Decoding The Charity Governance Code

Charities are facing a crisis of trust. For all the progress made in setting governance standards and defining best practice, charities continue to be in the spotlight for the wrong reasons.

So what can be done to ensure that good governance in theory translates into good governance in practice?

The updated Charity Governance Code has been a measure of best practice since June 2017, operating as the stand alone reference point for charities implementing and maintaining their governance procedures. We are approaching the two-year anniversary of the update and yet the sector continues to experience scandals which could be avoided by stronger governance procedures. The knock-on effect of these scandals cannot be underestimated in terms of the impact on trust from donors and the general public alike.

In fact, last year trust in charities was lower than trust in the average man or woman in the street, according to Charity Commission research. Most people acknowledge that one such factor (scored at 8.3 out of 10 by respondents) to improve this trust rating is for charities to be well-governed and well-managed. Yet the factor of trust that people place in charities being well-managed is a mere 5.3 out of 10.

The self-professed aim of the Governance Code is, simply put, to assist charities and their trustees to reach the highest standards of governance. In this way, the Code is “deliberately aspirational” and intended as a tool to support organisations to continually strive for improved excellence in governance. It is not a legal or regulatory requirement. Applicable charities are encouraged to publish a brief statement outlining their application of the Code in their annual accounts based upon the “apply or explain” approach. Charities are not obliged to outline all aspects of recommended practice within their annual accounts.

RSM, in partnership with the Governance Code Steering Group, has undertaken a ground-breaking research project to get under the skin of how effectively charities are complying with the Charity Governance Code, which has brought to light some crucial insights. Not least of which, of the 85 charities in the sample only 44 per cent clearly actually acknowledged the Charity Governance Code at all within their annual reports. While a ‘wait and see’ approach has clearly been taken by some charities as they look to see for themselves the real impact of complying with the code on governance standards, in a sector increasingly under the public and media spotlight, how can such an important reference point for charities to govern themselves be so infrequently adhered to and evidenced?

RSM’s research project revealed how, unsurprisingly, those charities who had evidenced compliance with the Code in their annual reports exhibited far better governance than those who had not referenced the Code. In fact, average governance ratings across all seven principles for charities which stated their alignment to the Code was nearly 10 per cent higher than those that did not acknowledge its adoption.

Charities of a larger income (£20m+) had a higher average governance score then their smaller counterparts, indicating that resource does play a significant part in organisations’ ability to demonstrate compliance. Yet, charities in the £5m-10m bracket significantly outscored those in the £10m-20m band, which shows that charities of all sizes are able to demonstrate compliance with the code and seek to make impactful change to their governance frameworks.

The real-world implications of complying with the Code as demonstrated by the research are among other benefits, a more effective board structure, a better decision-making process and more clarity on their organisational purpose. Compliance with the Code and its principles also led to increasing accessibility for donors, as the charity operated as less of a ”closed shop”. As the Code has now been the industry governance standard for over two years and the benefits of compliance have been clearly evidenced, we would hope and expect more charities to seek to comply with the Code’s aspirational standards, which deliver real change and could ultimately lead to providing a better service for their beneficiaries.