Chapter 3: Improving governance and accountability
Good governance
66.Improving the governance of charities to ensure they operate effectively was a priority for many of our witnesses.72 Some witnesses suggested that charities may have given less attention to governance during a period of financial challenge, with their resources devoted to staffing and front-line services.73
67.The Charity Commission for England and Wales told us that governance was also one of their top priorities and that they were undertaking research “to evaluate current issues within the trusteeship of charities and to set a baseline for improvement.”74
68.We heard various suggestions for the characteristics that constitute good governance of charities. Action in Rural Sussex said: “Good governance of charities is about ensuring assets and resources are subject to careful and rigorous stewardship, including their efficient application to each individual charity’s purposes.”75
69.Marged Griffiths, from the charity Y Bont, pointed to the ‘Five Ss’, articulated by former Charity Commissioner Julia Unwin,76 as the foundation of good governance:
“stewardship to manage all the matters effectively; scrutiny, checking details and asking questions; strategy, thinking ahead and direction; support of staff, volunteers and service-users; and stretch in encouraging us to continue to improve, develop and adapt to changing times.”77
70.Shaks Ghosh from Clore Social Leadership said she would add a sixth ‘S’ to the list:
“which is skills, that actually they are concerned about the skills around the board table, the skills within the organisation to do the job and … this issue about the changing needs of the organisation and the board and this continual need to update the skills. Where you see a board doing that, I think you are starting to see signs of really good governance.”78
71.The voluntary Governance Code for the sector, Good Governance,79 was referred to by a number of witnesses who said that they endorsed it and used it as a benchmark.80 The Code is the product of a Steering Group composed of the National Council for Voluntary Organisations (NCVO), the Association for Chief Executives of Voluntary Organisations (ACEVO), the Small Charities Coalition, the Association of Chairs, ICSA: The Governance Institute and the Wales Council for Voluntary Action (WCVA), supported by the Charity Commission, the Clothworkers’ Company and the Barrow Cadbury Trust.
72.The Code sets out key principles for charity governance and covers areas including organisational purpose and direction, leadership, integrity, decision making, risk and control, diversity, board effectiveness and transparency and accountability.81 A consultation has recently concluded on proposals to revise and update the Code.82 The Charity Commission emphasised their support for the Code and their hope that the consultation would facilitate debate about governance standards in the sector and how the bar could be raised.83 The Commission announced in February 2017 that it would withdraw its guidance, The Hallmarks of an Effective Charity (CC10), in favour of the Governance Code and “would refer charities to the Code as setting out relevant standards of good practice.”84 This makes the Governance Code the de facto standard for the sector.
73.We were cautioned against a one-size-fits-all model of governance, given the diversity of the charity sector.85 We also heard about a number of other tailored governance codes used by specific types of charities86 and about a number of projects that aim to support good governance in the charity sector.87
74.A number of witnesses emphasised the importance of charity boards reviewing their governance arrangements on a regular basis.88 We were also told about the importance of succession planning for good governance and continuous professional development to ensure that skills become embedded in organisational culture.89
75.The Association of Chairs said that: “there is no single magic bullet that will transform charity governance. The reality is that it takes sustained effort and investment to build good governance. It is a long term endeavour and is as much about culture as it is about resources.”90
76.Robust governance requires good structures, processes and behaviours. It demands strategy and foresight as well as a culture of scrutiny, support and challenge. While the whole sector should aspire to a high standard of governance, larger charities will necessarily have to adopt more rigorous processes than smaller ones to ensure they meet that aim.
77.We welcome the work to update the voluntary Governance Code for the charity sector. We also welcome the Charity Commission’s decision to refer to it as the benchmark for governance in the charity sector.
The role of trustees
78.The role of trustees in good governance was described by witnesses in a variety of ways. These included providing strategic direction to ensure that the charity meets its purpose,91 acting as the guardian of its values and reputation,92 stewarding its assets and finances,93 and acting as ambassadors for its cause.94 Frances McCandless from the Charity Commission for Northern Ireland concluded that: “Thriving healthy charities need to be independent, and they need to be driven and overseen by skilled and enthusiastic trustees.”95
79.There was widespread recognition that being a trustee had become more challenging, as the environment for charities had changed substantially, particularly as a result of increased financial pressures and significant shifts in funding models.96 There were also additional legal and regulatory requirements to comply with, such as new data protection regulations and fundraising standards.97 The Charity Commission noted that navigating these challenges required “strong strategic leadership and the ability to take managed risks; we see many boards failing to rise to the occasion.”98
80.The Cranfield Trust said that in their experience “many trustees are not really familiar with the role, its requirements and responsibilities.”99 Other witnesses suggested that, following the collapse of Kids Company, trustees had become more conscious of their responsibilities.100
81.We were also told that, given the voluntary nature of trusteeship, it was important that trustees were not overburdened with responsibility or regulation, as this might make it difficult to recruit trustees.101
Trustee skills
82.The importance of trustee skills and experience for good governance was a frequent theme in the evidence we received. The changing world in which charities operate, with new funding models, digital tools and far greater expectations of accountability and transparency, was seen to have added new requirements to the traditional expectations of trustees.
