Good governance is the cornerstone for success in the charity sector. It should run throughout your organisation, led by the board of trustees and maintained by the CEO, the management staff, advisors and volunteers.
As a sector propped up by public generosity and affluent benefactors, a commitment to upholding certain standards is non-negotiable for third sector organisations. As such, by developing high standards of governance, a charitable organisation is best placed to grow and secure funding for the important cause it has chosen to back.
On the surface, good governance is straightforward. In short, it enables everyone involved in managing the charity to agree the purpose of the organisation and define the best strategies to carry out this purpose. It also provides a framework for compliance with relevant regulations and accounting for the non-profit’s performance.
In the following guide, we map out the key areas your charity should focus on to build a framework for good governance.
Your organisational purpose is your “raison d’etre”; it’s the important cause that the charity exists to support, be it an NHS Trust, a wildlife conservation or a social justice cause.
Trustees have a duty to understand not only the purpose itself, but the environment in which the charity is operating in order to give the organisation the best possible chance of achieving its mission with the resources available.
In the outset, the board of trustees should have a clear understanding of the organisation’s charitable purposes and be able to clearly communicate these to stakeholders. From here, the board should lead the development of an effective strategy to achieve these goals, setting targets, broad milestones and intended outcomes.
Over time, changes to the external environment in which your charity is operating may require the board to review and amend the aims of the charity to ensure they are relevant and reflect the current landscape.
The board is ultimately accountable for whether the charity meets its organisational purpose, and as such, it should continually assess the public benefit of the charity and its impact in society. Holding regular meetings to evaluate the current strategy and review whether changes are required is the key to ensuring a charity achieves its purpose.
Voluntary organisations secure funding from a plethora of different places, be it gifts and donations, grants, contracts or trading. Of course, every charity leader knows chasing funding isn’t a viable model in achieving its objectives. For that reason, it’s imperative that the board of trustees is forward-looking, constantly analysing the external landscape and planning for sustainability. Regular reviews of income sources are essential, and a strategic approach is recommended to strengthen the organisation and help it to become financially stable, now and in the future.
As well as the diversification of funding sources, the board of trustees should consider the risks and benefits of mergers or partnerships if it aids them in fulfilling their charitable purposes more effectively. Lastly, whatever strategy the board decides to execute in building sustainability, it must ensure it is in line with the charity’s purpose, values and resources.
Headed up by a board of trustees, a successful charity thrives from strategic leadership that acts within the interests of the community and delivers on the organisational purposes set out in its governing document. Just as in every business, the board should set the tone for the ethos of the organisation; it should effectively communicate its values and vision to employees, volunteers and other key stakeholders. Further, it is the responsibility of the board to make sure the values that underpin the strategy are reflected in everything the organisation does.
The board of trustees is ultimately responsible for developing the appropriate processes, structures and culture that enables the charity to deliver on its purpose. Part of this is about putting in place the right hiring and onboarding strategies in place to ensure appointments of senior staff can be made with ease.
Equally, the board of trustees is responsible for making sure the appropriate support is available for senior staff; they must take care to put in the right processes that allow for appraisal – and, where necessary, dismissal. Such processes must all be compliant with employment law to minimise the risk of costly disputes.
The board of trustees are the captains of the ship: they provide direction to the charity while ensuring all staff are confident and enabled to provide constructive challenges or feedback on activities, initiatives or the broader strategy.
When a board of trustees leads by example, something beautiful happens: supporters are encouraged to donate to the cause, reassured by the clear and consistent messaging that a charity has communicated through its actions and initiatives.
When a supporter – be they a major donor or one that is currently unknown to the organisation – can see evidence that a charity is striving to provide for its own cause with a robust strategy and long-term vision, they are more likely to give to the charity in question. This starts internally; it depends on forward-looking leadership that actively communicates values with staff at every level.
All trustees are expected to commit sufficient time to carrying out their responsibilities effectively – this is a no brainer, and realistically applies to all senior teams in every sector. Prior to appointment of any new trustees, the expectations around time commitment should be made clear to avoid disputes, delays and missed opportunities. If individual board members are also acting as volunteers, they should be clear about the capacity in which they are acting and understand what they are and are not authorised to do at this time.
