With a growing public intolerance for anything less than full accountability for public money, Shane Costelloe looks at governance in the Irish not-for-profit sector.
To regain and foster public trust and confidence, the charity and not-for-profit sector must demonstrate high standards of governance together with accountability to their donors and the wider public.
Governance and accountability comes from the use of effective policies and procedures, creating a clear line between day to day management and the board of directors and promoting a culture of responsibility.
Ireland has a vibrant and diverse charity and not-for-profit sector that includes local community groups, schools, universities, churches, theatres, museums, healthcare providers and international development agencies. The level of public trust and confidence in the sector has declined in recent years with scandals in not-for-profit organisations, including Console, Ataxia Ireland and The Olympic Council of Ireland, becoming all too common place. A lack of effective governance appears to be a recurring theme, with persons occupying positions of control abusing the trust placed in them by the organisations’ stakeholders and the public. When organisations do not adhere to principles of good governance and run into difficulty, it can shatter public confidence and trust in the sector as a whole.
What is Good Governance?
The Corporate Governance Association of Ireland describes governance as “A transparent decision-making process in which the leadership of a not-for-profit organisation, in an effective and accountable way, directs and exercises power on the basis of shared values”. Clearly the effectiveness of the leaders within an organisation is crucial, which in most cases is the board of directors. However, it is also important that checks and balances are put in place to monitor this leadership, typically via the role of trustees, the use of effective policies and procedures and the development of a culture of responsibility throughout the organisation.
The classic type of entity used for a not-for-profit is the Company Limited by Guarantee (the “CLG”). A CLG encourages good governance in as much as it is an entity established under the Companies Act 2014. This Act obliges directors to comply with a codified list of duties, a breach of which could lead to prosecution. While directors take the ultimate responsibility for the governance of their organisations, governance is not a matter for directors alone. Volunteers, service users, members and other stakeholders must ensure that their organisation is administered effectively and meets the needs for which the organisation was originally established, creating a culture of responsibility.
The Charities Regulator
Considering that there are no mandatory rules or regulations to assert governance procedures within not-for-profit organisations, the impact of the Charities Regulator on the sector is a welcome one. The Charities Regulator is a body established under the Charities Act 2009, where any not-for-profit purporting to be a charity and gaining tax exemptions from Revenue is required to be registered. One of the goals of the Charities Regulator is to help charity trustees to understand and comply with their obligations and respond to concerns raised about charities. Having such a watchdog overseeing this sector can only have a positive impact on governance but disappointingly, a mandatory set of governance guidelines is still awaited.
Steps to promote Good Governance
For a not-for-profit to maximise their potential as an entity, and to regain and foster public trust, they must demonstrate high standards of governance and accountability to their donors and beneficiaries as well as the wider public. Below we set out some key steps to promote good governance:-
- Identify the risk and decide ways of managing that risk;
- Be transparent and act as if every move will be scrutinised;
- Adopt the Governance Code (a voluntary code of practice that demonstrates a commitment to good governance);
- Draft and implement governance policies and procedures to create a culture of responsibility which will be maintained consistently, even if the leadership changes;
- Create a clear line between day-to-day management, directors and trustees to develop a system of checks and balances; and
- Take advice from professional advisors along the way who will easily assess the weaknesses in governance and formulate policies to avoid conflicts of interest.