83.A wide range of skills were identified as needing to be represented on trustee boards, depending on the size of the charity, how it operated and what it did.102 Finance and fundraising skills were seen as a high priority by many of our witnesses, particularly given the challenging economic conditions.103 The NCVO suggested that: “The lack of sufficient finance skills and fundraising knowledge have especially been at the heart of some of the most recent governance failures.”104 We were told by a number of charities about the difficulties they faced recruiting treasurers on to their trustee boards.105
84.Other skills identified as important on trustee boards were legal and business knowledge, risk management, communication skills, chairing skills, team working, an ability to nurture organisational culture, foster creativity, and a willingness to ask difficult and challenging questions of the executive.106 A number of witnesses suggested that charities should undertake skills audits of their trustee boards to evaluate the skills and recruit to fill any gaps.107
85.We heard that it was important for trustee boards to have an understanding of technology in order to support charities looking to innovate using digital tools.108 We consider this further in Chapter 6.
86.We were also told that it was important that trustee boards had experience of the voluntary sector, knowledge of and enthusiasm for the subject area of the charity’s work, and an understanding of the perspective of beneficiaries.109 Eve Martin from Brook cautioned, however, that: “it is critical that trustees have a range of skills and expertise relevant to the charity, but not exclusively from the charity field, otherwise their vision becomes too narrow.”110
87.Alongside all the skills and knowledge, we also heard that it was imperative that trustees devoted time to their governance functions, which could be a challenge for smaller charities.111 Andrew O’Brien from the Charity Finance Group said:
“It requires time and effort to understand your organisation’s business model and its financial situation and sustainability, and you need to invest that time and understanding, and not just pass it off to the treasurer, chair, chief executive or finance director. You need to understand it yourself, but you can understand it.”112
88.He added that it was important not to give the impression that trustees were not capable of performing challenging governance tasks:
“If you genuinely have the needs of your beneficiaries at the heart of your decision-making, if there is a regular flow of correct and accurate financial information to your board, and you have an inquiring and challenging board that uses its common sense, judgment and experience to ask the right questions—that is why it is there—you can successfully financially govern your organisation. What we have to be honest about—I commend the Charity Commission for its work on that—is the commitment it means.”113
89.We believe that it is essential that charities regularly undertake skills audits of their trustee boards to ensure that they have the necessary capabilities to undertake their vital governance role. For large charities, this should be an annual occurrence.
Trustee training
90.We were told that there should be a new focus on training and continuous professional development for charity boards in order to improve trustee skills.114 The Charity Evaluation Working Group suggested that the resources, training and guidance currently available to charity leaders and managers should also be available to trustees.115 Barnardo’s said that it would be helpful to have a centrally maintained store of knowledge and best practice for trustees to consult.116 We also heard that there were free and low-cost online training available to address some areas of need.117
91.Voluntary Organisations’ Network North East argued that, while infrastructure bodies in the sector were able to help charities gain skills, they often lacked the resources to deliver programmes locally.118 They said that the training offered by national organisations was disproportionately London-based, which imposed prohibitive costs for organisations based elsewhere in the country.119 Action Against Hunger also said that while there were a multitude of training providers, they were not always affordable for charities.120
92.This problem was acknowledged by Andrew O’Brien:
“You are absolutely right that we need to focus on the smaller end of the market … there is a massive gap; 97% of our sector is under £1 million. A lot of our training across the sector is aimed at those who can pay for it, usually the bigger organisations. We need to focus more on the needs of the smaller ones, and they are insatiable.121
93.As part of skills audits of boards, charity chairs should be looking to identify where training for trustees can fill gaps in their capacity. However, the Association of Chairs told us that, of the charities they had surveyed, 46% of boards had no budget for board development.122 Charity Leaders argued that it was vital that trustee boards learnt in teams as well as individually, to allow the board to bond and better understand one another.123
94.Our witnesses also said that it was essential to have more formal and rigorous induction processes for new trustees.124 Locality suggested that it was “often incorrectly assumed” that trustee skills were easily transferrable from the private sector, and stressed that board development and training was important given the different business models and environments that charities operated within.125
95.We note that the revised Governance Code suggests that trustees receive an appropriately resourced induction on joining the board that covers all areas of the charity’s work and gives the opportunity for ongoing learning and development.126 ICSA: The Governance Institute suggested that large charities should seek to appoint a governance professional to support trustees in their role.127
96.A range of other suggestions were made for supporting trustee skills, including secondments and mentoring between charities128 and capacity building through peer-group learning among trustees and with business leaders from the private sector.129 Business in the Community said that there was a growing diversification in the relationships between businesses and charities, from traditional giving and fundraising to “more complex, integrated social/shared value delivery models.”130 They suggested that there was greater value that could be leveraged from these more equal relationships, but that they required greater effort and sophistication to establish.131 The RNLI agreed that skills in the charity sector could be enhanced through “networking within sectors and mentoring with other business leaders”132 and Stella Smith said that “confidential support from established leaders and talented individuals from outside the sector might be most helpful.”133
97.Training and development are essential for charity trustees in order for the sector to work effectively. It is the responsibility of charities’ chairs to ensure that this vital activity takes place. We recommend that the sector’s infrastructure bodies review the training opportunities that exist, identify where there may be shortcomings in provision, particularly for small charities, and take action to address them. They could assist charities by publishing collated information about available training and providing a platform for users to rate the value of courses they have accessed.
98.Induction processes are essential so that new trustees have a well-established understanding of the charity and of their responsibilities. Trustees need to feel confident and well-informed in order to provide strategic direction, oversight and challenge. We welcome the inclusion in the Governance Code of appropriately resourced inductions for all new trustees.
99.We believe that smaller charities would benefit from having free access to a template induction process. We recommend that grant-making bodies consider applications from infrastructure organisations and governance professionals to develop such a best practice template.
100.There is greater potential for charities to benefit from better connections to the business community and vice versa. We recommend that the Government takes fresh measures to get more senior business leaders directly involved with charities to foster those relationships and maximise their value.
