Investing in financial governance is one of the most cost effective ways to help your charity

November 17, 2017 at 10:15

As we come to the end of Trustees Week 2017, Charity Finance Group has had a busy week. Yesterday, one of our Member Meetings was focused on how to improve governance and explaining the new Charity Governance Code.

At the start of the week we launched the findings of a survey that we carried out with MHA MacIntyre Hudson into financial governance.

Today, we launch a new free guide for trustees of charities on finance issues, sponsored by MHA MacIntyre Hudson, alongside a glossary of key charity finance terms.

Why is financial governance so important?

It might seem an obvious point to make given the tough financial environment that many charities are operating in, but financial governance is very important to the success of a charity.

Trustees have a critical role to play not just in setting the overall direction of the charity, but also in overseeing the financial strategy of the organisation. At a charity seminar, hosted by Quilter Cheviot in Manchester yesterday, I was privileged to listen to James Brooke-Turner, Finance Director of the Nuffield Foundation, speak about the importance of governance. His point was that when times are challenging, and the future is uncertain, the effectiveness of the board is incredibly important. The decisions that trustees make, if they are not thought through properly, can have a significant long term impact on the financial health of the organisation.

At difficult times boards may be tempted to make rash decisions or hide away from the big issues. Charities need to have the right structures so that that information can be gathered and informed decision making can take place.

Executive teams cannot do this on their own, they need to bring their boards with them.

Investment in governance is critical

Another point that James made was that governance is often one of the cheapest things to invest in yet it often has the biggest returns. A good board will better be able to handle risk, and with the ability to handle financial risk comes the chance for opportunities and growth. The Quilter Cheviot seminar I attended yesterday, for example, was free. CFG’s new guide is free. There are many resources out there for charities that are free or low cost.

However, sometimes, investment in training and external support is required – particularly in areas such as finance which can be complex. Getting the right induction process so that trustees have the necessary skills and understanding is critical. This is also something that needs to be shared across the whole board and not just concentrated in a few areas.

The Charity Commission’s latest research on trusteeship has really brought home how much boards are depending on a few key individuals such as the Chair and Treasurer. Ultimately boards need to take decisions collectively, and this means that all trustees should be informed decision makers.

CFG and MHA MacIntyre Hudson have provided trustee training on finance in the past and we will do so again. But every charity should be checking that their board is up to the required level.

Our trustee survey found that 49% of respondents never or only occasionally provided charity finance training for trustees. We’ve got to reduce that figure over the years ahead, otherwise, we will have a big skills gap on our boards.

Start with assessment

The first place to start is by assessing the competence of the board. What skills do you have? What understanding is there? Our new guide is a useful place to start. Do all trustees understand the core responsibilities outlined in the guide and do they know how they can make a contribution?

If not, then some form of training or support is probably in order. The guide also a handy matrix which you can use for your trustees on what financial skills they have. Some trustees may not have formal charity knowledge, but they may have other finance skills. Not only does this help to identify gaps, but it can also boost confidence in those trustees that perhaps do not have traditional charity finance experience. Everyone should feel empowered to have a say on finance.

Don’t let things slide

In discussing the new Charity Governance Code with members yesterday, one of the things that came through is the need for charities to not let things slide. We need to be having constructive challenge about board performance both from executive teams but also, and more importantly, from trustees themselves.

If you are going to make one pledge this Trustees Week, it should be to go away and bring these issues up at your next board meeting. Now is the time to take action and hopefully by next Trustees Week, both your charity and the sector will be in a stronger position.