Last night I was part of a panel discussion on governance at Liverpool University’s London campus, focussing on the future of charity governance. The title was ‘Charity Governance: Looking Backward to Look Forward’ and it set me thinking about the problems large charities have faced recently and whether what we now expect of the trustees of those charities is fair or sustainable.
My observation from the last few years of charity regulation is that the model for governing many charities, and particularly large, complex charities, is broken. It is no longer workable. It is indeed looking backward.
How does it currently work?
We appoint a range of skilled and less skilled people and asked them to supervise, on a part-time basis, a team of full-time professionals.
We tell them to develop the strategy when they are, on the whole, less competent to do so than the staff they employ. The staff are, on the whole, more knowledgeable about the needs being addressed, the needs of the organisation and resources at the organisation’s disposal. They also have more time to think about it. They are more deeply engaged. In reality, no board of a charity with staff would be agreeing strategy without that having been developed by the staff in the first place.
We tell them that they must develop policies. In reality, these will be done for them by the staff and largely rubber-stamped, with a few tweaks.
We tell them that they should not get involved in day-to-day management but that they have to ensure that day-to-day management is undertaken properly. How? How do they genuinely obtain the assurance that they need? Where do they obtain that from? Apparently, it is not acceptable now even to take assurance from statutory audit.
We ask them to do this on the basis of a quarterly board meeting, monthly at the very most, with little or no day-to-day involvement.
And we tell them, “You carry the can; you are responsible if it all goes wrong.”
And Parliament, the Charity Commission, the press, OFSTED, the CQC, the Official Receiver, and probably others too, are all bristling to hold them to account.
And we ask them to do it with no reward except their own satisfaction in having tried to do something good for the society they care about.
Yes, most of the regulators say, at least sometimes, and most of them probably believe, that they value the contributions of the millions of volunteers who hold together the fabric of our society. But all are willing to give trustees a good kicking when the going gets tough.
At the same time, we pretend that the people who are actually responsible, the paid senior executives, are not in fact responsible, are not acting as trustees and directors. Even when half of them actually have ‘director’ in their job title.
The model is a mess. It does not work for too many charities. We need a new one.
I am therefore proposing a completely new one. Its working title is ‘Assured Unitary Governance’. It is not proposed as standard, let alone mandatory, just an option that can be considered. I hope it will be developed and improved by everyone who engages with it and seeks to apply it to their charity’s circumstances.
This model would enable charities to move to an entirely paid trustee board, similar to that of most commercial companies but with one crucial addition: there would be a secondary or ‘assurance’ board to perform some of the functions that unpaid trustees would otherwise perform, without burdening those people with the responsibility of trusteeship.
So, a charity adopting this model would typically be established as a non-profit company limited by guarantee (but any corporate form, including a CIO, would work) and would have a board of trustees that looked largely like this (depending on size and activities):
- A non-executive paid Chair, normally recruited externally
- Another paid non-executive trustee, being a senior independent trustee
- Chief Executive Officer
- Chief Operating Officer
- Chief Finance Officer
- Director(s) of the charity’s principal service(s)
- Director of Communications/Fundraising
- Director of People
That is not a prescriptive list but perhaps a fairly typical one for a large and complex charity.
With some similarities to the supervisory board that exists within a German listed company, there would also be what I propose to call an ‘assurance board’. This ‘board’ would actually be, or be incorporated within, the membership of the charitable company and would not have trustee responsibilities, although it is likely that their main powers would be regarded as fiduciary and so ultimately subject to Charity Commission and court control.
The powers of the assurance board would not be such as to render its members responsible in law for the management and governance of the charity, as charity trustees / company directors are, and the prospect of them incurring liabilities to third parties would be extremely remote.
The powers and responsibilities of the assurance board would be:
- To approve the appointment of the executive and non-executive trustees from among candidates proposed by the board of trustees
- To approve the remuneration of all trustees, as recommended by the senior independent trustee and Chair in respect of the executive trustees, or the granting of any other benefit to trustees
- To authorise any arrangement in which all of the trustees are conflicted
- To receive annual reports and accounts and attend members’ meetings
- To pay their member guarantee on an insolvent liquidation (typically £1)
No members of the assurance board would be paid. They would need to be more engaged than the average non-trustee member of a charity and they would need to be chosen with the care with which many charities now select their trustees. They would need to keep abreast of the charity’s strategy and activities but would have no authority to determine that strategy or direct those activities. They would be like engaged investors, except that their investment would be in social capital.
The assurance board would have limited means of exercising any authority but if its members were the only members of a charitable company they would have certain additional powers that should cause the trustees to pay attention; in particular, they would have power to remove and replace the trustees, change the articles of association, change the charity’s name and wind up the charity. Their approval would also be needed for any transfer of the undertaking to another charity.
Such a balance of powers should lead to a responsible engagement between trustee board and assurance board under which the views of the assurance board are seriously considered. It would, at the very least, be wise to seek their views on the strategy. It could even be a requirement.
They could also be called upon by the board of trustees to provide advice and support to the board of trustees on an ad hoc basis.
Members of the assurance board would appoint their own successors or, if there was a wider membership, those appointments could be recommended by the assurance board members and approved by the wider membership.
Accordingly, those people who currently run large, complex charities (or any charity wishing to adopt this model) would continue to run them but would have the added regulatory burden, as well as the authority and the regulatory certainty, of being charity trustees/company directors.
Those people who do not actually run such charities but are currently being held to account for doing so would be able to provide some of the oversight and assurance that the word ‘trustee’ signifies, without being held to unreasonably high standards by regulators and the public in respect of a task that they cannot reasonably be expected perform as demanded of them.
Conflicts of interest would be effectively managed and trustee benefits and the pay of senior staff appropriately scrutinised and approved.
The Assured Unitary Governance model offends no principle of charity law.
It is surely worth a go.
If you’d like to speak with Philip to receive further insights on this topic, please contact Sam Hunter, Senior Press Officer at Bates Wells on +44 (0)20 7551 7906 or [email protected].
This information is necessarily of a general nature and doesn’t constitute legal advice. This is not a substitute for formal legal advice, given in the context of full information under an engagement with Bates Wells.
All content on this page is correct as of February 21, 2019.