The role of the charity director is an onerous one, but what about performance? David Brady considers the characteristics of an effective charity director, and future challenges and opportunities.
The implementation in 2021 of the Charities Governance Code poses important questions for the effective governance of charity boards in Ireland, including the challenging, and occasionally sensitive, review of board performance and the performance of individual constituent directors.
Compliance with the Code is, however, a baseline measure of effectiveness. Beyond the legal requirements for directors under the Charities Act 2009 and the Companies Act 2014, the qualities, roles and responsibilities of the ideal charity director are largely undefined.
Are charity directors different?
Is being a director of a charity really that different to being a private sector director? Directors of charities and private sector directors have shared experience in overseeing the challenges: of recruiting, motivating, and retaining the right people; of there being sufficient funds to pay salaries; and of competitors in the same sub-sector.
There are also similarities in how the business of the board is conducted; the calendar of board meetings, sub-committee meetings, and annual general meeting; the annual audit; the risk register; and—increasingly common—evaluation of the board itself.
In both contexts, the chairperson is often selected for their relevant experience, ability to guide decisions or bring order in the face of complexity or challenge. There are, however, factors that are unique to charities, including:
- charities legislation and guidance from the Charities Regulator;
- compliance with the Charities Governance Code;
- a mixed-income revenue model, whereby funding is derived from a combination of restricted-purpose and unrestricted-purpose revenue sources;
- a volunteer, unpaid board of directors;
- staff members who may be unfamiliar with private sector/commercial work environments and practices;
- volunteers, who assist the organisation on an unpaid basis, but who may feel they have a stake/voice equivalent to employed members of staff or even board directors;
- functioning as public benefit entities, with accountability to end users and the public in general, and the fulfilment of a public-benefit purpose;
- service-level agreements with funders.
None of this makes life easy for the charity director and can be reason enough for some to shy away from holding board positions.
Nonetheless, there are many experienced and qualified people who wish to give something back to organisations that have positively impacted their lives or to causes aligned with their beliefs and values — often donating significant amounts of their time.
How good is good?
As noted above, the implementation of the Charites Governance Code has heightened awareness of governance standards in the sector and the importance of the role of the charity director in achieving these standards.
However, beyond meeting base-level compliance with the Code, the debate on how to define highly effective charity boards and directors, and their ability to impact on the success or effectiveness of their governed organisations, has yet to commence in earnest.
In this article, I propose a five-level model for evaluating charity boards in terms of their ‘maturity’ or otherwise (see Figure 1), from a non-compliant to an elite standard. I suggest applying the same model to the evaluations of individual directors. In devising and articulating this charity board maturity model, I considered the following:
- How mature is a charity board? What aspects of a board’s conduct define its maturity, or otherwise?
- What is the evidence of a board achieving the higher levels of maturity? For example, is it aware of charity sector challenges and opportunities in Ireland and internationally?
- What does this mean for director competencies and performance? Is it possible to connect board maturity with the related, distinctive competencies required of individual board members?
Non-compliant boards typically have a negative attitude towards governance. They are often unaware of strategic developments within the sub-sector and have a short-term funding focus, relying on basic financial information and outdated policies and procedures. They have no board rotation or succession planning processes. Their AGM processes are weak, and they do not insist on the maintenance of a risk register.
Compliant boards adopt a tolerant attitude to governance; however, strategically, they are largely closed to sector developments other than matters of self-interest. Their policies and risk register are compliant rather than effective; their rotation policy is not fully implemented, and the AGM is limited to board members only.
Effective boards see the benefits of good governance and revise board and staff structures to exploit opportunities. They seek funding opportunities to support strategy and use risk registers to manage risk and plan contingencies. They ensure that board appraisals and rotation of directors policies are implemented. AGMs include the attendance of, and participation by, non-board, external members of the charity.
Progressive boards seek continuous improvement in their governance of the organisation. They are keen to benchmark their maturity against the boards of peers. They seek collaboration in new initiatives that reflect market changes. Policies are updated in line with current business/market changes. The organisation’s risk appetite is determined and defined, and the board ensures that its skills gaps are identified and addressed. Board rotations are planned and implemented.
Elite boards deliver strategic programmes resulting in significant impact and/or funding. Board members and staff have a collective problem-solving mindset. The charity’s performance is managed using both financial and non-financial KPIs. At the elite level, the board employs long-term resource planning, promotes a robust risk management culture, and reviews strategy regularly. Succession planning includes pro-active identification of new chair and board members, as well as key executive management positions. They embrace and learn from occasional failure positively.
Benchmarking director performance
As suggested, the five-levels of maturity model can be applied by analogy to the evaluation or benchmarking of individual board directors.
The articulation of competencies, or rather their absence, of the ‘non-compliant’ director is straightforward.
They are unfamiliar with the sector or sector trends. They bring no valuable experience or expertise to the board, are unfamiliar with governance frameworks, and generally blame others for problems rather than take responsibility themselves.
The compliant director has an up-to-date understanding of the charity, brings technical knowledge to the position, is familiar with the Charities Governance Code and brings governance oversight to the organisation.
Moving up a level, the effective director will have served previously on multiple charity boards and brings valuable experience. Other board members will be aware of their specialist knowledge and draw on their expertise to derive solutions for organisational issues.
Their awareness of internal and external stakeholders will be strong and their input to decision-making will reflect this.
The progressive director is a strategic thinker. In addition to having specialist knowledge, they bring a strategic understanding of the niche in which the charity operates and its competitive advantages.
Their leadership qualities are also evident from previous directorships, and they are skilled in multiple business and/or charity sectors.
Accepting change as normal and necessary, a key characteristic is their desire to introduce innovations to the charity’s operations, particularly ideas that are working well in the commercial sector.
Finally, the elite director provides economic, political, and social thought leadership to the charity, in addition to the strategic leadership attributes of the progressive director. They possess the qualities required to chair either the board or one of its sub-committees.
Through a broad network of private and public sector collaborators, they are well positioned to plan for the sustainability and growth of the charity.
They set the tone of communication within the board, between the board and the staff of the charity, and between the board and the sector and broader public arena. The style of the ‘elite’ charity director is, paradoxically, non-elitist, collaborative and influential, with an evident social purpose.
What next for charity directors?
As well as understanding the characteristics, competencies and behaviour of the ideal charity director, and applying these when evaluating boards and their individual members, there are several critical issues that pose important challenges and questions for the sector as a whole:
- Should there be mandatory term limits for holding the position of charity director and/or defined limits for the role of chairperson and secretary?
- Should charity directors be paid, and if so, in what circumstances, how much, and under what terms and conditions?
- How can more experienced businesspeople, qualified professionals and members of the public be encouraged to hold board positions in charities? What can the sector do to facilitate this?
- What training and development, beyond the compliance level, do charity directors need? Should mandatory, accredited training be introduced before board positions are offered and accepted?
- What can Irish charities learn from international experience and best practice regarding governance?
- Should the legislation be changed to make it easier to identify, caution, penalise or remove ineffective charity directors?
The implementation of the Charities Governance Code has given an important boost to the raising of standards across the sector and the priority must be to ensure this happens promptly and comprehensively.
The extension of governance into territory beyond compliance is an exciting and challenging move with long-term benefits for all stakeholders.
Defining charity boards in terms of their maturity, from non-compliant through effective to elite, and evaluating director competencies by analogy, will serve to both challenge and develop a trusted and vibrant charity sector.
David Brady is a principal at DB Consulting.
(Views expressed in the article are strictly those of the author.)