3 steps to good charity governance
- Complex governance structures can make it harder for charities to function effectively
- Conflicts of interest are also a common problem, and can lead to charities receiving unwanted attention from regulators
- We take a closer look at three key features of good governance for Scottish charities
Good governance is essential to the smooth running of any charity.
Charities that are not governed effectively will find it harder to meet their objectives and make the most of their resources. The most serious cases of poor governance can lead to intervention from regulators, significant reputational damage, and disillusionment among staff, volunteers and trustees.
To achieve good governance, charities should focus on three key areas.
1. Avoiding complex governance structures
Complex governance structures can create doubt over who is in charge and can increase the risk of damaging internal disputes.
Complex structures include those where there is more than one body with management responsibilities, such as strategic planning and the meeting of business objectives.
In all circumstances, including those where complex structures are unavoidable, a charity’s constitution should:
- Clearly set out who the trustees are
- Ensure trustees are able to control and manage the charity
- Ensure trustees have final responsibility for strategic planning and the implementation of strategies
2. Avoiding conflicts of interest
It is easy for potential conflicts of interest to emerge, but much harder for charities to demonstrate such conflicts are being dealt with effectively.
Potential conflicts can occur when charities have links to other bodies, or when the same people are managing two different bodies.
The Office of the Scottish Charity Regulator (OSCR) has investigated a number of charities, amid concerns about potential conflicts of interest.
These include a charity where all of the trustees were also local authority councillors, and another where all trustees also sat on the regional NHS board, leading in both cases to concerns about the independence of decision-making.
It is not enough for charities to deal with potential conflicts of interest as and when they arise. Charities’ constitutions should include a conflict of interest policy, clearly setting out what could constitute conflicts of interest, and what steps will be taken to avoid them.
3. Ensuring independent decision-making
Many charities have close links to other bodies, for example those that are reliant on another body, such as the Scottish Government, for funding, or those that carry out a significant amount of work for another body.
Trustees must be able to demonstrate they are acting at all times in the best interests of their charity, and not any other external organisation.
The OSCR offers a number of useful practical tips to help charities demonstrate their independence. Examples include:
- Conducting trustee meetings separately from those of any other body
- Keeping independent financial records
- Running a separate website, rather than having a section on a website of a linked body
Consequences of poor governance
A recent dispute over the former principal of a Scottish college’s six-figure severance payment, is a reminder of why governance remains such an important issue for charities.
The dispute surrounded a payment given to the former principal at the time his college – a registered charity – merged with another.
Concerns were raised about the size of the payment, which equated to 21 months of his salary (the maximum outlined in SFC guidelines is 13 months’ pay) and also on claims of a conflict of interest, as the principal was reportedly involved in helping to set his own severance package.
Auditor General Caroline Gardner described the situation as “one of the most serious failures in governance” she has encountered. The Scottish Funding Council (SFC) has taken legal steps to recover some of the money.
This case helps to demonstrate the importance for charities to establish good standards of governance, including clear processes to avoid potential conflicts of interest.
Following the steps outlined above can help to minimise the risks of poor governance, and ensure your charity is able to function effectively.