23 August 2016 by John Williams
Governance risks must be reduced in every charity
Governance has become a hot topic in both the corporate and charity sectors, and we need to seize the opportunity it offers to challenge and reform. From BHS to Kids Company, people are asking fundamental questions about how to make boards and leaders more effective. It has been a recurring issue every few years in the corporate sector, but something new and disorientating for charities.
The Kids Company collapse, media criticism of fundraising practices, CEO pay and various damning Parliamentary and Charity Commission reports, have been a shock to the self-belief of the charity sector. Yet one consistent theme has been that the buck stops with trustees, and that charity boards, and the chairs that lead them, need to strengthen their leadership and governance.
Various remedies have been floated. Some say the model is broken and others argue for unitary boards and paying trustees. ICSA: The Governance Institute has argued for larger charities to appoint paid governance professionals to strengthen board support.
The Association of Chairs, which supports charity and other not-for-profit chairs, has been addressing this by conducting substantial research with a sample of 360 in a chairing role, including 140 of its members. The findings reveal a significant gap in governance investment and support – this is surprising given that the research sample is drawn from a database of charity chairs who have actively connected with the Association of Chairs and who are therefore expected to be more engaged in governance.
The level of commitment is high – 54% of chairs in the sample spend four days or more per month on their role. Good governance is a high priority for them, but this is not matched by the support they are offered or seek out: 46% of boards have no budget for board development; only 19% have a formal allocated budget; and the balance address development on a case by case basis. More surprisingly only 34% of chairs have had an induction, the most basic form of support.
The main support chairs receive is access to publications, conferences and events, and admin support. Apart from publications, fewer than 50% have accessed any kind of development support in the last 12 months. Many restrict themselves to free sources of support. 37% have accessed training – two-thirds are funded by the organisation, a third paid for by themselves. 16% have had mentoring or coaching.
Chairs need more support both for themselves and to help create a culture of good governance in the charities they lead. This lack of investment in training and development creates a real governance risk. Neglected processes, poor procedures and taking short cuts at board level are substantial concerns.
Governance risk increases all other risks, from financial sustainability to reputation. Governance is a recurring theme in the Charity Commission’s yearly report, ‘Tackling abuse and mismanagement’. A culture of casual compliance risks diminishing the ability or willingness of the board to challenge effectively.
Some charities and commentators have dismissed the last year of scandals as isolated incidents. Although denial is understandable, this kind of complacency is unacceptable. It is easy to assume that such problems will not or cannot happen to the charities we are involved in ourselves, but in practice major problems can start with neglecting relatively minor aspects of governance.
Members of the Association do not yearn for revolutionary change, but they do want help to be better at their job and follow the rules and guidance already there. Governance is not a chore; it is essential to the stability and sustainability of every charity. You cannot have excellent front line services without robust support services – and that needs time, attention, focus and investment.
Governance is being neglected partly because, as we have seen in the corporate sector, standards evolve often only as a result of a specific crisis or failure. This is why we must build on the lessons of the charity scandals of the last year – never let a good crisis go to waste, as we often hear.
It does not seem to be a supply problem: there is a lot of guidance, from the Charity Commission, the umbrella bodies and the Good Governance Code, and there are also countless conferences and training courses. But as our research shows, there is less take up than there could be. What it may need is a more of a nudge – for example, simply setting a formal budget for board training and development, however modest, and ensuring the board seeks out relevant training at manageable costs. Providers of training, guidance and support could also do more to make their services known and accessible.
Yet reducing governance risk is not just about reading guidance and attending the training, it is about applying the lessons in every day trustee board practice. There is a crucial role here for chairs, who need to champion governance and not let good practice wither by neglect no matter how pressing the cause, or urgent the fundraising challenges are. There is a potential role here for a trustee to be identified as the governance champion, or a sub-committee in larger charities.
Governance risk can be reduced significantly simply by addressing some of the basic ‘must dos’: ensure the governing document is up-to-date and fit for purpose; make sure there are clear terms of office and they are adhered to – institutional knowledge should be balanced by fresh eyes; ensure board papers work and outline clearly what is going on, especially financially; make sure the reserves review is not a tick-box exercise.
Above all, charities need to address their resistance to board appraisals, an issue we hear about regularly. Boards fear personal criticism and challenge, and as a result miss the opportunity to ask: how are we doing and how could we do better? If trustees are not given the formal opportunity to review their performance, then corrosive issues risk lying dormant and festering.
Process is not enough. The biggest impact on good governance is the culture of the board. The board should believe that good governance really matters. The chair should lead on this, ensuring trustees are well informed and motivated. Governance is not why most people become trustees – it is for the cause and helping beneficiaries.
Yet in practice governance is their primary duty as trustees, so more attention should be given to engaging trustees not just with process but the organisation as a whole. Visiting projects, being involved in effective sub-committees and working groups, and having ad hoc opportunities to use their expertise, all build trustee commitment.
Joining the board is at least a social contract for trustees, with obligations in law and practice.
But it also comes with rights, and those rights should include access to training and support. A member of the Association has a Contract of Commitment at his charity, which sets out the duties of trustees. It says clearly what is expected of them, but also offers a lot back: access to the management team, training and mentoring. Trustees are asked to sign it and it is regularly reviewed. This may seem too much for a volunteer role, but when, as we hear from time to time, some trustees rarely turn up to board meetings, and others turn up with their file of papers unopened and thus unread, then some form of formalisation seems useful.
This research has brought together concerns about the sector’s reputation, credibility and trust, and the personal desire of chairs to ensure good governance, especially in recruiting trustees, generating a competent board and managing it effectively.
The Association of Chairs has identified some steps chairs and boards should take to improve their governance. A formal budget for board support should be created for training and development, and more access to expert governance advice. There is a willingness to address the topic and those who engage with the Association say they have benefited. Yet practice is patchy and inconsistent, in spite of all the advice and support available.
With all the other direct pressures on charities – to stay solvent, meet increasing demand and maximise impact – governance risk should not be the issue it seems to be. The rules and guidance are there, it just needs a culture of commitment to address them. It is time to make a step change in governance: to acknowledge its importance and the risks of failing to act; to invest time and resources – rather than expecting these problems to resolve themselves; and to act differently, by doing our part individually and organisationally.
The survey results can be downloaded from the Association of Chairs’ website.