1.7 Charity Governance Code and Trustee Standards
These documents are important resources for trustees and are aimed at encouraging good governance throughout the Voluntary and Community Sector.
The Charity Governance Code and the Trustee Standards (TS) have different roles. The TS are more useful for the development of individual trustees, while the Code has a broader role, setting out the principles and practices of good governance in an organisation as a whole and may be useful for helping you to review the governance of your organisation.
The Charity Governance Code
The Code of Governance (COG) was originally launched in July 2005, revised in October 2010, and revised again in July 2017 when it was retitled the Charity Governance Code. A further revision took place in November / December 2020. It is a tool to help the Voluntary and Community Sector to achieve best practice in the Governance of its organisations and has been endorsed by the Charity Commission.
In 2011 a version of the Code was produced for smaller organisations. It covers the same principles, but uses simpler language and recognises the comparatively limited resources that small groups have. This again was revised in July 2017. The 2020 revision expanded two of the areas significantly: Area 3 Integrity and Area 6 Diversity (now called Equality, Diversity and Inclusion).
The Charity Governance Code is aimed at all voluntary and community organisations, regardless of size or type, and the Trustee Boards that govern them. It is therefore useful for:
- Members of a Trustee Board (or other governing body);
- Members of staff with responsibility for supporting the Trustee Board; and
- Development workers, advisors or trainers involved in training and supporting Trustee Boards.
The Charity Governance Code is not mandatory as the sector is very diverse, making a mandatory standard difficult to manage.
Some organisations may not comply with certain statements because they are in the process of working towards them, and thus aspire to them. Alternatively, they may exceed the standards outlined in the Code, or it may be that aspects of this Code do not easily relate to the circumstances of a particular organisation.
An outline of the Charity Governance Code, in both versions, is provided below.
Charity Governance Code – Summary
The new 2020 Edition of the Charity Governance Code has seven key principles. It is aimed at organisations and the Trustee Boards that govern them. Each principle has a general statement, a rationale and key outcomes which are the same for both large and small organisations. There are then lists of recommended practice which differs between large and small charities. Below we summarise the Principle, Rationale and the Key Outcomes for the seven areas and provide a brief commentary on key issues. You can find the recommended practice outlined in Module 7 (7.4 – 7.10).
1. Organisational purpose
The board is clear about the charity’s aims and ensures that these are being delivered effectively and sustainably.
Charities exist to fulfil their charitable purposes. Trustees have a responsibility to understand the environment in which the charity is operating and to lead the charity in fulfilling its purposes as effectively as possible with the resources available. To do otherwise would be failing beneficiaries, funders and supporters.
The board’s core role is a focus on strategy, performance and assurance.
1.1 The board has a shared understanding of and commitment to the charity’s purposes and can articulate these clearly.
1.2 The board can demonstrate that the charity is effective in achieving its charitable purposes and agreed outcomes.
This principle emphasises the need for trustees to develop long term strategies to move the organisation forward, monitoring progress and budgets and remaining alert to external environmental factors in achieving the organisation’s aims and objectives. It also emphasises the need for trustees to ensure that the organisation remains focused on delivering its purposes and avoids “mission drift”. It also highlights the need to work in partnership with other organisations.
Every charity is led by an effective board that provides strategic leadership in line with the charity’s aims and values.
Strong and effective leadership helps the charity adopt an appropriate strategy for effectively delivering its aims. It also sets the tone for the charity, including its vision, values and reputation.
2.1 The board, as a whole, and trustees individually, accept collective responsibility for ensuring that the charity has a clear and relevant set of aims and an appropriate strategy for achieving them.
2.2 The board agrees the charity’s vision, values and reputation and leads by example, requiring anyone representing the charity reflects its values positively.
2.3 The board makes sure that the charity’s values are reflected in all of its work, and that the ethos and culture of the organisation underpin the delivery of all activities.
