The price of charity governance

Charity governance has received a lot of bad press recently. It is interesting to try and trace where this has come from.

The sector in England and Wales comprises 164,000 registered charities, with probably just as many not registered because they are too small, exempt or excepted. It is estimated that the combined income for the sector is over £61 billion and it employs 900,000 people – and 3.7 million volunteers, including 950,000 trustees of registered charities, support them. The size and impact of the sector is therefore not insignificant. Yet the impact of poor governance appears to be more catastrophic in charities than in any other sector.

Many accusations have been levelled at charity governance, most commonly the fact that as trustees are unpaid they must be amateurish in their approach. Given that many trustees will also be very successful businessmen and women, professionals, local politicians or are otherwise competent to hold down a regular job, this assertion cannot possibly be the real reason for the recent spate of governance failures. Although anyone who has worked with boards can point to examples of individuals leaving their expertise at the door to the boardroom, this is not an automatic reaction that afflicts almost one million trustees.

So, do trustees not bring their full capabilities to the boardroom because they are not paid? This seems to be a questionable assertion, as individuals are unlikely to agree to do something for free then deliberately do a bad job of it. Trustee tenures tend to last three or four years. To maintain a lacklustre performance on purpose for such a period would take a huge amount of effort and emotional energy, to the degree that it would be easier just to walk away. There is an argument that paying trustees would improve performance, but there is insufficient evidence to demonstrate that this would be the case. And, if trustees were to be paid as a matter of course, the standards of governance would be expected to be much higher. So would trustees be constantly chasing the ephemeral and therefore destined to fall short?

There might be an argument for some charities to pay a minority or all of their board in terms of improved beneficiary experience and public benefit outcomes. However, as there are 950,000 trustee positions it would be unfeasible for each to be paid for their service. The sector would be insolvent quicker than an ice lolly melting on the hottest day of the year. If the general public baulk at the thought of executive salaries, the prospect of trustees being paid would be even less welcome.

Is there poor governance in the sector because the executives, where charities have them, connive to keep trustees ignorant? Although every sector has its super-egos, I am not convinced that the charity sector has many of them. Yes, there can be tensions between the chief executive and the trustees, but that in part is the dynamic of the governance arrangements not just in charities but in companies too. The imbalance of knowledge and information, and some would therefore argue power, between executives and trustees or non-executives manifests in every type of organisation where the two groups exist. So if that is not the primary cause for poor governance, what is?

Could it just be that human beings are fallible and sometimes make the worst of decisions in spite of the best of intentions?

Governance can be seen as a difficult concept to understand and many on the Clapham omnibus may not have a clue what it involves. Yet, if we talk about it in terms of those in charge of an organisation making the best decisions, in the most effective and appropriate way possible, for the benefit of those they seek to serve we start to see people understand. If we mention ethics, transparency and honesty, we start to get to the nub of what governance is about.

Good governance depends on a range of internal factors including clarity of purpose, proportionate and effective processes, the right people and culture. To add to the mix, an appropriate level of regulation, external scrutiny and accountability is needed. All are important, but of critical impact are the people. That is why ICSA: the Governance Institute is here to support trustees and their charities with practical guidance, training and conferences, designed to support both new trustees or directors and, ultimately, qualified professionals. Trustees need not struggle alone to get to grips with their governance challenges.

Louise Thomson, FCIS is Head of Policy (Not-For-Profit), at ICSA: The Governance Institute

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