I am delighted that the charity sector’s governance code is now in its 12th year and its 3rd edition. The Commission has supported and endorsed the code since its inception. The latest edition has raised the bar in response to the challenges that the sector has faced over the last two years. And awareness of the code is also growing. It’s good news that the consultation on the updated code received over 200 responses including from key players in the sector.
It’s vital that charities get their heads around governance. Following good governance practices, not just paying lip service but really understanding and applying them, could have averted many of the bad headlines of the last two years. It’s more than ticking the boxes. It’s about attitudes and culture, whether a charity puts its values into practice. It’s about how trustees make decisions and how well they understand what’s going on. We have seen the consequences of failing to do that.
But more than avoiding bad, it’s about realising potential, understanding and maximising the difference you make. Everything in good governance should point to your mission and your strategy for achieving it.
In other sectors – the corporate sector, housing, sport, there are potential financial consequences for not complying with the relevant governance code. The Charity Governance Code doesn’t work like that. It’s not enforced by the regulator. The rule is not ‘comply or explain’ but ‘apply or explain’, recognising the diversity of the sector. The same core principles apply to all charities, but they apply in different ways in terms of tailored good practice.
The code starts with a ‘foundation principle’; it should be a ‘given’ that all trustees understand their legal duties (as explained in The Essential Trustee) and are committed to their cause and good governance. We don’t take trustees’ commitment for granted, but it should be reasonable to expect commitment to translate into finding out about their responsibilities. In practice this is not always the case, and it’s an area where we continue to focus our efforts.
The code then develops seven principles – leadership; integrity; decision making, risk and control; board effectiveness; diversity; openness and accountability; all underpinning organisational purpose. Why these qualities matter should be self-evident. Many of them are also key drivers of trust and confidence, and can help to demonstrate to beneficiaries, funders and donors that a charity is trust-worthy.
It might look like a lot of detail, but start with the principles – what they are; the rationale – why they matter; and the key outcomes – what difference they should make. How they play out in terms of applying recommended practice will depend on the size and shape of your charity.
The bottom line is, good governance is no longer an optional extra. It’s essential to charities’ effectiveness and probably their survival too. Charities need to be able to demonstrate that they take it seriously, allowing it to change the way they operate.
The Charity Governance Code represents a standard of good governance practice to which all charities should aspire. We encourage all charities to read, follow and apply it proportionately to their circumstances. And if you sign up to the code, go public about it on your website or your annual report. Be prepared to stand up and be counted, and see the difference that makes.