This covers some of the essential roles and responsibilities of trustees and lays particular stress on the roles relating to legal duties and accepting ultimate responsibility for the way the organisation is run. Even in smaller organisations there is a need for trustees to appreciate the importance of their role and how knowledge of the external environment i.e. what is happening outside their organisation will help them fulfil their legal duties in leading the organisation effectively.
The board acts with integrity. It adopts values, applies ethical principles to decisions and creates a welcoming and supportive culture which helps achieve the charity’s purposes. The board is aware of the significance of the public’s confidence and trust in charities. It reflects the charity’s ethics and values in everything it does. Trustees undertake their duties with this in mind.
Delivering the charity’s purposes for public benefit should be at the heart of everything the board does. This is true even when a board’s decision might be unpopular. Everyone who comes into contact with a charity should be treated with dignity and respect and feel that they are in a safe and supportive environment. Charity leaders should show the highest level of personal integrity and conduct.
To achieve this, trustees should create a culture that supports the charity’s values, adopt behaviours and policies in line with the values, and set aside any personal interest or loyalties. The board should understand and address any inappropriate power dynamics to avoid damaging the charity’s reputation, public support for its work and delivery of its aims.
3.1 The board safeguards and promotes the charity’s reputation by living its values and, by extension, promotes public confidence in the wider sector.
3.2 Trustees and those working for or representing the charity are seen to act with honesty, trustworthiness and care, and support its values.
3.3 The board acts in the best interests of the charity’s purposes and its beneficiaries, creating a safe, respectful and welcoming environment for those who come into contact with it.
3.4 The board makes objective decisions about delivering the charity’s purposes. It is not unduly influenced by those who may have special interests or personal interests. This applies whether trustees are elected, nominated or appointed. Collectively, the board is independent in its decision making.
3.5 No one person or group has undue power or influence in the charity. The board recognises how individual or organisational power can affect dealings with others.
This principle has been significantly modified in the latest version. It seeks to emphasise the importance of trustees following high ethical standards. In smaller organisations it is important to remind trustees that they cannot receive any benefit from their charity in return for any service they provide, unless they have express legal authority to do so – from a clause in the charity’s governing document (e.g. constitution) or the Charity Commission or by law. One issue that has been added is the importance of ensuring that no one person or small group of trustees (or others) has undue influence within the charity, as this can undermine confidence and lead to trustees resigning if they feel that their views are not taken into consideration or they are not listened to. It emphasises the need to create a safe and welcoming environment.
4. Decision making, risk and control
The board makes sure that its decision-making processes are informed, rigorous and timely, and that effective delegation, control and risk assessment, and management systems are set up and monitored.
The board is ultimately responsible for the decisions and actions of the charity but it cannot and should not do everything. The board may be required by statute or the charity’s governing document to make certain decisions but, beyond this, it needs to decide which other matters it will make decisions about and which it can and will delegate.
Trustees delegate authority but not ultimate responsibility, so the board needs to implement suitable financial and related controls and reporting arrangements to make sure it oversees these delegated matters. Trustees must also identify and assess risks and opportunities for the organisation and decide how best to deal with them, including assessing whether they are manageable or worth taking.
4.1 The board is clear that its main focus is on strategy, performance and assurance, rather than operational matters, and reflects this in what it delegates.
4.2 The board has a sound decision-making and monitoring framework which helps the organisation deliver its charitable purposes. It is aware of the range of financial and non-financial risks it needs to monitor and manage.
4.3 The board promotes a culture of sound management of resources but also understands that being over-cautious and risk averse can itself be a risk and hinder innovation.
4.4 Where aspects of the board’s role are delegated to committees, staff, volunteers or contractors, the board keeps responsibility and oversight.
This principle emphasises the importance of having clear systems and procedures in decision-making and carrying out the work of the organisation and having these in writing, so that it is clear how work is delegated. It emphasis the need for board members to regularly review the range and impact of risks the organisation faces and emphasises that the board is ultimately responsible for the decisions made and actions taken.
