Governance is the term used to describe how an organisation—or, indeed, a country—is run or managed, and the systems used to do so. It applies to the highest levels of management, such as the company board, or a charity’s board of directors or trustees. It includes the systems that these managers or volunteers put in place and then use to manage the organisation and ensure that it delivers its objectives and aims.

Good governance is now seen as essential for all organisations. However, it is perhaps particularly important for charities, which are generally set up to do something ‘good’, usually providing services or support to those in need. Charities are often, if not always, funded through donations, and it is therefore essential that they do not waste money, or do anything that might put their services at risk. This page explains the essentials of charity governance.

What is Governance?

Governance is the term for how an organisation or country is governed (see box).

It seems logical that charities need good governance, but what does this really mean in practice?

The National Council for Voluntary Organisations (NCVO) in the UK sets out four aspects of governance. It says that in a well-governed organisation, the board and governance structure will deliver these four:

• Direction, by setting out a clear strategy for the organisation that will enable it to deliver its purposes. This is effectively providing leadership for the organisation.

• Effectiveness, or being able to make good use of the charity’s funding and resources, and use them to deliver its aims and purposes.

• Supervision, or making sure that the charity complies with the law, its governing document, and any relevant policies. It also means ensuring that any problems and issues that arise are dealt with quickly and effectively, and that risks are appropriately managed.

• Accountability, or reporting to stakeholders about the operations and activities of the charity. This includes reporting to the regulator when required, as well as to members and charity beneficiaries.

It is therefore clear that the governance of a charity is crucial to enable it to serve its purposes, meet its objectives, and provide services to its beneficiaries, all while maintaining openness and transparency about its activities. There is more about why this matters in our page on Running a Charity: Ethical Issues.

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Principles of Governance

In the UK, the Charity Governance Code sets out seven principles of governance. These are built on the assumption that charities and their trustees are meeting their legal obligations. There is a certain amount of overlap with the four areas set out by the National Council for Voluntary Organisations, but also some additional areas.

The seven principles are:

• Organisational purpose, which means that the trustees or directors understand the charity’s purpose and aims, and are making sure that they are being delivered.

• Leadership, which means that the charity is led by an effective board of trustees or directors, and that the trustees are able to provide strategic leadership that fits with the charity’s aims and values. This clearly matches the NCVO’s direction.

• Integrity, which means that the trustees act with integrity. For example, this means adopting and using values and creating a culture to enable the charity to deliver its aims. The Code also mentions that the trustees should appreciate the importance of public trust and confidence in charities, and act in such a way to protect this.

• Decision-making, risk and control, meaning that decision-making processes are informed, rigorous and timely. The trustees are also expected to establish appropriate systems for delegating, control and risk management, and monitoring.

• Board effectiveness, meaning that the trustees or directors are able to work well together to make decisions, drawing on each other’s skills, knowledge and experience.

• Equality, diversity and inclusion, so that the trustees’ approach to diversity supports the effectiveness of the board. In practice, this means recognising that greater diversity leads to better decision-making—and then acting on this recognition (there is more about this in our page on Diversity in Groups and Teams).

• Openness and accountability, so that the charity’s work is open, reported, and transparent, and this process is led by the trustees.

The idea behind the Code, and the seven principles, is that they set out aspirations for the charity sector. Trustees and directors can use the code to review the governance of their organisation on a regular basis, to ensure that—as far as possible—they are using best practice to manage the charity.

Responsibility for Governance

The final question is who is responsible for the governance of a charity. The answer, in the UK at least, is the trustees. Every charity registered with the Charity Commission is required to have at least three trustees, and may have more. The trustees form a board, which makes decisions about the direction and focus of the charity.

Our page on Being a Charity Trustee or Director explains more about the role of trustees.

The trustees are required to make decisions that are in the best interests of the charity.

However, the trustees are not the only people involved in the governance of a charity.

Their work, and their ability to make good decisions, also depend on other people, including:

• Any paid officers and executives employed by the charity;
• Other staff employed by the charity;
• Volunteers for the charity;
• Advisers, whether paid or voluntary; and
• Other stakeholders.

All of these people may need to provide information to the trustees to enable them to do their jobs effectively. They may also need to consider and address issues of poor governance, including, if necessary, reporting them to the regulator.

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A Final Thought

Good governance is an important part of running a charity—and this applies to charities of any size.

It is important that charity trustees understand the principles of good governance and are able to apply them—or explain why applying them is not appropriate. This protects the charity, and ensures that it is able to deliver its purposes and remains sustainable. However, it also protects the trustees from any accusations of wrongdoing. It is therefore very much in the best interests of the trustees, as well as of the charity itself.

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