Differences between Charities and Listed Companies

Firstly, the two types of organisation are different in terms of regulation.

• Listed companies are subject to all the provisions of company law plus any listing rules that apply. Listing rules, such as the need to adopt the Combined Code in the UK, impose a number of obligations upon listed companies such as non-executive directors, committee structures, a range of reporting requirements, etc.

• Charities, in contrast, must receive recognition by a country’s charity authority to operate and they then receive the concessions that charitable status confers. This often involves favourable tax treatment and different reporting requirements. Because charities are not public companies they are not subject to listing rules although, depending upon the country’s rules, they may be subject to audit and have some reporting requirements.


The second difference is in the strategic purpose of the organisation.

• Listed companies exist primarily to make a financial return for their investors (shareholders). This means that they employ and incentivize people, including directors, to maximize long-term cash flows. Value is added by the creation of shareholder wealth and this is measured in terms of profits, cash flows, share price movements and price/earnings.

• For a charity, the strategic purpose is to support the charitable cause for which the organisation was set up. It is likely to be a social or benevolent cause and funds are donated specifically to support that cause and this expectation places a different emphasis on the purpose of governance.


Thirdly, the two are different in terms of stakeholders and societal expectations.

• Society typically expects a business to be efficient in order to be profitable so that, in turn, it can create jobs, wealth and value for shareholders. Society expresses its support for a business by participating in its resource or product markets, i.e. by supplying its inputs (including working for it) or buying its products.

• A charity’s social legitimacy is tied up with the charity’s achievement of benevolent aims. Stakeholders in a business often have an economic incentive to engage with the organisation whereas most stakeholders in a charity have claims more concerned with its benevolent aims.


*************



Governance Arrangements
There can be a number of substantive differences between the governance structures of public companies and charities.

• In a public company, a board consisting of executive and non-executive directors is accountable to the shareholders of the company. The principals are able to hold the board accountable through AGMs (annual general meetings) and EGMs (extraordinary general meetings) at which they can vote on resolutions and other issues to convey their collective will to the board.

• In a charity, the operating board is usually accountable to a board of trustees. It is the trustees who act as the interpreters and guarantors of the fiduciary duty of the charity (because the beneficiaries of the charity may be unable to speak for themselves). The trustees ensure that the board is acting according to the charity’s stated purposes and that all management policy, including salaries and benefits, are consistent with those purposes.



**********