Good governance seems to always be in the press these days, throughout all the media scandals over the past few years, everything filters back up to governance and whether charities are being effectively managed. Good governance is hard to define, and with the huge variation from charity to charity in terms of size and operational activities it is unlikely that any one model should or could be appropriate for all charities. Unitary boards are being touted as one potential answer and we will look at the potential of this below.
The Charity Governance Model
The governance model typically seen in charities is very different to the model seen in the corporate sector. Charities today typically have what is known as a ‘dual board’, whereby there is a trustee board at the top of the charity who have general control of the charity and are responsible for managing the administration of the charity (as per the Charities Act definition), below this sits an executive board of staff who are responsible for the more day to day aspects of running the charity. These two boards work separately to run the charity, although there is an obvious channel of communication between the two boards. Typically in a charity, the trustees are not remunerated for the work they carry out.
In the UK corporate environment there is what is known as a ‘unitary board’ – this is a board made up of both executive and non-executive individuals. In these cases, the board is a single board which operates to manage the company, right from top level strategy down to the more day to day decision making. In a company, non-executive board members are remunerated for their services.
The current buzz around this for charities essentially boils down to two very separate issues, but both related to the structure of governance. Firstly there is the question of whether the chief executive and other directors should be sitting on the trustee board, and secondly there is a question as to whether trustees should be remunerated for their work.
Should charities pay their trustees?
The Charities Act does not specifically preclude payment of trustees, although there are some provisions within the legislation which the charity must adhere to. Charities can, therefore, pay their trustees and there are a number of charities who do this, for example the Wellcome Trust, the UK’s largest charity, has some trustees being paid six figure sums. Payment of trustees, however, remains rare and generally frowned up throughout the sector where most people would expect the trustees to provide their time on a voluntary basis. The Charity Commission has guidance on the payment of Trustees, in the form of ‘CC11 – Trustee expenses and payments’. This guidance goes on to say that Charities cannot pay trustees for the service of trusteeship unless the governing document explicitly allows it or they have permission from the courts or the Commission. There would therefore need to be a paradigmatic shift in regulation to more generally allow or even encourage the payment of trustees for fulfilling their role as trustees.
Charities are now larger than ever before, and the growth in the charity sector is almost exclusively being seen in larger charities. The demands on an individual of being expected to govern a £100m+ income charity are high, and the time commitment for trustees is ever increasing. Continuing to expect people to do this, and to do it well whilst not remunerating them is challenging. Being able to offer a payment will help charities to attract better trustees. It is also well known that people act more diligently when being paid for work then if they are not being paid. Against this, I would not recommend that all trustees should be remunerated, and especially in smaller charities, the voluntary advice and guidance given by trustees can be invaluable to even running the charity at all. I do however believe that the Commission should look at easing the process by which charities could pay trustees if they wish, and that this would enable charities to better attract trustees with the relevant expertise and enable trustee boards to operate more effectively for the ultimate public benefit.
Would a unitary board be more effective than dual boards?
Looking first at the potential advantages of a unitary board, it is easy to visualise the increase in overall efficiency of having one board in place of two. All major decisions could take place in one forum with the review of both executive and non-executive members being able to offer guidance from different points of view. A unitary board would enable the non-executive to have a much closer relationship with the executive – this would enable more effective communication and flow of information to board members. From a practical point of view, having one board would also be more straight forward and easier to operate.
The disadvantages could include potential problems in a number of areas, firstly executive boards usually meet more often than trustee boards so the expectation on the non-executives in a unitary board situation would be that would need to attend more meetings, which would put those members under a greater time pressure (an alternative view would be that more meetings makes the non-executive better informed). A unitary board also blurs the division of responsibility, it may be harder for the non-executive members to stand-up to management if they are in meetings together, having dual boards enables a clear division of responsibilities and does make the management more accountable.
It is apparent across the sector that the current model of governance is not working for all charities. Some charities are blazing the trail by operating unitary boards and others by paying their trustees, it remains to be seen whether either of these will improve governance but it is important that the sector tries new things to see what might work going forward. It is becoming clear that a one size fits all approach is also not effective as charities continue to diverge in terms of size and operational activities. It is hopeful that the government and Charity Commission will ease legislation and regulation in order to allow charities a bit more freedom in the way they are governed.
For more information about how you can resolve your charity governance problems, contact Richard Snelling.