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Governance is not a natural force

27 September 2016 by Henry Ker

Sir Stuart Etherington interview - read more

Sir Stuart Etherington discusses the progress made one year on from his ‘Regulating fundraising’ report, the essential role played by volunteers and rebuilding trust in the not-for-profit sector

Sir Stuart Etherington is Chief Executive of NCVO.

 

It is one year since ‘Regulating fundraising for the future: Trust in charities, confidence in fundraising regulation’ was published. Have you seen the necessary change in the sector since then?

Principally, I have. The new Fundraising Regulator has been established and staffed. Of the 50 charities that were asked to contribute to the set up costs, 48 have. The fundraising preference service has also been considered and is currently being consulted on.

The code of practice has been transferred from the Institute of Fundraising to the Fundraising Regulator. The Institute of Fundraising and the Public Fundraising Authority are in the final stages of merging, which was another recommendation. The backstop powers available to the government are now law, and the Charity Commission and the Fundraising Regulator have signed a memorandum of agreement. This is good progress, especially as it has only been 12 months, and that is reflected in a greater sense of public trust and confidence.

All of the things that I thought could have been done in the first 12 months, have been done. Now the proof is going to be whether or not the new regulator is seen to address public concerns effectively.

There have also been a number of developments in relation to concerns over charity trustees not taking an active role in overseeing fundraising. One is that the Charity Commission has reissued CC20 (Charity fundraising: a guide to trustee duties). My only criticism here is that it was a response to media events last summer and it was issued too quickly. A lot of the architecture that I recommended was not in place. There are some gaps in that which now need to be addressed, but the Commission wanted to get something out there because it must be seen to respond.

Do you feel that there are still some areas that need to be improved in the way that charities work?

The biggest area, which is very confused and difficult, is the area of data protection – particularly the interface between the Fundraising Regulator, the Charity Commission and the Information Commissioner. What you are required to do in relation to the move towards ‘opt in’ is still confused.

We are doing our own piece of work, which hopefully will be completed in September, to give guidance to charities about what they should and should not do to ensure donors have given their consent. There is a need for more clarity, particularly regarding fundraising activities. It is not because people do not want to do the right thing, rather it is difficult to know what the right thing is in some circumstances.

How does the not-for-profit sector go about restoring public trust?

It is important that we begin to explain exactly what the modern charity does and what impact charitable engagement has. One of the things that has come through in all of the difficulties that we faced last year – issues relating to fundraising, salaries, Kids Company, Age UK and energy tariffs − is that we are not always as good at explaining what it is we do and why we do it. The difficulty is the breadth of what the charity sector actually does.

There are multi-layered charities doing difficult things with thousands of staff and volunteers and there are small organisations that are rooted in their communities doing local work. They are very different so it is difficult to convey this complexity. But all charities are trying to improve the lives of people and have an impact. We need to hammer away at that.

We also need to convince the public that the problem has been fixed, which is what the fundraising review, the review of how senior salaries are set and our response to Kids Company are about. Charities can talk about all the wonderful work they do and the impact they have but in the end, if the public feels that there is still a problem, it does not matter.

ICSA has written to the minister for civil society, recommending that large charities should be required to employ a governance professional to support trustees. What are your thoughts on this?

There is a case for larger organisations to have a specific role to support and develop the board. I see this role to be closely in line with the chief executive’s office, yet slightly separate from it. The purpose of this role is not to service boards, because organisations are relatively good at that already.

It is about auditing board skills, as well as servicing nominations committees so that the right candidates come through. They should give clear training, development and induction, and they should be able to identify people with particular skills that might fill particular roles. I do not see any reason why a large charity would not specifically employ people to
assist that first.

Recent research by the Association of Chairs found that 46% of charity boards interviewed have no formal budget for board development. Just 34% of chairs had an induction – should more be done to ensure charity boards have the right skills?

More needs to be done but it needs to be proportionate. If a person or board is responsible for overseeing and governing high-risk operations, with large sums of money and in a complex organisation, they need significant training and development opportunities. If it is a tiny charity, with all volunteers and a voluntary board, I am not sure that they need the same level of training and development.

I would not say everybody must do this, that or the other. We need to balance what is a voluntary role: some trustees are paid, but the majority are not. We do not want a situation where we are actually dissuading people from coming forward, because in terms of engagement we do not want to make the role so onerous that people will not do it.

The debate about the payment of trustees is ongoing. Could you explain your thoughts on this?

The debate never really achieves very much, but it never goes away. There are some important questions to ask: what problem are we trying to solve? Is it a recruitment problem? Is it the fact that for most jobs people are paid, so it would reduce the quality of candidates if they are not paid? I have not seen much evidence of that.

Is it the fact that people would feel obliged to contribute more, to become more involved, to give more time if they were paid? Is it that people are not coming forward because they cannot afford their time to volunteer on a board?

The pay/not pay debate has been characterised by crude analysis – either you do or you do not.

The key point to consider is: what problem are you trying to solve and what sorts of mechanisms do you need to solve that problem? So I would not dismiss it, but we need a little more sophistication in the argument.

