A new measure of charity compliance with the Governance Code has found charities scoring an average of 52% according to audit, tax and consulting firm RSM.
RSM analysed 85 charities with incomes of over £5m to determine whether they were demonstrating behaviours and evidence of compliance with the Governance Code.
Charities were scored out of 100 according to evidence of adoption of the Code and evidence of compliance within their annual reports and on their own websites. The overall rating also included a score for a charity’s compliance with each of the seven principles contained in the Code. These principles include organisational purpose, board effectiveness, openness and accountability, diversity, leadership, decision-making and integrity.
Of the 85 charities surveyed:
- The average overall Governance rating was 52%, indicating that charities are applying the Code but have significant room for improvement
- 44% acknowledged the Code within their annual reports
- A quarter of all charities surveyed consistently demonstrated a strong application of good governance with scores of over 70%
- The highest scoring charities rated 91%, while the lowest performing charity achieved a 17% rating.
According to RSM, larger charities with over £20m in income tended to score better with an average score of 58%, suggesting that resource plays a significant part in an organisation’s ability to implement a strong governance framework and demonstrate compliance. Smaller charities (£5m to £10m revenue) scored 47%, on average. However, mid-size charities with incomes between £10m and £20m scored less at 39%.
Medical and health charities, animal/environment charities and overseas aid charities achieved relatively higher scores, while sporting and arts charities appeared to have most scope to improve.
Common failings identified in the research included the failure to outline a board’s review processes when it came to making executive appointments, trustees exceeding their suggested nine-year terms without explanation and failing to address senior staff remuneration levels in annual reports.
In terms of the seven principles included in the Code, one area where many charities were falling short related to diversity. In many cases, there was no evidence of compliance with the diversity principle. RSM advises that at the very least charities should be including a diversity statement in their annual report and on their website, and should also consider a diversity policy that acknowledges the key areas in the organisation which need improvement.
Nick Sladden, RSM’s head of charities and the author of the report said:
“One of the biggest challenges currently facing charities is one of trust. Several high-profile scandals have rocked the reputation of the charity sector as a whole. Further deterioration could hit charities’ bottom lines with knock-on effects for staff and the services provided to beneficiaries.
“Demonstrating effective governance is therefore absolutely key to ensuring that the sector can continue to rely on public generosity, interest and support. However, our research shows that while there are examples of best practice, average scores are disappointing and some charities have a lot of room for improvement.
“One of the more interesting findings in our research was that those charities that have adopted the latest Charity Governance Code scored higher governance ratings than those that hadn’t. For charities that have been watching and waiting, now is the opportunity to embrace the Code and drive up governance standards.”
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