An updated version of the Charity Governance Code was published on 13 July, setting out higher standards and urging larger charities to carry out external reviews every three years.
Other key recommendations include increasing diversity on boards, a limit of nine years for trustee terms unless a good reason is given, more oversight of subsidiaries and a stronger emphasis on the role of the chair.
The code is overseen by a steering group of charity umbrella bodies comprised of the Association of Chairs; Acevo; ICSA: The Governance Institute; NCVO; the Small Charities Coalition; and the Wales Council for Voluntary Action, with an independent chair, Rosie Chapman.
Consultation on changes to the code, which was previously called the Code of Good Governance, began last year and received over 200 responses. The Charity Commission has withdrawn its Hallmarks of an Effective Charity guidance in favour of directing people to the new code on a dedicated website.
The Code has been produced to help trustees develop high standards of governance. Charities have an obligation to their beneficiaries, stakeholders and supporters to demonstrate exemplary leadership and governance and the Code is a practical tool to help trustees achieve this.
The Code is not a legal or regulatory requirement. It draws upon, but is fundamentally different to, the Charity Commission’s guidance. Instead, the Code sets the principles and recommended practice for good governance and is deliberately aspirational: some elements of the Code will be a stretch for many charities to achieve. This is intentional because the Code is intended as a tool for continuous improvement towards the highest standards.
Who is the Code For?
This Code is intended for use by charities registered in England and Wales. Much of it will also apply to other not-for-profit organisations that deliver a public or community benefit and those with a social purpose. Organisations or sub-sectors may find it helpful to adapt the Code to reflect their context.
The Code’s principles, rationale and outcomes are universal and apply equally to all charities, whatever their size or activities. The recommended good practice to meet these principles varies. Although it’s hard to be precise about the distinction between larger or more complex charities, governance practice can look significantly different depending upon a charity’s size, income activities or complexity. Different versions of the recommended practice are available to reflect and address some of these differences.
Whichever version is chosen will depend on a range of factors. In general, it is recommended that charities with a typical income of over £1m a year and whose accounts are externally audited, use the larger version and charities below this threshold use the smaller version.
How it Works
This Code is designed as a tool to support continuous improvement. Charity boards that are using the Code effectively will regularly revisit and reflect on the Code’s principles.
Compliance with the law is an integral part of good governance. The Code does not attempt to set out all the legal requirements that apply to charities and charity trustees, but it is based on a foundation of trustees’ basic legal and regulatory responsibilities. Seven Code principles build on the assumption that charities are already meeting this foundation.
Each principle in the Code 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).
Apply or Explain
It is anticipated that how a charity uses the Code is something which will develop and mature, particularly where the charity is growing and changing. Given this, some of the recommended practice may not be appropriate for a particular charity to follow initially, but it may become so in the future. It’s important that trustees discuss the Code’s principles and recommended practice and make well-considered decisions about how these should be applied in their charity.
A charity should explain the approach it takes to applying the Code, so it is transparent to anyone interested in its work. This approach is known as ‘apply or explain’. All trustees are encouraged to meet the principles and outcomes of the Code by either applying the recommended practice or explaining what they have done instead or why they have not applied it. The phrase ‘comply or explain’, which is used by some other governance Codes, was deliberately not used because meeting all the recommended practice in the Code is not a regulatory requirement.
Charities that adopt the Code are encouraged to publish a brief statement in their annual report explaining their use of the Code. Its anticipated that this statement will be a short narrative rather than a lengthy ‘audit’ of policies and procedures.
Some charities work in areas, such as housing and sport, have their own sector-specific governance Codes. These Codes may well take precedence over this Code and such charities are encouraged to say in their annual reports which governance Code they follow.
There are seven principles which make up this Code. These seven principles build on the assumption that a charity is meeting its legal and regulatory responsibilities as a foundation. These principles are listed below:
- Organisational purpose: the board is clear about the charity’s aims and ensures that these are being delivered effectively and sustainably.
- Leadership: every charity is led by an effective board that provides strategic leadership in line with the charity’s aims and values.
- Integrity: the board acts with integrity, adopting values and creating a culture which helps achieve the organisation’s charitable purposes. The board is aware of the importance of the public’s
- confidence and trust in charities, and trustees undertake their duties accordingly.
- Decision-making, risk and control: the board makes sure that its decision-making processes are informed, rigorous and timely and that effective delegation, control and risk assessment and management systems are set up and monitored
- Board effectiveness: the board works as an effective team, using the appropriate balance of skills, experience, backgrounds and knowledge to make informed decisions.
- Diversity: the board’s approach to diversity supports its effectiveness, leadership and decision-making.
- Openness and accountability: the board leads the organisation in being transparent and accountable. The charity is open in its work, unless there is good reason for it not to be.
This article contains extracts from the Governance Code website.
The Code can be read in full at: www.charitygovernancecode.org