Speaking at the Charity Finance Group’s large charities conference in London on 30 September, the treasurer of Oxfam International Bob Humphreys questioned whether the two-tier governance structure in the charity sector had reached its “sell-by date”.
The traditional governance model of a trustee board and executive team, he argued, could be incompatible with the increasingly demanding regulation of the charity sector.
It is to be welcomed when people in senior roles speak out plainly and clearly; it’s a brave thing to do. While this shouldn’t be seen as an announcement that the king hasn’t got any clothes on (he isn’t going that far), Humphreys is undoubtedly starting a debate about whether the current clothing is adequate.
He raises, of course, a point which goes much further than the charity sector. While the cause of his concerns relate to increasing regulatory burdens for charities, there are other obvious situations where increasing demands on voluntary or lay boards are raising serious questions about capacity: school governors; boards of social housing providers; and of course, elected boards in the co-operative sector. This issue was at the heart of the criticisms in the Myners review of the Co-operative Group.
The background and context of each of these sectors varies greatly; but there is a common theme. The two-tier governance approach is under stress and needs to be re-examined.
Governance constantly evolves. This happens from within, as organisations respond to the changing needs of those they serve, those they employ and others impacted by their activities; and it evolves in response to outside circumstances including changes imposed by law or regulation, in codes of practice, and changes in societal attitudes, expectations and preferences.
But broadly, we agree with Humphreys: that in certain situations, the traditional two-tier structure is under real strain. We say this mainly on the basis of the legal duties of those in charge.
The law, rightly, imposes important duties on those holding office in organisations and exercising legal powers over assets, people and businesses. Trustees or directors hold and exercise those powers on trust; in the law they are merely agents, currently responsible for things that ultimately don’t belong to them. But in the traditional two-tier structure, this doesn’t work very well, for the following reason.
The trustees or directors duly hold the legal powers, and generally there is good education and support about the duties and responsibilities of exercising those powers. The problem is that in many organisations, the real or de facto power is held and exercised by executives who are not trustees or directors – the executive management of societies, the executives of charities, and the head teacher and management team in schools.
For many years, we have been generally comfortable with this arrangement in the UK. It is a well-known and established approach. Indeed, the Charity Commission regards the separation of trustees and executives as the norm, with executive trustees as the exception, rather than the rule. The retail co-operative movement similarly preserves it (other than in the Co-operative Group). And it remains the standard approach on a housing stock transfer.
Certainly, this approach enables trustees or elected directors to employ people with the requisite track record and expertise to hold positions of great responsibility. The problem, however, is in those cases where in reality the organisation is relying on those executives to run its affairs; and where without those executives, the trustees or directors themselves lack the skills and capacity which the organisation needs.
This is problematic. Good governance arrangements support the proper and safe running of the organisation. But where those constitutionally responsible for running an organisation are not those who are actually doing so, those governance arrangements are probably not doing their job, and need to be revisited. This is what Humphreys seems to be saying, and he should be commended for it.
Fundamentally, it is important to make sure that those in charge of running organisations, especially large ones, have the right skills and competencies to do so. Much turns on them doing a good job, and the best interests of the organisation can only be served if they are free to do so.
But we also need to make sure that those who are actually running these organisations have the right role within the governance.
Humphreys doesn’t try to provide an answer to the question he poses; that requires careful thought, reflection and debate, and the answer will be different in the many different contexts concerned.
Such reflection and debate did not happen in the context of the travails of the Co-operative Group; but it needs to happen.
We need to make sure, from a governance perspective, that co-operatives are respectably clothed.
- Cliff Mills is a consultant at Anthony Collins Solicitors, where David Alcock is head of Social Business.