The importance of good governance

Every organisation can benefit from high standards of corporate governance. That’s because corporate governance matters. Poor governance standards diminish us all. While it can be relatively straightforward to define the immediate victims of organisational failure – employees, shareholders, clients, customers, it can be argued that the whole of society is affected in one way or another by poor governance standards.

You could argue that charities need high standards of corporate governance more than any other organisation

In 2014, more than 60 per cent of the charities operating in Ireland reported significant falls in donations as a result of some very public scandals involving the wider charity sector. Half of the charities which reported falls in donations said this had resulted in cuts in services. The loss of trust which resulted from those failings had massive ramifications both for other charities and the people who relied on them for services.

“You could argue that charities need high standards of corporate governance more than any other organisation,” says Prof Niamh Brennan, director of the UCD Centre for Corporate Governance. “If a charity experiences a loss of confidence, funding quickly dries up. They need to maintain very high standards.”

“Ireland’s 12,000 charities control over €15 billion in income every year which they apply for charitable purposes and public benefit,” says Ivan Cooper of charity and non-profit representative association The Wheel. “Clearly, that brings great responsibility and a requirement to demonstrate the highest standards of governance.”

All of Ireland’s charities are now required to sign up to the Charities Regulator’s Governance Code. “The code requires them to adhere to six principles: to focus on advancing their charitable purpose; behave with integrity; lead people effectively; exercise control; work effectively; and be accountable and transparent,” Cooper says. “All of Ireland’s charities must comply with the code in 2020 and report that they are compliant in 2021.”

“Barnardos is scrupulous about governance,” says director of fundraising Mary Gamble. “We understand that our reputation is everything. We pride ourselves on being a completely transparent organisation and we won an award for excellence in financial reporting from Chartered Accountants Ireland last year.”

Trust is the number one priority

Trust is the number one priority for the organisation. “If that’s not there you have nothing. It’s really important for us that people understand that our accounts are published and are there for anyone to see. We will throw open our doors – quite literally sometimes – to show what we do with the money we get and how we spend it.

“Independent oversight is very important to us,” she continues. “All of our board and trustees are volunteers. We are very fortunate to have people who are at the highest levels in the finance and auditing worlds on our board. Our audit and risk committee meets regularly to review our activities.”

Unfortunately, governance costs. For a small charity it represents quite a heavy overhead

Governance standards have been improving in the sector, according to GOAL deputy chief executive Mary Van Lieshout. “It is vital that NGOs have the highest standards of accountability and governance and that we earn and maintain the trust of our supporters and donors,” she says. “Across the sector, many organisations have actively strengthened their governance and associated systems and processes. However, there is always opportunity for the wider sector to continue to improve in this area.

“GOAL has a very strong accountability framework with a deep commitment to a culture and practices of continuous improvement,” Van Lieshout adds. “The management team and board consistently promote our authentic workplace integrity framework which ensures our operations are fully compliant with our internal and donor standards and guides and promotes a deep commitment to our values and principles of respect, fairness, honesty, integrity, partnership and courage.”

But charities do face challenges in maintaining high standards of governance. “Good governance comes at a cost and it is important that when a charity is in receipt of statutory funding that the funder makes a contribution to the costs of good governance,” says Cooper. “Irish charities depend on more than 50,000 voluntary board members and trustees. They should have access to comprehensive training programmes to support the development of trustees and to assist them meet their governance responsibilities. The role charities play in supporting Ireland’s social infrastructure means they should be given adequate support to meet their governance responsibilities.”

The Charities Regulator is now very active and the days of laissez faire are over

Niamh Brennan agrees it is extremely difficult for smaller charities to meet their governance responsibilities. “Unfortunately, governance costs. For a small charity it represents quite a heavy overhead. I would suggest that this puts smaller charities at a disadvantage. Donors want high standards but are not willing to pay for them.”

No compromise

But there can be no compromise. “The Charities Regulator is now very active and the days of laissez faire are over,” says Brennan. “The regulator is very insistent that charities and trustees file documents on time. Charities can’t ignore this.”

Another challenge faced by charities is the danger of volunteer board members and trustees becoming emotionally involved with the organisation and its purpose, leading them to lose the professional detachment required to carry out their duties. “Charities by their nature are under-resourced,” Brennan says. “In the main, they rely on highly motivated volunteers to serve on their boards. It can be difficult sometimes being an independent director. It is very easy to get involved in operational aspects and in the day-to-day activities of the charity. Charities need people with business and governance expertise to serve on their boards, but they can be difficult to find.”

And having good people on boards is doubly important for small charities. “They can’t afford the kind of internal control system that well-resourced businesses can,” says Brennan.

But there is some good news. “There is an organisation called Boardmatch Ireland which helps charities find the right trustees and board members,” she adds.

She concludes by pointing out that a governance failing or worse need not be the end of the road for a charity and notes the case of one of Ireland’s leading charities that was a victim of a major fraud perpetrated by its chief executive back in the 1980s. “They used that experience to put in place a whole range of improvements,” she says. “It’s now one of the best-run charities there is. Good can come out of bad in that respect.”