The core principles of the new Charity Governance Code will help the sector reach higher standards.
The charity environment has changed considerably since the first governance code for the sector was produced in 2005, with recent years being particularly challenging.
The ramifications of fundraising practices and high-profile governance failures are still playing out in the media, and there is much to be done in the sector to shore up public confidence.
The new Charity Governance Code was published in July, and where previous versions of the code were criticised for being overly focused on processes and procedures, this version tries to find a balance between the mechanics – the policies, procedures and processes – and the dynamics – the people, behaviours and culture – of good governance.
This presents new challenges for charity secretaries and governance professionals, requiring their softer skills to be used as adeptly as their technical knowledge.
Observe, advise, influence
Professor Andrew Kakabadse's report on the role of the company secretary made it clear that governance professionals are perfectly placed to observe, advise and influence the board in fulfilling its duties and decision-making responsibilities in the best interests of the organisation.
The governance professional will have a number of anecdotes about how inappropriate behaviours, power struggles, egos and (dare I say) simple errors of judgment have contributed to poor governance, which has consequently impacted on the front line.
Critics of the previous code were right: you can have the best policies in place, but if they are not respected and followed, they are useless in improving governance.
But the reverse is also true: without clear rules and processes, nice people behaving impeccably can still lead an organisation to failure. The governance ecosystem is a delicate symbiosis of mechanics and dynamics.
The Charity Governance Code recognises that good governance builds on the strong foundations of compliance – what is termed the foundation principle of the trustee role and charity context.
Therefore the code does not restate the legal duties of trustees, but expects readers to be familiar with the Charity Commission's 'The essential trustee' (CC3).
Governance professionals should ensure that all new and existing trustees are familiar with that guidance, along with the provisions of a charity's governing document.
Once that basic information is absorbed, the board can move towards governance arrangements that lead to continuous improvement for them and the communities they seek to serve.
In addition to the foundation principle, the code introduces seven principles:
- Organisational purpose
- Leadership
- Integrity
- Decision-making, risk and control
- Board effectiveness
- Diversity
- Openness and accountability.
1 Organisational purpose
Having a clear understanding of the purpose of the charity is vital if all decisions are to help the organisation meet its objectives.
The first principle covering organisational purpose therefore makes absolute sense in attempting to remind trustees of what they are there for.
Key activities the governance professional might want to encourage and implement to support this include:
- Organising site visits for trustees, so they can ascertain what is happening at the grassroots by hearing the compliments and concerns of staff, volunteers, supporters and those that benefit from the charity's activities
- Bringing the stories and experiences of those that use the charity's services to the boardroom – perhaps as a standing agenda item before the formal work of the board
- Introducing regular updates to trustees on the external
environment relevant to the activities
of the charity - Tabling discussions about the charity's impact and how to measure its progress in achieving charitable objectives
- Offering additional training and development to assist with trustees' understanding of the business plan and funding arrangements, and the risks inherent in each
- Ensuring strategy sessions cover whether the charity operates in the most effective way, and asking whether partnership, collaboration or a merger would deliver more for beneficiaries.
2 Leadership
Strong, ethical and visible leadership is the second of the seven principles, with a supporting rationale that the tone and culture of an organisation comes from the top.
A recent ICSA report on charity culture (' Cultural markers in charities') highlighted the importance of ensuring that an organisation's agreed values are those on display from top to bottom, in every interaction inside and outside.
To assist in promoting strong leadership, the governance professional could consider:
- Introducing to board agendas and reports a regular item that reviews decisions made in the light of values agreed by the board, and not just of legal and regulatory requirements
- Regularly discussing whether the agreed vision, values and culture are the right ones, and are evidenced at every level
- Ensuring matters reserved to the board, schemes of delegation, terms of reference and other documents, especially those outlining the role and duties of trustees and senior management, are regularly reviewed and updated
- Creating a corporate calendar that sets out the main work of the board and establishes regular board meetings that balance historical and compliance matters with forward-looking strategic items. A specimen strategic agenda and corporate calendar framework, part of the ' How to build a charity board assurance framework' guidance note, can be found on the ICSA website.
3 Integrity
The third principle promotes the importance of trustees acting with integrity in order to support the public's trust in the charity.
