The prime minister announced at the start of the Tory party conference that she does not want a cabinet of ‘yes men’. Whether this is the truth or an attempt to cover up disintegration in the ranks time will tell.
But her comment refers to the commonly held belief that diversity of opinion leads to effective decision making. The logic being that decision making is more effective in a group where members see different perspectives, hold different opinions and do not refrain from expressing them. That through this process the consensus reached reflects a wider balance of thought and experience.
If this is so then it would be as true in government cabinets as it would be in trustee boards. Yet there remains an overall perception that boards lack diversity.
Paragraph 101 of the House of Lords Select Committee on Charities Report of Session, ‘Stronger Charities for a Stronger Society’ states: “The skills needs of charity boards were linked to a lack of diversity among trustees. The Charity Commission told us that trustee boards “lack diversity, having particular demographic characteristics.”
David Robb from the Office of the Scottish Charity Regulator (OSCR) said that “diverse boards make better decisions and are better placed to sustain charities in a changing environment” and Lord Hodgson of Astley Abbotts suggested that a lack of diversity on boards could lead to a charity becoming “a bit narrowly led”.
If we are to believe that diverse boards are more effective, then it would be useful to define what effectiveness looks like. It is on this point that there seems little help out there to guide trustees.
For example, the Charity Commission’s guidance CC10 “The Hallmarks of an Effective Charity” states that “an effective charity is run by a clearly identifiable board or trustee body that has the right balance of skills and experience, acts in the best interests of the charity and its beneficiaries, understands its responsibilities and has systems in place to exercise them properly”.
It would be hard to disagree with this as a summary of excellent practice, but it does not address the issue of clarifying how decisions are judged to be effective. It would probably be fair to say that most of us feel that effective decisions would be commercially sound decisions that protect the charity’s assets and hence its beneficiaries. But is this assumption naive and rather dismissive of the circumstances in which many charities operate?
Many charities operate in a competitive environment which requires them to invest resources to tender for contracts or services or apply for grants. Such investment inevitably increases the charity’s risk profile as the outcome may not always be successful. Should a charity fail in a bid in which it invested, and hence suffers a loss, do we consider that an ineffective decision?
Trustees need to take risks to ensure the commercial future of the charity. Clearly it is hoped the decisions taken are considered, and risks weighed up, but a poor outcome does not always mean an ineffective decision was made. It is the overall management of the successes and failures over time that should indicate whether a board is effective or not.
So back to the issue of diversity. Could it be that part of the lack of diversification is a fear that managing diversity of thought actually adds to this expanding risk profile? That the pressure for boards to be risk averse to asset loss results in an increase in reluctance to deal with diversity of thought, seeing embracing the challenges that could bring in itself as an additional risk?
If we want people to continue to come forward and volunteer as board members, and if we want to retain a vibrant, active and diverse sector then perhaps we need to start viewing the effectiveness of boards in a more balanced light.
Gillian McKay is the head of charities and voluntary sector at the ICAEW.