Above board?
Rodney Buse analyses the ingredients of good board decision-making...
There is a healthy debate raging on what might constitute the ideal makeup of a charity board. Some see the need for representation, while others voice the strong desire for skills-based boards. Few ask the question ‘what is the principal purpose of a charity board and to whom is it truly accountable?’ In law it is accountable to the Charity Commission, but in practice this is to ensure it acts legally, not that it makes the best decisions it can on behalf of beneficiaries and interested stakeholders.
If charities are to improve the quality of board decision-making, then they need to demonstrate their effectiveness and accountability to a broad range of interest groups. In determining the skills and competencies required for a highly effective board it must first be recognised that its principal role is to govern. Governance, in this context might best be described as the effective oversight of all decisions made throughout a charity. In short; ensuring that the best decisions are made consistent with stakeholder interests and the governing documents. Giving interested stakeholders a meaningful voice and influence is therefore critical and is an essential part of the checks and balances that should exist to avoid complacency or the misuse of power by a charity board.
Inventory of skills and experience
If aiming for a competency-based board, skills required are likely to include some of those listed in figure 1.
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These types of skills are important to good board governance but individuals need not have the depth of expertise that might best be drawn upon through ‘expert’ advisory committees and project groups. Ideally, these expert groups would report to the board through the CEO. Following this structure creates ownership by the CEO and management team who are appointed for their professional skills; they can then be held appropriately accountable by the board. One of the biggest dangers for any board of trustees can be when it fails, or is unable to properly oversee the management team.
Much has been written about how to achieve optimum board size and classic wisdom is that for a meeting to be effective in its responsibilities is should ideally number perhaps no more 12 (see Pesh Framjee's article, When less is more).
Audits to review gaps in board skills are becoming more common in an attempt to increase the effectiveness of the board. In addition there are other pressures: for example, in the social housing sector it in not uncommon to find five tenants, three independents and three other representatives on a board. As trustees are collectively responsible for effective governance, the wisdom of this structure is questioned as it seems primarily focused on individual stakeholder interest rather than the skills and competencies that encourage the best decision-making. If we are aiming for good governance we need to aim also for the right ‘mix’ of personal attributes that will make for a highly effective board. These may be best described as ‘profiles’.
A list drawn up recently by Julia Unwin for her presentation, Building Boards That Work, offers a valuable insight into the personal profiles needed for a board to work effectively (see figure 2).
These are crucial behavioural aspects of board development, and if insufficient emphasis is placed on addressing them, it may well be to the detriment of the effectiveness of the entire organisation.
Figure 3 acknowledges that there will be expert groups in appropriate subject areas, importantly reporting to/through the chief executive if the size of the organisation allows. I would argue that this should be true even if trustees either chair or attend expert group meetings. It must be remembered that in these circumstances it is the board that carries the responsibility for collective decisionmaking and that individual trustees have no such power unless specifically delegated. In these circumstances such delegation is best made to the expert groups on which members of the management will have a seat: for example fundraising or social care. On occasion, trustees may like to attend these meeting as part of the ‘eyes and ears’ of the organisation and to act in part as the checks and balances on the management team.
A board and a management team are common to most organisations; the board in its role of governance, the professional team for their operational and strategic effectiveness. Expert groups and committees are used in this model to augment skills in specialist subject areas such as fundraising and social care. The area in dark grey illustrates the type of mechanisms that an increasing number of charities are identifying as a way to ensure that the voices of special interests and stakeholders are properly heard and represented. It is important that opportunities exist to accommodate membership and stakeholders’ involvement and engagement, where these groups can be influential without the necessity of carrying the accountability card. Engagements of this kind should have checks and balances in place that ensure that key voices are heard and decisions are taken with the demonstrable benefit of this input.
Alternative channels for stakeholders
I believe that for the most part it will be better for the voice of the stakeholders to be heard through these alternative mechanisms rather than board membership, but where representatives do occupy board positions they should first and foremost have qualities and competencies suited to the board’s task. To do otherwise will always be a compromise that could endanger the organisation’s effectiveness.
It is not uncommon for organisations to conduct governance reviews from time to time. These frequently focus on the role and effectiveness of the board and its committees and address the size, skills and attributes of a board. Perhaps a better starting position is to answer the question: how do we make sure stakeholders have a genuinely effective voice and are demonstrably consulted and listened to before key decisions are taken? In my experience, the desire for stakeholders’ representatives to sit on an accountable board will be significantly reduced if this question is addressed first. It has led to many an able representative stepping down from the board in favour of a more rewarding and valuable role.
