UK: The Governance Merry-Go-Round

Last Updated: 19 October 2016
Article by Louise Thomson

Recent charity scandals have reignited some perennial governance debates: trustee remuneration; the unitary board; and the need to generally professionalise trustees.

Whenever the sector's governance is questioned, the answer invariably seems to be to adopt a corporate governance approach. This is interesting at a time when the Prime Minister is suggesting that corporate governance needs to be improved by the addition of staff on boards and the adoption of a German approach to governance. In turn, business leaders and commentators in Germany are voicing their concerns that the dual board system is not fit for purpose.

It appears that each governance system used throughout the world has its inherent challenges. Failures in corporate governance saw the UK adopt a principles-based approach, as recommended in various reports, leading to a code of governance that relies upon comply or explain. Yet, after almost 25 years since the grandfather of corporate governance reported on how to improve corporate conduct, there is a dawning realisation that regulator-led interventions only go so far in improving governance arrangements.

Over the years we have had corporate reports on, and reactions to:

  • financial aspects of corporate governance (Cadbury, 1992)
  • the relationship between companies and institutional investors (Myners, 1995)
  • directors' remuneration (Greenbury, 1995)
  • board composition (Hampel, 1998)
  • internal controls (Turnbull, 1998)
  • the role and effectiveness of non-executive directors (Higgs, 2003)
  • audit committees (Smith, 2003)
  • board diversity (Tyson, 2003)
  • boardroom behaviours in banking (Walker, 2009)
  • women on boards (Davies, 2011).

In addition, the UK Corporate Governance Code has been developed to take account of changes in audit committees (2010, 2012 and 2016), gender diversity (2011), remuneration, going concern and risk management reporting (2014).

If the answer to shortcomings in charity governance is to adopt a corporate governance system, what exactly are the questions?

For many in the sector the issues with a volunteer board are the inability to respond quickly to strategic matters, the challenge to attract quality and diverse board members, and the visible separation between governance and senior management, with boards being non-executive only areas (in general). Recent articles have suggested that the sector should be better able to pay trustees, adopt a unitary board and generally be more 'professional'. But as we have seen, these are all aspects of corporate sector governance that have not necessarily delivered the panacea each sector seeks.

Each governance framework has its strengths and weaknesses. Blindly adopting one over another without due consideration of the potential drawbacks could see one frustration being exchanged for another. Although the corporate sector might have the resources and creativity to eventually overcome the challenges inherent with their governance arrangements, the public's trust and confidence in the charity sector is likely to be further damaged with any stories about trustees being paid and still deemed to be failing in the leadership of their organisations.

So long as we have human beings in charge of organisations, and as far as I am aware artificial intelligence has not yet developed to this extent, there will always be weaknesses within the governance arrangements adopted. The overarching challenge with governance frameworks is to develop an ongoing review of their effectiveness and to be creative in guarding against any of the existing and unknown shortcomings. Appropriate inductions, ongoing development, training and codes of conduct are one way to instil 'professionalism', regardless of the sector. Processes, polices and recommended practice are mechanisms for policing appropriate behaviours and activities. The chair and chief executive play important roles in ensuring the board and senior management team dynamics are dynamic, robust and respectful. All aspects need to be reviewed regularly and changed when they no longer deliver the intended governance value.

Research shows that many boards in the corporate sector spend more time on compliance matters and historical data, rather than future challenges and delving into creating the right strategy and succession planning. That does not sound too different from other types of boards, especially when regulatory demands increase.

Charity governance is not perfect and there is a lot to do in order to improve it. But please remove the rose-tinted spectacles when comparing it to other sectors. Do take what is best from other sectors and adapt it as necessary. Review your arrangements and change things as soon as they no longer deliver – even if that means admitting that you got something wrong. Most of all, please treat trustees with the respect they deserve for the role for which they are legally responsible. Stop soft-soaping them. Personal satisfaction is gained when we feel useful and are stretched. Be honest about what is required and expected of them, and treat them as equals in the leadership of the charity. A good board cannot be a substitute for an effective senior team, and vice versa. Professionalism is a state of mind – and it is required from both the trustees, and the executives who support them.

To misquote Churchill – voluntary trusteeship is the worst kind of governance, except for all the others.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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