Board diversity and turnover
101.The skills needs of charity boards were linked to a lack of diversity among trustees. The Charity Commission told us that trustee boards “lack diversity, having particular demographic characteristics.”134 David Robb from the Office of the Scottish Charity Regulator (OSCR) said that “diverse boards make better decisions and are better placed to sustain charities in a changing environment”135 and Lord Hodgson of Astley Abbotts suggested that a lack of diversity on boards could lead to a charity becoming “a bit narrowly led.”136
102.We were told that it was important to make trusteeship more accessible.137 Matthew Taylor from the RSA said: “We would make governance a bit easier if we made it more possible for people of working age to be able to serve in a trustee capacity without having to ask an enormous favour of their employer.”138 Eve Martin from Brook suggested that employers should be encouraged to promote trusteeship as part of staff development.139 We also heard that more should be done to educate the public on what being a trustee means and entails, in order to encourage a wider range of people to participate.140
103.FaithAction said that the role of trustees should carry as much prestige as that of magistrate.141 The NCVO went further and suggested that the law should be amended to extend employees’ existing right to take reasonable time off for volunteering for “certain public duties (e.g. to serve as magistrates, councillors or on the governing bodies of schools).”142
104.We were told about the value of having beneficiaries of charities as their trustees.143 Eve Martin told us that her board was more diverse because of the presence of co-opted trustees from the age range of their service users. She said that it resulted in:
“a completely different dynamic of a board and changes things quite a lot, and it is nothing but positive. I cannot say how positive it is. I would really urge other charitable boards to think seriously about how they recruit and develop young trustees.”144
105.We acknowledge that recruitment of trustees is challenging for many charities, especially when seeking trustees with particular skill sets. However, we believe that trustee diversity is important, as boards with a range of skills, experiences, ages and backgrounds are likely to lead to better governance.
106.We believe that more can be done by the Government, the Charity Commission, infrastructure bodies and by charities themselves to promote trusteeship and incentivise people to become trustees. In particular, there is greater scope to enable disadvantaged people to become trustees and thus improve diversity.
107.We recommend that the Office for Civil Society works with other departments and business leaders to develop a new initiative to promote trusteeship to employees and employers and thereby encourage greater participation and diversity. The initiative should encourage employees to see both the selfless, charitable value of trusteeship and the personal benefits in the form of skills and career development. Employers should be encouraged to give greater recognition to trustee roles in recruitment and progression of their staff.
108.We further recommend that the Government holds a public consultation on the possibility of introducing a statutory duty to allow employees of organisations over a certain size to take a limited amount of time off work to perform trustee roles.
109.We also heard that it was important to ensure that there was turnover on charities’ boards to ensure that governance skills were regularly refreshed.145 Lord Hodgson of Astley Abbotts told us that trustees:
“should serve for three three-year terms, they should be reappointed at the end of every third year and it would be expected that they would be appointed for a second term, and a third term if they did well. It would not be a legal requirement; it would be a ‘comply or explain’ requirement.”146
110.Lord Hodgson added that the rotation of trustees was “a way of keeping the sector fresh and providing an effective check on professional staff who may have all the tensions between executives and non-executives.”147 Eve Martin said that it was important to have time limits for trustees to avoid boards becoming complacent and averse to change.148
111.David Robb from the OSCR said that:
“The notion [of maximum terms of office for trustees] is not contentious, but implementing it can be hard for charities. They are often behind the sentiment, but they are not quite sure how to start going about it, so if we can start offering some practical things along the way towards more diversity and a better pipeline for succession planning, we could make progress.”149
112.The revised Governance Code proposes that trustees are appointed for an agreed length of time, subject to any applicable re-election and statutory provisions. It suggests that if a trustee is to serve for more than nine years, then this should be subject to a rigorous review by the trustee board that takes into account the need for progressive refreshing of the board.150 Lord Hodgson noted that there may be cases in which a time limit should not apply:
“if someone is the founder, they have a reason for continuing a little longer as long as it is explained in the annual report that is fine. That enables the public, the Charity Commission or whoever, to know that somebody is there in a special position and it deals with the fact that a founder can be over-mighty and can rule the roost too much.”151
113.We agree that there should be a time limit for individuals to serve as trustees, along with a maximum term of office, and we endorse the proposed inclusion of such time limits in the revised Governance Code. We recommend that the materials and draft articles of association provided by the Charity Commission include a suggestion of time limits.
114.We recognise that in some circumstances, such as family trusts or in respect of the role of the founder of a charity, there may be good reasons for not imposing a time limit. We agree with Lord Hodgson of Astley Abbotts that these charities should explain their reasons for this in their annual report in order to aid transparency.
115.We believe that, irrespective of trustee time limits, charities should regularly review the operation of their boards and the tenure of their trustees and chair to ensure that their governance is sufficiently robust. For large charities, this should be an annual occurrence.
