Looking through the governance lens: can charity governance learn from corporate governance – or vice versa?

Recently, Peridot Partners were invited to attend The ICSA (now the Chartered Governance Institute) Annual Conference 2019 on The Future Board.

The two-day programme offered a multitude of sessions and over 40 seminars to explore the latest developments in governance and the future of the board.

With governance being the main flavour of discussion, this rendered some interesting themes around board leadership, evaluation and technology and made us consider how these can be applied in the charity sector.

One speaker from ‘The future board’ keynote panel was Chris Hodge FCG, a Policy Advisor at the Chartered Governance Institute. Chris was previously at the Financial Reporting Council, where he was responsible for developing and promoting the UK Corporate Governance Code – one of the most influential codes for companies.

Keen to tap into Chris’ invaluable insight into the corporate sphere, we spoke at length about the parallels between private and public sector governance and how they can share practices to help create a well-run organisational structure.

The main principles of governance: finding the right balance

Let’s make no bones about it, good governance in charities is crucial to their success.

According to the Charity Governance Code, good governance enables a charity to comply with laws and regulations and enhances a culture where everything works towards a strategic vision.

From this Code, seven practical points are mapped out to help charities achieve a higher level of governance:

  1. Organisational Purpose
  2. Leadership
  3. Integrity
  4. Decision-making, risk and control
  5. Board effectiveness
  6. Diversity
  7. Openness and accountability

However, when compartmentalising governance further, these key areas can be boiled down to people, structures and culture.

“If you get the right people supported by the right structure, who collectively have the right mindset and ethics, then I think that’s most of governance,” explains Chris.

“Getting the balance of different views around the board table, making sure that the board is getting the information it needs and the visibility it has of the organisation it’s overseeing.

“You need to ensure there’s accountability from the organisation – not just in terms of telling people what they’re doing, but actually your willingness to listen and engage with them and take on board their concerns.”

Board remuneration in the charity and not-for-profit sector

This is a real hot potato in the charity sector.

There are arguments on both sides of the coin and it’s not a debate that’s easily resolved due to the resources available to a lot of charities.

“On one side, there’s an argument that says there should be some payment because, particularly as the legal and other expectations of board members increase, the time needed to do the job properly increases,” says Chris.

“You should always have an enthusiasm, a belief in the cause, but that’s not always sufficient on its own – particularly if you’re running an organisation that has legal and financial obligations.”

The counterargument to that stems from an organisation being driven by their purpose and values. This is especially relevant in the charity sector.

A voluntary chair or trustee can benefit in other ways from sitting on a board such as: feeling like they’re adding real value to the strategy working closely with the Chief Executive and senior leadership team, getting helpful training experience from your peers as a critical friend and having the satisfaction of helping an organisation you’re passionate about without the monetary reward.

“If you’re not sufficiently committed to the objectives of the organisation to be willing to do this, then you’re probably not bringing the right enthusiasm and passion,” he adds.

Not just a one-way street: can charity governance learn from corporate governance or vice-versa?

“If you look at some of the corporate failures we’ve had over the last few years, it should probably be the other way round,” humours Chris.

“There is a lot that many companies can learn from the way charities engage with their main stakeholders – there are some charities who are way ahead of many corporates in terms of how that’s done well. It shouldn’t be a one-way learning curve.

It starts with how realistic you can be about what your governance can provide to your organisation.

To echo one of the speakers from the Conference, ‘good corporate governance does not prevent things going wrong in the future’.

With good governance you can greatly reduce the risk of things going wrong, but it’ll never be completely perfect and having that in mind is important.“The basic principles of good governance are pretty standard in any sector,” he adds.

“A lot of the basics in risk management, good structure, independence and expertise, internal controls and accountability are standard practice.”

Admittedly, there is a financial chasm between the corporate and charity sectors and large corporates can put resources in place that are far beyond the capabilities charities can provide.

One structure that was first suggested and recommended in the corporate world was having regular performance reviews. The charity sector can learn from this approach and it should be implemented more to enhance board governance.

The Charity Governance Code does suggest a board hold an annual internal evaluation, with external reviews taking place every three years for the larger charities.

However, these internal processes aren’t common practice and, if they become more widespread, this will allow a board to accurately establish what their board members do well and what needs improvement.

Changing the landscape: structural changes to the board through Artificial Intelligence and technology

Over the last 20 years, the huge strides made in technology and the accessibility it affords to the modern worker has completely changed our working practices.

One of the big talking points from the Conference was how Artificial Intelligence (AI) will influence the future of governance.

“Even with AI just around the corner, I think we’ve already underestimated the impact that IT has had since that came in,” says Chris.

“When I started, the idea of being able to work from home was a pipe dream. Due to the advancements in IT and tech, now it’s perfectly normal and something that almost two million people in the country do.

“There were entire new businesses, major businesses, that wouldn’t have existed before the Internet.”

As AI continues to develop, this will create some key talking points at the very top of organisations. For the moment it’s baby steps and something that will have to be properly tried and tested before charity boards start to properly engage with AI.

Our knowledge and skills around it have advanced over the last 10 years, but charities will need these new governance skills on the board to help tackle issues emerging from AI around blockchain, ethics, transparency and accountability.

You can read more about Artificial Intelligence in the boardroom in this article from the Financial Conduct Authority.

Boardroom diversity: a no brainer for good governance

This topic was covered excellently by Peridot’s Jennifer Horan in her blog seeking diversity with new trustees: how to recruit for diverse boards.

Looking at board diversity holistically – but diversity of thought processes and diversity of experience in particular – will improve board dynamics.

“I think it’s very important. It’s in governance because of avoiding having a single voice,” Chris affirms.

“It’s important to have people in there who have a different perspective to see an issue differently and who will bring things into the conversation that simply wouldn’t have before.

“People who have lived through a different experience to the often-privileged lives that many of the people around the board tables typically have lived can bring that.

“There are some interesting ideas in the charity sector where some charities have re-purposed their annual general meetings into more of a general forum for stakeholders. This is even something that corporates could think about.”

Recruiting better trustee boards:

At Peridot, we’re committed to enabling good governance on boards and like to help the people that sit around the table. Bringing a culture of openness, trust and human dynamics that work.

We offer:

  • Board Recruitment (including trustees, governors and non-executive directors)
  • Board Review & Development Services
  • Board Skills & Diversity Assessments
  • Chair Development & Coaching

You can read more about our track record in board recruitment on our board development page.