Charity Governance: Looking Backwards to Move forwards

Wednesday 20 February 2019, University of Liverpool in London


Professor Debra Morris, Director of the Charity Law & Policy Unit introduced the event by reminding everyone that over recent years charities have been in the headlines for the wrong reasons on a number of occasions. Scandals have arisen around sexual abuse and exploitation, aggressive fundraising methods and the very public collapse of large charities.

Before turning to the panellists she emphasised that this session is not just about looking backwards and the focus is on moving forwards for the charitable sector as a whole. This is because the charitable sector as a whole is affected by these scandals. As difficult as these incidents are for the individual charities concerned and equally, if not more importantly, for the wider charitable sector, the question remains what lessons have been learned for charity governance, leadership, regulation and transparency, all of which are have an important part to play in a prevention of their repetition Are we confident that, as a result of learning those lessons similar issues on such a scale will not arise again?

  • Expert panellists

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    Rosie Chapman (Chair of the Charity Governance Code Steering Group)

    Rebecca Fry (Head of Legal Policy, Charity Commission)

    Philip Kirkpatrick (Head of Charity & Social Enterprise Department, Bates Wells Braithwaite)

    Joss Saunders (General Counsel, Oxfam)

    Chair - Professor Debra Morris (Charity Law & Policy Unit, University of Liverpool)

A diverse and complex sector

 

Debra noted that the ‘charitable sector’, is of course, diverse and complex. And whilst the big names dominate, Charity Commission data reveals that, of the 168,000 registered charities, just under 39% of charities earned less than £10,000 per annum. At the other end of the scale, charities earning over £5 million accounted for just 1.3% of organisations, but 72.5% of total income.

Debra concluded by noting the significant international interest in UK charity scandals and whilst our focus may be on charity governance in England and Wales, the issues raised are applicable to charities everywhere.

Each member of the panel was then given 10 minutes to talk. In advance, they were invited to reflect on the 3 key lessons that they have learned or observed from recent events, that will support better charity governance.

Culture and ways of working for charities and their trustees (rather than simply what they do) and sticking to their purposes, were key aspects of each panel members’ comments. Note what follows is a summary of the key points made by each panel member.

 

Lessons from the experts

  • Rosie Chapman (Chair of the Charity Governance Code Steering Group)

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    Rosie began with some observations to put recent events in context. She noted that we should put these issues into perspective. Private firms have problems too (e.g. Carillion – which had a good governance kitemark!) as does the public sector. We need to keep a sense of proportion and there is a ‘not a systemic failure in the sector’.

    Lesson 1:

    Charities’ governance is no better and no worse than that found in other sectors.. There have been some improvements in the sector’s governance, but the pace of change is quite slow and we should avoid complacency. Challenges posed by austerity should not mean that charity governance is less important or side-lined.

    Lesson 2:

    Some trustees still have difficulties understanding what their basic duties are, and what they mean in practice (e.g. around safeguarding). Trustee training whilst not ‘glamorous’ is important, but currently not compulsory (compared to e.g. Pension Fund trustees) and would benefit from being more accessible.

    Lesson 3:

    The process of investing time and effort to think about good governance does produce benefits. Forthcoming research into Charity Governance Code shows that those who have adopted the code have better governance, than those that do not, leading to better board structures and decision making.

  • Rebecca Fry (Head of Legal Policy, Charity Commission)

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    Rebecca began by talking about the Charity Commission’s Strategic Review of its own ways of working. At the heart of this is the Commission’s purpose, which is to ensure charity can thrive and inspire trust so that people can improve lives and strengthen society. The Commission sees good governance as fundamental to charities’ success. It therefore wants to work with charities to improve governance to maximise what charities can deliver for the public. To achieve this, it would like to see more charities being open and transparent with them about what may have gone wrong in the past and how it is being put right.

    Lesson 1:

    Purpose is absolutely crucial both for the Commission and for charities. Purpose matters to the public too. Recent Populus/Commission research into trust in charities showed that the public expects charities to have their purpose as central and to be guided by their ethos and values in all that they do. Charities with good governance will be in a good position to fulfil their purpose for the benefit of the public they serve. Charities must avoid mission drift.

