Editorial: The governance of the Charity Commission merits fundamental review

This week's report by the National Audit Office reveals a blurring of the executive and oversight functions at the watchdog, writes Stephen Cook

Stephen Cook
Stephen Cook

At a recent hearing of the joint scrutiny committee on the draft Protection of Charities Bill, the Minister for Civil Society, Rob Wilson, announced he had agreed that the eight members of the Charity Commission could "continue their existing level of engagement" for the foreseeable future.

The relevance of this became clearer a few days later when the National Audit Office published a report on the commission that followed up criticisms it made a year ago. The top line was that the commission was making good progress in becoming a rigorous, proactive and risk-based regulator, but still had some way to go. The commission and the minister will be pleased with that. But what the report revealed about the role of the commission members – or the board members, as they have come to be called – gives substance to the fears expressed by others in the sector that they have become extensively involved in the day-to-day running of the organisation.

The eight members are expected by the Cabinet Office to work between 12 and 18 days a year, but the report shows that they have been doing far more than that since their appointment at various points in 2013. In the six months between September 2013 and March 2014, for example, they worked a total of 135 days, compared with the expected maximum of 63 (there were only seven members during that period). The report is silent on whether this had been agreed by the minister at the time, Nick Hurd, but says that in March 2014 he agreed a temporary increase of the expected maximum from nine days to 22 days each in the six months to September of that year.

The chair of the commission requested, the report goes on, that the arrangement should continue for the whole of the year 2014/15, but the minister said no on the grounds that this "could be seen as a shift to something more like an executive board with hands-on, day-to-day management responsibility". So it appears that Wilson has, in effect, changed Hurd’s policy on this important issue and may not have the same qualms about board members getting too involved.

The NAO report reveals just how far that involvement has gone. Board members’ executive activities in the 12 months to the middle of last year included directing key strands of the commission’s transformation programme, evaluating bids from and appointing contractors, setting up sub-groups to consider specific regulatory cases and directing staff in how to manage some high-profile cases. In one instance, they commissioned and received a report from consultants on which senior management did not have the opportunity to comment, which "led to senior staff taking the unusual step of preparing a formal response to the supplier’s report". Decoded, this sounds perilously close to a revolt. The board has also set up a new permanent committee on public interest litigation and high-risk cases, and several temporary committees.

The Charities Act 2011 allows the board to undertake executive activities. However, the government’s UK Corporate Governance Code says boards should not stray into executive management. The NAO report points out the tension here and says board members " consider that they must be guided above all by the provisions of the act".

The NOA appears sceptical about the board’s position. Its view is that the commission’s chief executive, Paula Sussex, is now established in her role and "there is a risk that the board’s continuing close involvement in executive matters could become the norm". It says this could lead to a blurring of the important separation between executive and non-executive, impairing the board’s independence and its capacity to hold the executive to account.

This is self-evidently true: if the board is, in effect, running the show, how can it judge fairly whether the show is being run properly? The problem, however, is built into Schedule 1 of the Charities Act 2011, which does not firmly define that important separation between executive and oversight to which the NAO refers. The schedule allows the functions of the commission to be carried out either by the executive staff or by committees of the members of the commission itself. This is an inherently unstable model in that it is vulnerable to a see-saw pattern where power is periodically wrestled back and forth between executive and commission members. At the moment the commission members are very active – in some cases, distinctly zealous – and are asserting their executive rights. In such circumstances, their oversight role inevitably becomes diminished and their guardianship of the commission’s independence is jeopardised.

The NAO report points out that the board has not evaluated its own performance since the renewal of the board in 2013, but has now asked the government’s internal audit service to do so before the end of March. The required annual review of the commission’s governance framework has also not been done for two years and is expected to happen at around the same time. Its agenda should include whether that framework should be completely overhauled. The subject might also come up when the commission's chief executive gives evidence in the coming week to the Public Accounts Committee as it follows up the NAO report.

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