27 Jan 2015
Finance director-turned-chief executive Simon Hopkins explores the aptitudes and attitudes that makes...
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A chair of trustees and chief executive suggest how one charity can regain trust between the board and senior management team.
This is a well-established Christian international charity with a turnover of £16m. Since the chief executive arrived in 2002, the charity built up a very healthy cash reserve of unrestricted funds which peaked at £9m in 2008. It also now owns its office building in North West England. The chief executive is very highly regarded. In 2008, on the advice of their chief executive the board decided to dip into their free cash reserves (reserves are after all ‘for a rainy day’) and now these stand at £2m.
Only one member of the senior leadership team (SLT), other than the chief executive, has been in post for more than three years. There have been three finance directors (FD) in three years. The trustees have been impressed by all the different members of SLT.
The SLT provide papers on key performance indicators (KPIs) – these include numbers of beneficiaries in each of the overseas programmes, financial KPIs and commonly-used fundraising ratios.
There is open recruitment to the board following a skills audit and trustees have to be practising Christians. The ethos of the charity is very much based on trust and respect for each other. Trustees are limited to three terms of four years. In early 2011, two new trustees join the board: an accountant who is very concerned about the rapidly diminishing free cash reserves; and a trustee who is happier with detail and who cannot cope with the big picture. Both are risk-averse, very vocal and rather combative at board meetings.
Over just three months, trustee confidence in the chief executive and SLT becomes considerably reduced and they have swung from being a ‘hands off’ board to being very critical, challenging and very demanding. They argue that in such financially difficult times they have to take over much greater control especially with finances. They demand more and more detail; lower the financial thresholds for delegation to the CEO and FD. Stringent cutbacks are demanded especially in their UK workforce. The internal auditor is one of the first to go.
Board meetings now last five hours rather than two. The size and number of reports to the board have grown three-fold. Five of the 15 trustees resign claiming that their businesses need more of their time. The others, frightened by the alarm raised by the two new trustees, have become risk-averse and are being guided in their decision making by the new trustees. The chief executive and SLT are now so busy servicing the demands of the board that they have little time to do the rest of their job properly. Morale is low. The chair of trustees is taken aback by the sudden change in board behaviour.
Just before Christmas, the charity discovers that about £200,000 has ‘disappeared’ from its accounts in the UK and suspicion falls immediately on two senior members of the finance department who were made redundant and who managed the payroll. The chief executive and finance director are blamed by the trustees for not managing the situation and the charity properly.
Any board must support or sack the chief executive. In this instance, support is called for. After all, the board are equally culpable. The board failed to plan adequately or to hold the SLT to account. The CEO misjudged the potential impact of external factors. Internal management is poor with a high SLT turnover not challenged by the board.
It is time for the chair to exercise leadership. Three actions are paramount.
Once calm and confidence is restored, the chair needs to adopt a dual-track approach. This involves strengthening both the strategy and the succession planning. Trustees must take responsibility for strategy and work closely with the chief executive and SLT to ensure it is still relevant. KPIs, resource allocation and budgeting would all benefit from review.
Succession planning at board and executive level is vital. Without doubt, 12 years on a board is too long. A governance review would refresh the board, ensure the right mix of skills and develop a more diversified perspective. Arguably, ten years as a chief executive is also unwise. The skills required to build up a charity are unlikely to be those needed to downsize and reconstruct it. So after convincing the CEO to leave, the chair needs to oversee the recruitment of a successor and with dignity intact, pass on the baton of board leadership.
Sukhvinder Kaur-Stubbs is the chair of Volunteering England
The CEO should consider her position. There is the immediate issue of suspected fraud and the deeper breakdown of trust between the board and the SMT. Should she ‘fall on her sword’?
The turmoil and reputational damage created by her sudden resignation could harm beneficiaries’ interests more than they would help. She should tough it out. The old adage ‘Don’t waste a good crisis’ should be a tool to bring about change.
Having conferred with the chair and treasurer, she should commission a report from a forensic accountant and other professionals to examine in detail what had actually happened to the missing £200,000 and create an action plan designed to ensure the charity’s legal and financial obligations are met and robust financial systems are put in place.
As the report is being drawn up, she should speak to trustees individually about the workings of the charity, listening carefully to them, persuading each that the relationship between the SMT and trustees needs to be rebalanced if the charity is to function effectively and that she needs their support. She should reflect their views when drafting terms of reference for a governance review, and seek their advice on an external facilitator.
The chair should call an extraordinary meeting of the board with two items on the agenda: the action plan and the CE’s draft terms of reference for a governance review, centring on the respective roles and responsibilities of trustees and the SMT. Circulated at the same time should be the Code of Good Governance, NCVO’s Good Trustee Guide or Good governance: a practical guide for boards, chairs and CEOs – the last gives model chair and trustee role descriptions. Once the board has considered and accepted the review’s findings and recommendations, the chair and chief executive should consider their positions.
Virginia Beardshaw, chief executive, I CAN
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