Article:

Revised Charity Governance Code

23 November 2017

The revised Charity Governance Code has at last been published. We recommend that trustees obtain and read the Code and consider how to “apply or disclose” in respect to each section.

Although the focus is on governance generally, it has some specific financial implications. Looking at the requirements for larger charities, some of these financial aspects are highlighted below under the relevant abridged code section:

Organisational Purpose

General: The board is clear about the charity’s aims and ensures that these are being delivered effectively and sustainably. It has a shared understanding of and commitment to the charity’s purposes and can articulate these clearly. The board can demonstrate that the charity is effective.

Financial implications:  Charities need to have clear strategic plans, achieve financial sustainability and use resources to deliver pubic benefit.

Leadership

General: Every charity is led by an effective board that provides strategic leadership in line with the charity’s aims and values. The board, as a whole, and trustees individually, accept collective responsibility for ensuring that the charity has a clear and relevant set of aims and an appropriate strategy for achieving them. The board makes sure that the charity’s values are reflected in all of its work.

Financial implications: There are appropriate remuneration policies and practice, and relationships with subsidiary companies are properly established.

Integrity

General: The board acts with integrity, adopting values and creating a culture which help achieve the organisation’s charitable purposes. The board is aware of the importance of the public’s confidence and trust in charities, and trustees undertake their duties accordingly. The board acts in the best interests of the charity and its beneficiaries. The board is not unduly influenced by those who may have special interests.

Financial implications: Conflicts of interest are handled properly, and registers of interests, gifts and hospitality are maintained.

Decision-making, Risk and Control

General: The board makes sure that its decision-making processes are informed, rigorous  and timely and that effective delegation, control and risk assessment and management systems are set up and monitored. The board promotes a culture of sound management of resources but also understands that being over-cautious and risk averse can itself be a risk and hinder innovation.

Financial implications: The board manages financial and other risk, suppliers operate in line with the charity’s values, reserves and other financial policies are kept under review, and budgets and management accounts are in place and monitored. The board describes the charity’s approach to risk in its annual report, and oversees an effective process for appointing auditors. Where the charity has an audit committee, its chair has recent and relevant financial experience and the committee includes at least two trustees. The board, or audit committee, has the opportunity to meet the auditors without paid staff present at least once a year.

Board Effectiveness

General: The board works as an effective team, using the appropriate balance of skills, experience, backgrounds and knowledge to make informed decisions. All trustees have appropriate skills and knowledge of the charity and can give enough time to be effective in their role.

Financial implications: The board has the right skill mix, and the annual report explains how the charity reviews or evaluates the board in a governance statement. The board can access independent professional advice, such as legal or financial advice, at the charity’s expense if needed.

Diversity

General: The board’s approach to diversity supports its effectiveness, leadership and decision-making. Boards whose trustees have different backgrounds and experience are more likely to encourage debate and to make better decisions. The term ‘diversity’ includes the nine protected characteristics of the Equality Act 2010 as well as different backgrounds, life experiences, career paths and diversity of thought.

Financial implications: There is a budget to encourage board diversity: for instance by making sure that reasonable expenses are paid to all trustees.

Openness and Accountability

General: The board leads the organisation in being transparent and accountable. The charity is open in its work, unless there is good reason for it not to be. The public’s trust that a charity is delivering public benefit is fundamental to its reputation and success, and by extension, the success of the wider sector. The charity is seen to have legitimacy in representing its beneficiaries and stakeholders

Financial implications: Trustees publish the process for setting the remuneration of senior staff, and their remuneration levels, on the charity’s websites and in its annual report. There is also an expectation that charities will make a statement in the Annual Report about how the code is applied.

The full code may be accessed here: https://www.charitygovernancecode.org.  This extract is intended to illustrate the style and content of the Code and prompt trustees to consider its fuller application.