Stronger corporate governance is essential to ensuring the survival of charitable organisations during the recession, argues Gillian Donald.
Although some suggest the economic outlook is getting brighter, there are still tough times ahead for many charities. In order for these organisations to survive the turbulent times, trustees must be skilled, enable and equipped to function properly – the more nimble charities can be, the better they will be able to respond.
Trustees have legal duties under the Charity Act and possibly under the Companies Act if incorporated. They must act with the care and diligence it is reasonable to expect of a person managing the affairs of another person; i.e. they should be slightly more prudent/risk averse with the charities’ funds than they might be with their own. They must also ensure the charity is solvent, or they can face potential liabilities, in some cases personally.
Trustees can delegate their function but not their responsibility. Irrespective of how much time and energy you devote to your trusteeship and how much is delegated to staff, the trustee body as a whole remains legally responsible for the charity’s actions.
This presents challenges, as trustees are usually one step removed from the charity’s daily activities; they may meet infrequently and are probably not experts in all areas. Therefore, how do they ensure that the charity prospers and continues to deliver on its objectives? In many cases there are common recurring themes that result in governance failures.
Trustee skills and experience
All charities require someone who understands the financial and operational aspects of their day-to-day running on the board of trustees. Legal, HR and general business skills are also useful. Charities are advised to carry out an audit of their boards’ skills to enable trustees to identify gaps and recruit appropriately.
Understanding the operating environment and management implications
Most charities produce an induction pack for new trustees but thereafter financial/policy briefings may be patchy. Trustees who are experts in their field but don’t understand the business side must be enabled to comprehend the legal implications of taking on trusteeship. Similarly, whilst those with financial skills might be able to ascertain the solvency of the organisation, they won’t necessarily understand the implications of strategic policy developments on that financial position.
Trustees must take ownership of the board
This includes development and performance reviews. Board appraisals are an excellent route to identifying development needs of trustees to enable them to participate more fully. Regular board appraisals are rare, but they shouldn’t be.
Communications with trustees
In order to make informed decisions, trustees should receive full up-to-date information, and the important performance indicators for the charity should be identified. These need to be understood by all trustees, with more detailed financial information for those who are experts.
Strategic planning
Trustees must agree the vision of the organisation, i.e. what is the ideal future outcome? From this they should prepare a 3 - 5 year strategic plan, which will contain a small number of measurable strategic aims that demonstrate progress towards the vision. They also need to consider the associated risks and break these strategic aims down into smaller objectives.
Risk management strategies and systems
Risk should be a part of every board’s agenda. It doesn’t necessarily have to be raised at every meeting, but all trustees should be aware of the risk environment and be comfortable that the decisions they make are within the acceptable risk parameters. Trustees must understand the systems and ensure there are processes in place to mitigate risk to an acceptable level.
Delegating responsibility
All staff and trustees should have clear roles, responsibilities and delegated authorities within the organisation. This allows staff and trustees to know where responsibility lies for taking difficult decisions.
Seeking advice
Trustees must seek independent professional advice where there are problems or a skills gap. This is a recurring theme in all our research in this area. Trustees don’t often have a budget for legal and professional advice, but the cost of not taking the advice and getting it wrong can often be catastrophic.
Gillian Donald is head of charities at Scott-Moncrieff.