Simon Walker: Business and charities must address governance failings

Both have endured scandals that have done great damage to the image of leadership, writes the director general of the Institute of Directors

That British society would not function without the efforts of our 165,000 charities, and the millions of people who freely give their time and money, should go without saying. I make a point of saying it because I run a business organisation that is known for being a champion of commercial values, of competition, and yes, of profit. You may wonder why I am even writing for Third Sector, but our two sectors have one thing in common, and that, unfortunately, is failure.  

Business has recently endured a set of scandals that have done great damage to the image of business leadership. Two of Britain’s best-known high street brands, BHS and Sports Direct, have been subject to detailed parliamentary inquiries in recent months, leading to reports which heavily criticised their management and boards. Ultimately, the failures link back to poor oversight and corporate governance.

The case was not so different when the Kids Company scandal broke at the end of last year. There was finger-pointing from all sides, with politicians blaming each other, and anyone in the near vicinity. But wherever you choose to place ultimate responsibility, one of the problems exposed was a failure of governance. I would suggest this was also the case when Age UK prompted a backlash by doing a deal to promote E.ON energy tariffs. The expectations on charities are rightly very high, and members of the board should have been able to realise the deal created reputational risks.

The problems at BHS and Sports Direct seem to have come from an over-powerful boss with little effective check on their power. MPs have also suggested that the charismatic Camila Batmanghelidjh was able to wow successive governments while insufficient attention was paid to the charity’s financial problems. In these situations independent board members and charity trustees are meant to step in and raise the warning flag.

Company directors have become used to more scrutiny over the years, and ironically some of the best governance is to be found at businesses in sectors which have the most difficult reputations, such as tobacco and alcohol. Charities, on the other hand, have been subject to less scrutiny because of their laudable goals. In some cases, such as Kids Company, this has arguably made it harder for problems to be exposed, meaning they grow unchecked under the surface.

Third sector organisations can learn from the governance improvements, and also the failures, of business in order to improve the relationship with donors and beneficiaries. The level of scrutiny applied to the governance of corporations is increasingly being applied to charities. It is crucial that the public has faith that competent and knowledgeable people are overseeing these organisations.

When someone volunteers to join the board of trustee of the charity, they take on a level of accountability that many don’t expect. Shortly after joining the IoD, I resigned a trustee position because the responsibility was more than I could bear in good faith. Trustees must go into the position with the eyes open, and judge honestly whether they have the time, skills and knowledge to perform the role. If they don’t, then they should consider trustee-specific training, just as company directors would.

It’s time for a more professional approach. With huge budgets, large numbers of employees and, of course, the recipients of charity all on the line, there is no excuse to view a being trustee any less seriously than being a company director.

Simon Walker is director general of the Institute of Directors, which now offers trustee training alongside its executive education programmes.

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