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Charity governance: despite some good practice, a way to go Charity governance: despite some good practice, a way to go
(6 months later)
In difficult economic times strong governance is more important than ever to enable charities to respond effectively and rapidly to emerging risks and deliver on their objectives.In difficult economic times strong governance is more important than ever to enable charities to respond effectively and rapidly to emerging risks and deliver on their objectives.
Grant Thornton has reviewed the annual reports of the top 100 charities, assessing disclosures on areas including the board of trustees, risk management and impact reporting. The research highlights many examples of good governance practice – for example, the 31% of the top 100 board positions being held by women, an achievement most corporations would envy.Grant Thornton has reviewed the annual reports of the top 100 charities, assessing disclosures on areas including the board of trustees, risk management and impact reporting. The research highlights many examples of good governance practice – for example, the 31% of the top 100 board positions being held by women, an achievement most corporations would envy.
Our research also found that of the top 100 charities' boards, 75 of the chairs were male and 14 female (with the gender of the remaining chairs unclear). This compares favourably to the FTSE 100 where the percentage of women on boards fell in March for the first time since 1999 and female representation is much lower, with only three female chief executives and one chairwoman remaining.Our research also found that of the top 100 charities' boards, 75 of the chairs were male and 14 female (with the gender of the remaining chairs unclear). This compares favourably to the FTSE 100 where the percentage of women on boards fell in March for the first time since 1999 and female representation is much lower, with only three female chief executives and one chairwoman remaining.
Of course gender is not the only diversity consideration on charity boards and there is still an opportunity to achieve best practice around wider representation of young people, given the skills and fresh perspective they can bring to charities. By seeking greater diversity and a broader range of skills, a nominations committee charged with recruiting new directors may improve the effectiveness of the board.Of course gender is not the only diversity consideration on charity boards and there is still an opportunity to achieve best practice around wider representation of young people, given the skills and fresh perspective they can bring to charities. By seeking greater diversity and a broader range of skills, a nominations committee charged with recruiting new directors may improve the effectiveness of the board.
This is something the corporate governance code requires for FTSE companies and may also benefit the charity sector. Our review found that some of the top 100 charities do disclose the existence of a nominations committee and its responsibilities. However, many do not disclose the recruitment procedures for new trustees, nor what the current trustees bring to the board. Even though trustees may not be remunerated for their roles, the search for candidates should still be conducted against objective criteria and appointments made on merit. A nomination committee with clear terms of reference over the recruitment and selection of trustees would allow a reflection on the skills of the existing board and an analysis of any skills gaps that need to be filled.This is something the corporate governance code requires for FTSE companies and may also benefit the charity sector. Our review found that some of the top 100 charities do disclose the existence of a nominations committee and its responsibilities. However, many do not disclose the recruitment procedures for new trustees, nor what the current trustees bring to the board. Even though trustees may not be remunerated for their roles, the search for candidates should still be conducted against objective criteria and appointments made on merit. A nomination committee with clear terms of reference over the recruitment and selection of trustees would allow a reflection on the skills of the existing board and an analysis of any skills gaps that need to be filled.
Trustees are somewhat akin to the non-executive directors of commercial companies and their role is to give strategic direction to the charity. This is why it's important that donors and other interested parties are aware of the skillset and experience of the trustees. One way to convey this would be to give brief biographies in annual reports. Currently this level of disclosure is only made by 6% of the top 100 charities.Trustees are somewhat akin to the non-executive directors of commercial companies and their role is to give strategic direction to the charity. This is why it's important that donors and other interested parties are aware of the skillset and experience of the trustees. One way to convey this would be to give brief biographies in annual reports. Currently this level of disclosure is only made by 6% of the top 100 charities.
Once recruited, trustees must have a real understanding of what the charity does to be truly effective, including an awareness of its structure, aims and how it plans to fulfil those aims. Our review found that 20% made little or no mention of induction training for new trustees in their annual reports. We acknowledge that this does not mean that training is not being undertaken, but if it is occurring, good governance suggests it should be disclosed. By revealing best practice, the top 100 charities can set an example for less resourced charities.Once recruited, trustees must have a real understanding of what the charity does to be truly effective, including an awareness of its structure, aims and how it plans to fulfil those aims. Our review found that 20% made little or no mention of induction training for new trustees in their annual reports. We acknowledge that this does not mean that training is not being undertaken, but if it is occurring, good governance suggests it should be disclosed. By revealing best practice, the top 100 charities can set an example for less resourced charities.
For board effectiveness, robust trustee rotation periods should be established. From our analysis, around 50% of the top 100 charities are already disclosing rotation periods, mentioning three or four years as a typical tenure. Currently there is no requirement for a charity board's performance to be evaluated and reviewed in contrast to the FTSE where there is now a requirement for a triennial review. This is something we would encourage charities to adopt as best practice.For board effectiveness, robust trustee rotation periods should be established. From our analysis, around 50% of the top 100 charities are already disclosing rotation periods, mentioning three or four years as a typical tenure. Currently there is no requirement for a charity board's performance to be evaluated and reviewed in contrast to the FTSE where there is now a requirement for a triennial review. This is something we would encourage charities to adopt as best practice.
Finally, our analysis looked at the risks affecting charities and how they are disclosing and managing these risks. Over 55% identified a cut in funding, whether in the form of donations, grants or government contracts, as a key risk, yet few charities gave insight in their annual reports as to how they plan to address this risk. With the closure of a number of charities in recent years, greater disclosure of how charities plan to fund themselves and how their boards plan to manage financially, may give stakeholders comfort and further understanding.Finally, our analysis looked at the risks affecting charities and how they are disclosing and managing these risks. Over 55% identified a cut in funding, whether in the form of donations, grants or government contracts, as a key risk, yet few charities gave insight in their annual reports as to how they plan to address this risk. With the closure of a number of charities in recent years, greater disclosure of how charities plan to fund themselves and how their boards plan to manage financially, may give stakeholders comfort and further understanding.
Governance extends far beyond board compositions and the frequency of committee meetings; an organisation's culture, people and public face and how it sets the right tone, are all an integral part of governance. The income squeeze charities are facing demonstrates the importance of having strong foundations in place to maximise financial security. Annual reports represent a valuable opportunity for charities to demonstrate publicly this good governance and lead the way.Governance extends far beyond board compositions and the frequency of committee meetings; an organisation's culture, people and public face and how it sets the right tone, are all an integral part of governance. The income squeeze charities are facing demonstrates the importance of having strong foundations in place to maximise financial security. Annual reports represent a valuable opportunity for charities to demonstrate publicly this good governance and lead the way.
• You can read the full Grant Thornton report here: The Science of Good Governance – Towards Charity Best Practice.• You can read the full Grant Thornton report here: The Science of Good Governance – Towards Charity Best Practice.
Carol Rudge is head of not for profit at Grant Thornton UK LLP.Carol Rudge is head of not for profit at Grant Thornton UK LLP.
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