Diversity of the Charity Commission’s board
116.We also heard concerns about the board of the Charity Commission. The NCVO said: “We would like to see a greater role for Parliament in future in how the board is appointed, and we are especially keen that it has an independent chair with cross-party support.”152
117.During our inquiry, the Charity Commission made new appointments to its board, which prompted criticism from the sector. ACEVO said that “the process of appointment was opaque and undemocratic” and that “not a single board member has the deep and cross-cutting experience of charity governance and regulation experienced by those on the front line.”153 Debra Allcock Tyler, Chief Executive of the Directory of Social Change, said that it was “a pity that there is now no one on the Commission board who has actually run a charity full-time.”154
118.William Shawcross, the Chairman of the Charity Commission, told us that:
“It is always useful that anybody on the Charity Commission board has previous experience in the charity sector. I think I am right in saying that every member of our board has been a trustee of one or more charities. I agree with you that that is important.”155
119.Kenneth Dibble, Legal Director at the Charity Commission, said that in the charity sector “trustee boards continue to lack diversity.” He went on to say that they recommended “improving diversity of trustees, the availability of equality guidance training and support for trustees.”156
120.We acknowledge the challenges that the Charity Commission faces in securing a diverse board, however the regulator cannot expect to hold the sector to a higher standard than it is able to achieve itself. We recommend that the Commission is mindful of the example it sets to the sector and that when filling future vacancies it explicitly seeks to recruit individuals with a range of skills, charity experiences and demographic characteristics, such as age, gender, ethnicity and geography. We expect to see the results of this approach in the next set of board appointments.
Executive leadership
121.In addition to skilled trustees overseeing a charity’s activity, good governance also requires strong executive leadership skills in order to run the charity effectively on a day-to-day basis. The challenge of running a charity was emphasised by a number of our witnesses. Professor John Mohan, from the Third Sector Research Centre, University of Birmingham, told us that:
“A colleague in this research field referred to running small charities as “juggling on a unicycle”, which seemed quite apt for the range of tasks and the complex balancing acts that people have to engage in.”157
122.The Lloyds Bank Foundation for England and Wales said that:
“The skills and qualities needed to run a small charity can differ substantially to those involved in running a multi-million pound organisation. Underpaid and over-worked, small charity chief executives have to be able to multi-task and take a hands-on approach to the day-to-day running of the charity whilst also leading on strategy and external relations. These chief executives need to be innovative and passionate to rise to the incredible challenges they face, often supporting individuals at a local level one day and taking on big businesses and Government the next.”158
123.ICSA: The Governance Institute told us that, while the skills required to lead and manage a charity were no different from those required in any other type of organisation, the expectations placed upon charity leaders were different from other sectors, such as in relation to salary levels, business practices, funding arrangements, and strategic decisions about how to achieve charitable objects.159
124.ACEVO highlighted the strain that charity leaders were facing:
“calls to our “CEO in Crisis Line” were up 40% last year, so that issue is deteriorating and not ameliorating. Calls to our governance helpline increased by 160% last year … It is a serious issue.”160
125.Some of our witnesses argued that the sector was lacking adequate leadership skills. Paul Stallard, the former chair of the Public Fundraising Association,161 said that poor management performance had arisen due to “light-touch” oversight and the “absence of strict rules and regulations” in the sector.162 The Devon Air Ambulance Trust suggested that inadequate and risk-averse leadership and governance encouraged people to “play safe, not rock the boat.”163 The Association of Chairs said that the relationship between “trustees and the senior management team and especially between Chair and CEO is crucial.”164
126.Clinks and Clore Social Leadership both said that more support was needed to help people working in the charity sector to move into leadership roles and to thrive once in post.165 Clore Social Leadership observed that it was hard for new managers and for trustees to access leadership training, and in the current climate the sector needed to emphasise the benefits of leadership skills and encourage greater participation in leadership development.166
127.The Paul Hamlyn Foundation said that grants should be given to sector leaders to help them develop their organisations’ work.167 However, ICSA: The Governance Institute argued that “the sector as a whole is not terribly great at using charitable funds to invest in the future skills and development of trustees, managers and others seeking to contribute fully to the sector.”168
128.Charities recognise that training and development for leaders and staff is important, however there are still significant shortcomings in terms of available training and levels of take-up. We therefore recommend that infrastructure bodies in the sector take the lead on working with government, academics and research institutions, and with the business community, to identify further opportunities to support and fund leadership programmes.
129.We were told that it was important for the trustees and the chief executive to be a “real leadership team” in order to ensure good governance.169 Asheem Singh from ACEVO told us that:
“The principal issue that chief execs in crisis report is a breakdown in governance, which is not about not filling in a form or the register but about the relationship between the chief exec and trustees. Getting that relationship right is key to making this work. We need to support both the trustees and the chief execs to ensure that governance works well.”170
130.Our witnesses stressed that trustees should focus on their strategic role so far as possible and avoid intervening in executive matters unless necessary. Shaks Ghosh told us that for trustees: “the more you get involved with the day-to-day management and operations of a charity, the less able you are to take the foresight view, the longer view of what is required.”171
131.However, we heard from many smaller charities at our roundtable events that, because they were dependent on volunteers, they were reliant on trustees pitching in to help the operation of the charity. They said that this made it harder to maintain separation of executive and trustee responsibilities.172 Other witnesses also noted the risks of blurring the distinction between operations and oversight, and said that it was important to understand the difference between governance and management.173
132.Shaks Ghosh suggested that in such situations charities should:
“be very careful that it is done deliberately rather than by drift. If you find the chair or board members starting to work on operational issues, because they have to because there is no other way, they need to be very deliberate about it and to think about how quickly they can move back into their role as being the strategic custodians of the organisation.”174
133.We agree that maintaining a separation of executive and oversight responsibilities is important for good governance. Governance is about making sure that charities do the right things, while management is about making sure that those things are done right. In a few cases, for the smallest of charities, we acknowledge that a complete separation of roles may be difficult, but it should remain the aspiration nonetheless.
134.We recommend that the Governance Code Steering Group reflect in the Code the importance of executive and trustee relationships and the clear separation of their roles and responsibilities.
