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Foundations and Risk: The RS Macdonald Charitable Trust

In this series, we are taking a closer look at foundations’ attitudes to risk. We will include perspectives from across the UK and from funders with a number of specialisms and approaches.

The second article in this series comes from Douglas Hamilton, Director of The RS Macdonald Charitable Trust.

This series first appeared in April 2017’s Trust & Foundation News. Read the magazine here

Recently we have been reviewing our risk register and one of the most striking things that came to light was just how different our risk profile is compared to the charities we fund – it is much lower across the board. It was a useful exercise and made us think not only about our own risk, but about how we can best support our grantees to manage their risk.

Like all foundations we face financial risk with our investments, a small level of reputational risk, and a limited amount of operational risk.

The highest level of concern from an operational point of view is organisational continuity and the unexpected loss of key staff. We are only three employees so we have made sure that all our processes are written down and recorded, not just left in the knowledge of one or two people who could leave. We also share the worry of other funders concerning significant fraud or loss, so we make sure we have appropriate authorisation checks and robust financial management processes.

Our investment objectives are designed to minimise the risk of any significant loss across the portfolio and we use investment advisors to make sure our endowment is spread across an appropriate mix of investments. In our most recent review of our investment objectives we moved some money into more ethical funds.

This touches on reputational risk. Obviously there was the Panorama programme a couple of years ago that looked at the investments of some leading grant-makers, but being an endowed foundation, the reputational risks are again comparatively low in relation to other organisations – we are not public-facing in the way some large funders are, or fundraising for our activities as operational charities are. If people started talking badly about the RS Macdonald Charitable Trust, it might affect some of our relationships, but in most cases we would anticipate that people will still apply to us for funds and the impact on our ability to do our work would be quite low.

We are though very careful in choosing the organisations we fund and deciding what level of risk we are willing to take. We operate within the core values of the trust – being enabling, compassionate, open and prudent. Prudence dictates that we are careful about the financial viability of the organisations we support, so we ensure that they are well managed. If we have trust in the organisation we are more willing to back innovation in what they are trying to do, including new projects that might not work. We are open to new ideas and new ways of doing things, and advise charities to come to us for funding that they might not get from other sources – our independence allows us the freedom to back projects that some other funders can’t. We mitigate the risk of any failures by having tight procedures in place and imposing conditions on the funding. We are also only ever committed to one year of funding at a time, so if something goes wrong, the second year’s money is not released.

We are currently reviewing our thematic priorities and one of the areas that has been discussed is supporting work that provides treatment to perpetrators of abuse of children. This might well be controversial work, but it would be less risk to us than to others and is a good example of how we don’t have the concern of being publicly-funded or having to justify ourselves to anyone else apart from our own trustees. If we felt it was the right work to do and it was going to make an impact for children, then we would be willing to look at the type of approach.

The political environment doesn’t impact on us as much as others, but again we need to be alert and flexible in response to the risks imposed on the charities we fund. For example, we support universities in Scotland and there is concern about what the impact of Brexit will be, particularly on research funding, and where the lead body on large international programmes will be situated.

But all that said, perhaps the biggest risk we face is lost opportunity – that we do not fund something that is really worthwhile and beneficial within a community. Because we could or should have funded a project but were unaware of it, communities could lose an important resource, staff could lose their jobs and so on. Our role is to make sure that we are open, that people are getting good advice on what they can apply to us for, and that we are making the best decisions we can through our assessment process.

Douglas Hamilton
Director
The RS Macdonald Charitable Trust

www.rsmacdonald.com

 

Other articles in this series:

Foundations and Risk: Lloyd's Register Foundation

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