Good Governance – by Rosie Brass, IBB LAW

A particularly hot topic for the charity sector is good governance which is fundamental to the wellbeing and success of any charity. Following the recent challenges that the sector has faced, and as charities continue to come under the spotlight over safeguarding and fundraising concerns, the overwhelming message to trustees from the Charity Commission and other regulators is to protect your charity by making sure that your charity is well governed.

Governance in the charity sector means the way in which charities are directed and controlled and good governance is about ensuring that your charity has the right systems, processes and policies in place, and that these are followed, to ensure the overall direction, effectiveness, supervision and accountability of the charity. It runs throughout your charity, for example, living in your constitution, in the way your board meetings are delivered and in the behaviour of the trustees.

Effective governance is therefore vital in the prevailing environment and should not be an added bonus in charities.  However, the nuts and bolts of governance are often overlooked as charities prioritise issues that are seen as more business critical. This means that it is frequently only when things go wrong that trustees will discover and tackle underlying governance failings.

A couple of excellent publications developed by the sector over the past two years can now help trustees address governance issues periodically, rather than just in response to failings, and to get your charity’s governance right.  These are the Charity Governance Code and NCVO Toolkit’s to support smaller charities. Both documents set out the gold standard of good governance in the sector, marking an important step forward in providing clear guidance to help trustees run your charities as effectively as possible and have the right leadership structures in place.

The Charity Governance Code

The third edition of the Charity Governance Code, launched in July 2017, was developed by a steering group of umbrella bodies including NCVO, the Governance Institution and the Small Charities Coalition. The Charity Commission, in recognising that it is right for the charity sector to define what good practice should be, has endorsed the Code by withdrawing its guidance on governance, ‘The Hallmarks of an Effective Charity’, in favour of directing charities to the Code. As a result, whilst compliance with the Code is not a legal requirement, the Charity Commission will be expecting trustees to be familiar with it and consider how it applies to your charities.

The Code starts from a ‘foundation principle’ that all trustees understand your legal duties (as explained in the Charity Commission’s publication ‘The Essential Trustee’ and your charity’s governing document) and are committed to your cause and good governance. It does not therefore attempt to set out all of the legal requirements that apply to charities and trustees and builds on the assumption that all charities are already meeting this foundation.

The detailed guidance is then drafted in a user-friendly way. It sets out seven principles of good governance which underpin the Code’s focus on organisational purpose and direction:

  • Leadership
  • Integrity
  • Decision-making
  • Risk and control
  • Board effectiveness
  • Diversity
  • Openness and accountability.

Each principle has a brief description, a rationale (the reasons why it is important), key outcomes (what you would expect to see if the principle were adopted) and recommended practice (what a charity might do to implement the principle).

The Code adopts an ‘apply or explain’ approach. This means that all trustees are encouraged to meet the principles and outcomes by applying the recommended practice or explaining what they have done instead or why they have not applied it. It may, for example, not be appropriate for a charity to follow the recommended practice initially but it might become so in the future as the charity grows and changes.

The Code comes in two versions – one for smaller charities and for larger charities and, in general, charities with an income of less than £1 million a year should use the smaller version. This simpler, more proportionate and supportive smaller version is a welcome update for smaller charities whose size, income and activities make their governance practices significantly different.

New NCVO Toolkit to support smaller charities

Alongside the smaller version of the Code, NCVO launched a new practical Toolkit for smaller charities in June 2019. This Toolkit is designed for charities with an income of less than £100,000 a year and no paid staff. The Toolkit uses the principles and key outcomes from the Code but is tailored towards the specific needs and characteristics of smaller charities. Throughout the Toolkit, questions for discussion are posed to enable boards to delve into each principle and review and improve the governance of your charity.

The reception to the Code has been very positive with people reporting that they have found it clear, easy to understand and a relatively quick read, and we expect NCVO’s new Toolkit to be just as well received.

Concluding thoughts

As good governance is an essential factor in every successful charity, we strongly encourage all trustees to look at the Code and NCVO’s Toolkit as a starting point for an upcoming governance review.

Depending on the time available to your board, you may wish to cover all of the principles in one go, or go through them one at a time, prioritising those areas where you feel you have most to be done. We also urge boards to regularly revisit and reflect on the Code and Toolkit as your charity changes in the future as governance improvement is not a fixed or static exercise but an important ongoing task.

Finally, as the Code and Toolkit are deliberately aspirational and intended to challenge trustees to move from good governance practice to outstanding governance practice, elements of the publications will be a stretch for many charities to achieve. Our advice to trustees is not to panic in view of this and to use the documents to develop and grow in effectiveness and identify the areas where your board needs to focus its attention.

What next?

IBB Solicitors have extensive experience of advising on charity governance and if you would like to discuss any aspect of the Code or Toolkit, please come and see us at CIB’s Trustee Conference on the 19th September, where we’re proud to be the event sponsor.  CIB also has a range of information on governance on their website. 

IBB Solicitors also run FREE advice sessions every quarter; for more information on the next session being held on 27th September 2019 click here.

Rosie Brass, IBB Solicitors, August 2019

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