If you pay trustees, you are also introducing an element of private benefit into the equation. You have got to recognise that one of the defining characteristics of the voluntary sector’s governance is that it is predominantly voluntary and that gives it a different quality. It is a trade off and if you are going to pay, you have got to be conscious of why you are paying and the trade off against private and public benefit that it would represent.

For example, if the public asks why the board of a charity is being paid, are you enhancing or diminishing public confidence by doing that? This should be balanced against the argument that says if you pay them, you might get better trustees and they might give more time.

Is a voluntary approach to governance, especially to the governance code, sufficient?

There is a difference between good practice and regulation. Sometimes those lines are blurred, although regulation should be a ‘must do’. However, regulation is also about interpretation; the number of hard and fast rules are somewhat debatable. There is certainly scope for voluntary codes of governance in a voluntary structure.

The Commission’s role is crucially important here. It is the backstop, as it is the regulator, and it should be about the law, but it should also encourage good practice by working in partnership with organisations like ICSA and NCVO.

Is there something all successful charities have in common in the way they are run?

Yes – the first is boards that are engaged at an appropriate level, and particularly where there is a good working and respectful relationship between the chair and the chief executive. That is an absolutely critical relationship, because once that goes wrong, everything else goes wrong. Trust and openness between the chair and the chief executive is vital. It does not mean one is in the pocket of the other. It is challenging, but it is respectful.

The second is chairs that understand their boards and the dynamics, and are able to reach decisions in a respectful manner. These are boards that have self-assessed and thought through their role with management. There need to be proper appraisals of the trustees by the chair.

Boards need to work at governance. It is not there as a natural force. The board and the management need to make time to reflect on it.

The NCVO recently commented that some of the Charity Commission’s new powers, in relation to disqualification of trustees, threaten the independence of charities. Could you explain a bit more about your concerns?

Generally, we supported the Charities (Protection and Social Investment) Act. We have been involved in the development from its draft stages. One of the significant concerns that we had during the passage of the Act is the Commission’s power to disqualify trustees. In principle, we agreed that it is appropriate for the Commission to have a discretionary power if someone’s behaviour means that they are unsuitable to act as a trustee. But our concern has mainly been about the breadth of that power.

We think the Commission has drawn that power too broadly and it leaves too much scope for subjective decision making by the Commission. There are insufficient definitions in there and a lack of appropriate objective criteria about what is reasonable.

There is no power of appeal. If the Charity Commission was to say: ‘we do not think that you should be a trustee and we think your behaviour has been unreasonable’, what is the test of reasonableness? How would that be applied? And what is the right of redress if you do not agree with the Commission?

It is not necessarily that we do not think the Commission should have such a power, it is that such a power should be more closely defined. It is far too broad, and it is dangerous to give a broad power of that nature to a regulator. You have got to protect the individual here as well.

You said you do not believe that what the public thinks should be a key factor in disqualifying trustees. However, we have seen some high profile collapses in the corporate sector and the effect they have on the public. Is public interest not one of the most important concerns?

Regulators should have more closely defined power than what the public thinks. Public opinion can change from day-to-day. You cannot base a disqualification power on what the public thinks − that leads to the potential of mob rule. You have to have defined authority, and you have to say ‘these are the criteria’. You can develop those in consultation with the public, i.e. what do you think should be the factors that we take into account when we decide whether or not somebody is acting in the public interest. The criteria could be framed by public opinion, but they have to be more defined and sophisticated.

What does governance mean to you and what value do you think it adds?

Governance is crucially important in organisations. There are some managers who think we can do without it. But personally, I think it is absolutely critical to the way that we run institutions.

Firstly, it is important because it creates a formal accountability which would not otherwise be there – and it is important that people are accountable for their actions.

Secondly, it provides a loci in the charity sector for regulation. The regulatory structure of the charitable sector is principally focused on trusteeship, not on management. That is as it should be, because that is essentially what they are regulating – these are trusts.

It provides an opportunity to step back and take a strategic overview about what the organisation is actually about, what its mission is, and whether it is sticking to that mission. It is also important in terms of reputational management. Ultimately, trustees are the arbiters of the reputation of the organisation. They are responsible for ensuring an organisation behaves in a matter that is a fitting probity for it.

What do you think the future of governance for the not-for-profit sector will look like?

It will look different over time. If you look at the way in which non-profit organisations are emerging, they tend to be much more network-based and flexible rather than institutional. The impact of technology on organisations is enormous. But I do not think, necessarily, that the governance structures have kept pace with some broader changes in society.

The idea that a 21-year-old is going to want to sit in an audit committee four times a year, seems preposterous to me.

Yet we continue to define the governance of organisations in terms of large scale organisations that existed some time ago. Now we are much more about flexibility and networks, and governance has to keep pace with that. I do not know exactly what that looks like, but if you have got networking non-profit organisations, then you are going to have network governance and it is going to look different.

Interview by Henry Ker, Deputy Editor Governance and Compliance

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