Is it time for a new model of charity governance?

KidsCompany

The recent news that the Government’s Insolvency Service has reportedly written to lawyers acting for Alan Yentob and other former Kids Company board members to warn them that it is minded to pursue disqualification proceedings against them, highlights the risks that charity trustees face and quashes the myth that their duties and liabilities are somehow lesser than those of their peers on boards in the private sector.

It also begs the question – are charity governance structures still fit for purpose?

In a damning report by MPs last year into the Kids Company’s collapse in 2015 they stated that there had been an “extraordinary catalogue of failures of governance and control at every level” and criticised the charity’s founder, Camila Batmanghelidjh, the other executives, the charity’s trustees and the charity regulators, the Charity Commission.

Under the newly harmonised ‘fit and proper persons test’ regimes charity trustees found to have fallen short in regard to their legal duties and responsibilities can also find themselves ineligible for future director roles in the private sector – if successful, disqualification proceedings could force former Kids Company chairman Yentob, for example, to relinquish his directorship of the television production business called I Am Curious, which he established last year.

And it is not just the collapse of Kids Company – mass resignations at the RSPCA, the investigation into fundraising methods following the suicide of 92 year-old Olive Cooke and criticism of commercial activities have shone a critical spotlight onto the activities of other high profile charities, with blame being put to a large extent on poor governance.

Two of the voluntary sector’s most prominent figures Sir Stephen Bubb, former Chief Executive of charity leaders’ network ACEVO and Sir Stuart Etherington, Chief Executive of charity umbrella group NCVO have said that the conventional trustee board model is not right for all charities and the sector should start thinking about a different form of governance for larger charities.

Addressing the question: Is Charity Governance in Crisis?, Bubb suggested that the traditional trustee board may not be effective for “those large organisations that have grown in size and structure so much that they almost resemble a new category”.

Although charities with over £100m turnover represent only 0.02% of the total number registered, they account for more than 18% of all charitable income.

Over the past 30 years in the commercial sector we have seen a sea-change in corporate governance, from the Cadbury report to the widespread adoption of the UK Corporate Governance Code, which has resulted in significant changes to board composition and boardroom behaviours.

This change in governance has not been mirrored by the voluntary sector. Oxfam treasurer Robert Humphreys has said: “The charity model at the moment I see as essentially being developed in the 19th century, in Victorian times, when a new wealthy middle class decided to set up trusts and foundations to address the problems they saw around them. That model, with trustees who are quite distant and not necessarily engaged, doesn’t stand well against the current focus on regulation, scrutiny and challenge.”

Earlier this year, the House of Lords select committee on charities’ published their report: Stronger Charities for a Stronger Society, The Lords committee was set up to look at charity governance and they concluded that good governance is fundamental and that charities need strong governance, with robust structures, processes and good behaviours to best serve their beneficiaries and their cause – this will be enshrined in the Charity Governance Code which is currently being updated.

Typically, most of the 200,000 plus registered charities in the UK are governed by a board of trustees, who may also be directors of the charity, who are volunteers, with no day to day responsibility for running the charity – they are therefore acting in a non-executive capacity.

The trustee/directors are also usually the members of the charity and if the charity is a company limited by guarantee they will act as guarantors for a sum as little as £1 each, as stated in the charity’s Articles of Association, which is only payable should the charity be wound up due to having become insolvent.

The most senior employer of the charity, who may have the title ‘Chief Executive’, is not usually a member of the board of trustees but attends board meetings as an observer.

This type of board arrangement contrasts with the unitary board structure adopted by listed commercial companies operating under the auspices of the UK Corporate Governance Code where there are equal numbers of executive and non-executive directors who all have the same legal duties and responsibilities.

The changes proposed by Sir Stephen Bubb and Sir Stuart Etherington would see the creation of unitary boards as standard for large charities, whereby their senior executives would become directors, with the introduction of payment for the non-executive directors/trustees.

Large charities Oxfam, Marie Curie and RNIB have backed this call for charities to be able to adopt a unitary board structure – Dr Jane Collins, Chief Executive of Marie Curie has said: “I’m sure it was fine years ago when the world was kinder perhaps, but now things are moving very fast. We have six meetings a year plus a two-day away day, so eight meetings a year. I can contact any of my trustees right away, but it’s not quite the same… I think a unitary board would be the way forward.”

Currently there is no reason why charity Chief Executives should not be director/trustees. As long as it is permitted by the charity’s Articles of Association and there is expressed permission from the Charity Commission then it can be done – and it does avoid the possibility of a charity CEO who regularly attends and participates in board meetings being considered to be a ‘shadow director’, having all the legal duties and responsibilities of a company director as set out in the UK Companies Act 2006.

Rachel Stancliffe, Chief Executive of the Centre for Sustainable Healthcare has been a member of the board of trustees since the charity was incorporated in 2011 – her status as a full-time paid employee of the charity and a director/trustee was approved by the Charity Commission when the charity was founded.

RNIB’s group director of resources Rohan Hewavisenti confirms that there is flexibility within the current charity structure; “We are now able to pay our trustees, even though it did take six months or a year to get that through the Charity Commission. And I think the unitary board structure is a really important one that trustees shouldn’t be excluded from having as an option.”

The rights charity, The Advocacy Project, has taken the decision to allow its Chief Executive, Judith Davey to join the trustee board. The 9 trustees took the decision on the basis of an independent report by consultancy Campbell Tickell, and a short presentation to the board by Rosie Chapman, governance consultant and former director of policy and effectiveness at the Charity Commission.

Campbell Tickell said that “on balance, we favour the inclusion of the chief executive on the board because it emphasises that responsibility for the success or failure of the organisation is shared by executives and non-executives. We have not found that it creates difficulties or conflicts of interest that cannot be managed with the right advice and careful preparation.”

The inclusion of the Chief Executive on the board of trustees addresses the apparently iniquitous situation whereby the person responsible for the day-to-day running of the charity has less responsibility in law than the unpaid trustees who may only meet as a board a few times a year – Camila Batmanghelidjh, the high profile head of Kids Company, was not a member of the charity’s board.

However, although it is possible and there are several examples of where it has happened, it is currently the exception rather than the norm to have charity Chief Executives on the board and charity trustees remain almost without exception, unpaid.

As with SMEs in the private sector, there is a recognition of the need for a pragmatic approach to the most effective governance structures for smaller charities but that does not rule out the unitary board which does not necessarily incur any additional cost and is probably no more than a recognition of what actually happens in the boardroom in practice.

Charity trustees do not necessarily need to be paid but they do need to be trained and made aware of their legal duties and responsibilities – and, despite the fact that they are volunteers, they should also be expected to attend and contribute to board meetings.

Along with a charity’s employees, trustees should also be set objectives and annually assessed on their attainment – they should be appointed for an agreed period, typically 3 years and members should take careful consideration when voting on trustees’ appointment and re-appointment.

There is also no reason why membership of the charity should not be expanded beyond the board of trustees – charity members attend the annual general meeting (AGM) and can vote on the appointment of trustees and the appointment of the charity’s auditors and they can and should hold the trustees to account.

There is no doubt that it is time to re-think charity governance not just for the large charities but for charities of all shapes and sizes The Victorian board of trustees may well still be appropriate for some charities but it is important that charities consciously choose a governance model that takes account of the significant improvement in corporate governance that has taken place in the private sector over the last 30 years and provides the right balance of challenge and support to make each charity a success and to avoid repetition of the public failings of charities such as Kids Company.

David Doughty is Chief Executive of Excellencia Limited, Chair of the registered charity The Centre for Sustainable Healthcare and Governance Consultant to the British Small Animal Veterinary Association.

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