Governance is high on the agenda in both the commercial and not-for-profit sectors: public expectations of a charity’s governance have become even higher in recent years.However, what do we mean by ‘governance’? One definition defines governance as being ‘The systems and processes concerned with the overall direction, effectiveness, supervision and accountability of an organisation’
“Governance is the systems and processes concerned with ensuring the overall direction, effectiveness, supervision and accountability of an organisation.”
'direction’ – providing leadership, setting strategy & being clear about what the organisation is aiming to achieve & how it is going to do it
‘effectiveness’ – good use of financial & other resources to achieve the desired outcomes
‘supervision’ – establishing & overseeing controls & risk management, monitoring performance, making adjustments where necessary & learning from mistakes
‘accountability’ – reporting to those who have an interest in the organisation
Good governance and effectiveness go hand-in-hand and the board of trustees is responsible for both. As the Charity Commission itself said: ‘Good governance arrangements really are the key to running an effective charity.Being clear about roles and responsibilities and implementing strong financial controls and record- keeping is the best way to avoid everything from disputes to financial chaos.’
Who are Trustees?
According to charity law, trustees are the ‘persons having the general control and management of the administration of the charity"
Many people are asked to serve on a local community committee, or to be a member of an executive committee without realising that by going onto these committees, they become trustees of a charity. Because the law defines trustees as having control, they are legally responsible for the charity. Ultimate responsibility and ultimate authority lies collectively with the board of trustees. They can delegate some of their authority but can never delegate their responsibility.
Legal responsibilities of charity trustees
Ensure your charity is carrying out its charitable purposes for the public benefit
Comply with your charity's Governing Document
Be accountable and comply with the law
Manage your charity's resources responsibly
Act in the best interests of your charity
Act with reasonable care and skill
Act in the best interests of the charity
Conflicts of interest are practically inevitable. Mishandling of conflicts can lead to adverse publicity and damage to the reputation of the charity and of some trustees. Therefore it is important to manage conflicts of interest in a structured manner. Ideally an Interests Policy document should be attested to by trustees and employees and attestation records kept. In addition every board meeting should include an Interests Register agenda item and any interests noted in the Interests Register and minutes of the meeting. This of course should also require the Governance Code Compliance Form to be updated when discussions take place and/or changes occur to the Interests Register.
Participation in board meetings and major decisions
It is important for trustees to regularly attend board meetings as they can be personally liable for adverse events that happen within the charity in the event of a governance failure. It helps to maintain attendance records and have the ability for trustees to ensure their views are accurately reflected in the minutes especially in cases where they disagree with a majority board vote. Code of Conduct documents often include a clause which says that if a trustee does not attend at least half of the annual board meetings or 3 consecutive meetings) the trustee automatically ceases to be a trustee.
The board needs to possess the relevant skill sets appropriate to their specific charities enabling major decisions to be made with a high level of confidence. Where a board feels they lack certain skills, for example in governance, they should engage the services of experienced outside consultants in these matters.
Only the majority of the board can make decisions on behalf of the charity and even if a trustee disagrees with a decision they must support the majority vote. This of course can leads to issues in charities where the board consists of strong CEO who undermines the board and runs an 'inner board' of CEO appointed trustees.
Personal Liability of Trustees
If the trustees act outside the terms of their governing document or the law or operate an insolvent company or incur debts beyond assets then they run the risk of being held personally liable. The charity's governing document outlines the core purpose and the powers of the board.
The minutes taken for board meetings should clearly reflect the agenda and discussions that took place. Attendance records, apologies and proxy's should be noted. Any key motions requiring a vote should contain a proposer and seconder and the result validated provided a quorum is present.
Responsibilities of Charity Trustees - Summary
1. Ensure your charity is carrying out its purposes for the public benefit
You and your co-trustees must make sure that the charity is carrying out the purposes for which it is set up, and no other purpose. This means you should:
ensure you understand the charity’s purposes as set out in its governing document;
plan what your charity will do, and what you want it to achieve;
be able to explain how all of the charity’s activities are intended to further or support its purposes; and
understand how the charity benefits the public by carrying out its purposes.
Spending charity funds on the wrong purposes is a very serious matter; in some cases trustees may have to reimburse the charity personally.
2. Comply with your charity’s governing document and the law
You and your co-trustees must:
make sure that the charity complies with its governing document; and
comply with charity law requirements and other laws that apply to your charity.
You should take reasonable steps to find out about legal requirements, for example by reading relevant guidance or taking appropriate advice when you need to.
Registered charities must keep their details on the register up to date and ensure they send the right financial and other information to the commission in their annual return or annual update.
3. Act in your charity’s best interests
do what you and your co-trustees (and no one else) decide will best enable the charity to carry out its purposes;
with your co-trustees, make balanced and adequately informed decisions, thinking about the long term as well as the short term;
avoid putting yourself in a position where your duty to your charity conflicts with your personal interests or loyalty to any other person or body; and
not receive any benefit from the charity unless it’s properly authorised and is clearly in the charity’s interests; this also includes anyone who is financially connected to you, such as a partner, dependent child or business partner.
4. Manage your charity’s resources responsibly
You must act responsibly, reasonably and honestly. You and your co-trustees must:
make sure the charity’s assets are only used to support or carry out its purposes;
not take inappropriate risks with the charity’s assets or reputation;
not over-commit the charity;
take special care when investing or borrowing; and
comply with any restrictions on spending funds.
You and your co-trustees should put appropriate procedures and safeguards in place and take reasonable steps to ensure that these are followed. Otherwise you risk making the charity vulnerable to fraud or theft, or other kinds of abuse, and being in breach of your duty.
5. Act with reasonable care and skill
As someone responsible for governing a charity, you:
must use reasonable care and skill, making use of your skills and experience and taking appropriate advice when necessary; and
should give enough time, thought and energy to your role, for example by pre-paring for, attending and actively participating in all trustees’ meetings.
6. Ensure your charity is accountable
You and your co-trustees must comply with statutory accounting and reporting requirements. You should also:
be able to demonstrate that your charity is complying with the law, well run and effective;
ensure appropriate accountability to members, if your charity has a member-ship separate from the trustees;
ensure accountability within the charity, particularly where you delegate responsibility for particular tasks or decisions to staff or volunteers; and
take special care when investing the funds of the charity, or borrowing funds for the charity to use.