61: Should our charity have a governance review?
Good governance is key to the health and success of any charity. As charities are established for the public benefit, trustees are increasingly held accountable for their charity and are expected to demonstrate how well it is governed. Having efficient and transparent systems in place is therefore essential to helping charities reach their potential, as well as being integral to the management of risk.
Whilst this is a given – and charities often spend time at inception ensuring that they have appropriate systems in place – it is also the case that governance needs to evolve and develop alongside the charity, and that trustees are responsible for ensuring that their charities (and the beneficiaries they serve) aren’t let down by tired or inadequate systems which leave them exposed to risk and unable to navigate challenges as they arise.
It goes without saying that the Covid pandemic has brought some of these issues into the spotlight, as organisations have had to adapt to survive. It is also easy to point to recent Charity Commission case reports, inquiries and regulatory alerts, such as that following the recent RNIB charity inquiry in the wake of serious incident reports relating one of the RNIB’s specialist centres. All of which illustrate the importance the Regulator places on the trustees’ duties regarding governance.
The idea, however, of undertaking a governance stock-take, can still be a daunting one. We have assisted numerous charities with governance audits and reviews – from complete overhauls, to helping to fill in the gaps with advice and supporting policy documents on specific areas. This blog post sets out some of the key points for the board to consider at the outset:
What is the purpose of the governance review – what do you want to achieve?
This should always be the overarching question.
A review will allow you to reflect on your current arrangements, but what is the intended outcome? There may be a specific area of focus, perhaps due to a change in activity or service provision, or you might be looking at a total refresh of the existing systems of governance as part of a restructuring exercise.
One of the first steps will be to agree the scope of review and what is and is not included. For example, does your constitution need to be reviewed or are you satisfied that it remains fit for purpose? Are there any areas where you are concerned there is a particular degree of risk which needs to be addressed? Do you want to review your existing policies or are you going back to basics and starting with a clean slate?
When should you carry out a governance review?
As a rule of thumb, trustees should review their governance procedures on an annual basis – one rudimental question will be whether the current procedures are fit for purpose, and whether they will withstand challenge.
More generally, NCVO recommends (in line with accepted good practice) that a more in-depth review should be timetabled and carried out, with external assistance, every 3-5 years. There is no one-size fits all approach to the timing but such reviews can take time and so it is crucial that there is sufficient forward planning to ensure that adequate board time is carved out, and resources allocated.
Allowing sufficient board time is key (rather than five minutes at the end of the agenda) and planning in away days outside the normal board cycle is also worth considering.
Whilst good practice is to plan ahead, there can be other triggering events for a review. The pressures associated with COVID-19 and associated restrictions, coupled with increased demand for services, is a clear recent example. But, outside these extraordinary circumstances, there might be a change in leadership and direction; a complaint or incident which exposes a weakness; unmanaged conflicts of interest which hamper decision-making; underperformance issues which are left unresolved, or other operational lumps and bumps in the road which might indicate that some of the systems in place could benefit from further scrutiny.
What is the Regulator’s View?
Good governance is at the heart of the Charity Commission’s work and the thread which weaves through its extensive guidance. This is embedded in the Commission’s CC3 guidance ‘the essential trustee’ (which it considers to be the trustees’ ‘shield’ ; paramount in the trustee armoury), and is supported through various checklists, including guidance on ‘charity governance, finance and resilience: 15 questions trustees should ask’ which states simply that:
‘…charity trustees need to be able to identify the critical issues – the charity’s purposes and plans, its solvency, its resilience and quality of governance – and to be able to review these at regular intervals’.
One of the 15 questions hones in on governance, with an emphasis on the effectiveness of the trustee body – a clear steer on the types of questions the Commission will expect trustees to have asked themselves, in order to both review their own performance and to ensure there is sufficient oversight and knowledge of activities taken both within and outwith the charity by third parties acting on their behalf.