Smaller organisations may only need a few policies, such as Health and Safety and Equal Opportunities, particularly if they do not employ paid staff. One issue though that needs careful thought is that of delegation. Sometimes in small groups, trustees or management committee members go off and “do their own thing”, making decisions as they go along. It is important that individual board members are clear about what decisions they can and cannot make by themselves.
5. Board effectiveness
The board works as an effective team, using the appropriate balance of skills, experience, backgrounds and knowledge to make informed decisions.
The board has a key impact on whether a charity thrives. The tone the board sets through its leadership, behaviour, culture and overall performance is critical to the charity’s success. It is important to have a rigorous approach to trustee recruitment, performance and development, and to the board’s conduct. In an effective team, board members feel it is safe to suggest, question and challenge ideas and address, rather than avoid, difficult topics.
5.1 The board’s culture, behaviours and processes help it to be effective; this includes accepting and resolving challenges or different views.
5.2 All trustees have appropriate skills and knowledge of the charity and can give enough time to be effective in their role.
5.3 The chair enables the board to work as an effective team by developing strong working relationships between members of the board and creates a culture where differences are aired and resolved.
5.4 The board takes decisions collectively and confidently. Once decisions are made, the board unites behind them and accepts them as binding.
This principle concentrates on the quality of an organisation’s trustees and the need for the Board to meet often enough to ensure that the business of the organisation is carried out efficiently. It looks at the effectiveness of the group’s governance and management structure and performance.
With some small groups the Board of Trustees / management committee may have had the same personnel for many years. This can sometimes lead to a lack of freshness and new ideas and results in groups losing touch with its members or what is happening “in the outside world”.
6. Equality, Diversity and Inclusion
The board has a clear, agreed and effective approach to supporting equality, diversity and inclusion throughout the organisation and in its own practice. This approach supports good governance and the delivery of the organisation’s charitable purposes.
Addressing equality, diversity and inclusion helps the board to make better decisions. This requires commitment, but it means that the charity is more likely to stay relevant to those it serves and to deliver its public benefit. Recognising and countering any imbalances in power, perspectives and opportunities in the charity, and in the attitudes and behavious of trustees, staff and volunteers, helps to make sure that a charity achieves its aims.
All trustees have the same responsibility for the charity, so they must have equal opportunity to contribute to decision making. Board diversity, in the widest sense, is important because it creates more balanced decision making. Where appropriate, this includes and centres the communities and people the charity serves. This increases the charity’s legitimacy and impact. Equality and diversity are only effective and sustainable if the board works to be inclusive, ensuring that all trustees are welcomed, valued and are able to contribute.
Board that commit to equality, diversity and inclusion are more likely to set a positive example and tone for the charity by following an appropriate strategy for delivering its purpose and setting inclusive values and culture.
6.1 The principles of equality, diversity and inclusion are embedded in the organisation and help to deliver the charity’s public benefit.
6.2 Obstacles to participation are reduced, with the organisation’s work designed and open for everyone included within its charitable purposes. This supports the charity to challenge inequality and achieve improved equality of outcomes.
6.3 The board is more effective because it reflects different perspectives, experience and skills, including, where applicable, from current and future beneficiaries.
This area has been significantly expanded in the 2020 version of the Governance Code. It emphasises the importance of equality of outcomes and the need to welcome different perspectives and experiences.
7. Openness and accountability
The board leads the organisation in being transparent and accountable. The charity is open in its work, unless there is good reason for it not to be.
The public’s trust that a charity is delivering public benefit is fundamental to its reputation and success, and by extension, the success of the wider sector. Making accountability real, through genuine and open two-way communication that celebrates successes and demonstrates willingness to learn from mistakes, helps to build this trust and confidence and earn legitimacy.
7.1 The organisation’s work and impact are appreciated by all its stakeholders.
7.2 The board ensures that the charity’s performance and interaction with its stakeholders are guided by the values, ethics and culture put in place by the board. Trustees make sure that the charity collaborates with stakeholders to promote ethical conduct.