Payment of trustees
135.The contentious question of whether charities should be permitted to pay trustees for their work has been a recurring one in the charity sector, and a number of our witnesses set out the tensions around such a move.175
136.A few witnesses suggested that trustees should be paid, particularly trustees of larger charities.176 Plan International argued that the voluntary nature of trustees limited the pool of talent and the skills available to the sector.177 We are aware that in a number of cases charity trustees, primarily chairs, do receive some remuneration.178
137.However, more of our witnesses said that that the voluntary nature of trusteeship was important and that trustees should not be paid.179 Eve Martin told us that “there is something really good about this being a voluntary role and that you do it because you are passionate about what the charity is doing and because you believe in it.”180 Stella Smith noted that the payment of trustees would not automatically mean that trustees became more skilled181 and Shaks Ghosh of Clore Social Leadership said that other options should be considered before payment, such as using training opportunities as an incentive.182
138.The Association of Chairs reported that just 38% of charity chairs they had surveyed said they received expenses.183 The Charity Law and Policy Unit at the University of Liverpool suggested that wider provision of insurance for trustees might encourage more people to take the role.184
139.We believe that the voluntary principle of trusteeship is an important one and that trustees should not receive payment for undertaking the role. In highly exceptional circumstances, where people are otherwise unable to act as a trustee, it may be acceptable to consider some form of remuneration. The explanation and justification for such arrangements must be set out in the charity’s annual report.
140.More broadly, trustees should be able to claim relevant expenses to ensure that financial considerations do not unduly deter people from taking up the role.
Transparency, accountability and impact
141.Many of our witnesses said that charities should proactively seek to be more transparent and accountable about the way they operate and how they use their funds.185 ICSA: The Governance Institute said that “good governance cannot exist in a vacuum. It requires accountability and transparency to ensure decisions are being made in the furtherance of the charitable objects.”186 The Governance Code suggests that there should be a presumption that charities are open and accountable unless there is good reason not to be.187
142.Karl Wilding from NCVO said that:
“We have been very clear, and many of NCVO’s members have been clear, that greater levels of scrutiny of charities are right and proper. There is no point in shooting any messengers on this issue, so we have to up our game in explaining the decisions we make, for example, and being transparent about how we are run. We probably also have more to do in explaining to the public how modern charities work. In some respects, the public have quite an outdated understanding of the word “charity” and how charities work, and we have to do more to communicate to them how we now work.”188
143.The National Association for Voluntary and Community Action (NAVCA) suggested that charities had not been good at explaining how they operate and that “maybe there is an unrealistic expectation (or idealistic view) that charities can deliver all that they do without paid staff and government funding.”189
144.Comic Relief made the positive case for transparency:
“To be properly accountable to beneficiaries, donors and the general public, charities must ensure that they are genuinely committed to transparency, with a strong set of policies and principles. Transparency is not simply being compliant, but being confident, rigorous and proud of your work and clear about the success it has achieved. When a programme has not worked as hoped, the need for transparency and accountability is even greater to enable the charity to explain the reasons why and learnings.”190
145.We heard that it was important for charities to consider accountability to different groups—funders and donors, beneficiaries and the public, and the Charity Commission and other regulators—and in different respects, such as finance, governance and their charitable activities.191
146.New Philanthropy Capital said:
“In terms of accountability the charity sector model is unique. If a business produces a product consumers will not buy, they will suffer from falling profits. If a government makes ‘courageous decisions’ that are deeply unpopular they can be voted out. But if a charity delivers a substandard service to the people they are working to help, these beneficiaries lack the ability to act directly … This makes accountability to beneficiaries a hugely important issue for charities.”192
147.We were also told that expectations of transparency had increased in recent years.193 Battersea Dogs & Cats Home said:
“In the current climate charities are expected to be increasingly transparent and are therefore sharing more information and measurements with the public. This information should be meaningful and can include details such as the impact a charity has had, its achievements, income and expenditures, long term plans and commitments.”194
148.We also heard about the potential for digital technologies to improve charities’ accountability and transparency. These issues are considered further in Chapter 6.
149.Accountability and transparency are essential for charities to ensure they function properly, deliver for their beneficiaries and retain the trust of the public. In order to respond to the greater expectations upon them, charities need to operate with a presumption of openness. We believe that it is important for all but the very smallest charities to have a simple website or public social media page to provide that transparency.
Financial reporting
150.The NCVO said that:
“Transparency around charity funding has improved significantly in recent years. Many charities publish detailed information on their website about their activities and how they allocate the funds they receive. However there are areas where this could [be] strengthened further such as senior executive pay.”195
151.The Charity Tax Group emphasised the importance of “full compliance with all reporting and accounting requirements” for accountability,196 while the RNLI said that the work carried out by the Charities Statements of Recommended Practice (SORP) Committee197 was “key to this” and that “there must be robust sanction where charities fail to adhere to such rules to ensure a healthy charity sector.”198
152.Rebecca Bunce from the Small Charities Coalition noted that it was important that accounting requirements on charities were proportional:
“[The] reporting that you would expect from a larger charity might not be the same as you would expect from a smaller charity … We have to be very careful that, when accounts are submitted with possibly less information, it is not seen as not being transparent but is seen as proportional to the size of the charity.”199
153.The Woodland Trust said: “we propose the watchword for accountability should be ‘transparency without bureaucracy’. At the moment it feels as though there is rather too much of the latter.”200
154.The Charity Commission suggested that there were issues with the quality of financial reporting and data it received in relation to “both the extent of compliance and the quality of information that comes in.”201
155.We heard from a number of sources that there was an increased focus on transparency among charity donors.202 Karl Wilding said that:
“They want to understand not just where the money goes but how decisions are made about where it goes. With colleagues, I would like to think about not how we can give charities more regulation or instructions on what to do but how we can support and inspire them to do much more to be transparent and accountable in how they spend their money.”203
156.We do not believe that significant additional regulation of the sector through increased mandatory reporting requirements would be desirable, as this would be a substantial bureaucratic burden on smaller charities.
