to ‘seek, in good faith, to ensure the SCIO acts in a manner which is consistent with its charitable purposes’ (OSCR Guidance p22). Does this provide a reason why the Directors should report annually to the members as well as the outside world on achievement of the charitable purposes as well as the financial status of the charity? In an arts organisation this would clearly involve reporting on their artistic activities, but also could encourage reporting on social and environmental aims, in line with the ‘quadruple bottom line’.
The interesting report Common Cause from WWF argues cogently that we will fail if we use structures that are antithetical to our aims in order to achieve those aims. For example charities wanting to reduce the focus on the individual and materialism and emphasise instead more communitarian values should avoid campaigns that treat the public as consumers. By being Limited Companies, are arts organisations using a structure that encourages them to focus only on their financial rather than their wider purposes?