Kids Company has made the headlines again following the judgment of Mrs Justice Falk on the action brought by the Official Receiver against the trustees of the charity under the Disqualification of Directors Act 1986. It’s a long and detailed judgment but it highlighted the role of trustees within a charity, or not for profit organisation, and the essential need for good governance.
What is the role of a trustee?
Some risks to charities are obvious, such as loss of funding, reputational damage, fraud or loss of data. However, others require a deeper understanding of the organisation.
There are common misconceptions about the role of trustees. This was highlighted by Mrs Justice Falk in her judgment, where she felt the Official Receiver had difficulties with the concept that charity trustees are unpaid volunteers - subject to a few exceptions. They should be trained and supported in the same way as all staff.
Poor governance and understanding of organisational strategy and operations can lead to poor decision making, and increase the other risks to an organisation.
What should be on a charity risk register?
Your charities risk register should include; the nature and scale of the charity's activities, the outcomes that need to be achieved, any external factors that might affect the charity such as legislation and regulation, the charity's reputation with its major funders and supporters, and good governance.
What is the Charity Governance Code?
The Charity Governance Code is relevant to all charities and not for profit organisations that deliver a public or community benefit and social purpose. It's designed as a tool to promote and support the continuing improvement of governance within these organisations, and represents a standard of good practice to which they should aspire.
It's based on the assumption that those who commit to being trustees do so because they are; committed to the relevant cause, understand their roles and responsibilities and wish to contribute to the success and improvement. More detailed guidance is set out under seven headings within the code, including; organisational purpose, leadership, decision making and risk and control.
How to review your charities risk profile
The code offers a good foundation for charities and not for profit organisations reviewing their risk profile around board effectiveness and governance understanding amongst trustees. Dealing with risk at a fundamental level and ensuring good governance as the basis for delivering their objects will benefit the sector.