157.However, as we said at paragraph 149, we believe that it is important for all but the very smallest charities to have a simple website or social media page, and they should use that to set out their basic organisational and financial information. We recommend that public sector funders and other donors should evaluate the transparency of charities when considering requests for funding.
Governance reporting
158.We heard about the importance for good governance of reporting on governance activities. New Philanthropy Capital suggested that charities should report on their governance processes to the Charity Commission.204 Patrick Taylor said that as part of their annual reporting, charity trustees should affirm that they have read the charity’s articles and all necessary Charity Commission guidance documents.205
159.The NCVO proposed that all charity funders should make strong governance arrangements a condition of funding.206 Philip Lawford said that, in the case of the Linbury Trust, this was already the case: “You very much do your due diligence up front, but ultimately you are backing a person or a team of people to deliver what they say they are going to do. We rely very much on due diligence in advance.”207
160.ICSA: The Governance Institute suggested that:
“As with corporate governance developments, there is a role for stakeholders in actively helping improve governance arrangements in charities. Whether it is members actively engaging in the formalities of an AGM, or challenging in an appropriate way the decisions of the board, or even questioning the ongoing relevance of the charity, there is a role for stakeholders in helping to keep the trustees true to the charitable objects.”208
161.Patrick Taylor made a number of suggestions for greater member involvement in membership charities, such as a requirement to allow members to propose resolutions and to have them voted on at AGMs, a requirement to provide a venue for member discussion on proposed changes to the charity’s constitution, and improving the availability of AGM minutes and accounts to members.209
162.We also heard about the importance of individual trustees being accountable and sanctions being applied for misbehaviour. The Charity Commission told us that they were starting to work with the new powers to disqualify trustees granted to them by the Charities (Protection and Social Investment) Act 2016,210 but, as Lord Hodgson of Astley Abbotts noted, it was too early to measure its effectiveness.211
163.We recommend that the Governance Code Steering Group set out best practice suggestions for governance reporting by charities. This might involve charities including in their annual report a statement that they follow the Governance Code, or a similar specialist governance code relevant to their work, and report any actions they have taken over the year in light of the Code.
Evaluation and impact reporting
164.The move from grant funding to contracts and the increasing expectations of transparency have put a greater focus on how charities measure and demonstrate the impact they make. There was widespread agreement among our witnesses that charities should be accountable and be able to demonstrate the outcomes of their work.212
165.Battersea Dogs & Cats Home said that:
“Accountability and transparency are essential for charities. In the current climate charities are expected to be increasingly transparent and are therefore sharing more information and measurements with the public. This information should be meaningful and can include details such as the impact a charity has had, its achievements, income and expenditures, long term plans and commitments.”213
166.A number of charities told us about the impact and transparency reporting they undertake.214 Some charities, including Citizens Advice and Oxfam, said that they carried out research to understand the difference they make,215 however the Cranfield Trust said that “many charities are not investing in this work.”216 Some charities noted that it was difficult to secure sufficient funding to support impact measurement.217
167.Impetus told us that: “Impact measurement is a crucial supporting competence but frequently turns into an exercise in impressing funders and commissioning, rather than in understanding current impact and the steps needed to take to improve.”218 The Institute of Risk Management suggested that there was scope for improving annual reports through a greater focus on outcomes and value for money and including case studies of “actual or anonymised beneficiaries.”219 New Philanthropy Capital argued that trustee boards should be required to report on their impact to the Charity Commission.220
168.Some of our witnesses raised concerns about impact measurement, especially for small charities. The Association of Charitable Foundations stated that impact measurement should not “distort action”221 while the Charity Evaluation Working Group commented that expectations for charities to report on impact should be “proportionate, realistic and feasible.”222 Body & Soul told us that they had to report on their work to different public funders in a variety of ways, and that adhering to lots of different reporting standards was a bureaucratic burden.223
169.MHA, the Methodist charity and housing association, said that the practice of producing impact statements was:
“widespread in large charities, but may be difficult for smaller charities to undertake, as there are no set standards for such publications. It also requires experienced and skilled trustees and executive team[s] to recognise the need for excellent stewardship for donors and clarity of communication to beneficiaries and donors. A guideline for a model Impact Statement may be worthy of consideration.”224
170.From the perspective of one large donor, Philippa Charles, from the Garfield Weston Foundation, said that smaller organisations were “generally very good at coming back to us” to report on how they had spent their funds.225 The Robertson Trust observed that “supporting organisations to develop their self-evaluation skills has also enabled them to become more reflective and has the potential to develop a process of learning and improvement across their activities.”226
171.Gen Maitland Hudson of Power to Change commented that collecting information on impact was “not necessarily all about quantifying or finding hard measures … it is potentially about improving on some of those softer measures and supporting small charities to be more systematic.”227 However, she noted that there was not currently a method of collecting information which was consistently recognised by the sector as being reputable, and that there was a challenge to develop this.228
172.We heard that frameworks to incentivise charities to report on their impact were currently limited. For example, Charity Leaders observed that Charity Commission guidance made little reference to impact assessment, instead focusing on the legal and financial responsibilities of trustees.229
173.A number of our witnesses supported the Inspiring Impact project, a cross-sector programme funded by the Office for Civil Society, aiming to change the way the voluntary sector thinks about impact by providing online tools for charities to help measure and report their effectiveness.230 Gen Maitland Hudson spoke about the Impact Management Programme run by New Philanthropy Capital, which helped charities with the practical challenges of data collection and analysis.231
174.All charities should be seeking independent evaluation of their impact on their beneficiaries, in order to ensure that they are delivering for them and to demonstrate this to beneficiaries, funders and the public. The form of such evaluation may vary considerably, depending on the size of the charity and the type of work it is engaged in. We recommend that public sector commissioners assess such evaluation when awarding contracts.
