What Goes Around Comes Around – Charity Governance in 2016

The fundraising scandals of summer 2015 and the closure of Kids Company focused attention on the importance of good governance. At the start of this year Sarah Atkinson of the Charity Commission emphasised that development, saying:

“2016 will be the year that good trusteeship takes centre stage.”

Two months on, there is already a wealth of new material for trustees trying to meet that challenge.

January saw two reports in quick succession from the Public Administration and Constitutional Affairs Committee (‘PACAC’). Both are critical of trustee performance and emphasise trustees’ responsibility for securing good governance.

According to the first report on the role of charity trustees in fundraising:

‘Last summer’s controversies were evidence of a failure of governance by trustees … [who] were either negligent or wilfully blind’

The second report on the lessons to be learnt from the closure of Kids Company observes that:

‘…  the Chief Executive and Trustees relied upon wishful thinking and false optimism and became inured to the precariousness of the charity’s financial situation.’

It emphasises that:

‘It is … a charity’s Board of Trustees that bears full legal responsibility for maintaining proper standards of governance within the organisation.’

and:

‘[a charity of significant size and complexity] requires a Board of Trustees that will demonstrate leadership, judgement and a willingness to challenge assumptions [as well as expertise in the activities of the charity].’

before concluding that:

‘[The board of Kids Company] failed to exercise their proper function as Trustees.’

The MPs’ conclusions do not reflect the complexity of the sector or the many ways in which the vast majority of charities differ from those at the centre of their investigations. Those failures have been challenged, notably by Andrew Purkis and Karl Wilding of NCVO and it was interesting to see the forthright MP Paul Flynn (who notably complained about the ‘verbal ectoplasm’ of Camilla Batmangelidh) acknowledging that the committee’s report was flawed. He said:

“All I was talking about was members of the board who had internally criticised the organisation and tried to reform it – I think we gave a blanket criticism that wasn’t justified … In the case of Kids Company, the trustees failed – but I’m not saying, as we did in the report, that all the trustees failed. There were some who tried to make changes.” ‘[Paul Flynn]’

It is also important to place current concerns about governance in context. Mention of Kids Company has become lazy short hand for the suggestion that there is a wide-spread and unprecedented crisis of governance in the sector. That is not the case.

It is reassuring to reflect that this is far from the first time that the reputation of the charity sector has been damaged in this way.

In his 1995 book The Governance and Management of Charities, Andrew Hind observed that:

‘It is important for individual charities to create the environment in which trustees and paid staff work together in a symbiotic relationship to produce effective results in line with the charity’s vision. This is important from the wider charity perspective as well because …the charity sector as a whole is damaged by the poor standards of governance displayed in isolated cases, such as War on Want, where things have gone badly wrong. 

(As an aside, it is interesting in the context of the lobbying ban to note the next sentence: ‘In this respect the charity sector appears to be more harshly treated than the commercial sector.’)

It is of course critically important that charities pursue good governance but the example of Kids Company is of limited direct relevance to most boards. That is important, because the intense interest in charity governance currently expressed by government, funders and large sections of the public will fade – but charity trustees must continue to pursue good governance. For most charities, that task is underfunded (and often entirely unfunded) and noticed only when things do not go as planned.

So what should charity trustees do?

Well, to quote Hind again:

‘Recognition of the fact that good charity governance is difficult to achieve is a useful first step.’

or to switch authors:

‘Governance is a subtle, multi-faceted subject and the rules are far from simple’ (Mike Hudson, author of Managing Without Profit).

To address the subject comprehensively would take a book (and for anyone who has not already read them either of the two named above would be a great starting point). Much of our work with charities, concerns two ‘facets’ of good governance:

• getting the ‘nuts and bolts’ right – the mundane and easily overlooked task of putting into place and maintaining rigorous and internally coherent structures and processes to govern the charity, which Sarah Tomlinson explores further in her article;
• supporting trustees as they make the changes necessary to change behaviours that undermine their effectiveness as a board. Achieving such behavioural change is a considerably more complex task – and will form the basis of a future update.

For more information

Please contact Shivaji Shiva.

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