We have always believed that good governance underpins effectiveness and successful organisations. And now the draft The Scottish Governance Code for the Third Sector says just that in its foreword.

The draft Code is out for consultation at the moment (closing 3 August). Everyone can play their part and share their views. We think a Governance Code is a good thing. There of course might be views about certain aspects to be changed, extended or re-focussed. Here is a link to the survey accompanying the draft Code: https://www.surveymonkey.co.uk/r/ScotGovCode

Who is the Code ‘for’?

The Code recognises the breadth of the third sector. The Code will provide useful signage and guidance for organisations across the charities, third and wider impact sector. It will be relevant to any organisation operating to deliver impact in society irrespective of legal form and regulatory status. It is also designed to apply to all sizes of organisation. Of course, how the Code works in practice for different types and size of organisation will differ but the principles can be universal. How organisations reflect upon the principles in the Code, measure ‘adherence’ and use it to underpin their own effectiveness and success will be varied, but there will be value in the sector having a focal point for governance.

What does the Code say?

The Code has five core principles. Five pillars of good governance to underpin an organisation. Pillars that, like the Roman and Greek architectural orders, will differ between organisations in practice, but across the board will seek to be strong and robust supports for each organisation and its purposes.

Talking of ‘purpose’, let’s look at the five core principles. They are:-

Organisational purpose

Of fundamental importance. Existential for an organisation. Without it success is impossible. Purpose also has regulatory implications. In the charities, third and impact sector, purpose is vital. Each organisation will have a mission.

The purpose needs to be clear and articulated. Often it needs to be articulated in legal documentation. On legal documentation, the draft Code also notes that part of ‘organisational purpose’ includes checking that a governing document is fit for purpose and sets out the appropriate governance arrangements. Everything an organisation does in terms of strategic direction and implementation of that strategy needs to return to the litmus test of whether or not a particular action, decision or project will further the organisation’s purpose. It is only possible to carry out that litmus test where there is a clear and clearly articulated purpose for the organisation.

We mentioned that purpose is existential. And it is as goes beyond strategy papers and other documents but leads into the values and culture that organisation is guided by in delivering its purposes and mission. The draft Code includes values in its description of this first principle.

The draft Code discusses the use of assets and resources under this principle. That fits with certain legal aspects of ‘organisation purpose’. A constitutionally set out purpose will focus and direct how assets can be used and also create ‘asset locks’ (either through the purposes or the type of legal form used or both).

Leadership

Leaders will grasp the organisation’s purpose and set out the strategic direction to deliver it. If there is one thing that many will say about the Code is that so much of it is so obvious. And yet can be challenging in reality! There are important points noted under this principle.

The board is “equally and collectively responsible” for its decisions. A unified group is hugely valuable and the board must remember that it makes a ‘board decision’: a single, unified and collective decision. This can be easy to forget in practice. It can also be troublesome for some trustees met by the call to be “transparent, open and accountable” (found in the Code under the next principle) to explain that transparency does not mean give running a commentary on board discussions nor breaking the collective nature of board decisions.

Leadership is evidenced by “working together to create constructive working relationships where diverse, different and at time conflicting views are recognised, respected and welcomed”. In some situations collective board leadership is supported by remembering the non-technical governance principles of politeness, manners and treating others fairly and properly. It also places responsibility on the chair of a meeting and for others to respect the role of the chair in giving everyone a voice and opportunity to be heard. There will at times be split votes on decisions. Those in the minority of the vote (but of course not the decision as that is a collective board decision) may feel disappointed by the outcome of a vote but can understand and respect it. They may feel aggrieved if they feel they have not been treated fairly and politely in how they could express their views and opinions.

Let the executives do their jobs. The draft Code includes the respecting of the difference between governance an operations as tenet of leadership. But also highlights the needs for clear delegation and proper direction, oversight and analysis of performance in furthering the organisation’s purpose.

Board behaviour

The draft Code majors on “integrity, openness and accountability” for this pillar.

Control

Control and perhaps also controls. A board in control will have mechanisms throughout the organisation and on particular projects to have oversight, measure success and impact, recognise and evaluate risk, be focussed on the organisation’s team and those it works with and supports, all with a view to achieving the organisation’s purpose, vision and mission.

The notion of cats and boxes has been discussed from at least one person at this blog for a number of years. The draft Code’s words on ‘control’ really are all about cats and boxes. [You’ll need to get in touch if you wold like to know more about cats and boxes (and other ways to embrace governance methodologies and rules)!]

The message on ‘control’ is clear: a board will boost the organisation’s success if it makes proper (might not always be ‘right!’) decisions, on a properly informed basis having regard to the right information and risk/reward analysis and then having oversight of delivery with performance evaluation while making sure values and culture permeate across the organisation and those the organisation works with and deals.

Effectiveness

The start of this section in the draft Code talks of being “self-aware”. That characteristic features throughout the rest of discussion of the ‘effectiveness’ principle. Reviewing performance on the board, having proper succession planning in place, getting the right trustees and using everyone’s skills and experience and doing the ‘small things’ right (such as agendas and minutes and committing time to decision-making).

The draft Code opens ‘effectiveness’ by saying that “an effective board puts the interest of the organisation and its beneficiaries first”. We agree with that and its is reflected in the opening words of the section on charity trustee duties in the Charities and Trustee Investment (Scotland) Act 2005. A statement that the board must act in the interest of the organisation is, again, obvious. But it can also be a phrase that is leapt upon in times of contention. Those challenging the board (or anyone within an organisation) will invariably hoist the standard of ‘the interest of the organisation’. There might be merit in a wider consideration of what this phrase and concept means and whether or not it simply boils down to a factual question if there is contention about it. As well as threats to report to regulators, there might in the future be calls in disputes that a board or member(s) of a board is/are breaching the Code due to a potential failure to put the interest of the organisation first. Determining whether or not there has been such a failing will often not be clear-cut.

Governance is good

The existence of a Governance Code is a good thing and a good thing in its own right. It will help stimulate sector discussion on what makes for good governance and the principles that apply to the sector. It will also provide a foundation framework for many diverse types of organisation to consider their own governance structure and practices. Ultimately, any code will work and be useful if it is embraced by use in the real world activities of organisations and boards.

The Governance Code is a tool and we can help

The draft Code says it is a “tool to support continuous improvement and strengthen the effectiveness of governance”. For those embarking on a governance refresh or review, constitutional changes, a re-casting of purposes or a re-structuring, we are here to help. We also regularly provide training and discussion sessions for boards and team members in a variety of types of organisation in the charities, third and impact sector. We can talk cats, boxes… and governance then.