    Lesson 2:

    Good governance must be more than a box ticking exercise: it is about really understanding and embedding good governance practices. The focus must be on how charities fulfil their missions, as well as on what they do. The right culture is key. The Commission should play an important role in holding charities to account (one of its five strategic objectives). The public expect charities to behave like charities, so the charities and trustees should pay attention to the way outcomes are achieved as well as to the outcomes themselves. 

    Lesson 3:

    We should consider how trustees are making decisions and how they understand and challenge what is happening within their charity. Collective decision making is a crucial part of trusteeship, and when trustees delegate, there need to be clear lines of responsibility and robust controls and reporting procedures. But these formal processes will not be enough if trustees do not feel empowered to make suggestions, challenge ideas and ask difficult questions.

  • Philip Kirkpatrick (Head of Charity & Social Enterprise Department, Bates Wells Braithwaite)

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    Philip’s comments were aimed at large and complex charities with professional staff. He suggested that the current governance model for such charities is completely broken and does not work anymore. We have trustees with limited skills, in charge of professional staff. We ask trustees to create and manage policy. We tell them not to get involved in day-to-day management, as their role is strategic, but then ask them to be certain that the management decisions are the correct ones. When things go wrong, we tell them it is their fault and they are generally unpaid.

    Philip suggested a potential solution in the form of a new governance model for large and complex charities which he termed ‘Assured Unitary Governance’ to provide a realistic and shared balance between trustees and professional staff. The board would look more like a commercial business board. It would include the CEO, COO, Chief Finance Officer, key heads of service and a non-executive Chair and non-executive senior trustee (both paid). There would be a second board, an ‘assurance board’ (comprised entirely of volunteer members) picked specifically for the role, owing to their experience, who could hold the charity to its mission. They would have certain key balancing powers e.g. powers of appointment and removal of main board, would approve conflicts of interest and the directors pay. The main board can also consult them.

  • Joss Saunders (General Counsel, Oxfam)

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    Joss began by acknowledging the pain caused by sexual harassment and exploitation and that it is essential to take action to address the underlying causes.  This work has begun at Oxfam and elsewhere, but there is a huge amount to do.  He noted that whilst these issues arise in other sectors, the charity sector is hit particularly hard by such scandals, because the charity sector is mission driven.

    Lesson 1:

    Having processes in place is not enough.  E.g. since 2007, Oxfam has published annual data about sexual harassment online and summaries of board meetings, but this did not ensure sufficient transparency.  The problem is not committing to transparency, it is in not giving enough information.

    Lesson 2:

    Legal rules can be an impediment to good governance. E.g. data protection law, employment law, libel law, has prevented, or at least has been perceived as preventing, the sharing of important information in the past.  The impact of MeToo is to make change more likely. E.g. there is now an inter-agency referencing scheme in place to enable checks on individuals moving between charities – this will make it easier to disclose information between charities, but the legal framework is still inhibitive in this area. 

    Lesson 3:

    Culture – this is key. The legal framework may be fine and a charity may have good strategy, but if the culture is wrong, then it will fail. ‘Culture eats strategy for breakfast’ (Peter Drucker).

Issues raised through audience discussion at the Q&A

 

Charity Commission Serious Incident Reports are not published due to concern that they contain sensitive information. There is also a concern that this would discourage charities from making such reports. The Charity Commission may publicise themes raised and lessons learned so as to give guidance on the issues encountered.

The importance of culture in managing good governance was emphasised and it was acknowledged that culture change takes time. It needs to go throughout the organisation, from Senior Management down and across organisations (especially those that are multifaceted).

The way trusteeship currently work is not inclusive – too much is expected of them and it often only attracts those who can afford to be trustees. Delegation should be acceptable. Should guidance say ‘Charities must’ as opposed to ‘Trustees must’? Assurances are often given to trustees, but trustees may then be held accountable for believing them.

Philip’s Assured Unitary Governance model would not necessarily require legal change. But the Assurance Board may need fiduciary powers which would be tricky, from a legal perspective. It was recognised that it might be hard to sell being a member of the Assurance Board.

The importance of board turnover was noted.

 

Future events

 

For further information, or to suggest other intiatives, please contact Professor Debra Morris (Director).