On 13 July 2017, the much anticipated new and reformatted Charity Code of Governance was published.
The Code is designed to be a “practical tool to help charities and their trustees develop high standards of governance” and is a collaborative project between a number of sector bodies (NCVO, ACEVO, ICSA, Small Charities Coalition, WCVA and the Association of Chairs), with the steering group headed by Rosie Chapman, as independent chair.
Compliance with the Charity Code of Governance is not a legal or regulatory requirement; it sets out best practice recommendations for good governance within charities and is “deliberately aspirational: some elements of the Code will be a stretch for many charities to achieve”. The steering group has set intentionally high standards, so that the Code may be used as a “tool for continuous improvement” by charities. The Code does not provide guidance on all legal and regulatory requirements and is not intended to be relied upon for that purpose: part of the foundation on which the Code has been drafted is that charity trustees understand their roles and legal responsibilities. The Code does not, therefore, replace or remove the need for proper and continued training for charity trustees.
The Code is endorsed by the Charity Commission, whose Director of Policy and Communications (Sarah Atkinson) commented that “the latest edition has raised the bar in response to the challenges that the sector has faced over the last two years” and stressed how important it is for charity trustees to “get their heads around governance”. The Charity Commission has also withdrawn its guidance document “Hallmarks of an Effective Charity (CC10)” and instead now encourages charities to use the new Charity Code of Governance.
The new Code is a major overhaul of the former “Charity Governance: a Code for the Voluntary and Community Sector”, which was last published in 2010. The first draft of the new Code was published on 7 November 2016 for consultation (which concluded on 7 February 2017), and Liz Brownsell (Senior Associate in our Charities and Social Enterprise Team) was a member of the Charity Law Association working party that reviewed the draft Code and provided feedback to the steering group.
The first draft of the Code included colour coding to indicate which aspects of the Code were only relevant to larger charities. In response to feedback from the consultation, two separate versions of the Code have been published instead: one aimed at larger charities (typically those with an annual income in excess of £1 million, and whose accounts are externally audited) and another aimed at smaller charities. The rationale behind publishing two versions of the Code is to allow for more specific focus on governance issues relevant to different sizes of organisation.
In both versions, the Code is structured around seven core principles of good governance:
- 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 help 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.
Charities are expected to “apply or explain”. It is not expected that all charities will be able to follow all aspects of the Code (and it might not be appropriate in some cases). However, charity trustees are expected to regularly discuss and consider the principles and recommended practice set out in the Code and “make well-considered decisions about how these should be applied in their charity”. Transparency is very important within the sector for public trust and confidence, so charities are encouraged to explain their approach to applying the Code by publishing a brief statement in their annual report each year. For charities working within sectors where there are sector-specific governance codes (e.g. social housing), it is anticipated that those codes will take precedence over the Charity Governance Code, and charities are encouraged to state in annual reports which code they follow.
The new Code is a valuable tool for charity trustees, and we have incorporated it into our rolling programme of Charity Trustee Induction and Refresher Training. We would encourage charity trustees to use the Code to assist with governance and strategic reviews.