Firms in stark relief

As charities replace their dickensian image with a more professional approach, Andrew Towler discovers the financial potential for those firms with specialist knowledgeThe days when charity evoked images of street collectors rattling tins, jumble sales, and a generally ad hoc approach are long gone.

Today, armies of well-trained volunteers have swapped their tins for standing-order forms, charity shops are part of the high-street economy, and charities themselves are big business.

As Michael King, Law Society council member and partner in Bath-based Stone King, says, over the past ten years charities have realised that they must act like ordinary businesses.

'Charities must realise they are no longer public trusts and need to exercise compliance,' he says.

'Most of the work we now get from charities is due to the increasing commercial pressures that accompany this.' The way that charities view themselves is changing considerably.

Stephen Lloyd, a partner at London charity specialists Bates Wells & Braithwaite, says they must 'consider themselves to be a brand name'; while Michael Scott, head of the charities group at London firm Charles Russell, recognises that charities 'now face the same legal issues as a commercial company'.A glance at the recently published 2001 Dresdner RCM Global Investors Top 3000 Charities shows that the leading charity solicitors in the country have experienced a notable growth in their client base.However, a look further down the table reveals that these client increases are not across the board, with some firms losing up to 20% of their charitable clients.

This indicates a redistribution of work towards specialist firms.

Mr King says: 'Many charities are worried about their legal budgets and just how much they should spend.

Thus they shop around to look for the necessary expertise at the right price.'Such peripheral vision by charities has led Stone King - one of only two practices outside the London area to feature in the top ten - dramatically to leap into eighth position from being unplaced in 1998.

The firm considers itself a charity specialist and lists among its 37 clients Scope, Westminster Catholic Diocese, and the Royal Photographic Society.

Mr King explains this specialisation as 'noticing the influx of work that was starting to come our way, and feeling confident that it will not dry up in the near future'.

Another firm reaping the benefits of specialising in charity work is Bates Wells & Braithwaite, which acts for the Tate Gallery and British Red Cross, among others.

The firm came top of the table with by far the most clients.

Mr Lloyd is another who maintains that a shift in the commercial standing of charities is leading to a change in the direction of work.He says that more professionals now work within charities themselves, and this has led to more professional management, and a keener sense of how charities should use external lawyers.

Farrer & Co, which was second in the list of leading firms, can count the Prince's Trust and London Business School among its 56 charity clients.Judith Hill, head of the firm's charities team, says that while charities have been forced into a more businesslike approach they have reacted admirably.

'Funding is in short supply, so it is necessary to find new ways of raising capital, and this inevitably requires a more professional outlook.'She continues: 'I wouldn't suggest that charities have thus become more commercial in their activities, but they are thinking far more about what they are doing, and are far more professionally run by some impressive chief executive officers.'Significantly, Farrer & Co has a large charities team.

Ms Hill points out: 'It was never thought that charities used resources properly as far as legal work was concerned, [but] they now realise they are in a position to demand excellence and that - in the long term - it will be cheaper to go to specialists who know what they are doing.'Michael Scott, head of Charles Russell's charities group, says: 'The increasing competition for funds in the sector has meant more imaginative ideas are needed for fund-raising.'It has become important for charities to recognise their assets and turn them into capital.'The changing role of charities in the national economy is assisted by the government outsourcing (or off-loading, depending on your point of view) state projects.

More work is being passed on to the voluntary sector, ranging from schools to museums, that local authorities can no longer spare the resources to maintain.

This increases the complexity and variety of work that charities demand from firms.

The issue of 'giving' itself was made more attractive by the government in the last budget, with the introduction of tax concessions for donors.

Both Ms Hill and Mr Lloyd say that these measures are taking effect, and gifts from individuals to charities are on the increase.However, Mr Scott says more soberly: 'Charitable giving is increasing, but only from a small percentage of the population.

I would say that the lion's share of donations probably comes from the top 3% of donors.'He adds that the total revenue being donated to charities in the UK is falling.One of the ways charities deal with falling revenues is to merge.

In a survey carried out by Charles Russell in 1999, roughly one-third of charities questioned said they had entered into a joint venture or collaboration agreement.

Of these, 88% said these moves had been beneficial to the charity.This trend seems to have continued since 1999 with merging charities decreasing competition within each sector, and advantageous economies of scale.

Mr Scott says: 'A merger offers the attraction of putting two like-minded outfits together.

If handled properly it should be a major benefit.'However, the special circumstances of charities mean that such affairs have to be handled with caution.

Mr Scott continues: 'You must remember you could be tinkering with donor sentiment, and that could lead to a loss of goodwill.

Where a merger could offer clarity by reducing the number of charities in the same sector, it can just as easily dilute the message they are trying to get across.'Along with matters of constitution and incorporation, new areas of work are finding their way from charities to law firms.

Among these the most prominent are data protection, intellectual property, employment issues, and information technology.

Many of these arise from the increase in Internet use by charitable organisations.

Mr Lloyd can see how charities are benefiting from this.

'The fact that the Internet gives you so much access to the public, means that while at present it is no great money-spinner, it is an excellent way to get your message across,' he says.Charities are changing, and so is the work that they require from their lawyers.

Charity solicitors who have been following the evolution of the sector over the past ten years are now well-placed to pick up the baton.

Dresdner RCM TOP CHARITY LAW FIRMS 2001 1. Bates Wells & Braithwaite (122 clients)2. Farrer & Co (56 clients)3. Charles Russell (48 clients)4. Eversheds (47 clients)5. Withers (44 clients)6. Sinclair Taylor & Martin (40 clients) 7. Bircham Dyson Bell (40 clients)8. Stone King (37 clients)9. Witham Weld (36 clients)10. Nabarro Nathanson (Reading office, 34 clients)