Governance was certainly not far from charity headlines again in 2019. Safeguarding issues, executive pay and boardroom diversity have all been subject to media scrutiny. With some commentators feeling there is a need for the sector to be more attuned to the public’s expectations if we are to rebuild and maintain public trust, perhaps it should just accept that this is the new normal. And if so, what should be on our radar in 2020?
Last year, I wrote about the ongoing challenges of the Charity Commission’s approach to charities’ reporting. This year could see a rise in anxiety levels about how charities deal with risk – including risk management practices and how those risks are reported to the Commission. If recent governance failures have involved poor or ineffective risk management issues, it is not surprising that trustees will be pressed to be more robust in assessing whether risk appetite, management and oversight are fit for purpose. This should not just be viewed through the prism of financial risk, but also through market and operational risks, including cyber, that the charity may face in undertaking its charitable purposes.
In recent months, sector commentators have questioned the validity and relevance of the Commission’s new strategy, especially with regard to public trust and confidence. It would not be surprising to see this trend continue in 2020.
Following a governance review of the SORP Committee, there are plans to widen the range of stakeholder voices informing and shaping the next version of the Charities SORP. The consultation earlier this year raised some interesting points about the current version, most notably the topical issues of governance, transparency, simplification of reporting and the need for a wider audience to be able to understand charity accounts and the reporting needs of smaller charities. We shall wait to see what changes arise as a result of the widening of the SORP Committee’s composition recommended in the review.
Board diversity continues to exercise the sector, with many campaigns intended to attract people of colour and the young as trustees. The argument for board diversity is fairly well understood, but the practice of trustee recruitment needs to be moved on. Getting on Board’s report launched earlier in 2019 provided useful tips for boards willing to embrace new ways of attracting trustees, but the challenge is to persuade those that remain reluctant to seek fresh views. The argument that boards should reflect the communities they serve can also cause confusion about the purpose of representation on boards and representative boards. The review should play an important role in looking at the skills, competencies and experiences the trustees have collectively, and what is missing that would add real value to the charity.
The rise of climate change activism and increased public awareness of environmental issues has also led some governance commentators to ask whether there is a role in governance for environmental sustainability discussions. The answer has to be ‘yes’ and the boards of charities should be looking to incorporate this approach not just into their vision and mission conversations, but also their consideration of how they undertake their charitable activities. This is undoubtedly an area with a governance impact and trustees should be thinking about these issues now. They will get more questions about their stance on climate change and environmental impact, even if they do not operate in that area.
The Charity Governance Code is currently undergoing a light touch consultation (open until the end of February 2020), with a view to launching the revised version in the summer. The consultation is quite limited, with a number of questions on how best to reflect the benefits of diversity and inclusion at every level in a charity (and the question of whether equality should be viewed just as importantly). Another urgent issue to address might be to reflect the recent rise in importance of safeguarding all those that come into contact with the charity, within the Code’s recommended practice. There’s also a need to improve the signposting available to provide a wider source of information to help boards implement the Code.
Alongside the consultation questions, the steering group are collating those issues that will need to be included in a more fundamental overhaul of the Code in 2023.
There have rightly been some concerns about the welfare of staff in the sector, especially around workload, bullying and mental health. This is going to be a higher priority for boards in the coming years and they will need to think carefully about how they attract, retain and motivate high calibre staff. The flipside is that the regulatory requirements placed on trustees, along with the need to stay ahead of public expectations, result in the board having to dedicate more time to their duties. Boards will also have to guard against meeting agendas that focus too much on compliance matters at the expense of strategy and impact.
The general election in the UK and the ongoing uncertainty over Brexit also generate some anxiety as to how the sector will be treated in the future – not just by politicians and regulators, but also by supporters and charity users. Once the fog has cleared about the political way forward, the sector will be on firmer ground as to how best to deal with the new normal.
Governance: fit for purpose?
Many of the recent charity governance failures and adverse media stories have re-ignited questions as to whether charity governance is fit for purpose and whether there is a need for a commission on charity governance. At The Chartered Governance Institute, we think not.
The benefit of working across sectors is that we see that each model of governance has its strengths and weaknesses – but none is perfect. Paying some trustees might increase diversity and ~improve governance; however there are associated risks in how the public would view limited charity funds being diverted away from the ‘frontline’ and the liability of those paid trustees will increase.
Experience in the corporate sector has shown that the reaction to enhanced regulatory risk is that fewer people are prepared to risk their reputations, which subsequently drives up remuneration packages.
The unitary board approach is another argument that is promoted, but generates a lot of heat. It is a concept that does not always deliver excellent governance, as the business pages demonstrate.
Governance can always be enhanced and improved in any organisation as it responds to internal and external developments. The challenge is how we can demonstrate and evidence the ways in which good governance helps charities to better deliver their objectives to the communities they serve, and that involves acknowledging that boards are social systems that react in different ways to different situations.