The Code of Good Governance is currently a voluntary framework to support voluntary organisations that wish to improve their governance processes. The recent nfpSynergy review of its progress (23 July, page 5) makes a case for moving towards a validated inspection system that, it is argued, will give added confidence to funders. The authors take the view that validated compliance may be a logical extension of the 'comply and explain' principles enshrined in the code. I disagree.
The phrase 'comply or explain' first came into common usage with the publication of the Cadbury code on corporate governance. The code's original authors said organisations should be able to either 'comply' with its main principles or 'explain' why they don't apply in their particular circumstances. Last year, a consultation was undertaken on the Cadbury code and its application. There have been some interesting responses.
Paul Moxey, head of corporate governance and risk management at the Association of Chartered Certified Accountants, contrasted the Cadbury code's two-page list of principles with the mass of corporate governance rules in the US. He said US authorities were considering whether and how to reform these laws to halt the trend of companies going elsewhere (often London) to escape their provisions. Many respondents acknowledged the danger that any governance code could be dismissed as an exercise in box-ticking, but insisted they had found sound business benefits in applying the Cadbury code. Employers organisation the CBI has suggested that, at the time of the next major review of the code, it might help to consider changing the terminology to 'apply or explain' to encourage companies to apply the principles to their own circumstances.
It would be a mistake not to take account of this experience in considering how the Code of Good Governance might develop. The Cadbury code's authors, importantly, refer to the detail of the code as guidance only. I believe the next step for the Code of Good Governance is a review and clarification of the principles that should be universally upheld in all settings. It is these that will continue to provide the focus of an 'apply and explain' approach.
I am not against the code being adapted for different sub-sectors, as suggested in the nfpSynergy report. But there are dangers if we enshrine such detailed guidance into a self-imposed form of self-regulation. At worst, this could lead to precisely the kind of tick-box approach frowned on by respondents to the Cadbury code consultation. More importantly, the sector would then be unable to benefit from the flexibility of principles that take in the many and varied forms of not-for-profit organisations, allowing guidance to develop to suit specific settings.
- Rodney Buse is chair of Charity Trustee Networks