Our previous article, Governance of Charities, addressed a charity’s entity structure, a charity’s governance documents, and compliance with regulations. Here, we outline some of the important practices for good governance. The focus is on the frameworks that relate to charities established in England and Wales.
In this guide, we give an overview of the framework of governance practices and how the secretary of a charity sits at the crossroads of many streams, plus the secretary’s role in promoting good governance practices.
The Secretary of a Charity
Governance for a charity encompasses compliance with governance codes, statutes and the requirements of regulators; it includes having and adapting policies for practices such as safeguarding; it involves recording decisions relating to matters such as conflicts of interest, and it will also cover disputes. Governance is not one individual activity, but a range of processes and frameworks designed to ensure compliance across the charity Considerations of governance pervade all activities of a charity’s Board and the Charity Secretary has an important ongoing role across all practices described below to ensure that a charity’s governance principles and policies are properly propagated.
MSP Company Secretarial supports charities with their governance needs from statutory compliance through to assisting with Board effectiveness surveys.
The Charity Code of Governance
The Charity Governance Code Steering Group has prepared an ‘apply or explain’ governance code for charities. This Group identifies 7 principles adapted for large charities, i.e. charities “with a typical income of over £1m a year and whose accounts are externally audited”, and for small charities (those with income typically under £1m per year).
The 7 principles of the Code are:
- Organisational purpose
- Leadership
- Integrity
- Decision-making, risk and control
- Board effectiveness
- Equality, diversity and inclusion
- Openness and accountability
An explanation of the elements making up these principles can be found on the Group’s website, where the Code can be downloaded. The Steering Group has also prepared a diagnostic tool, too.
Echoing the importance of good governance as expressed by this Steering Group:
“Good governance is fundamental to a charity’s success. It enables and supports a charity’s compliance with the law and relevant regulations. It also promotes a culture in which everything works towards fulfilling the charity’s vision.” – Charity Governance Code Steering Group
Good charity governance requires statutory and regulatory compliance alongside compliance with a charity’s own governance principles as captured in its own ‘governing documents’ – for common charity types, these latter documents are outlined here.
Additionally, some sectors have developed their own governance codes (e.g. code for sports Governance; code of governance for housing).
Governance Regarding the Form of Charity
Governance has many common elements across charities. It is framed by a charity’s purpose and compatible form, be that as a trust, a Charitable Incorporated Organisation (CIO) – foundation or association models, a charitable company, and so on, with governing principles captured in the charity’s formation documents.
The Charity Governance Code sits over these elements and provides an ‘apply or explain’ principled framework to help a charity meet its responsibilities.
Risk Management and Charity Governance
The foregoing considerations bring a focus to the Board’s approach to many operational matters, including the processes and practices a charity needs to adopt. With such considerations comes the need to risk manage:
“Risk is an everyday part of charitable activity and measuring it effectively is essential if the trustees are to achieve their key objectives and safeguard their charity’s funds and assets.” – Charity Commission for England and Wales – Guidance “Charities and risk management (CC26)” June 2010 (new format February 2017, page 2).
Risk management encompasses many elements for any organisation, and the Charity Commission (for England and Wales) has published helpful guidance (which can be found here). The specific risks differ from charity to charity, but the scope of risk management is large; the Commission provides guidance on preventing harm from:
- Identifying risks and their monitoring and reporting
- Processes relating to safeguarding responsibilities:
- Prevention of fraud and cyber crimes
- Protecting a charity from abuse and extremist influences
- Due diligence monitoring related to legal responsibilities of Trustees, donors, partners, and funding spend
Risk management is a central feature of a charity’s governance practices. It brings together the alignment of a charity’s operating practices and its charitable purpose; having a competent risk assessment that safeguards a charity’s activities, maintains a focus on any conflicts of interest that may be present, and it forms the basis of reporting. These considerations bring decision-making into focus and ensure due diligence is followed by involved stakeholders.
The Secretary of the Charity will hold the risk register, the charity’s policies, and likely will be involved in the reporting and disclosure of activities for a charity. A Charity Secretary will also manage or support the recording of the decisions the charity makes.
Charities and the Decision Making Process
The Board of a Charity is responsible for overseeing the process of decision making, and therefore much depends upon the conduct and of the charity’s trustees. The Commission has summarised 7 decision making principles developed by courts used when reviewing trustees’ decisions (CC27 – here). –
Trustees must:
- Act within their powers
- Act in good faith
- Be sufficiently informed
- Take into account all relevant factors
- Must identify and disregard irrelevant factors
- Manage conflicts of interest
- Ensure their decision is within the range of decisions that a reasonable trustee body could make
Trustees are collectively responsible for running a charity; they therefore need to operate in compliance with charity legislation and other applicable laws and the charity’s governing documents.
