Benjamin James, head of charities at law firm McCarthy Denning, says the cause of so much adverse publicity about charities is poor governance and it is the duty of trustees to make sure this doesn’t happen.
A story about an underperforming charity is nectar to a journalist; it usually has everything needed to promote the newspaper. A touch of righteous indignation about the expenditure of public money and errors of the charity goes a long way to obscuring many of the real issues faced by a charity leading to both loud headlines and adverse social media trending.
A trawl for positive charity stories reveals such items as:
Charity rankings in the annual Stonewall list of the best LGBT+ employers.
Inclusion in the best UK charities to work for in The Times annual list.
Centrepoint’s helpline for the young homeless.
However, the negative stories outweigh the positive in column inches.
A common factor in all media stories is that they can often be tracked back to management or governance issues. Taking a rather sweeping look, the main negative stories of the last three years are the fundraising scandal, charity data protection financial penalties and the failure of Kids Company. All have at their roots massive management and governance failures.
Notwithstanding the media, the vast majority of charities trundle along without making national headlines, achieving their objects and making a considerable difference in their communities. Is this because they are lucky or because they have established an effective management regime?
A trustee’s role is not an easy one, as they must balance their control with not interfering unduly in the day to day operations of a charity.
Whilst effective charity management is usually a matter for the chief executive, ultimate responsibility for the charity resides with the trustees. It is the duty of the trustees to ensure effective governance, and one strand of this is effective management.
Being a charity trustee is not easy. As charities get larger, reduced trustee involvement in delivery and an increased number of staff means a balance must be achieved between trustee duties such as ensuring effective governance and not overstepping their bounds and getting involved in day to day operations delegated to the management team.
Setting controls can be complex and whilst most trustees are excellent at delegating financial controls and ensuring that there are limits on financial decisions which can be delegated, this is not the sole area where controls should be set. Where trustees have not been as effective is the delegation of the approval of risk across the organisation. Risks have to be actively managed and many charities have not properly undertaken this task.
Following the tragic death of Olive Cooke, a fundraiser of many years’ experience, it became clear that many charities had entered into a wide variety of arrangements, including data sales and contracts with professional fundraisers, where risk was not effectively managed. The risks which had been ignored were wide ranging including items such as a lack of contractual supervision, a failure to obtain legal commitments to comply with codes of practice, poor control of personal data and reputational vulnerability.
In the aftermath it became clear that trustees had delegated the power to sign contracts with considerable risks to operational managers within the charity without properly managing those risks. This was not only a wake-up call for trustees at many charities, but resulted in a change in governance throughout the sector.
The main lesson that was learned throughout this process was that delegation is acceptable, but only when this is accompanied by follow-up, examination and audit. Trustees in many charities have now changed procedures to ensure that they are much more involved in setting policy at all levels of the organisation and also building reporting, review and audit elements into their procedures. However, this only goes so far and really to achieve effective management, trustees also need to ensure they do take action when this is required.
Implementing good governance
Trustees have ultimate responsibility for all activities of a charity, and good governance is not only setting policies and parameters, it is making sure that these are properly followed. A trustee’s role is not simply to attend meetings, but amongst other activities, to set strategy, ensure the correct governance structure is in place and to make sure that this is being carried out effectively.
A trustee’s role is not an easy one, as they must balance their control with not interfering unduly in the day to day operations of a charity. They are there to oversee and to protect the assets and reputation of the charity and set the overarching aims, whilst not to get too involved in the minutiae of running the charity.
A trustee’s role gets harder when the trustees are elected by the membership as often competing pressures make achieving balance harder. This can also be compounded by not achieving a skills balance on the board and a lack of governance experience. This can result in disputes between the board and the CEO. Often these can be managed appropriately by professional advice and resolution achieved. However, this is not always possible and the issues can become public, the most recent example being the breakdown between the CEO and board at the RSPCA.
The Charity Commission
The overriding issue within a charity is that the trustees, who may not be following good practice, are responsible for ensuring good practice and making the changes necessary to bring the charity back in line. The Charity Commission is not permitted to make decisions in place of the trustees. Therefore, whilst the Commission can advise, it can only take action when the issues become serious and its advice has been ignored. Only if the charity is not capable of running its own affairs can the Commission remove trustees or appoint a charity manager to run the charity.
Where a trustee has been removed, the Commission may ban that individual from being a trustee of any charity in the future, permanently or for a specific period. Where a charity manager has been appointed their role will be to bring the charity back into line before appointing a new board to continue operations or to wind up the charity, transferring its activities to another charity.
Help for trustees
Good governance in charities is important for the overall health of the sector. A number of bodies are in place to achieve this aim. Assistance for charity chairmen is available through the Association of Chairs and assistance for Chief Executives is available through ACEVO. Both of these organisations have been working on a Charity Governance Code which has recently been published by the Good Governance Steering Group.
The code describes itself as not being a legal or regulatory requirement. It draws upon, but is fundamentally different from, the Commission’s guidance. It sets the principles and recommended practice for good governance and is deliberately aspirational. It was created with the assistance of over 200 charities and the Commission was an observer at meetings of the group that developed the code.
By far the majority of charities are run well. The fact that they have not attracted unwelcome media attention, is due to the commitment of trustees and not luck. Using the resources which are available to charities along with appropriate legal and governance advisers, charities and trustees will continue to go from strength to strength. The most important thing is not to leave governance and management on the back-burner, always review, challenge yourselves and your teams to be the best version of the charity that it is possible to be.
We have one of the most vibrant and ethical charity sectors in the world and should continue to develop these skills into new and innovative management structures.
This article was first published in Charities Management.