The new Charity Governance Code and why it’s important
“Apply or Explain”
The new Charity Governance Code (the Code) was published in July this year. It has been described as “Essential reading for all trustees” by the Charity Commission who have withdrawn its publication Hallmarks of an Effective Charity (CC10) to encourage charities to use the Code.
The contents of the Code should be considered in the context of the negative press coverage received by some charities over the past few years which has to some extent tarnished the whole sector. Research carried out by the Charity Commission in 2016 showed that public trust and confidence in charities has fallen and many of the recommendations set out in the Code are aimed at restoring that confidence.
So what does the Code comprise?
The Code is made up of seven principles: organisational purpose; leadership; integrity, decision-making, risk and control; board effectiveness; diversity; and openness and accountability.
Each principle is described together with the rationale behind the principle, key outcomes and examples of recommended practice.
Nothing in the Code is a legal or regulatory requirement. However, an ‘apply or explain’ approach is encouraged so that charities engage with what is expected of them and are transparent when for whatever reason they decide not to follow the Code.
There are two versions of the Code. One is aimed at larger charities which typically would have income over £1m a year and externally audited accounts. Charities with income less than £1m would generally use the version for smaller charities. Some charities may be governed by sector specific codes and these will sometimes take precedence over the Code.
Much of the Code will also apply to other not-for-profit organisations that deliver a public or community benefit.
Key recommendations include:
- An expectation that boards should review their own performance and that of individual trustees. For larger charities this should happen annually with an external evaluation every three years.
- No trustee should serve for longer than nine years without being subject to a rigorous review.
- The board should think carefully about diversity, how they recruit a range of skills and experience, and how to make trusteeship an attractive proposition.
- A new emphasis on the role of the Chair and Vice Chair in promoting good governance.
- Greater oversight of any subsidiaries and any agreements with third party providers such as for fundraising.
- Publishing the process for setting the remuneration of senior staff.
- An expectation that the board should consider merger where more than one charity is fulfilling the same purpose.
So what should trustees being doing now?
It goes without saying I’m sure, that every charity trustee should read the Code and then consider with their fellow trustees what actions they may need to take to comply. The Code is a long document (25 pages) but it is clearly set out and is in fact a very useful tool for charities who wish to review their governance.
It is acknowledged in the Code that some of its recommendations will be a stretch for some charities. However, this is deliberate and all charities are expected to aspire to reach the high standards set out in the Code.
The Code also recommends that trustees include a brief statement in their Annual report explaining their use of the Code. The Charity Commission suggests charities make a feature out of compliance by stating on their website that they have signed up to the Code which in turn may be helpful when applying for grants or seeking donations.
In summary, the Code is something to be welcomed by Charities, a road map if you like, to achieve its ambitions and aims.