A new dimension in organisational governance is the variety of vehicles that have been developed to incorporate the stakeholder voice beyond being ‘represented’ on the trustee board. The health sector has seen flourishing and increasingly effective user groups of which patient groups are a good example. Organisations such as NCVO have for a decade or more had a President’s Advisory Council as an effective sounding board. Recently NCVO reduced the size of its board and in so doing established an ‘Assembly’ of 50 representatives and a full council of all its 5,000 membership.
The advent of new technology is also playing its part. Through the use of newsletters and electronic communications it is possible to be accountable to the membership at large on a regular and timely basis. Many PLCs now publish quarterly results; and it will be interesting to monitor whether voluntary organisations modify reporting to stakeholders to go further than the requirements in the annual report and to develop wider methods of accountability. Consultation methodology has made it easier to undertake interactive consultation with a broad spectrum of interests before key decisions are made that will affect beneficiaries and stakeholders. Virtual conferencing facilities, online communities and blogs are just some of the methods and structures being made possible by evolving technology and, with the necessary checks and balances, it is possible to see the need for representative trustees diminishing.
Accountability thresholds
Usually, boards would hold the chief executive and the executive team accountable for the quality of recommendations being presented for decision at the board. As figure 3 shows, the line of responsibility for the audit and risk committee, and a nominations and remuneration process are governance activities and are the responsibility of the board of trustees. They are an essential oversight and governance function, and as such cannot be properly delegated to the chief executive.
The chief executive usually ensures the availability of the necessary expertise for key tasks: in this context the input from of expert committees and groups can be invaluable and is to be recommended where circumstances allow. It can be an especially valuable mechanism where there are a wide range of views and interests to take into account. Care must to taken when trustees chair or sit on such advisory committees or project groups, as in this capacity trustees carry no line authority (unless specifically delegated with great caution) and it is their experience and skill that is being sought. Should trustees seek to impose authority on a committee or project group they risk absolving the chief executive and the management team from accountability, which may have serious consequences. This misunderstanding has the potential to get in the way of the checks and balances that would otherwise exist.
It is said that the board sets strategy and policy. I would agree, but in reality it performs an oversight function to ensure best decisions are made, and such key tasks will often be agreed on the recommendation of the chief executive. When a board chooses to go against the recommendation its CEO it should ask, ‘where are the checks and balances that ensure we are making the right decision? Can we demonstrate that all interest group opinions have been properly heard and considered?’ The question that anyone, trustee, beneficiary or funder may ask is: ‘If I believe a major process or decision is not being properly considered or addressed, what remedies do I have and who may I approach to hear, to champion and potentially resolve my concerns?’ The answer to this question addresses one of the key fundamentals on the monitoring of power: the need to distinguish between those with accountability and those with influence.
Governance committees
There are many examples of how audit and risk, nominations and remuneration committees are becoming increasingly competent and effective. This subject is included here as these governance processes form one of the most important checks and balances to achieve the accountability of a board and the CEO.
A relatively recent innovation has been the appointment of independent skilled professionals to these committees. This level of external validation of systems and processes can have a profound impact on organisations and their level of accountability both for law but also to external stakeholders. I would encourage this: it brings a welcomed level of ‘peer review’ to the major governance issues providing independent and external validation of effectiveness.
For example, this becomes more so if the terms of reference properly include the engagement of external stakeholders in risk assessment. It would show that such influence was being measured, recorded and acted upon where appropriate. To a membership organisation, losing the confidence of major beneficiaries would be of real concern and is therefore part of the risk assessment.
The best decisions
Perhaps the most important question a trustee board can ask is ‘how can we be sure we are making the best decisions?’ This is a much harder question than ‘Are we operating legally?’.
In trying to address this question many make a direct comparison between the governance structures of the voluntary sector with the public and private sectors and argue for greater competence and professional skills. However in both these other sectors there is clear accountability either to shareholders or to statutory authorities such as the Treasury, the National Audit Office and to the electorate for policy. In the private sector, for instance, the question that boards address is ‘is this decision in the best long-term interest of shareholder value?’ Shareholders are then in a position to decide on results. If charities are to seek to imitate the best of the other models there needs to be greater thought on how charities are to remain properly accountable beyond their duty to the Charity Commission.
Beneficiaries and interested stakeholders have a key role to play and we must be imaginative if this vital role of influence is to be properly included in future structures of organisational effectiveness. Only then can we begin to assess whether the best decisions have been made.
Author: Rodney Buse
Rodney Buse chairs Charity Trustee Networks and has served as a member of the code steering group throughout the development of the second edition.
He undertakes a limited number of governance assignments with a focus on the structures and behaviours that drive organisational effectiveness.
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