When charity governance goes wrong
The charity governance model is, at the same time, one of the key features that makes a charity a charity (the ‘voluntary’ bit) and one of its potential weak spots.
Having a voluntary board of trustees, with no financial interest in the charity, with a sole focus on doing what is best for delivering the charity’s objects can be a real strength. But there are plenty of reasons and examples where these benefits are lost. Sometimes it is trustees just not being aware of their responsibilities. Sometimes its trustee boards who frankly should know better. Sometimes it is the trustee board operating on the basis of trust and not holding the executive team properly to account.
There have been a number of reported instances of poor governance in recent times. While the final Charity Commission report on Kids Company concluded that no regulatory action was necessary, the report was critical of the trustees – in particular in relation to their financial stewardship.
Concerns about arrangements
More recently we have seen the launch of a Charity Commission statutory inquiry into the Captain Tom Foundation. In the words of the Commission this has been prompted by “concerns about arrangements between the charity and a company linked to the Ingram-Moore family, as well as ongoing concerns about the trustees’ decision making and the charity’s governance”. Concerns have also recently been reported about the management of trustee conflicts of interest at the V&A Museum.
As a charity trustee myself, I am under no illusion as to how difficult the role can be. But at the same time there can be no excuse for any trustee to be unaware of some of the basics of their responsibilities to always act, and be seen to act, solely in the interests of the charity and its beneficiaries. Any sense of personal interest being put first or of not acting as trusted stewards of charitable funds endangers the reputation of not just the individual charity but of the whole charity sector.
Where can and does governance go wrong? Here are some common examples:
Founder syndrome
Many charities are founded by an individual totally committed to the cause. They might take the role of CEO (equivalent) or chair of trustees. It is their energy and commitment that gets the charity established but which can only take a charity so far. There comes a size, scale or complexity where that individual has to let go and delegate some of the functions. In practice, that can be very hard to do. But it is essential that this happens for good governance to prevail and for the work to be sustainable in the longer term.
It can be tempting for charity trustees to seek ways of rewarding a founder for their efforts. If considering this, trustees need to be mindful of what is an appropriate use of charitable funds.
Dominant individual
The existence of a dominant individual could be an extension of founder syndrome but is more commonly seen in an all powerful CEO. Trustees have to retain sufficient power to be able to hold the CEO properly to account. Given that the CEO leads the organisation on a daily basis and knows the operations better than anyone – making the CEO accountable can be difficult for a voluntary board.
At the same time, too much power and responsibility resting with one individual poses real risks. There have been numerous examples where trustees have given too much trust and not made enough challenge to a CEO who has taken advantage of the situation for personal gain.
Transacting with trustees
The Charity Commission could not make it any clearer. A trustee (or close family) must not gain any financial benefit from their role without there being express powers to permit this (in the charity’s constitution or with agreement from the Commission). And if a payment is made to a trustee, or to a business linked to a trustee, or to a trustee’s family member, this has to be fully disclosed. This is a fundamental principle of safeguarding the “voluntary” bit of the voluntary sector.
Yet look through the recent Charity Commission inquiries and you will see just how many of them involve unapproved transactions involving trustees. The Captain Tom Foundation reports are just one heavily publicised example of this.
Closed shop
The situation of a closed shop is where the board of trustees (and sometimes the staff team as well) are drawn from a very narrow section of society. This might be all from the same profession (imagine a board full of accountants!) or from the same community or from the same family even.
Most self-aware boards these days have “diversity” as a prominent part of their board development. But many trustee boards are still far from being diverse and they suffer for it. There is real benefit to all charities to get a range of perspectives (“diversity of thought”) and new blood on a trustee board is also really valuable.
On the trustee board I sit on we have brought in new trustees for this very reason. Not only have they challenged us in terms of what we stand for as an organisation, they have also challenged established board processes and meeting formats. All with better governance in mind.
The charity’s auditors will have the opportunity to highlight where there might be examples of poor governance. But as it is the trustee board they report to it still has to rest with the trustees themselves to adopt improved governance processes. This may involve professional advisers making the case as to why good governance is something all charities should aim for. In that case trustees should listen to what is being said.
Good governance results in a more effective charity – where effectiveness is a measure of the long term impact/social benefit that a charity makes. This might be a bold statement to make and unfortunately most of the evidence to support it is anecdotal. But consider what good governance gives a charity:
- A clear strategic direction.
- An enabling environment that balances support to and accountability from the management team.
- Tone from the top of what is important to the charity.
- Decisions made purely in the interests of delivering the charitable objects.
Helpfully, there is a recognised standard for good governance in the sector – the Charity Code of Governance. This was developed by the sector for the sector and has been endorsed by the Charity Commission. It provides a framework built around seven principles for good governance and can be used as a self-assessment tool for a board to work through themselves or a benchmark for an external reviewer to assess against.
Every charity trustee should make themselves aware of the code and reflect on how they individually and their board collectively measures against it. For the sake of the integrity of the charity sector as a whole it is critical that all boards of trustees up their game when it comes to governance.