7.3 The charity takes seriously its responsibility for building public trust and confidence in its work.
7.4 The charity is seen to have legitimacy in representing its beneficiaries and stakeholders.
The final principle looks at the importance of good communication between trustee boards and their organisations’ members or users. It promotes the importance of an open process of communication.
In Module 7 Good Governance we look in more detail at the Code, its content and its practical applications.
The National Occupational Standards for Trustees and Management Committee Members in the Voluntary and Community Sector
The National Occupational Standards for Trustees and Management Committee Members, known as the Trustee Standards (TS) have been developed in order to encourage good governance throughout the voluntary and community sector. The TS were approved by the Qualifications and Curriculum Authority (QCA) in January 2006.
While the TS refer to ‘Trustees’, they are relevant to all those who have a strategic or governance role in a voluntary or community organisation. As specific titles and roles vary between organisations, you may be more familiar with the following ways of describing trustees:
- Management Committee Member
- Board Member
- Council Member
The TS have been designed for Trustees in all sizes of organisation, from small community based groups, to large UK-wide charities. They represent a standard of best practice for the role of governance for Trustees, describing the knowledge and skills you need in order to perform to the required standard.
Occupational Standards are statements of competence, which describe the outcomes required for an individual to achieve good practice in particular areas of activity. They exist for many different occupations. They are often used as a foundation on which National Vocational Qualifications (NVQs) are developed. The National Occupational Standards for Trustees can be used to plan, structure and review training and learning for trustees.
The TS consist of four units that are designed to help trustees understand what is involved in being a trustee and to enable them to carry out their responsibilities with confidence. Whether you are currently serving as a trustee, or are considering becoming one, it is very important that you are clear about what is entailed in your role as a trustee.
The units cover the legal requirements for good governance, but also outline what good professional practice suggests in a wide range of other areas, such as equal opportunities, recruitment and learning and development. The units cover the basic outline of an organisation (what the organisation is there to do), the responsibilities involved in running an organisation (what trustees need to do), the requirements on the management committee or Board of the organisation (how to function effectively), and the role and make-up of the management committee or Board (how it is organised).
The TS are by no means compulsory, nor do they represent a legal framework, but are intended as a source of guidance to help trustees be effective in their role. Some areas in the standards may not yet be applicable to you, if your organisation is only very small. However they will provide guidance on areas that, as your organisation grows, you as a trustee should be thinking about.
Trustees can use these standards to check, over time, that they are carrying out their role effectively and to identify any knowledge that trustees need to acquire or skills they need to develop. Equally, organisations can use the Trustee Standards to ensure that their trustees are competent and have the necessary knowledge and skills to serve the organisation well.
To view an outline of the Trustee Standards, see below.
The Trustee Standards (summary)
Unit 1: Safeguard and promote the values and mission of the organisation
This unit is about the Board of Trustees setting out the voluntary or community organisation’s long-term direction, upholding its values and delivery of its aims, and your role as a Trustee in carrying out this function.
Unit 2: Determine the structure and strategy of the organisation
This unit is about present and future strategic planning. It covers decisions about how the voluntary or community organisation’s values and mission are expressed in aims and activities, and in the structures and processes needed to implement them.
Unit 3: Ensure the organisation operates in an effective, responsible and accountable manner
This unit is about Trustees working collectively to ensure their voluntary or community organisation is well-managed, is meeting its aims and needs, and achieving good practice whilst complying with the law. It covers the Trustee’s role in leading the organisation, and also in ensuring the organisation is managed properly and by the best people available.
Unit 4: Ensure the effective functioning of the Board
This unit is about helping the voluntary or community organisation’s Board of Trustees to work as a team and reach fair decisions in the best interests of the organisation. This requires a range of people whose skills and abilities will ensure that the voluntary or community organisation’s Board of Trustees functions effectively.
In Module 4 Roles and Responsibilities we look in more detail at the Trustee Standards, their content and their practical application.
were developed by the Charity Commission to set out standards that would help trustees to improve the effectiveness of charities. The standards are divided into six “Hallmarks” or principles. For each of these, the Charity Commission has listed a number of ways in which the Hallmarks might be demonstrated, but not every example will apply to every charity. Whilst a few of these are legal requirements (marked in the publication with an L), most are matters of good practice.