Reputation is a precious asset for any organisation and without the ongoing support of those empathetic to the charity's aims, its sustainability and ability to make a difference are endangered.
Critical media reports about the sector have made it clear that charities no longer have an automatic right to the public's respect and trust – indeed, if they ever did.
A governance professional could discuss with the board:
- Implementing a code of conduct and introducing trustee standards (a specimen set of which can be found on the ICSA website) to which trustees can sign up
- Improving the board's understanding of conflicts of interests and loyalties, and updating the board's conflicts of interests policy and register of interests, gifts and hospitality. This should be done at the same time as updating the same documents covering staff, to ensure consistent messages, practices and culture
- Introducing reports to the board that highlight the themes of comments, concerns, complaints and compliments received to better understand how the charity is viewed externally.
4 Decision-making, risk and control
Many of the traditionally 'meaty' governance issues can be found under principle four. This principle reinforces the point that the board is ultimately responsible for the charity's decisions and actions, or failure to decide and act, but that it should not be involved in operations.
Key actions the governance professional could initiate, with the approval of the chair, include:
- Board agendas and papers that focus discussions on strategy, performance and assurance rather than operational matters
- Introducing a board assurance framework to triangulate the information presented to the board
- A discussion on the charity's risk appetite, and an assessment of its risk register and risk management arrangements
- Ensuring that a thorough debate of all KPIs takes place to cover any possible harmful impact on the charity's culture and values
- Placing the auditor's management letter at the top of a board agenda to ensure the trustees are aware of its contents and implications.
5 Board effectiveness
If a board is to help the charity achieve its objectives, trustees must be keen to be at the top of their game. Board effectiveness is a key aspect of many governance codes and it is now time the charity sector embraced it as well.
To assist this, the governance professional is likely to consider:
- The rigour and effectiveness of trustee recruitment, induction and retention practices, with a view to bettering them
- Reviewing the governing document to ensure it enables the charity to recruit the best candidates from a wide pool and has fixed tenure terms
- Updating the skills audit (a skills audit matrix is available on the ICSA website)
- Tabling a discussion about the competence of the board, as detailed in ICSA's charity trustee competence framework
- Undertaking a board review.
6 Diversity
Previous versions of the code have taken the promotion and acceptance of diversity as being implicit in the code. This time around, an active decision was taken to have a separate principle to cover diversity – in all its forms.
The rationale is that boards with trustees of different backgrounds, experiences and thinking are more likely to encourage debate and make better decisions. The board, with the governance professional, might wish to consider:
- Introducing board training and development on diversity matters
- Assessing the diversity of staff, volunteers, trustees and service users to find any obstacles given groups may face and how to overcome them
- Using a range of methods to recruit trustees, targeting particular groups with specific messages to help broaden interest in the role
- Adopting diversity targets, which are monitored and reported against regularly.
7 Openness and accountability
Charities, like good governance, cannot operate successfully in a vacuum. There has to be reasonable and meaningful accountability to ensure trustees act in line with their duties and the best interests of the charity.
The governance professional might look at:
- Introducing a disclosure policy for the charity, covering those types of documents and information the charity will and will not release, following an agreed process
- Encouraging trustees to engage with stakeholders in a range of ways, as agreed in the stakeholder engagement policy
- Ensuring key information is kept up to date on the charity's website and can be found easily – such as allowing executive pay details to be found within three clicks, as recommended by National Council for Voluntary Organisations' review
- A widely promoted compliments and complaints policy, with feedback monitored and presented to the board.
A serious discussion
Ultimately, the most important action by the governance professional to engage the board with governance is to ensure each trustee has read the Charity Governance Code.
Subsequently, there should be a discussion about the charity's current governance arrangements and agreement on those areas that need improvement.
The code's provisions will be aspirational for many charity boards, but for some they will not go far enough. Good governance has to be proportionate, which means that thoughtful conversations must be had about what is effective and appropriate for the charity at a given time.
The wealth of knowledge and experience of a governance professional will come in handy in guiding those discussions.
Louise Thomson FCIS is head of policy (not-for-profit) at ICSA: The Governance Institute
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
