2012 Article, updated March 2018
Judging from email correspondence I have received after my article “Liability of Charitable Trustees” was first published, it appeared to have hit some raw nerves, as I have received illustrations of (allegedly) inappropriate behaviour by those governing community organisations. Without considering whether the allegations are justified, it is worth recording some of the issues raised. This I have done by identifying categories of behaviour which are patently inappropriate:
- Harassment, bullying and intimidation of staff.
- Side-lining or dismissing staff drawing financial problems to the attention of those in governance.
Comment: Those employed in the voluntary sector are entitled to all the rights of employees, and to the protections afforded by legislation such as the Employment Relations Act 2000, Human Rights Act 1993, and criminal law.
- Members browbeating, tormenting and threatening other members.
Comment: Such behaviour is likely to be contrary to the Human Rights Act 1993 and in some circumstances may be subject to sanctions under the criminal law. In my article “Peace and Goodwill to all Members” I referred to the need for members to treat other members of a society with respect, saying “The membership of most societies is glued together by membership respect, honesty and integrity. If members treat each other or guests in a rude, contemptuous, or disrespectful manner, or abuse the privilege of using society property, then all members and the society suffer. Acting in a civilised mature way is not much to ask.”
Failures in governance
- Failing to be objective when dealing with complaints by showing bias against upholding complaints against members.
- Seeking to marginalise or coerce anyone who dares to dissent from the views of the senior members.
- Inadequate financial systems and controls.
- Failure to identify the over-valuation of assets, with associated excessive depreciation of assets.
- Running down investments to fund annual operations.
- Failure to turn loss-making operations around (or cease the activities).
- Failure to identify assets being under-utilised and to seek to improve their use or dispose of them.
- Operating an entity with charitable status for the social and personal benefit of members without recognising the obligations inherent in the charitable status of the entity.
- Failure to be aware of the financial position of the organisation, and then if the issue is raised:
− Failing to inform the wider membership of the problems, and
− Adopting the approach that financial issues are either not of interest to those in governance or that they have no understanding of figures.
Comment: The issues raised indicate serious failures to understand the governance role and to appreciate the risks of failing to meet adequate standards.
Improving not-for-profit governance
There is no “quick-fix” to improve the standard of governance of community societies and trusts, and any move to impose standards on those in governance may well result in people being less likely to volunteer to serve. However, the sad fact is that unless people take their governance roles seriously they place themselves at risk, not only for their own failures, but vicariously for the failures of others with whom they serve. Governance was scarcely mentioned in the context of community organisations a generation ago, but in recent years there has been a growing awareness of the need for higher standards of governance in community organisations, not just of licensed clubs and major sporting bodies but also of smaller organisations. This may be a spin-off from the increased emphasis on governance responsibilities in the business community (the recent convictions of finance company directors may heighten this awareness), with some flow-on effects for community organisations.
When I discuss governance with community organisations, some of the questions I ask include:
- What is your organisation’s fundamental guiding document? Do you have a copy? Do you have it at every committee and general meeting? How often do you refer to it?
- How are those governing your organisation appointed or removed? How can those in governance of your organisation be controlled?
- Before appointment or election to a governance role in your organisation, did you obtain, read and understand copies of the organisation’s constitutional documentation, including any policy, strategic and regulatory documents, and did you understand the obligations of office (given the serious duties and obligations to be performed) or did you accept appointment or election as an “ego trip”?
- What do you know about the annual obligations of your organisation under statute or the organisation’s constitution?
- Questions about the contents of the organisation’s constitution, asking people what they can recall without referring to the constitution.
- How are conflicts of interest and issues of bias and predetermination dealt with?
- Whether they understand that there can be serious personal consequences for them individually and for all in governance of the organisation collectively if they fail to ensure that everything done complies with the organisation’s constitution and various statutes, because each person has potential liability to third parties (including members of the organisation itself), to the not-for-profit organisation itself, on any liquidation or winding up, and under criminal law.
Many find it uncomfortable when asked those and other questions about their organisation and its governance. That should not be the case; but the discomfort arises because people get into governance without realising their obligations and responsibilities, or perhaps become blasé over time.
Where responsibility lies
Those in governance are individually responsible to ensure that they and those who serve with them have the knowledge and skills required to govern an organisation. In addition, an organisation should ensure that those in governance have the necessary training to undertake their roles. Professionals dealing with community organisations also need to take the lead in helping train those in governance (and they might be asked awkward questions in Court or by a liquidator if they have failed in their professional duties).