Making sure your governance doesn’t fall short – Benjamin James points to previous governance failures by charity trustees and urges trustees to adhere to certain governance disciplines.

The role of a charity trustee means different things to different people. This is not wrong, it is simply that there are so many charities which operate in so many different ways that the role can be successfully undertaken without uniformity. However, the duties of a trustee apply across all charities and are a legal requirement.

There is no single way to identify if there are any issues within a charity which show that governance is falling short. Therefore, it is necessary to consider what issues may arise and the legal framework of trustee duties. It is also necessary to consider documented cases where issues have arisen and actions have been taken by the Charity Commission for England and Wales. The aim of this article, is to bring these issues together to assist trustees to assess their position and consider if any action should be considered.

If you are a trustee of a small charity with no employees and a small number of volunteers, then it is likely that you will be involved at every level of the charity’s activity, you may even be delivering the charity’s objective yourself. However, if you are a trustee of a multi-million turnover national or international charity, your involvement may be restricted to attending regular trustee meetings, reading reports and relying on a team of managers to brief you and ensure that the charity is operating effectively.

Essential duties

The Charity Commission, in The Essential Trustee, sets out that charity trustees have a duty to:

    • Ensure each person acting as a charity trustee, chief executive and chief financial officer is eligible to be a charity trustee.
    • Ensure that the charity is carrying out its purposes for the public benefit.
    • Comply with the charity’s governing document and the law.
    • Act in the charity’s best interests.
    • Manage the charity’s resources responsibly.
    • Act with reasonable care and skill.
    • Ensure that the charity is accountable.

No matter the size or scope of a charity, the trustees must ensure that they comply with their legal duties. In addition, the Charity Commission is taking the view that as well as complying with their legal duties trustees must also ensure that the culture and behaviour of a charity is in line with what the public expects of charities. This leads to a complicated landscape for charity trustees.

Smaller charities

A complaint often made is that trustees of smaller charities have little time to deal with the overall governance requirements placed on them. They also have little funding for professional advice and training. The result is that they can begin to operate outside the framework of duties.

The Charity Commission has long worked to educate trustees through the publication of The Essential Trustee and supporting charities through a range of initiatives, including the recently released Trustee Welcome Pack. However, this still requires trustees to find time to read the publications, apply the principles to their work and ensure that they have the right procedures and processes in order to demonstrate their compliance.

Trustees of small charities are not alone. There can also be problems in larger charities with employees at all levels. In large charities the trustees are often reliant on the senior management team to deliver the services provided by the charity and to guide the trustees on their duties and obligations. Whilst the trustees of these charities have overall responsibility, a culture has developed in some charities whereby the trustees delegate more of their responsibilities to the management team and lack an element of control.

Charity sector research is indicating that only 50% of the public maintain a trust in charities. Whilst there is no single event that has caused this particular problem, there have been a number of governance failures in recent years. These include the failure of a London children’s charity, the allegations of workers at international aid charities engaging in sexual misconduct, and a lack of control over management and fundraising activities.

There have also been failures of a number of small charities through a variety of reasons, which include over reliance on specific funding streams and some basic governance issues.

Larger issues

In the larger charities affected by either a scandal or negative issues, it became clear that the trustees have not necessarily been fulfilling their duties. In some areas, too much has been delegated to the senior management and the information provided to trustees was not adequate. This was particularly an issue in relation to fundraising. Whilst trustees were clearly setting ambitious budgets for funding and setting an outline strategy, in some cases they were not actively reviewing the work that went on in the fundraising teams.

Another issue which developed was that trustees were approving clear safeguarding policies, but not necessarily understanding the scope of safeguarding or ensuring that the safeguarding policies for people at risk were being enforced at all levels of the organisation. The Charity Commission identified a number of key concerns and over the last few issues has updated its guidance on fundraising and safeguarding for charity trustees making sure that the guidance sets out the interplay between the duties of charity trustees and the operational requirements and actions required.

None of this has particularly made the role of a charity trustee easier. In all but the smallest charities, it is expected that there is a clear division between the strategic and oversight role of a trustee and the operational delivery provided by employees and volunteers under delegated authority. However, the balance of where the division should lie is left to the trustees themselves.

