Charity governance is often talked about in the news, but not in the way most charities would like. In light of the recent operational and financial scandals which have inundated the sector, charity governance has gained a bad reputation which has led to increased public criticism as well as declining public trust of the charity sector.

Boards play a crucial role in helping a charity achieve its mission and deliver the greatest impact possible. In NPC’s experience, when charities follow best practice in governance, they are more effective, forward looking and efficiently run.

Funders of charities require good governance for a charity to be effective. While there are exceptions, it is therefore surprising that there are not more funders who provide investment for charities to improve governance.

However, funders can be hesitant to provide funding for organisational development as the benefits of investing in these areas are often not tangible and organisational change can be a slow process. As pressure mounts on charities to prove robust governance processes and procedures, investment by funders into board development is critical. Here we outline three ways in which funders can improve good governance in charities.

1.) Use your influence and ask questions about governance
Funders ask many questions to their charity portfolio and organisations they are interested in funding, however questions about governance often do not feature heavily. Funders may ask questions such as the size and composition of a board, but rarely do funders try to understand how well a board is functioning.

Probing about governance is important for a number of reasons. With better knowledge of a charity’s governance, funders can have confidence that there is robust oversight of the charity’s use of funds. The process of asking questions can also help charities identify areas of governance they need to improve, which can catalyse better governance practice.

Last year, New Philanthropy Capital (NPC) published a guide to good governance called Above and beyond in trusteeship.

Drawing on the experiences and insights of trustees, the guide outlines how boards can get the most from their organisations and do the best for their beneficiaries.

2.) Build the capacity of trustees
Asking questions can help funders identify gaps in governance practice. Sometimes investment is needed to plug those gaps.

All too often funders and charities expect trustees to have the right knowledge and skills to carry out their duties and responsibilities perfectly.

This is not always the case and funding trustee skills development can be a positive investment in helping trustees be successful in their role. If it is unclear what skills, if any, are missing, investing in a skills audit can be useful to identify skills gaps within the board.

Some trustees may be more open to the idea of skills development than others and it can be difficult for charity staff to ask trustees to undertake training when they are already taking time out of their busy schedules to volunteer with the charity. Funders can help bridge this gap by setting expectations on governance activities and board development as a pre-requisite of their funding.

Additionally, putting aside money for governance reviews with external experts every few years can be helpful to thoroughly review the performance of the board over time.

The Forbes Funds, based in the United States, awards management assistance grants for non-profits to hire consultants. An important part of this process is engaging trustees.

The grant-maker meets with the consultant and executive director and board chair of the grantee organization at the start to make sure that everyone is on the same page. The group meets again at the midpoint of the project to allow for adjustments and to discuss other needs that may have arisen.

Kate Dewey, president of The Forbes Funds, said that engaging non-profit trustees in these conversations about goals and progress is critical for buy-in. ‘We found that the boards are often left out of the process of setting outcomes and understanding the purpose of the intervention,’ she said. ‘This can result in confusion between trustees and staff and a missed opportunity for the board to support capacity-building efforts.

3.) Provide unrestricted funding
NPC is a strong proponent of unrestricted funding. It allows charities to be flexible with their activities and to take advantage of opportunities knowing that core costs can be covered. It also gives charities the freedom to spend money beyond programming and on areas which the charity itself identifies as important in increasing the impact of the organisation.

We found in our recent report, Charities taking charge, that charity leaders in the UK see trustees as one of the most important resources for delivering their mission.

Additionally, the S. D. Bechtel, Jr. Foundation’s Resiliency Guide outlines an engaged and effective board as a key factor in assessing an organisation’s ability to adapt and achieve long term success.

Given the option, more charities may choose to invest in governance, which could ultimately help the charity achieve greater impact.  Poor governance can have disastrous consequences for a charity. Charities need to step up, but funders also have a responsibility to help charities raise the bar with governance through greater scrutiny and investment into a charity’s governance practice.

If they do, we will hopefully hear a few more positive news stories about charity governance.

Sonali Patel is a Consultant with New Philanthropy Capital (NPC).