175.We welcome initiatives such as Inspiring Impact that seek to assist charities in demonstrating impact. We recommend that the Government and the charity sector continue to pursue initiatives to better understand and promote the impact of charities.
176.We recommend that the Office for Civil Society (OCS) develops guidance for the rest of the public sector on how to set contractual impact reporting requirements appropriately and in a standardised fashion in order to reduce the bureaucratic burden on charities. The OCS should promote its work beyond the public sector in order to maximise its reach and value.
177.We endorse the suggestion in the Governance Code that charities should provide regular information to stakeholders that enables them to measure the charity’s success in achieving its purposes. Such activity ensures that the focus of the charity and its stakeholders is centred on the needs of and outcomes for beneficiaries.
72 See, for example, Q 29 (Karl Wilding), Q 36 (Richard Jenkins), Q 63 (Aamer Naeem) and written evidence from Association of Chairs (CHA0156), Comic Relief (CHA0126), ICSA: The Governance Institute (CHA0093) and New Philanthropy Capital (CHA0055)
76 Julia Unwin, ‘The five Ss in governance’, Getting on Board (19 October 2015): http://www.gettingonboard.org/news/4585134114/The-five-Ss-in-governance/10242909 [accessed 14 March 2017]
79 Good Governance: A Code for the Voluntary and Community Sector, http://www.governancecode.org [accessed 14 March 2017]
80 Written evidence from Action Against Hunger (CHA0078), Association of Chairs (CHA0156), National Council for Voluntary Organisations (CHA0148) and Royal Mencap Society (CHA0154)
81 The Charity Governance Code Steering Group: Charity Governance Code consultation document (November 2016): http://www.governancecode.org/wp-content/uploads/2017/02/NC940_good_governance_11.pdf [accessed 14 March 2017]
82 Rosie Chapman, the specialist adviser to our inquiry, is involved in leading the review of the Governance Code. We stress that the views in this report are ours and ours alone.
84 Charity Commission for England and Wales, New code of governance consultation — a response from the Charity Commission for England and Wales (February 2017): https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/588964/New_code_of_governance_consultation.pdf [accessed 14 March 2017]
86 Written evidence from The Chartered Institute of Public Finance and Accountancy (CHA0079) and National Union of Students (CHA0111)
87 Q 144 (Daniel Hurford) and written evidence from National Council for Voluntary Organisations (CHA0148)
89 Q 114 (David Robb) and written evidence from Church Army (CHA0003), The Foyer Federation (CHA0180), Gloucestershire Rural Community Council (GRCC) (CHA0069), Royal National Lifeboat Institution (CHA0153) and SkillShare North East Ltd (CHA0106)
91 Q 97 (Eve Martin) and written evidence from Alzheimer’s Research UK (CHA0074), Big Society Capital (CHA0087), People’s Postcode Lottery (CHA0099), Springboard Project (CHA0011), The Woodland Trust (CHA0150) and World Horse Welfare (CHA0127)
93 Written evidence from Big Society Capital (CHA0087), The Chartered Institute of Public Finance and Accountancy (CHA0079) and Common Vision (CHA0136)
96 Written evidence from Charity Commission for England and Wales (CHA0114), Charity Finance Group (CHA0092) and Churches’ Legislation Advisory Service (CHA0098)
97 Written evidence from Association of Chairs (CHA0156), Charity Tax Group (CHA0122), Comic Relief (CHA0126), Guide Dogs (CHA0109), The Institute of Chartered Accountants in England and Wales (CHA0168) and Wincanton Community Venture (CHA0022)
100 Note of the Committee visit to Body & Soul, Appendix 4
101 Written evidence from Churches’ Legislation Advisory Service (CHA0098), Oxfam GB (CHA0113) and Rural Community Council of Essex (CHA0096)
103 See for example, Q 98 (Marged Griffiths) and written evidence from Charity Tax Group (CHA0122), Comic Relief (CHA0126), Community Links Bromley (CHA0100), Esmée Fairbairn Foundation (CHA0044), Stella Smith (CHA0060) and vInspired (CHA0118)
105 Note of roundtable discussion in Westminster, Appendix 7, note of roundtable discussion in Cardiff, Appendix 8, and written evidence from Church Mission Society (CHA0014), Reach Volunteering (CHA0058), Mr Brian Winder (CHA0017), Stella Smith (CHA0060) and The Institute of Chartered Accountants in England and Wales (CHA0168)
106 Q 98 (Eve Martin) and written evidence from Action Against Hunger (CHA0078), Association of Chairs (CHA0156), Lucy Caldicott (CHA0170), Chilterns MS Therapy Centre Ltd (CHA0066), Comic Relief (CHA0126), Institute of Risk Management (IRM) (CHA0039), National Council for Voluntary Organisations (CHA0148) and vInspired (CHA0118)
107 Note of roundtable discussion in Westminster, Appendix 7, and written evidence from Church Army (CHA0003), RSM UK (CHA0120) and Wales Council for Voluntary Action (CHA0097)
108 Written evidence from Citizens Advice (CHA0177) and National Council for Voluntary Organisations (CHA0148)
109 Written evidence from Comic Relief (CHA0126), Community Links Bromley (CHA0100), The Swinfen Charitable Trust (CHA0007), vInspired (CHA0118) and Wincanton Community Venture (CHA0022)
