Governance in the charity sector increasingly finds itself situated within a state of volatility with the world around us seemingly moving from one crisis to the next. This constant instability requires trustees to be ever-reactive to the changing environment around them.
This change in the global environment requires a shift from reactive problem-solving to proactive strategies which enable charities to stay the course, rather than be constantly manoeuvring. This theoretical transition is underpinned by the Charities Act 2011, which establishes fiduciary duties requiring trustees to act with reasonable care and skill while prioritising the organisational mission of the charity above all other interests.
It is clear that digital technologies, including Artificial Intelligence (AI) will be an increasing part of all charities’ ecosystems, and as such, boards will need to build digital into their governance activities, adapting existing policies to recognise both the potential use-cases and risks associated with digital technologies.
Under the recently revised Charity Governance Code, boards are explicitly tasked with ensuring they possess the necessary knowledge and experience to govern effectively in an environment defined by rapid technological change. The development of AI and complex digital ecosystems has transformed technology from an isolated operational variable into potentially being a core governance tool.
Trustees are not required to possess proficiency in the workings of any digital technologies; rather, they must maintain a strategic comprehension of how these tools reshape the charity’s risk profile. This represents a shift where technology serves as a “golden thread” interwoven through organisational values and operations, rather than the historic view of technology being a single area of risk, typically focused on potential data loss and cyber risks.
Proportionality
A critical aspect in modern governance is the principle of proportionality, which dictates that the level of board oversight must correspond directly to the scale and nature of the risks presented. The administrative use of AI generally presents a lower-risk profile compared to, for example, embedding automated systems into service delivery that directly impact upon beneficiaries.
In high-risk scenarios involving automated decision-making, the trustees must be satisfied that the process is based on sound logic and has appropriate guardrails in place to bring in human oversight as and when risk hits a set level. Over the last few years, risk management has similarly evolved into a dynamic evolving process underpinning all decision-making, rather than a static annual exercise of updating the risk register and then filing it away until the next year.
Current guidance dictates that boards must advance beyond the mere identification of gross risks to actively managing net risks through a rigorous analysis of mitigation and robust internal controls. This approach requires trustees to form a view on the level of appetite for the residual risk remaining after mitigating factors have been considered.
Furthermore, contemporary risk assessment places a much higher level of overall risk on the potential impact rather than the likelihood, whereas in traditional models the impact and likelihood scores carried equal weighting. While larger entities may successfully navigate digital transformation with access to greater resources and the ability to bring in experts and professional assistance, smaller organisations often encounter cost and knowledge constraints that can lead to technological stagnation.
Conversely, with the right blend of resource and risk appetite, those smaller charities can have the ability to move nimbly compared to larger more complex organisations and reap the rewards of innovation. In conclusion, the current evolution of charity governance is defined by the necessity of bridging the gap between advancing digital innovation and trustees’ appetite for change and risk.
Trustees who avoid engagement with emerging technologies are not acting with prudence; they are potentially failing to fulfil their core governance duties. Effective leadership now demands a blend of traditional fiduciary responsibilities with a proactive approach to digital engagement.
It is essential for boards to consider the potential use cases of digital technologies as well as adapting existing policies from a digital-first perspective, building in the benefits on offer while being aware of and mitigating – where possible – any potential risks.
Andrew Roberts is a director at HaysMac
