One of the key lessons to emerge from the CRC scandal is the importance of maintaining a meaningful divide between Governance and Management. At a time when the sector’s reputation has been severely damaged, charities must demonstrate that their governance practice is open and transparent. Here we look at why having a CEO on your Board is damaging for your organisation.
Blurring the governance/management divide
The CEO and the Board serve two very distinct purposes. The Board, as the governing body of the organisation is responsible for setting the strategic direction of the organisation. In this capacity, the Board delegates and oversees the implementation of the strategic plan – which in turn is executed by the CEO.
Overlap between management and governance will inevitably occur from time to time, but the point here is that the Board and CEO have fundamentally different purposes. The involvement of the CEO in the Board’s affairs therefore automatically undermines this essential balance of power.
Conflict of Interest
As the governing body of the organisation, the Board will often be voting on decisions which directly affect the CEO – for example their salary. Involving the CEO in this decision-making process creates a major conflict of interest, and significantly reduces the Board’s independence. Instead the role of the CEO is to report, and makes recommendations to the Board.
The independence of the Board is a corner-stone of good governance and should be upheld as a top Governance priority.
The Governance Code for Community, Voluntary and Charitable Organisations provides, for the first time, clear guidelines on the roles, duties and responsibilities of those who run community, voluntary or charitable organisations.
All Community, Voluntary and Charitable organisations have a responsibility to their stakeholders to provide and follow a code of good practice. This responsibility rests on the Board of Directors or Management Committee, who are tasked with governing the organisation.
The Governance Code is based on five main principles, each with three sub-principles. For each principle there are recommended guidelines and actions on how to put that principle in place for your organisation. Having taken the actions, you will then know that you are adopting that particular principle.
The Governance Code is developed to serve the entire sector, regardless of size or stage of development. To this end, the developers of the Code have identified three broad organisational types within the sector and have tailored the Code to these categories. These are defined as ‘Type A’, Type B’, and ‘Type C’. Whilst the five principles remain the same across the three categories, the actions will be different.
Have a look here to see which category you fit into and the set of actions most suitable for your organisation.
The Governance Code is principles-based, rather than rule-based, and it is voluntary. It is expected that groups and organisations will compare themselves to the standards outlined in the Code on a ‘comply or explain’ basis. This means that you measure your organisation against the principle in question, specifically against each of the actions for that principle. After this you make any changes needed to bring your organisation in line.
Click here for the Governance Code for Type A organisations
Click here for the Governance Code for Type B organisations
Click here for the Governance Code for Type C organisations
Boardmatch Ireland played an important role in the development of the Code, alongside the 7 other community, voluntary and charity organisations in the working group. We sincerely appreciate the invaluable thoughts and insights that were offered and are particularly encouraged by the overwhelming positive response to this initiative, which is led by the sector for the sector.
As a corporate governance charity, we are passionate about strengthening governance in the not-for-profit sector and urge all organisations, big and small, to sign up now!
The Governance Code was developed over a three-year period by a Working Group of eight Charities including Boardmatch Ireland, and assisted by a number of experts in the area of governance. The working Group consulted widely with community and voluntary organisations, funders, regulators, statutory bodies and other stakeholders.
The following organisations from the Community, Voluntary and Charitable Sector were active members of the Working Group:
· Boardmatch Ireland
· Business in the Community
· Carmichael Centre for Voluntary Groups
· Clann Credo
· Disability Federation Ireland
· Irish Charities Tax Reform
· Volunteer Ireland
· The Wheel
Amongst the stories to emerge from the CRC controversy, we learnt that seven Board members had served on the Board from between 9 and 15 years. Board renewal is a cornerstone of Good Governance and it is essential that every Board enjoys a regular injection of new blood and fresh ideas. This is where the importance of term limits comes in.
Setting Term Limits
Charities should have the term limits for their Board members outlined in their Articles of Association and Memorandum but the actual duration of a Board members term will vary from charity to charity. It should be long enough to allow the Board member to become meaningfully involved, but not too long that they become complacent.
For example, Boardmatch’s Arts & Mems specify 3 terms of 3 years for our Board members. Whilst this isn’t necessarily the best option for every charity Board, it has proved optimal in allowing Boardmatch to maintain a refreshed and effective Board.
Why have term limits?
Serving as a member of the Board requires significant commitment and energy. Board members who have a finite time period within which to fulfill their duties are bound to work more enthusiastically for the organisation, than those with an unlimited tenure. A long-standing Board member risks becoming complacent and this can be severely damaging for the organisation.
Term limits will also encourage the Board to develop new leaders. In anticipation of a departing Chair at the end of his/her term, the Board will be encouraged to think strategically about the next appointee. This will help stave off complacency and will encourage skill development amongst Board members.
Above all, term limits ensure that the Board continues to benefit from new ideas and perspectives. Without a departure date, Board members grow accustomed to doing things their way and this can often be to the detriment of the organisation.
The latest survey on the impact of the recession shows that Ireland’s leading charities are still being forced to cut essential services and make redundancies due to dwindling government spending and public donations.
In a survey carried out by the Irish Independent, 40 of Ireland’s largest charities responded to questions about the impact that the recession has had on their day-to-day activities.