113 Ibid.
114 Q 208 (Kenneth Dibble) and written evidence from Charity Commission for England and Wales (CHA0114), Charity Law and Policy Unit, School of Law and Social Justice, University of Liverpool (CHA0104) and Royal National Lifeboat Institution (CHA0153)
118 Infrastructure bodies are considered further in Chapter 5.
124 Written evidence from Charity Law and Policy Unit, School of Law and Social Justice, University of Liverpool (CHA0104), Comic Relief (CHA0126), Directory of Social Change (CHA0128), Foundation for Social Improvement (CHA0057), RSM UK (CHA0120), RSPCA (CHA0070), The Tim Parry Johnathan Ball Foundation for Peace (CHA0038) and Tree of Hope (CHA0041)
126 The Charity Governance Code Steering Group, Charity Governance Code Consultation document (November 2016) para 6.6: http://www.governancecode.org/wp-content/uploads/2017/02/NC940_good_governance_11.pdf [accessed 14 March 2017]
128 Written evidence from Action Against Hunger (CHA0078), Pilotlight (CHA0073) and Royal National Lifeboat Institution (CHA0153)
129 Written evidence from Action Against Hunger (CHA0078), Chilterns MS Therapy Centre Ltd (CHA0066), Comic Relief (CHA0126), London Funders (CHA0090), Lucy Caldicott (CHA0170), Stella Smith (CHA0060), vInspired (CHA0118) and Wincanton Community Venture (CHA0022)
131 Ibid.
140 Written evidence from ICSA: The Governance Institute (CHA0093), RSM UK (CHA0120) and Stella Smith (CHA0060)
145 Written evidence from Citizens Advice (CHA0177) and National Council for Voluntary Organisations (CHA0148)
147 Ibid.
150 The Charity Governance Code Steering Group, Charity Governance Code Consultation document (November 2016) para 6.5.3: http://www.governancecode.org/wp-content/uploads/2017/02/NC940_good_governance_11.pdf [accessed 14 March 2017]
153 ‘Appointments process for Charity Commission board members ‘broken’, says Acevo’, Third Sector (1 December 2016): http://www.thirdsector.co.uk/appointments-process-charity-commission-board-members-brokensays-acevo/governance/article/1417395 [accessed 14 March 2017]
154 Ibid.
161 The Public Fundraising Association merged into the Institute of Fundraising in August 2016.
172 Note of roundtable discussion in Cardiff, Appendix 8
173 Written evidence from Mr Len Jones (CHA0004), Mr Andrew Purkis (CHA0146) and Rural Community Council of Essex (CHA0096)
175 Written evidence from ICSA: The Governance Institute (CHA0093), MHA (CHA0124), RSM UK (CHA0120) and Sense, The National Deafblind and Rubella Association (CHA0040)
178 The Charity Commission’s guidance on trustee expenses and payment can be found at https://www.gov.uk/government/publications/trustee-expenses-and-payments-cc11/trustee-expenses-and-payments [accessed 14 March 2017]
179 Written evidence from the Association of Chairs (CHA0156), Churches’ Legislation Advisory Service (CHA0098) and Directory of Social Change (CHA0128)
184 Written evidence from Charity Law and Policy Unit, School of Law and Social Justice, University of Liverpool (CHA0104)
185 Written evidence from the Charity Commission for England and Wales (CHA0114), Save the Children (CHA0149), Stella Smith (CHA0060), Social Enterprise UK (CHA0117) and the True and Fair Foundation (CHA0138)
187 The Charity Governance Code Steering Group, Charity Governance Code Consultation document (November 2016), p 4: http://www.governancecode.org/wp-content/uploads/2017/02/NC940_good_governance_11.pdf [accessed 14 March 2017]
191 Written evidence from Impetus – The Private Equity Foundation (CHA0131) and Royal National Lifeboat Institution (CHA0153)
193 Written evidence from National Council for Voluntary Organisations (CHA0148) and The UK Sustainable Investment and Finance Association (CHA0125)
197 The Charities SORP provides recommendations for accounting and reporting, in particular, how accounting standards should be applied in the context of charities and how to account for charity specific transactions. The aim of a SORP is to bring consistency of accounting treatment within a particular sector and to facilitate accounts to be prepared to give a ‘true and fair’ view. See http://www.charitysorp.org/about-the-sorp [accessed 14 March 2017]
198 Written evidence from Royal National Lifeboat Institution (CHA0153). See also written evidence from Mr Ian Clark (CHA0161).
202 Q 131 (Dr Beth Breeze) and written evidence from Battersea Dogs & Cats Home (CHA0143) and National Council for Voluntary Organisations (CHA0148)
212 Q 161 (Nick Pickles) and written evidence from Impetus – The Private Equity Foundation (CHA0131), Sheila McKechnie Foundation (CHA0184), Springboard for Children (CHA0121) and the United Kingdom Accreditation Service (CHA0032)
214 Written evidence from Save the Children (CHA0149), Together for Short Lives (CHA0144) and World Vision UK (CHA0048)
223 Note of the Committee visit to Body & Soul, Appendix 4
228 Ibid.
230 Written evidence from Association of Charitable Foundations (ACF) (CHA0082), Charity Evaluation Working Group (CHA0067), Impetus – The Private Equity Foundation (CHA0131), Institute of Risk Management (CHA0039), Missing People (CHA0094), National Association for Voluntary and Community Action (CHA0076) and New Philanthropy Capital (CHA0055)