The Charity Governance Code

One year on

In July 2017 the revised third edition of the Charity Governance Code was launched, superseding the earlier Code of Good Governance. It set out higher standards for trustees of all charities registered in England and Wales and better reflects public expectations of charities and trustees today, in response to the recent challenges that the sector has faced. It marks an important step forward in providing clear guidance to help charity trustees run their charities effectively and have the right leadership structures in place.

Endorsement by the Charity Commission

The new Code was developed by a steering group of umbrella bodies including, amongst others, NCVO, ACEVO, ISCA, the Governance Institute and the Small Charities Coalition and headed by an independent chair, Rosie Chapman. The Charity Commission, the independent regulator of charities in England and Wales, in recognising that it is right for the charity sector to define what good practice should be, has endorsed the Code. At the same time it withdrew its own guidance on governance, ‘The Hallmarks of an Effective Charity’, in favour of directing charities to the Code. As a result, whilst compliance with the Code is not a legal requirement, the Charity Commission will be expecting trustees to be familiar of it and consider how it applies to their charities.

Structure of the Code

The updated Code starts from a ‘foundation principle’; that all trustees understand their legal duties (as explained in the Charity Commission’s publication ‘The Essential Trustee’ and their charity’s governing document) and are committed to their cause and good governance. For this reason, it does not attempt to set out all of the legal requirements that apply to charities and trustees and builds on the assumption that all charities are already meeting this foundation.

The detailed guidance is then drafted in a user-friendly and practical way. It sets out seven principles of good governance, all of which underpin the Code’s focus on organisational purpose and direction; leadership, integrity, decision making, risk and control, board effectiveness and diversity, openness and accountability. Each principle has a brief description, a rationale (the reasons why it is important), key outcomes (what you would expect to see if the principle were adopted) and recommended practice (what a charity might do to implement the principle).

The Code adopts a ‘apply or explain’ approach. This means that all trustees are encouraged to meet the principles and outcomes by applying the recommending practice or explaining what they have done instead or why they have not applied it. It may, for example, not be appropriate for a charity to follow the recommended practice initially but it might become so in the future as the charity grows and changes. The Code comes in two versions – one for smaller organisations and for larger organisations, with a recommendation that, in general, charities with a typical income of over £1million a year and whose accounts are externally audited use the larger version. The simpler, more proportionate and supportive smaller version is a welcome update for smaller charities whose size, income and activities make their governance practices significantly different.

Aims of the Code

A fundamental feature of the Code is that it is deliberately aspirational and represents a standard of governance practice to which all charities will aspire. This is intentional as the Code aims to a tool for continuous improvement towards the highest standards of charity governance. As a result, elements of it will be a stretch for many charities to achieve but our advice to trustees is not to panic in view of this and to use the Code to assist in developing and growing in effectiveness.

Key Changes

Turning to the detail in the Code, some of the more robust standards from the last edition include the following changes:

• A board of at least 5 and no more than 12 trustees is good practice; • Trustees should not serve for terms of longer than 9 years unless exceptional circumstances apply;
• Boards should review their own performance and that of individual trustees including the chair each year, with, for larger charities, an external evaluation by a third party every 3 years;
• Boards should periodically take part in diversity training and make a positive effort to remove obstacles to people being trustees;
• Boards should recognise and welcome diverse and challenging views;
• Boards should promote a culture of sound management of resources but also understand that being over-cautious and risk-averse can itself be a risk and hinder innovation;
• Boards should ensure that their charity operates in a way that is guided by the values, ethics and culture put in place by the board; and
• Trustees should consider the benefits and risks of partnership working, merger or dissolution if other organisations are fulfilling similar charitable purposes more effectively and/or if the charity’s viability is uncertain.

One Year On

The reception to the Code has been very positive with people reporting that they have found it clear, easy to understand and a relatively quick read. In such a varied sector, it is hard to capture the level of take-up, but the Code is certainly growing in awareness with its website receiving over 250,000 unique views in its first year.

Reflecting on the Code, NCVO has confirmed that it has had a significant impact on governance in the following areas:

• By helping trustees have difficult conversations on governance – as the Code captures external review, term limits for trustees and limiting board size as good practice, it has allowed many trustees, CEOs and governance professionals to ‘have the conversation’ with the chair who has been around for 30 years or the board who do not think it is worth investing in a governance review;
• By encouraging charities to think differently about what it means to be diverse and the value of difference, and to have deeper and more thoughtful discussions focused on approaches to recruitment, adapting board practices and the evaluation of gaps; and
• By prompting charities to review their value statements, as well as their systems and processes to ensure these reflect organisational values.

As good governance is an essential factor in every successful charity, we strongly encourage all trustees to look at the Code and consider which key recommended steps apply to their charity and should be taken. We also urge trustees to regularly revisit and reflect on the Code as their charity changes in the future. If trustees decide that their charity should sign up to the Code, go public about it on the charity’s website and in the charity’s annual report too.

If you would like any guidance on the issues raised in this article, please contact our charity law solicitors on 03456 381381 or email charities@ibblaw.co.uk.