Governance fundamental to stronger charities

Following the publication of the House of Lords select committee on charities’ report Stronger Charities for a Stronger Society (PDF, 1.7MB), we are publishing a series of posts covering the take-away issues and what charities can do in response, highlighting what we think are the best available resources to help you if you want to take action. Look out for further posts on:

• funding and finance
• regulation
• public services and contracting
• impact
• campaigning and advocacy
• digital
• public trust and confidence
• volunteering
• next steps for infrastructure: An action plan for implementing the report.

Yesterday, the House of Lords select committee on charities published its report and Karl Wilding, our director of public policy and volunteering, explored what it means for our sector. Although the report is wide ranging, the Lords committee was set up with focus on governance, so it’s no surprise that this area accounts for a significant proportion of the recommendations. In this post, I examine the Governance and Accountability section.

What does good governance look like?

The overriding message from the report is that governance is fundamental and that charities need strong governance, with robust structures, processes and good behaviours to best serve their beneficiaries and their cause.

The report welcomes the work to update the Charity Governance Code and recognises that, with the withdrawal of the commission’s CC10 Hallmarks of an Effective Charity guidance, the code is now the ‘de facto’ standard for the sector. The committee refers to the new draft code throughout the report and points to the strengthened criteria as providing a strong framework for the development of good governance.

This is a positive endorsement of the work that we have been doing, in partnership with others on the steering group, to update the code and ensure it addresses the challenges faced by charities. Like the Lords, we recognise that – though all organisations should aspire to high standards – implementation is proportional and larger charities must adopt more rigorous processes.

In the coming months, we will work closely with the steering group to produce a final version of the code. As we do this, we want to ensure there is both greater clarity over the proportionality of application for large and small organisations, and a clear link to the tools, resources and guidance that we will be producing to support organisations working toward the principles.  In particular we believe that quality standards like PQASSO will play an key role in supporting organisations to meet and exceed expectations on governance.

Skills, diversity and trustee recruitment

The committee has placed considerable emphasis on the value of diverse boards – those made up of trustees with a range of backgrounds, skills and expertise. It’s clear that diverse boards are more likely to engage in constructive challenge and as a result make better decisions. But, as the committee recognises, trustee recruitment can be a challenge in itself, especially for smaller organisations.

That’s why at NCVO we provide guidance and services for trustee recruitment and board diversification. In partnership with The Advocacy Project we have also been thinking about how charities can practically remove barriers to trusteeship, and jointly we have produced easy read accessible trustee guides. Once the new code is finalised, we will be turning our attention to developing more practical tools that support organisations in this area.

Working with business and employees

Given the challenges of recruitment, diversity and skills in our submission we recommended that more could be done to encourage cross sector working with business, and the idea of a statutory duty to allow employees time off for trustee duties should be explored. We are delighted that the Lords have recommended a public consultation on this matter.

Our Step on Board corporate trustee placement programme is a great example of cross sector partnership which delivers benefit to employees, businesses and charities. Working with the likes of Barclays, Credit Suisse, RBS and Google, we (together with Trustees Unlimited) have placed over 100 senior employees as trustees. We are really excited about scaling this work up in the coming year, so it’s really encouraging to see that the Lords recognise the value in this type of partnership.

Trustee training and induction

The report places significant emphasis on the development and induction of trustees, stating that it’s the responsibility of charity chairs to ensure this happens. It argues that, in larger charities, skills audits should be undertaken annually to inform trustee development and recruitment. At NCVO we have a model skills audit, and provide a range of training and practical resources designed to ensure trustees are well equipped to undertake their duties.

The report also recommends that smaller charities might benefit from model induction guidance and lower cost training options. Over the last year, we have realised a series of tools through our board basics resources including a template trustee induction pack. We have produced online training for trustees with the intention of providing a low cost alternative to face to face training for smaller charities. NCVO publications also continue to offer more depth on key topics.

Access to all NCVO resources is either free of charge or significantly discounted for NCVO members, and if your charity’s annual income is below £30,000 then NCVO membership is free.

We understand there is still more we need to do to encourage organisations to engage with these resources and services. That is why we will be acting on the Lords call on infrastructure bodies to review training options for trustees and identify where gaps in provision exist. I’m pleased to say much of this work is already underway; just last week we closed a major survey of organisations providing support or guidance to boards. Working with the Cranfield Trust, CASS and the Charity Commission this work is part of a wider project intended to explore how trustees understand their roles and where they can access support.

The voluntary principle

During the evidence sessions, a few witnesses to the committee argued that trustee payment should be considered as a way of widening the pool of trustee talent. Yet the final report rejects the notion of payment in all but ‘highly exceptional circumstances’ and instead makes a robust defence of the voluntary principle of trusteeship. The committee concludes that payment wouldn’t ‘automatically mean trustees became more skilled’. I strongly agree – just last week in my governance round up, I explored these arguments and made a case for the voluntary principle of trusteeship.

Executive Leadership

The separation of executive and oversight responsibility is a lively topic of debate, with some advocating for an increase of unitary boards where senior staff sit alongside trustees sharing legal responsibilities. The report is clear that maintaining a separation of responsibilities is important as ‘governance is about making sure that charities do the right things, while management is about making sure that those things are done right’. The report recognises that achieving the right balance of support and challenge between a board and the executive requires work on behalf of both parties. We will continue to offer support and guidance to boards in developing this important balance.

Turnover and term limits

The committee’s observation that term limits for trustees are generally positive, reflects our thinking that structured turnover is healthy for good decision making. The draft governance code recommends three terms of three years for trustees but recognises that this won’t be suitable for all organisations. That is why the approach of ‘apply or explain’ taken in the new code is so important: it will allow organisations to consider and articulate how their particular context means an alternative approach is more suitable.

Transparency and governance reporting

Transparency and accountably are identified by the Lords as being central to public trust in charities, and at NCVO we have long argued this. Unless charities are seen by funders, beneficiates and the wider public to be setting our own higher standards and demonstrating how we meet these, then we are unlikely to remedy the very real issue of a fall in public trust. This is a collective challenge for every charity and every trustee to think about how they articulate their impact, their decision making and demonstrate integrity.

Through our work with the code we intend to offer support to charities that are improving their governance in this area. More broadly we have already developed a programme designed to inform the public about how modern charity works.

Mergers

The committee have specifically addressed the issue of charity mergers, arguing that they can ‘be considered a measure of success and maturity, and a reflection of a charity keeping a proper focus on its beneficiaries.’ The report calls on the Charity Commission to take a positive approach to assisting charities that choose to merge and indeed discouraging charities with similar purposes.

Through our consulting work we regularly work with boards exploring greater collaboration and for us the notion that merger can be positive and something that a healthy high performing board will reflect is absolutely right.

The message that governance is a top priority for charities comes through loud and clear from the Lords report. The significant recommendations offer some endorsement of the direction of travel taken by the new charity governance code and other recent work but also present a challenge to infrastructure bodies (including NVCO) and to all trustees to meet these new standards through robust structures, processes and good behaviours.