Trust us

There comes a tide in the affairs of every local authority-managed arts service when someone, for one reason or another, suggests outsourcing it. In common parlance this is usually referred to as “transferring to a trust”, although occasionally it can include a commercial management option. I’m going to refer to this as a governance transfer. Sometimes the suggestion is quietly assassinated by committee, or left to wither elsewhere on the bureaucratic vine. More often, a feasibility study is commissioned to see if there are merits in a transfer of governance.

You must know exactly what you want the study to test. Get this wrong and you risk wasting time and money. If you are going to consider a transfer, it is important you know why you’re considering it, and the context in which it would have to take place if you intend it to make realistic recommendations. I have some experience in this matter, having managed well over a dozen governance transfer studies and programmes in the past three years alone. The usual trigger point for a study is to determine whether the authority can reduce its investment in the service as a result. Often it’s not stated so openly, with references to “achieving better value for money” and “efficiency savings” which pretty much amounts to the same thing. And what does “reduce our investment” mean – a cut in the revenue budget or a reduction in the cost of internal recharges? For the uninitiated, recharges represent money that frontline services are required to pay to the backline services such as legal, HR and financial services to cover their costs – never mind whether they’ve been used. Think of them as a kind of overhead over which an arts service has no control. There is, as always, much more to it than that.

Contextual considerations

A transfer implies that there is a new body of people who will agree to accept responsibility for the service. They need to know that whatever they accept is viable as a going concern. Try and hand over a service stripped of the resources needed to sustain it and they will (or should) be perfectly within their rights to refuse to accept it. Interestingly, if they do accept responsibility for a service that can be shown to have been non-viable from the start and is without plans or resources to rescue it, then they could even be personally liable for its debts as and when it collapses. That’s why all prospective managements must carry out a ‘due diligence’ exercise.

Secondly, consider the local community response. Cutting investment in the arts is a political risk. In the minds of local communities, threatening the arts draws a response similar to the reactions that occur when the village railway station is threatened. Any transfer must find a way of acting as a catalyst for stronger community support for the service. People must recognise that an authority does have the best interests of the service at heart – with a transfer being seen as an improvement or protective measure, not an opportunity to wield the axe. Fail to achieve community support, and people will be disinclined to make donations to an organisation they feel the authority should still be supporting. Arts people are also voting people, and evidence suggests that members should expect to reap what they sow at the next election.

This brings us to revenue matters. Transferring to a body that has charitable status opens up lots of potential revenue sources. However, talk to any experienced fundraiser, and they’ll tell you that it takes about three years to properly establish new and sustainable revenue sources, whether from grants, sponsorship or donations. That’s quite a gap if an authority wishes to make substantial savings from year one. The situation is compounded if there are other existing stakeholders involved. How would other revenue funders, the arts councils, for example, respond to the proposals: match cuts, maintain, or increase their support? There are other issues, but a picture is emerging: plotting a governance transfer can be a complex issue. Investing in research at an early stage should save an authority form political and financial embarrassment. [[Transferring to a body that has charitable status opens up lots of potential revenue sources.]]

Where to start

I recommend that the objectives for a governance transfer be established right from the outset. These usually involve defining the extent to which a transfer can deliver benefits. Involve the key decision-makers (including elected Members) in identifying the key reasons for considering a transfer – the objectives. A feasibility study can then test the extent to which different governance options could deliver the objectives compared to the existing in-house service. It is advisable to consider risks and benefits from three perspectives: the authority, the service and the community. Focussing on a single perspective might identify benefits that could be unrealisable when taking into account the interests of the other two parties. Initial consultation with relevant, decision-making representatives from all three groups will identify the major concerns and desires to be addressed. These can then be formed into objectives, against which to test each of the governance options to be considered. The study will help to reveal the cornerstones on which a transferred organisation needs to build to do its job. You need to know these in order to identify which governance option is most likely to suit your purposes.

Governance options

Isn’t it nice to have a choice! Here are the most common:
• Commercial Management
• Company Limited by Guarantee (CLG)
• CLG with Charitable Status
• Community Interest Company (CIC)
• CLG with a trading company or CIC subsidiary.

All have their pros and cons. For example, a CIC with its ‘asset lock’ will help to ensure that a community building will be locked into community ownership rather than sold off to a developer. However, CICs are not charities, and therefore cannot reclaim tax on donations or apply to a large number of trusts and foundations for funding. A CLG with charitable status may give you access to new revenue sources, but if it is culturally exempt, it may not be able to recover VAT on expenditure. It can be a minefield, but carefully and expertly considered, you’ll find a safe path through it.