Whilst key principles of good governance apply generally to all different types of organisation, there are a multitude of provisions that may vary with the characteristics and objectives of the individual sector. Here, we look at some of the codes of good governance in charities and not-for-profit organisations - as outlined in the Non-Executive Directors' Handbook - drawing out some similarities and differences between sectors.
Codes of governance and related guidelines have been developed for a range of public sector bodies, not-for-profit organisations and other institutions that have a different purpose and operating structure.
The broad principles of good governance in a noncorporate organisation are similar to those for private companies, but with differences that reflect the leadership approach, the nature of the organisation and how it operates.
As outlined in the NED Handbook, not-for-profit organisations and other non-government bodies have a specialised board, which may be called a board of governors or a board of trustees.
- A board of governors is responsible for the leadership of an organisation, in a similar way to the board of directors of a company.
- A board of trustees is established under trust law. A trustee is an individual or body entrusted with legal title to property which it holds and uses (in a fiduciary relationship) for the benefit of others (‘beneficiaries’). In organisations such as charities, a board of trustees has a similar role to a board of directors in a company.
In particular, the NED Handbook looks at the similarities and differences between various non-corporate bodies, illustrating governance features of for-profit companies, central government departments, public sector, not-for-profit and charities.
For example, there are two key Charity Governance Codes, one for large and one for small charities.
These were developed by a number of charity organisations, and were most recently ‘refreshed’ in 2020. The two codes both contain the same seven principles, which are developed in more detail in the code for large charities.
Large charities that subscribe to the (voluntary) code are required to apply its provisions or explain why any provision has not been applied.
The seven principles in the Charity Governance Codes include:
- Organisational purpose - The board should be clear about the aims of the charity and should ensure that these are being delivered sustainably (including sustainability of income sources) and effectively.
- Leadership - The charity should be led by an effective board that delivers strategic leadership. The board should be led by a chair, and there should be arrangements for the appointment, supervision, appraisal, remuneration and (if necessary) dismissal of the chief executive officer.
- Integrity - The board should act with integrity and adopt values and create a culture that will help the charity to achieve its purpose.
- Decision-making: risk and control - Decision-making should be informed, rigorous and timely. There should be effective delegation of authority to management and an effective risk management and control system.
- Board effectiveness - The board should have an appropriate balance of skills.
- Equality, diversity and inclusion - The board should support equality, diversity and inclusion, both in its own practice and throughout the organisation. The approach to diversity should support effectiveness, leadership and decision-making.
- Openness and accountability - The board should lead the organisation in being transparent and accountable.
It should be expected that trustees are committed to the cause of their charity and should want to help the charity to achieve its purpose, which is to deliver public benefit. Trustees should also understand their roles and legal responsibilities, and should be committed to good governance.
Understanding the governance frameworks of charities and not-for-profit organisations is essential for effective leadership, and while the core principles align with corporate governance, the unique structures and responsibilities of these organisations require a tailored approach to oversight and accountability.
Learn More:
You can access a comprehensive knowledge base on public sector, charities, not-for-profit organisations and more in the Non-Executive Directors' Handbook, available at the link here (Premium Members Only).