Adding in the additional complexities of recent announcements that charities “should act less like businesses” and that trustees should make decisions which are “in line with what the pubic expects from charities” makes the role much harder.

Commission action

Whilst the Charity Commission does express some sympathy for trustees and the complicated nature of the role, its position is clear – that action will be taken if trustees do not fulfil their duties and run a charity effectively. This has resulted in action being taken by the Commission in a number of cases. However, this is usually directed at individual trustees or particular failings within a charity.

Under the Charities Act 2011, and previous charity legislation, there are clear provisions which prevent the Charity Commission making decisions for the trustees or generally taking control of a charity. Whilst charity trustees may request specific advice, or ask for permission to take specific actions which are not directly within their power, the Charity Commission is prevented from taking operational control.

Historically the Charity Commission has had limited powers which relate to an intervention by appointing an administrator to take control of a charity, closing a charity as the result of an inquiry, or by disqualifying a person from being a trustee and either appointing a replacement or requiring remaining trustees to appoint a replacement. In 2016 the Charity Commission’s powers were increased to allow for “official warnings” and to widen the activities which could result in disqualification from being a charity trustee.

Under an amendment to the Charities Act, the Charity Commission was given the power to issue a warning:

      1. To a charity trustee or trustee for a charity who it considers has committed a breach of trust or duty or other misconduct or mismanagement in that capacity.
      2. To a charity in connection with which it considers a breach of trust or duty or other misconduct or mismanagement has been committed.

The first official warning was issued in the summer of 2017 and the Charity Commission has continued to use its power since this first use. In some cases, the warning has been issued because of a failure to comply with an agreed action plan between the charity and the Charity Commission and in other cases, the warning has been issued due to what have been considered by the Charity Commission to be clear cases where the governance of the charity has “fallen short” of expectations.

Regular review

Both charities and charity trustees should ensure that they are in a position whereby their management is regularly reviewed and they are not in a position whereby they may be given an official warning. At the most basic level, this does mean that trustees should assess and understand their duties as a trustee, both collectively and individually, and ensure that they meet these requirements.

A simple test to establish if the board is up to date and on top of its governance requirements is, prior to 1 August 2018, when the new powers of trustee disqualification came into effect, did the trustees undertake a review of the trustees, the chief executive and the chief financial officer to ensure that they were all still eligible to continue in their roles?

If this action was undertaken, this is evidence that the governance is up to date, but it is only one indication and further consideration should be given. However, if it was not, it is important that such a review is undertaken, that policies are put in place to ensure that new recruitment covers off these issues and that if any trustee or senior officer is subject to disqualification but are essential to the operation of the charity, has the charity applied to the Charity Commission for a waiver to allow the trustee or senior officer to continue?

Whilst the aim of a charity is to have its governance in a position where an official warning is not necessary, official warnings do not come without prior alert from the Charity Commission. In most cases the Commission will have asked for information and there will be an indication of concern. In most cases, steps such as an action plan will be considered by the Charity Commission prior to issuing a warning and if a warning is given, the charity will receive 28 days’ notice prior to publication.

Necessary discipline

Therefore, on a regular basis the trustees should:

      • Review their governance.
      • Have regular training on their responsibilities and duties, and ensure that they understand what is required of them from an independent source.
      • Ensure they are content that they are operating within their duties.
      • Review information that they are being provided with by their executive team and ensure that decisions are made having full information and not only part of the story.
      • React appropriately to any Charity Commission requests and operate within any action plan agreed between the charity and the Charity Commission.
      • Understand the official warning regime, the effects and how to work with the Charity Commission, so that if a warning is issued, the process is not a surprise and can be effectively managed.

Being a charity trustee is a complicated role, but one that is very rewarding and charities rely heavily on their trustees. However, trustees must ensure that they fully understand and perform their duties, because if they do not, a failure could have a negative impact, not only on the charity, but on them personally.

 

The original article was published by Charities Management and can be found by clicking here.


03/12/2018
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