Following the collapse of Kids Company and recent criticisms by the Charity Commission in relation to the running of a number of high-profile charities, now more than ever, there is a focus on good governance in the third sector.

Therefore, the recent launch of the Charity Governance Code on Thursday 13 July (the “Code”) is timely in providing charity trustees a guide to best practice in the sector as endorsed by the Charity Commission.

This is the third edition of the Code and there have been a number of significant updates on the previous edition in response to the challenges the sector has faced over the last two years. Recognising differences within the sector, there are two versions of the Code, one for smaller charities and one for larger charities, typically with an income of over £1 million per year whose accounts are externally audited.

The Code is split into seven key areas: (i) organisational purpose; (ii) leadership; (iii) integrity; (iv) decision-making, risk and control; (v) board effectiveness; (vi) diversity; and (vii) openness and accountability.

Key recommendations include:

  • that in addition to carrying out internal, annual reviews of the board, trustees and the chair that larger charities will conduct an external governance review once every three years;
  • that no trustee should serve more than nine years without a rigorous review process concluding otherwise and the same being noted in the annual report;
  • an increased emphasis on diverse boards and the charity going beyond the legal minimum where appropriate in respect of equality and diversity;
  • that a culture of openness is developed within the charity;
  • the relationship between a parent charity and any subsidiaries being clearly understood, recorded and reviewed;
  • the relationship with third party suppliers being regularly reviewed in light of their remaining appropriate for the charity; and
  • registers of interests, hospitality and gifts being kept and made available to stakeholders.

The Code has been published on an ‘apply or explain’ basis such that while the Code is not mandatory, charity trustees are encouraged to either apply with the Code or explain where an alternative course of action has been adopted. Indeed, it is a recommendation of the Code that larger charities include a brief statement in their annual report explaining their use of the Code. While a large proportion of medium to larger sized charities previously noted that they followed the second edition of the Code, the need for charities to actively consider their application of the Code on an annual basis and include a statement in respect of the same in a publicly available document is expected to result in charities taking a closer interest in and engaging more so with the third edition of the Code.

Where a charity works in a sector which has adopted its own sector-specific governance code, the Code acknowledges that those codes may take precedent.

Commenting on the launch of the Code the Charity Commission comment that ‘the bottom line is, good governance is no longer an optional extra. It’s essential to charities’ effectiveness and probably their survival too. Charities need to be able to demonstrate that they take it seriously, allowing it to change the way they operate’.

Bearing this in mind, we recommend that all charity trustees are familiar with the Code and consider its application in the context of each charity for which they act. The Code should not be seen as a prescriptive document, rather trustees should consider whether, in light of the Code, the current governance arrangements of their charity are in need of review. You can review the Code at – https://www.charitygovernancecode.org/en.

In the event that you have any further questions in respect of this update, please do feel free to contact Mark Honeywell or any other member of the charities team.

Please note this information is provided by way of example and may not be complete and is certainly not intended to constitute legal advice. You should take bespoke advice for your circumstances.

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