The not-for-profit sector is built on trust and depends on public generosity. Integrity couldn’t be of more importance to the board of trustees, particularly in light of the recent spate of controversies surrounding charity leadership. In 2018, a study from the Charity Commission reported that public trust in charities had plummeted to its lowest level since 2005, attributing this fall to high-profile charity scandals such as Kids Company and Oxfam.
According to the report from the Charity Commission, the key drivers of trust in charities are transparency surrounding spending, efficiency in use of resources, good governance and whether they are able to demonstrate making a positive difference. Considering trustees and the board members collectively have ultimate responsibility for the charity’s funds and assets, they also have a duty to maintain the respect of beneficiaries and the wider public. Failing to act with integrity, even where difficult decisions are required, puts stain on a charity’s reputation and in turn, their ability to secure funding.
It’s clear that charities do not have a carte blanche with the public to simply run their organisations without strict regulation and transparency. The ethos, culture and values of charitable organisations matter now more than ever, and rebuilding public trust depends on behavioural change – not just marketing messages. Members of the board must take it upon themselves to instil a culture throughout the organisation and ensure every activity it undertakes is reflective of its own aims and values. This requires formal induction for every new member of staff to ensure uniformity.
The board effectively controls how the charity is perceived by the general public – a commitment to operating ethically is not just a nice to have or a compliance tick-box but rather a non-negotiable component that is critical in winning back public trust. Trustees must take it upon themselves to implement a strict compliance framework with the law, and consider adherence to non-binding rules, codes of conduct and standards that promote confidence in charities.
When conflicts of interests occur, they threaten the reputation of the charity and have the potential to weaken confidence and support from the public and organisations working with the charity. It is the duty of trustees to disclose any potential conflicts to the board and handle these in line with the charity’s governing document, and a robust conflicts of interest policy.
A strong risk and compliance framework is essential for charities to meet their organisational purpose and avoid penalties or reputational damage along the way. Understandably, an increasing amount of regulatory red tape in recent years has made keeping up with compliance a persistent challenge for non-profit organisations.
The best place to begin is by assessing the current compliance programme your charity has in place: is it adding value, and aiding the organisation to keep a-pace with regulatory requirements?
Charity sector regulations fall under five key categories:
Your charity’s governing document, also known as its ‘constitution’, is effectively a rulebook that lays out your objectives and purpose, how you intend to meet your objectives and who is running the charity. It should also set out:
Compliance with your own governing document a statutory requirement, and critical in ensuring that:
Governing documents are binding in law to all those included within their provisions, so it’s imperative that all the people who share responsibility for the direction of the organisation are given an up-to-date copy.
The Charities Act 2011 is the main piece of legislation affecting charities is the Charities Act 2011, which came into effect on 14 March 2012. It sets out how all charities in England and Wales are registered and regulated, and replaces the Charities Act 2006. Under the Charities Act, charitable purposes include the prevention or relief of poverty, the advancement of education or religion, the promotion of volunteering or equality and diversity, and the advancement of environmental protection. Every charity which is registered under the Act will have one or more of these purposes as its charitable objective.
Additionally, charitable companies (those incorporated as a company limited by guarantee) must comply with provisions in the Companies Acts 1985, 1989, 2006. Additional requirements include filing details of trustees as directors at Companies House. If in doubt with any of the rules set out in the above sets of legislation, we strongly recommend seeking legal advice from a charity law specialist who can assess your current policies and advise on potential changes to ensure compliance.
Any organisation who is accepting funding is subject to the relevant fundraising laws – failure to comply can result in both financial and reputational damage that many charities would struggle to come back from. A core part of reputation management is ensuring money is coming into your organisation both legally and transparently.
This includes meeting obligations with regard to fundraising activities, collections, lotteries and accepting legacies. More information can be found on the Fundraising Regulator website – but once again, we recommend any uncertainty around fundraising rules are remedied by seeking the support of a qualified charity lawyer, who can talk you through your requirements and assess your current practices.
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