Is it time for Charity Chief Executives to get on Board?

December 20, 2017


The Insolvency Service is understood to have given all eight former Kids Company charity directors and founder and former chief executive Camila Batmanghelidjh a deadline of December 20 to agree to a voluntary ban on holding company directorships or face being disqualified for periods of between two-and-a-half and six years..

Despite not being a registered company director or charity trustee, Camila Batmanghelidjh is considered to have been a ‘de facto’ director of the company by the Insolvency Service.

The vast majority of charity boards are composed entirely of non-executive trustees registered with the Charity Commission, who may also be company directors registered at Companies House, with the Chief Executive attending and taking part in the board decision making process and yet not being formally registered as a director or trustee.

A number of charity Chief Executives I have spoken with say that they are happy with this arrangement in the belief that they cannot be held personally liable for any decisions made by the board which may lead to prosecution – however, as we have seen with Kids Company, this is an unfounded belief.

The test for whether or not someone is acting as a director, either ‘de facto’, someone who holds themselves out to be a director, by, for example, having the title Chief Executive or CEO, or ‘shadow’, in the case of someone who is for all intents and purposes a member of the board, is not that they are registered as a director but is to do with their attendance at and contribution to board meetings.

I believe that it is time for more Charity Chief Executives to consider their positions and if they are acting as directors or trustees then they should seek formal recognition by obtaining permission from the Charity Commission to be registered Company Directors and or Charity Trustees, to gain the protection of the Companies and Charity Acts, and to become fully fledged members of a unitary board.

Charity trustees also need to heed the lessons of Kids Company – Alan Yentob faces being disqualified from running or controlling companies for five years including his ‘I Am Curious Productions’, the company he set up last year after having been forced to quit the BBC creative director in December 2015 by his colleagues who accused him of attempting to interfere in the broadcaster’s coverage of the Kids Company scandal.

There seems to be a widely held misconception amongst Charity trustees that their duties, liabilities and responsibilities are a somewhat watered down version of those for an equivalent private sector director and clearly this is not the case.

Trustees need to ensure that they are fully aware of what they are letting themselves in for before they accept appointments to a Charity Board.


The new Charity Governance Code – does it go far enough?

August 4, 2017

In a move to bring charity governance in-line with the recommendations of the UK Corporate Governance Code, the best practice guide for the UK’s listed companies, the new Charity Governance Code is advocating external reviews for larger charities every three years, more openness and limits on how long trustees may serve.


The new Charity Governance Code, which replaces the previous Code of Good Governance, outlines the high standards of governance that all charities and their trustees in England and Wales should aspire to.

“The code for the first time sets out clear aspirations for a charity board to meet. This code is a great stepping off point to help charities navigate the changes” Rosie Chapman, chair of the Charity Governance Code steering group

The Charity Commission is encouraging registered charities to use the code to tackle the governance challenges that the sector has faced over the last two years, most notably in the case of the failure of Kids Company.

“There is a clear consensus within the sector that we must focus more on governance. With this in mind, I envisage that we will soon see a commitment to following the Charity Governance Code become a requirement from many funders. Taking action now is a way of getting ahead of the game” Sir Stuart Etherington, chief executive of NCVO

The new code comes in two versions which share common principles and outcomes: one set of recommended practice applies to smaller charities and another to larger organisations – there is no single definition of what constitutes a small charity, the Small Charities Coalition defines small charities as those with an income under £1m, NCVO, on the other hand, define small as being income under £100,000, and that represents 80% of all registered charities.

The Charity Commission are keen to emphasise that good governance is not about ticking boxes, it is about attitudes and culture and putting the charity’s values into practice. How trustees make decisions and how well they understand what is going on are key to avoiding the pitfalls that have been highlighted in the negative press the sector has received over the last two years.

“The bottom line is, good governance is no longer an optional extra. It’s essential to charities’ effectiveness and probably their survival too. Charities need to be able to demonstrate that they take it seriously, allowing it to change the way they operate”

Charity trustees need to be less conservative, better informed and more supportive of their executives in order that their charities can realise their potential and maximise the difference they make by using good governance to develop and maintain their vision, mission, values and strategy to deliver their charitable objects.

As with the UK Corporate Governance Code and its principle of ‘comply or explain’, which is ultimately the responsibility of the shareholders, or owners, to enforce, the Charity Governance Code works on the principle of ‘apply or explain’ – the question is who is responsible for its enforcement? In most charities the closest thing to an owner is the member of the charity who is most likely to also be a trustee and therefore not the best people to be holding themselves to account. In practice the expectation is that funders will be expected to ensure that the charities they fund are well governed.

The code is built on the ‘foundation principle’ that all trustees should understand their legal duties, liabilities and responsibilities and should be committed to good governance. In practice it is not always the case that trustees take the time to fully understand their roles – something that the Charity Commission will continue to focus their efforts to try to improve.

The code then develops seven principles:

1.   leadership;

2.   integrity;

3.   decision-making;

4.   risk and control;

5.   board effectiveness;

6.   diversity;

7.   openness and accountability;

The key recommendations of the code include:

  • More oversight when dealing with subsidiary companies; registers of interests and third parties such as fundraising agencies or commercial ventures.
  • Where a charity uses third party suppliers or services – for example for fundraising, or data management, boards must ensure the work is in the charity’s interests and must regularly review agreements.
  • An expectation that the board will review its own performance and that of individual trustees, including the chair, every year, with an external evaluation for larger organisations every three years.
  • Boards should regularly review the sustainability of income sources and business models and their impact on achieving charitable purposes
  • Boards should regularly check charities’ key policies and procedures to ensure make sure that they still support, and are adequate for, the delivery of their aims, including key areas such as fundraising and data protection
  • No trustee should serve more than nine years without good reason.
  • Boards thinking carefully about diversity, how they recruit a range of skills and experience, and how they make trusteeship a more attractive proposition.
  • Boards should operate with the presumption of openness.
  • Stronger emphasis on the role of the chair and vice chair in supporting and achieving good governance.

The publication of the new code comes at a very critical time for the charity sector where high profile catastrophic collapses, data misuse and donor fatigue have all contributed to the need to focus on governance improvement.

Whilst the implementation of the code will undoubtedly lead to better levels of trustee understanding and engagement in the basics of good governance, will it address fundamental issues such as an evaluation of the public benefit achieved by a charity, known as the impact statement?

Charity trustees should also be encouraged to consider the risks involved in being too conservative and not taking strategic opportunities, particularly mergers or acquisitions with charities with similar objects.

The main test of the code will come from the cultural change required to move trustees from being dedicated volunteers but amateur board members to becoming much more professional in discharging their duties.

Is it time for a new model of charity governance?

May 24, 2017


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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