All I want for Christmas is…. Good Governance!

“Good governance matters because it underpins successful organisations”. Those operating within Scotland’s third sector strive towards achieving good governance and implementing best practices. Charities don’t have to search far for topical and up-to-date guidance on common governance issues – the charity regulators north and south of the border have recently released guidance to assist trustees:

The Charity Commission for England and Wales – Decision-Making for Charity Trustees

First published in 2013, the latest version of CC27 was re-issued in September this year. Decision-making lies at the heart of what it means to be a trustee, therefore it must be efficient and effective. Like other areas of charity regulation, the guidance is principles-based, and they are applied on a case-by-case (or decision-by-decision) basis. Under these seven principles, trustees must:

1. Act within their powers
2. Act in good faith
3. Be sufficiently informed
4. Take account of all relevant factors
5. Identify and disregard irrelevant factors
6. Manage conflicts of interest, and
7. Ensure their decision is within the range of decisions that a reasonable trustee body could make.

The guidance also highlights the importance of a charity’s governing document. Governing documents can contain varying degrees of detail on how decisions can/must be taken, processes that need to be followed, voting percentages that need to be reached, etc. You must follow the rules as set out in your governing document otherwise the decision may not be valid and be open to challenge.

Record keeping is also included in this guidance note and refers the reader to an external guidance note on the topic. Good record-keeping and accurate minute-taking are skills that no charity can afford to ignore. If any decision is questioned or becomes part of a regulatory inquiry, the first thing the Regulator will look at is the minutes – therefore you must show your working!

Scottish Charity Regulator – Learning from OSCR’s Inquiries

While the above was revised existing guidance, the following are the first two reports of a new series of guidance being issued by OSCR. One of OSCR’s statutory functions under the Charities and Trustee Investment (Scotland) Act 2005 is to carry out inquiries under its remit to supervise charities[1]. Following the conclusion of an inquiry, OSCR may be obliged under the 2005 Act to issue a report, (where there has been intervention or suspension involved) or it may decide to issue a report (commonly known as a s33 report) if the subject charity is high profile or the lessons/recommendations contained in the report are of wider benefit to the sector as a whole. In its nearly two decades as a regulator, OSCR has noticed governance trends and common themes reoccurring during inquiries and, for the betterment of the charities it oversees, has produced Learning Reports on specific topics. Currently available are guidance notes on Financial Management and Dominant Behaviour in Charities.

Financial management within charities is not the sole responsibility of the treasurer or those holding a finance role within your senior management team (if you have one). All trustees are collectively responsible for the financial decisions of their charity. This report contains ten principles for effective financial management. A key area considered is internal controls and processes: how is significant expenditure approved, what is the procedure for payment of invoices, etc. A lack of robust controls results in an unknown financial position at the very least and fraud and theft at the very worst.

The second instalment in this series of reports discusses dominant behaviour within charities. The flexing of a dominant ego on a trustee board is not always as obvious as a founder/trustee controlling what they consider to be ‘their’ charity. The report describes multiple scenarios where dominant behaviour might occur and cause issues within a charity. The presence of dominant behaviour is not simply about having to deal with a difficult personality, it can create problems such as reputational issues, difficulty recruiting and/or retaining trustees and/or staff, failure to act ‘collectively’, conflicts of interest, and significantly, a breach of trustee duties.

The report contains a list of ten preventative actions to combat dominant behaviour; three of those suggestions are (i) trustees should regularly review the charity's governance setup and reflect on how it works in practice, (ii) the charity's constitution needs to be fit for purpose and should be regularly reviewed and changes made where necessary and (iii) a charity’s board needs to be effective - oust those who are not contributing and recruit trustees who will bring challenge and authority.

Often when we establish charities or undertake a governance review, we will recommend that the governing document contains the ability to remove a trustee, often including more than one method to do so. When this recommendation is suggested, we sometimes are faced with a little hesitancy or the comment ‘that won’t be needed’. If there is no clear process to remove a trustee, doing so can become contentious and may require specific legal advice. Even if the power is not used, it is always better to have it in the governing document, as it may prove difficult to insert at a later date. If the dominant behaviour is already occurring within your charity, responsive actions are required, and the guidance contains a list of methods to tackle it.

Good governance is not a concept that is achieved automatically when establishing a charity; it is also not something to achieve, tick off the to-do list and not look at again. The governance of a charity is dynamic by nature and ever-evolving, whether that’s because the charity is growing or because best practices are developing. Ensuring that the governance of your charity is “good” requires ongoing consideration and action. Therefore, helpful guidance from the Regulator is an important resource for all trustees to have available to them.

If you have any governance-related questions or would like to discuss a governance review, please get in touch with your usual Turcan Connell contact, or email the Charities Team at charities@turcanconnell.com.

[1] Charities and Trustee Investment (Scotland) Act 2005, Chapter 4