In the wake of its statutory inquiry into RNIB, and associated report, the Charity Commission published a regulatory alert for charities on the ‘importance of transparent and accountable governance‘ on 25 June 2020. While the alert was squarely aimed at large, service providing, charities (income over £9 million) with more complex management and government structures, it served as a reminder to all charities of the importance of governance, the Regulator’s approach, and the dangers of inertia or – put crudely – waiting for something to go wrong before existing systems are challenged.
Important to note is that the Commission took the step of proactively following up on its alert. Charities falling within the scope of the alert were advised to:
‘…. check that your general governance arrangements are appropriate, in particular your risk management measures, assurance mechanisms relating to the charity’s activities and people protection arrangements’.
This was then followed up with the Commission engaging with a sample of large charities, to review their systems of governance. These reviews involved an in-depth review, analysis, and meeting with representatives of the charities to discuss the findings and to challenge the robustness of those systems. All charities should be aware, however, that if the Commission has cause to investigate them, the trustees can expect the Commission to request evidence of decision-making processes and supporting policy documents, and to then test how those policies are applied in practice.
What about the Charity Governance Code?
The Charity Governance Code (the Code), first published in 2005, was developed, and is overseen, by a steering group comprising leading bodies across the sector, with input from over 200 charities.
Whilst the Code is voluntary, it is supported and endorsed by the Commission and represents the standards against which trustees can expect to be measured. The overall intention is that the Code’s seven principles, with supporting rationales and outcomes are ‘universal’ and apply equally to all charities whatever their size or activities. As such, all trustees are encouraged to meet the principles and outcomes of the Code by either ‘applying’ the particular recommended practice, or ‘explaining’ why they have diverged from that practice.
The Code is published in two forms, for large and small charities, recognising that governance practice can look significantly different depending upon a charity’s size, income, activities, and complexity. However, the overarching principles are the same for all charities, along with the expectation that all trustees:
‘…are committed to good governance and want to contribute to their charity’s continued improvement’.
Continual review of governance systems is implicit throughout, with principle 5 of the Code (Board Effectiveness) expressly recommending that – for larger charities – the board reviews its own performance annually, with an external evaluation every three years.
In the context of reviews, the Code can be a helpful starting point – perhaps basing initial discussions around the seven principals. There are diagnostic tools available for both large and small charities which can be helpful in analysing whether there are any particular areas which require work.
Please see our overview of recent changes to the updated code, as published on 8 December 2020 for more information.
Some practical tips on how to proceed:
Once you have decided what you want to achieve, there are plenty of resources available, from Charity Commission guidance, the Governance Code and helpful NCVO tool kits.
From our experience, we would also suggest that some, or all, of the following will be helpful to ensuring the success of the review from the start:
- Board buy-in – governance reviews need to be led from the top and the board needs to be clear why the review is necessary and the anticipated/ intended outcomes;
- Consider establishing a committee or working group to oversee the review – this could be a mix of trustees and employees, or external advisors. Make sure you agree suitable terms of reference from the outset so that the committee/ working group is clear on the extent of their delegated authority and expectations;
- Agree realistic timeframes and key milestones – this will include considering what resources are available and deciding how the board will accommodate the project in addition to its usual business;
- Decide, at an early stage, what sort of external support will be required- external independent advice can be crucial in helping to test the robustness of existing systems and to bring a fresh perspective to the table. If external advice is required, set a budget for the project and be clear on your objectives;
- Following the review, agree an action plan – this will include agreeing how any changes will be implemented in practice – will trustee training or wider organisational training be required to help bed in the new procedures/ policies? How will changes be communicated to staff and stakeholders, and how will new systems be monitored and evaluated? There is little point in having policy documents produced, if they then sit on a shelf gathering dust – they need to work for the organisation; and
- Remain agile – Once the review is completed, ensure you have agreed a timeframe to revisit any changes made. This will include ensuring you have a mechanism to enable feedback so that any necessary tweaks can be made – perhaps on an annual rolling review basis.
If you would like to discuss governance reviews or any specific queries relating to the governance of your charity, please do contact your usual BDB Pitmans contact or Sarah Williams.