PLEASE NOTE: The Charity Commission has in the last couple of years abandoned its promotion of the Hallmarks, given the revised Charity Governance Code and other quality systems related to trustee boards. However, the principles behind the Hallmarks are still a useful indicator of good governance.
Although these Hallmarks are relevant for all charities, the way in which they can be demonstrated or achieved will vary depending on the size, income, complexity and activities of each charity, although some charities may find different routes to the same end. Experience shows that, whatever its size and activities, trustees can use these Hallmarks as a means of reviewing how their charity is performing and to identify the areas in which the charity is strong and those areas which need further development.
To view detailed information and guidance on the six Hallmarks, see below (taken from the Charity Commission’s CC10 Booklet).
(Where the letter “ L ” appears, this is a legal requirement).
D1. Hallmark 1: Clear about its purposes and direction
An effective charity is clear about its purposes, mission and values, and uses them to direct all aspects of its work.
In order to demonstrate this, the charity:
- ensures that its mission and planned activities are within the purposes set out in its governing document; L
- has a clear idea of its mission, and the strategies and steps that it will take to achieve it, set out in written documents that are regularly reviewed, giving the charity focus, direction and clarity;
- is able to explain how all of its activities relate to and support its purposes, strategy and mission, and benefit the public;
- regularly reviews whether the charity’s purposes as set out in its governing document are up to date and relevant to the needs of its beneficiaries;
- is independent and recognises that it exists to pursue its own purposes and not to carry out the policies or directions of any other body; L
- considers future sustainability – balancing what is needed now with what will be needed in the future.
D2. Hallmark 2: A strong board
An effective charity is run by a clearly identifiable board or trustee body that has the right balance of skills and experience, acts in the best interests of the charity and its beneficiaries, understands its responsibilities and has systems in place to exercise them properly.
In order to demonstrate this, the charity:
- ensures that the trustee body is constituted in accordance with the governing document; L
- identifies the mix of skills, knowledge and experience necessary for the efficient and effective administration of the charity and ensures that the recruitment and appointment of new trustees provides adequate opportunities for re-assessing and achieving that mix;
- has a trustee body that is the right size for the charity – large enough to include the skills and experience needed to run the charity effectively, but small enough to allow effective discussion and decision making;
- has a clear understanding of the respective roles of the trustee body and staff with role descriptions for trustees and charity officers (such as the Chair and Treasurer);
- ensures that the charity’s committees, staff and agents have clear and appropriate delegated authority to carry out their designated roles in delivering the charity’s purposes. It also has systems in place to monitor and oversee the way in which delegated powers are exercised;
- undertakes all appropriate checks to ensure that a prospective trustee is both eligible and suitable to act in that capacity. (For some charities there may be a legal requirement to seek DBS disclosures for potential (and serving) trustees ); L
- identifies and meets the individual induction, training and development needs of trustees and has in place a framework for evaluating board and trustee performance;
- ensures its trustees understand that they must act only in the charity’s interests and that any conflicts of interest are identified and managed; L
- identifies and complies with relevant legislation and takes professional advice where necessary. L
D3. Hallmark 3: Fit for purpose
The structure, policies and procedures of an effective charity enable it to achieve its purposes and mission and deliver its services efficiently.
