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Andy Nash: The importance of a governance health check for charities

27 Jan 2022 Expert insight

Andy Nash highlights the importance of a governance health check.

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The last year has seen a worrying trend of an increasing number of tabloid headlines around failures or perceived failures of charity governance. Whether financial governance, safeguarding of beneficiaries, internal bullying, or not dealing with conflicts of interests, the stories have varied in content, but the underlying cause has been the same – governance structures and processes have not operated as they should.

We see this happen time and time again and the symptoms are common: relationship breakdowns between management and trustees; high staff turnover; financial performance not matching targets; regular donors no longer wanting to give; and mission drift. In some cases, it’s even more significant symptoms, such as complaints from beneficiaries or donors.

However, it is not all doom and gloom. In 2017, the third edition of the Charity Governance Code was published, with a refresh and update published at the end of 2020, which mainly focused on principle 3 (integrity) and principle 6 (equality, diversity and inclusion). Increasing numbers of charities are starting to apply the code and also, more excitingly, report against it in their annual accounts and online.

It is this proactive approach that is helping many charities start to recognise the shortcomings in their own governance models, while also helping them to celebrate where they are already performing at an incredibly high level. This has assisted them in fine-tuning their governance, both structures and processes, and they’ve seen phenomenal results. We sometimes think of good governance as the engine in a car – you can’t really see what it’s doing but you realise when something has gone wrong.

A lot of charities we talk to, however, struggle with the idea of a governance health check as they are regarded as too expensive. Indeed, we’ve heard of charities spending tens of thousands of pounds on consulting firms coming in to do them. Or they are seen as divorced from reality – an external adviser applies a whole load of academic models that just don’t seem to consider what beneficiaries need. To make matters worse, the consultant has never even worked in a charity before, so what would they know? Before the process has even started it has gone off the rails.

So let’s start by putting to bed some of those myths. The first thing is that it does not need to be an expensive process and it shouldn’t be. There are lots of good consultants, many of whom have worked in the sector for years, who can help you stick within a budget that is suitable for your age and stage.

If budget really is the only thing stopping you, there are some great resources out there, including self-diagnostic tools prepared by the working group that wrote the governance code. Which brings us onto the second myth that you must use a consultant. I would add a caveat here. It’s a bit like marking your own homework and I’ve never seen an organisation successfully and objectively assess themselves. Let’s be honest – we all either mark ourselves far too harshly or think we are our chosen deity’s gift to the sector and could never do anything wrong (and we’ve all met THAT person and/or board).

So, if you do go ahead with a governance health check, here are some key pointers to help make sure it is a success.

Allow the time it needs

Just like a real health check, make sure you allow time to do it properly. All of those involved with the governance of the charity need to ensure they have the time to follow the process through, from any initial scoping process, to workshops and finally implementing any recommendations. It will require a time commitment from all, so map out the process well at the start and then ensure key dates are in everyone’s diary.

Make sure it is broad

We regularly see organisations where the health check focuses on the area that’s most important to the person leading the process. For example, the finance trustee only ever looks at financial governance, the HR trustee focuses purely on diversity etc. All areas should be covered, and the Charity Governance Code helpfully splits it between seven main principles:

  • Organisational purpose.
  • Leadership.
  • Integrity.
  • Decision-making, risk and control.
  • Board effectiveness.
  • Equality, diversity and inclusion.
  • Openness and accountability.

Make sure that whoever is leading the process has covered all these areas.

Agree and keep to an action plan

At the end of the process ensure a clear action plan is put together with an achievable but ambitious timeline, and individuals allocated to each action point. Don’t then just shelf the findings – at every board meeting after that there should be clear accountability on the action plan to ensure things happen within the agreed time frame.

Keep reviewing

This isn’t a one-off piece of work and we’d strongly suggest re-evaluating your governance performance on a regular basis.

The most important thing though is to carry out the governance health check. If Covid has shown us anything, it is to remind us once again of the incredible importance of the charity sector in society. We all passionately believe in the work we do, and it breaks my heart when we see great work stopped or held up because of poor governance. Don’t let your charity be the next one to appear on the front page of a tabloid newspaper due to governance processes letting you down.

Andy Nash is founding director of Andy Nash Accounting and Consultancy

Charity Finance wishes to thank Andy Nash Accounting and Consultancy for its support with this article

The Charity Finance Yearbook is the ultimate reference source for charity finance professionals. Produced by the Charity Finance editorial and research team it includes updates, advice and trends on accounting and audit, VAT and taxation, investment strategy, responsible investment and finance, risk, funding, performance and governance, law and regulation, HR and pensions, IT and property. Purchase online here.

 

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