Board (Trustee) meetings are important for the facilitation of the decision-making process. Decisions made should be recorded in the minutes of the meeting, where they should be called in the manner and frequency proscribed by the charity’s governing documents.
It is at Board meetings (or committee meetings established by the Board to manage and govern specialist areas, like audit and risk management) that risks are identified and assessed, with mitigating actions sanctioned. These are areas rich in decision making and the defining of operational controls and principles, so proper record keeping should be an important element for a charity’s governance practices.
Many governance and operational matters come together at Board level and the Secretary of the Charity has a pivotal role in managing the process and recording the decisions made.
Recording and managing conflicts of interest
Trustees are required to act in the best interests of the charity, and their personal interests should not influence their decisions. Conflicts typically relate to conflicts of loyalty (e.g. biased decision making when considering people or organisations with a link to a trustee), or conflicts relating to financial matters (e.g. bias relating to a transaction seeming to benefit a trustee). It is important, therefore, that a charity has an open culture and a robust management process for managing conflicts of interest. The Secretary of the Charity would typically oversee the charity’s process – recording any conflicts identified – and when onboarding trustees, ensuring a trustee is informed of the charity’s policy and the trustee’s duty.
Charity Board Effectiveness
The effectiveness of trustees and of the Board is clearly an important consideration. The NCVO, The National Council for Voluntary Organisations, highlights four elements of governance required from the Board of a charity:
- Direction
- Effectiveness (of the charity)
- Supervision
- Accountability
To be confident of maximum effectiveness, The Board should review its performance in accordance with Principle 5 (Board effectiveness) of the Charity Governance Code, and implement recommendations arising from this review.
Charity Governance and Change
This brings us to consider change. Good governance makes easier. The NCVO defines governance as:
“The systems and processes concerned with ensuring the overall direction, effectiveness, supervision and accountability of an organisation.” – The Governance of Voluntary Organisations, Cornforth 2003”.
When an organisation has a good grasp of “overall direction, effectiveness, supervision and accountability” it is natural to expect that it has a good sense of what it does and what it needs to do, be that to make incremental changes confidently, or evolve through structural changes like merging with another charity, or altering its entity type (e.g. creating a charitable company), or amends its constitution to serve new groups, for example.
When an organisation has a good grasp of “overall direction, effectiveness, supervision and accountability” it is natural to expect that it also has a good sense of what it does and what it needs to do. This could be through incremental change, evolution through structural change such as merges, altering its entity type (i.e. creating a charitable company), or amending its constitution.
By implementing a culture and framework for solid governance, fundamental organisational decision making becomes more compliant, smoother, less risky and therefore more successful.
How can MSP Company Secretarial help?
MSP Company Secretarial offers charity and company secretarial and governance support services to charities, providing:
- Statutory support packages
- Registered office services
- Full board and committee support
- AGM support
- Board effectiveness reviews
- Additional support services including Gift Aid administration, review of charity governance practices
- Annual reporting support
Contact us today to discuss the requirements for your charity.
Frequently Asked Questions about Charity Governance
What are Trustees of a Charity?
Trustees are individuals legally responsible for running a charity. Trustees should ensure that the organisation is carrying out its purpose, being governed responsibly and is complying with legislation and laws. Trustees often act in a voluntary capacity but will make strategic decisions and manage the charity’s long-term interests.
What is the Difference Between a Trustee and a Director of a Charity?
For many charities, there is little discernable difference between a trustee and a director, an individual may act as a trustee for the purposes of The Charity Commission and as a director for company law. The distinction is based on structure rather than the role itself. Both trustees and directors are responsible for charity governance, strategy and compliance.
What is Charity Compliance?
Charity compliance involves meeting all legal and reporting responsibilities. This may include submitting annual returns to The Charity Commission or adhering to charity governance. Being compliant is essential to maintaining trust from benefactors and beneficiaries, with good governance ensuring that legal, fiscal and strategic processes are to code and within the law.
What does a Secretary for a Charity do?
A Charity Secretary is similar in role to a Company Secretary in company structures, they are responsible for organising board meetings, taking minutes and records from meetings or charity governance documents, and keeping on top of filings and announcements. MSP Company Secretarial has extensive experience supporting clients with Charity Secretary duties – find out more here.
Can a Charity run without a Secretary?
A charity can run without a formally named Charity Secretary – but this can leave the organisation open to poor charity governance and non-compliance. If finding a Charity Secretary has proved difficult, then speak to us and outsource your charity secretarial duties. We can help you improve and maintain your governance.