With charity governance firmly in the spotlight after some high-profile failures, getting effective and skilled trustees on the board is more important than ever
This article was first published in the May 2019 UK edition of Accounting and Business magazine.
The Kids Company collapse in 2015 became a major media scandal. It was a high-profile charity, receiving substantial political and financial support from government. Yet it was ultimately found to be a weak organisation, badly led and insufficiently controlled..
A review of Kids Company by the House of Commons Public Administration Select Committee was scathing. It pointed the finger at trustees who allowed the charity’s weak financial situation to persist over several years, stating: ‘The board failed to protect the interests of the charity and its beneficiaries, despite its statutory responsibility to do so. Trustees repeatedly ignored auditors’ clear warnings about Kids Company’s precarious finances.’
Trustee weaknesses included their inability to ‘interrogate’ the chief executive, who was also the founder, in order to question her decisions. An important factor was the absence of the necessary skillsets – the board lacked youth services and psychotherapy experience, for example. While the charity provided useful support to many children, it did not properly control the tens of millions of pounds of government grant provided to it.
While the story of Kids Company is extreme, it is not unique. Its failings are common – albeit on a lesser scale – in much of the sector. Across charities, there is a story of insufficient diversity and challenge at board level, with many trusts not recruiting people with the necessary skills and experience. Some board members stay on for too long. Nor do all trustees understand their role – while the board is responsible for strategy and oversight, senior management has operational responsibility.
Rigour in the process
‘The most important thing to do when looking for new trustees is to undertake a skills analysis of the board and spot the gaps, and that is what most charities do not do,’ suggests Edith Yembra FCCA, a member of ACCA’s public sector panel, and director of finance and IT and company secretary at YMCA North London. The candidates’ skills need to speak for themselves, she says. ‘We have asked potential trustees to fill in forms to explain what they can contribute and how they would add value,’ says Yembra.
It seems obvious, but trustee positions should be advertised and not passed on privately. And the advertising needs to be transparent. ‘This can be assisted by organisations such as the National Council for Voluntary Organisations, which runs a trustee “bank”,’ she says. ‘Advertising in places such as LinkedIn covers you from allegations that the board is just inviting friends.’
Recruiting people referred to you by others not only restricts the available talent pool, it can also lead to a lack of diversity in background and approach. It’s tempting to hire trustees because you all agree on particular issues, but difference, debate and challenge across the charity is good.
‘One charity recently failed because the CEO was dominant and over-powering,’ says Yembra. ‘But instead of challenging him, the trustees resigned. If the CEO or chair brings in the trustees, there is a risk they will not be challenged. So it is important that the people recruited are not just friends of the chair or the CEO.’
Once on board, trustees need to be supported. ‘It is vital that they are given the right induction pack, which needs to guide them in their role,’ says Yembra. ‘The charity needs to make absolutely clear what is required of its new trustees. Sometimes training is needed.’
The need for trustees to know their responsibilities includes understanding their liability. The fact that all trustees are equally liable may not be entirely obvious on boards that have one or two dominant trustees.
Sharing on strategy
The charity also needs to be crystal clear about its strategy and articulate it to the trustees. ‘Trustees need to understand where the charity is, where it has been, where it is going and how it is going to get there,’ says Yembra. ‘They are there to support senior management, while ensuring the charity is operating within its memorandum and articles of association.’
Meanwhile, the demands on charities and their trustees are increasing. Chibuzo Okpala FCCA, director of finance and HR at Directory of Social Change and also a member of ACCA’s public sector panel, explains that the Charity Commission for England and Wales has changed the focus of its work. The combination of budget cuts and scandals in the charitable sector – including the use of cold-calling by large charities – has caused the Commission to become a tougher regulatory enforcer, but has mean they have to had to reduce their practical support.
Most charities are small, run by volunteers and with limited finance and administrative capacity. ‘This limits how much expertise and time they can spend on compliance with the laws and regulations,’ explains Okpala. ‘The reduced support means less compliance, more failures and more regulatory work for the Charity Commission to cope with. These types of charity cannot respond positively to the increased compliance regime, so they either close down or become increasingly non-compliant.’ Having the right trustees on board is therefore all the more important.
Paul Gosling, journalist
"The fact that all trustees are equally liable may not be entirely obvious on boards that have one or two dominant trustees"