Launched in 2005, and subsequently refined and reissued, the Charity Governance Code establishes a framework of principles that will help charities of all sizes to raise the bar on their systems, processes and policies.
In common with all governance frameworks, if sensitively implemented, this will improve communication and efficiencies, and help to protect the interests of stakeholders.
The principles are as follows:
- Organisational purpose
The board is clear about the charity’s aims and ensures that these are being delivered effectively and sustainably.
Every charity is led by an effective board that provides strategic leadership in line with the charity’s aims and values.
The board acts with integrity, adopting values and creating a culture which help achieve the organisation’s charitable purposes. The board is aware of the importance of the public’s confidence and trust in charities, and trustees undertake their duties accordingly.
- Decision-making, risk and control
The board makes sure that its decision-making processes are informed, rigorous and timely and that effective delegation, control and risk assessment and management systems are set up and monitored.
- Board effectiveness
The board works as an effective team, using the appropriate balance of skills, experience, backgrounds and knowledge to make informed decisions.
Together with two additional principles for larger charities.
The board’s approach to diversity supports its effectiveness, leadership and decision-making.
- Openness and accountability
The board leads the organisation in being transparent and accountable. The charity is open in its work, unless there is good reason for it not to be.
These principles are described as being “deliberately aspirational” and stretching for charities. The emphasis for trustees is to discuss and develop their governance. Unlike the UK Corporate Governance Code, there is no legal or regulatory underpin, and consequently the principles are considered on an “apply or explain” basis. Charities are encouraged to include a brief explanatory statement in their annual reports, rather than a detailed checklist.
The most significant case on charity governance in recent years has to be the (so-called) Kids Company case for which judgement was given on 12/02/2021. The central claim was that the trustees were operating an unsustainable business model. It was a demand-led model of “never turning a child in need away”. The organisation failed because of insolvency following allegations of sexual misconduct which were later discredited. However, they were widely publicised and caused a withdrawal of funding from donors which proved fatal. The case was brought by the official receiver who applied for disqualification orders against the trustees. The judge, Mrs Justice Falk, concluded that a disqualification order was not warranted and praised the trustees for their “…care and commitment …in highly challenging circumstances.”
Interestingly, there is no mention of the Charity Governance Code in the final Annual Report and Accounts for Kids Company (year ending 31 December 2013) nor in the Kids Company Review of Financial and Governance Controls published by PKF Littlejohn in March 2014. It is worth considering whether a reference to the Charity Governance Code might have provided a different lens through which to view the governance of the organisation. Looking at the first four principles, would it have highlighted a need to develop the organisational purpose beyond the demand-led strategy? Would it have changed the nature of the relationship with the CEO? Would there have been more emphasis on reputation? Would risks and opportunities have been assessed in a different way, including financial exposures?
Charities continue to play an important role in society, and the sector is competitive with donations and volunteers in limited supply. Although the Kids Company litigation did not disqualify any of the trustees, it has given many trustees and observers pause for thought. It seems likely that a well-functioning governance framework will be increasingly relevant to charities in the future.