Special Olympics Ireland reported that its government funding had fallen by 59 per cent since 2008, and that there was an ‘ever-increasing gap’ between income and outgoings.
Only one of the respondents reported being able to pay the interest on their mortgage, whilst most told that they had “virtually exhausted” their cash reserves and have had to cut salaries and pension payments.
The drop in government funding has been coupled with a rise in demand for services from these charities since the onset of the economic downturn, said The Wheel CEO Deirdre Garvey.
“Voluntary organisations tend to be the safety net for a lot of individuals. These cuts are disproportionate. [We] understand the gap in the public finances needs to be closed but there are choices in every budget in how to close the gap. The balance needs to be more even.”
Source: Irish Independent
Whilst having an effective CEO is undoubtedly the ideal for every organisation, the Board must remember that it, not the CEO, is ultimately responsible for the organisation and is accountable for all decisions taken by it.
Here are a few simple guidelines to help Boards avoid overdependence on the CEO.
The Engaged Board
The way in which a Board engages with the CEO can vary drastically from organisation to organisation. On one end of the spectrum you could have a passive Board. In this scenario, the CEO has disproportionate decision-making power whilst the Board makes limited contribution only ratifying management preferences. The other end of the spectrum is equally dysfunctional. We refer to it as the operating Board, whereby the Board has stepped far across the management threshold and is too involved in the operational aspects of the organisation.
The ideal here is the engaged Board. In this capacity, the Board is neither sitting idly by nor has it encroached into management territory. An engaged Board will understand the Management/Governance divide and its responsibility to oversee management, it will provide the appropriate level of guidance and oversight to the CEO and will give insight, advice and support to management.
The CEO and Chair relationship represents the Management/Governance interface of the organisation so building a strong relationship premised on honesty and clarity should be the main objective for both CEO and Chair.
Getting the balance right between support and challenge is also key. Whilst it is important to be supportive of the CEO, it is also essential that he or she is challenged where necessary. A useful phrase coined by Governance expert Dorothy Dalton, is to act as a ‘Critical Friend.’
Strong System of Delegation
Having a clear delegation of authority is an essential governance procedure for every organisation big or small. This system of delegation will ensure that the CEO’s level of authority is clearly defined and will formalise the Board’s duty to actively participate on the decision making process.
Delegated authority must be subject to oversight however, and there are number of requirements that Boards should adhere to when delegating authority. It must be:
· In writing;
· Individuals and committees need to report back and be held to account and;
· It should be reviewed regularly.
In addition to these requirements, the Board, CEO and staff should also keep a document which details how authority is dispersed throughout the organisation so that there is absolute clarity on who is responsible for what.
Investing in CEO
Lastly, the Board should consider investing time in training and developing the CEO. Training opportunities which assist the CEO to develop his or her delegation skills for their executive management team will play a huge role in staving off a CEO-centric organisation allowing for the development of a strong management team.
The proposal to cut the size of the Charities Regulatory Authority and to introduce annual registration fees for charities was approved at a July Cabinet meeting, according to Principle Officer at the Charities Regulation Unit Úna Ní Dhubhghaill.
The decision to scale down the incoming regulator was made in a time of ‘forced retrenchment in public spending on a historically massive scale.’ She said.
Ms Ní Dhubhghaill was speaking at Boardmatch Ireland’s National Federations Lunch in mid-October, which was attended by the main representative bodies in the Irish not-for-profit sector.
Addressing the crowd in the Royal College of Physicians in Dublin, Ms Ní Dhubhghaill told attendees that the re-sized Regulator would now have ‘a staff of perhaps 20’ and that part of the cost of running the new regulatory body would be covered by the sector in the form of annual registration fees.
“These proposals were approved by Government at a cabinet meeting in July and are the basis for the work we are now doing.”
Ms Ní Dhubhghaill also told attendees that establishing the Register of Charities would take priority for the new Charities Regulation Unit, and that other provisions under the Charities Act 2009 would follow once the Register was fully established.
“It was clear from the responses to the consultation that many within the sector viewed the establishment of the Register as the overriding priority and crucial first step. It is only when the register is in place that many of the other provisions of the act can be brought into force.” She said.
In 2011, Minister for Justice and Equality Alan Shatter announced the postponement of Charities Regulatory Authority due to insufficient Government resources, and instead appealed to the sector to sign-up to the various voluntary Codes of Practice.
The new regulatory framework is finally on the horizon and ‘heralds many significant changes for the sector” said Ms Ní Dhubhghaill.
Amongst other provisions, charities will be required to report annually to the new Regulator and for the first time, organisations that wish to continue to operate as a charity under the new framework, must be deemed eligible for registration by the Regulator.
“In effect, what this means is that for the first time ever there will be a formal marker of charitable status…This is a profound change. It cannot be right that anyone can simply set up an organisation and call it a charity – to be a ‘charity’ requires more than that.”
Ms Ní Dhubhghaill concluded her briefing by asking the sector to ‘bear with’ the new Unit during this time of change and appealed to them to stay engaged in the process.
“It will take time to make this new system of regulation a reality. And throughout the process we are going to continue to need the input of organisations such as yours through dialogue and consultation, both formal and informal.”