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Taking shape

15 May 2017 by Rosie Chapman

Charity code: Taking shape - read more

Encouraging feedback from the new Charity Governance Code’s consultation process

The December/January 2017 edition of Governance and Compliance outlined proposed changes to the currently named ‘Good Governance: A Code for the Voluntary and Community Sector’ and the accompanying consultation process.

More than 200 organisations and people responded to the consultation, probably reflecting the high level of interest in charity governance following publicity around some high-profile cases, such as Kids Company and various charities’ fundraising practices.

The steering group, which oversees what will now be called the Charity Governance Code, is working through these responses and plans to publish the final Code by the end of June.

Openness and accountability is one of the key features of the Code and we have ‘practised what we preach’ by publishing a summary of responses to the consultation on the Charity Governance Code’s website (governancecode.org).

Support for the Code

At the events held to discuss the Code, and in the written responses to the consultation, it was pleasing to hear that the proposed Code had support, particularly from larger charities. 90% of respondents were ‘very or somewhat satisfied’ with the new Code, and 83% said they would ‘definitely or probably’ use the new Code.

“The Code is simply a best practice document with no regulatory sanctions attached”

We were told it was right for the Code to emphasise continuous improvement, to have higher expectations for larger charities, to focus on trustee behaviours, and to include new leadership and diversity principles.

Three big themes also emerged from the consultation that we will address: whether the guidance is regulation or good practice; the applicability to different sized charities; and how the ‘apply or explain’ concept works.

Regulations or good practice

There was some confusion about whether the Code sets out rules and regulations, or whether it only intends to explain best practice, and to describe principles to be interpreted as charities see fit. Within the final Code we will make it clear that, although we would like to see as many charities as possible adopt the Code, it is simply a best practice document with no regulatory sanctions attached.

Applicability to different sizes of charity

Many respondents, although supporting the Code’s principles, felt they were not challenging enough for larger charities and were too onerous for smaller charities. Some people said it would be clearer if we simply produced separate versions of the Code for different sizes of charity. We will do this. In particular, we will produce a separate version of the Code for larger, more complex, charities. For practical reasons, we define these charities as those whose accounts are externally audited.

“We will produce a separate version of the Code for larger, more complex, charities”
How the ‘apply or explain’ concept will work

The fact that the Code is voluntary rather than a regulatory requirement is also the reason it uses an ‘apply’ rather than ‘comply’ or explain concept. Some charities responding to the consultation said they were happy to adopt and use ‘apply or explain’ as a way of saying which aspects of the Code they follow, alongside an explanation for any areas of variance.

Others thought there were potential pitfalls to their organisation using it and several people asked for a better explanation of how the ‘apply or explain’ concept would work in practice. We will address this in the final version. We also think that, overall, there is support from charities to use this approach.

There were other aspects of the consultation responses of interest to charity company secretaries and governance specialists.

The Charity Commission’s Hallmarks guidance

In the Charity Commission’s response to the consultation its Director of Policy and Communication Sarah Atkinson, said: ‘We intend to continue to endorse and promote [the Code] as the standard of good governance practice to which all charities should aspire (unless some other Code takes precedence), following and applying its principles proportionately to their circumstances.’

The Charity Commission also said it will be withdrawing its guidance ‘Hallmarks of an effective charity’ (CC10) and will refer charities to the Charity Governance Code instead. This may affect some charities which previously used that guidance as a governance standard.

House of Lords support

The steering group was encouraged by the House of Lords Select Committee on Charities welcoming the work to update the Code in its report ‘Stronger charities for a stronger society’, and by the Lords welcoming the Charity Commission’s decision to refer to the Code as the benchmark for governance in the charity sector.

Trustees and board effectiveness

Overall, respondents welcome the Code’s recommended good practice that charity boards have systematic and transparent processes for recruiting trustees. Through the recruitment of trustees with a variety of perspectives, experience and skills, the aim is to achieve enhanced board effectiveness.

We were also pleased to see that the Lords’ report endorsed the Code’s recommended practice for charities to provide appropriately resourced inductions for all new trustees.

“We propose to retain the concept of an annual board review, accompanied by a triennial external evaluation”

The Lords also endorsed the recommendation that trustee appointments should be for an agreed length of time, rather than open-ended. The final version of the Code will say that if a trustee is to serve for more than nine years, this should be subject to a particularly rigorous review.

A few respondents to the consultation questioned how often it is appropriate to review or appraise a board, and a few felt that the requirement for annual board reviews and external evaluations every three years was too prescriptive and frequent. However, others viewed the recommended practice as appropriate for larger charities. We therefore propose to retain the concept of an annual board review, accompanied by a triennial external evaluation. The Code will not be prescriptive about how in-depth or light touch these board reviews should be.

Transparency and accountability

The Lords Committee endorsed the Code’s suggestion that charities should provide regular information to stakeholders that enables these people and organisations to measure the charity’s success in achieving its purposes. We will retain this recommended practice in the final version.

The Lords also recommended that the Code’s steering group set out best practice suggestions for governance reporting by charities and they observed that this might entail charities including, within their annual report, a statement that they follow the Governance Code, or a similar specialist governance code relevant to their work, and report any actions they have taken over the year in light of the Code.

We envisage charities using the governance section of the trustee annual report to explain which governance code they follow and to explain what arrangements they have in place if there are any key areas of recommended practice they do not follow. We also recognise that some charities, for example those working in housing or sport, follow sector-specific governance codes, which have similar arrangements in place.

We have been delighted by the response to our consultation on the proposed new Code. Our aim now is to ensure the Code reflects the richness of these comments, and that it is a helpful aid to develop, enhance and promote good charity governance.

Rosie Chapman FCIS is Chair of the Charity Governance Code Steering Group

The ICSA Charity Governance Conference 2017

Rosie Chapman will be discussing the revised Charity Governance Code at this year’s ICSA Charity Governance Conference on 16 June. Take a look at the ICSA website for more information or to book your place.

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