In order to demonstrate this, the charity:
- regularly reviews its governing document to ensure that it is up-to-date and that the trustees have the powers that they need in order to achieve the charity’s purposes and to manage its resources effectively;
- takes appropriate steps to protect its reputation in all aspects of its work, especially in its dealings with beneficiaries and others with an interest in the charity;
- implements policies and procedures to ensure that all vulnerable beneficiaries are protected from abuse;
- regularly reviews and assesses the risks faced by the charity in all areas of its work and plans for the management of those risks;
- regularly reviews its structures, policies and procedures to ensure that they continue to support, and are adequate for, the delivery of the charity’s purposes and mission; this includes policies and procedures dealing with board strategies, functions and responsibilities; good employment practices and the encouragement and use of volunteers;
- recognises, promotes and values equality and diversity in beneficiaries, staff and volunteers, and in all aspects of its activity;
- considers whether collaborations and partnerships (including the possibility of a merger) with other organisations could improve efficiency, the use of funds and the better delivery of benefits and services to beneficiaries;
- has regard to the impact of its activities on the environment. It considers ways in which it can take an environmentally responsible and sustainable approach to its work which is consistent with its purposes, even when its purposes are not specifically related to the environment.
D4. Hallmark 4: Learning and improving
An effective charity is always seeking to improve its performance and efficiency, and to learn new and better ways of delivering its purposes. A charity’s assessment of its performance, and of the impact and outcomes of its work, will inform its planning processes and will influence its future direction.
In order to demonstrate this, the charity:
- has considered how to identify, measure and learn from the charity’s achievements, impacts and outcomes, including the positive and negative effects that it has on beneficiaries, others with an interest in the charity and the wider community;
- sets achievable targets and indicators against which success and improvement is measured and evaluated based on the purposes of the charity, the needs of its beneficiaries, the quality of its services and the resources available;
- welcomes and acts upon feedback (positive as well as challenging) from its beneficiaries and other people with an interest in the charity about the services it provides and the areas where improvements could be made;
- looks at and assesses innovative and imaginative ways of working towards achieving its purpose and aims;
- identifies emerging trends in the environment in which it operates and uses this information as part of its planning processes;
- identifies and uses opportunities to influence the environment in which it works to be more conducive to its mission and purposes, following the law and good practice when campaigning or lobbying;
- is not complacent but is engaged in a process of continual improvement, using techniques and tools best suited to its size and activities, such as recognised quality systems and benchmarking, in order to improve its own future performance;
- is ready to share good practice with others.
D5. Hallmark 5: Financially sound and prudent
An effective charity has the financial and other resources needed to deliver its purposes and mission, and controls and uses them to achieve its full potential.
In order to demonstrate this, the charity:
- has policies to control and manage its reserves, investments and borrowing, taking professional advice where needed;
- integrates financial planning with wider organisational planning and management, ensuring that funds are available when the charity needs them and are used in the most effective way to the benefit of the charity;
- ensures financial sustainability by managing cash flow and monitoring and reviewing financial performance during the year, taking timely corrective action where needed;
- considers the sources of its income and has a strategy in place to raise the funds it needs – diversifying its sources of income as far as possible;
- reviews its fundraising strategies and activities to ensure that they comply with good-practice standards, taking account of any relevant ethical issues;
- is aware of the financial risks involved with existing and new ventures and manages the risk of loss, waste and fraud by having robust financial controls and procedures in place;
- structures the charity’s activities in a tax efficient way and minimises the operational risk to the charity from trading activities;
- prepares its Annual Report and accounts in accordance with good practice requirements, and fulfils the legal requirements for filing in a timely fashion. L
D6. Hallmark 6: Accountable and transparent
An effective charity is accountable to the public and others with an interest in the charity in a way that is transparent and understandable.
In order to demonstrate this, the charity:
- complies with its legal obligations (and best practice), as set out in the Statement of Recommended Practice (SORP), to produce annual accounts and a report which includes an explanation of what the charity has done for the public benefit during the year; L
- explains in its Annual Report the extent to which it has achieved its charitable purposes in a way that people with an interest in the charity can understand;
- has well-publicised, effective and timely procedures for dealing with complaints about the charity and its activities. These should explain how complaints and appeals can be made, and give details of the process and likely timescales;
- can show how it involves beneficiaries and service users in the development and improvement of its services; the contribution may have been by way of the appointment of beneficiaries as trustees or their involvement through discussion, consultation or user group input;
- has a communications plan which ensures that accurate and timely information is given to everyone with an interest in the work of the charity, including the media, donors and beneficiaries.