Charities – Trustees and CEO’s


Should CEO’s of Charities in the UK be Trustees?

Some are very uneasy about the situation in most charities where CEO’s are not automatically a Trustee / Director. This situation is unusual – it is not found usually in business, where the CEO is almost always on the main board; it is not found in the Public sector (e.g. education – where the Head is an ex-officio member of the Board and other staff are on the Board); it is not normal in the US Charity sector where non-profits are expected to have the CEO on the board (a “heads on the line” approach).

This seems to be a singularly British charity approach which somehow confuses the fact that a CEO is paid with the fact that (in the UK) Trustees are not, as a reason not to have a CEO on the Board. In fact, as long as the Trustee is not paid for being a Trustee, there is nothing in UK law which prohibits the CEO from being a Trustee as long as Articles of Association do not prohibit it.

CEO unease

The reason that a CEO should be a Trustee is the same reason that everywhere else CEO’s are on the Board – to ensure that the person entrusted with the operational responsibility and much of the strategic responsibility is pro-active and party to decisions that impact that work, has an equal say and equal responsibility and is part of the team that is legally responsible. This is true in almost all other organisations and should be the same in the Charity sector in the UK.

The time many CEO’s take to make the decision to accept the CEO position is often at least partly due to this issue. Is there any sense whatsoever in the separation between the board and operational / strategic management? It provides in many charities with a “them and us” (which the separation makes real) and many CEO’s suffer (according to ACEVO – the Association for Chief Executives in Voluntary Organisations) as a result of the separation (apparently, 27 are receiving counselling from ACEVO!). In other cases, CEO’s, not part of the team, operate independently and can be seen to be control fixated as a result of the separation – ignoring the Board and attempting to run roughshod over it. Both situations are not tolerable.

Unease stems from the fact that no charity should operate in this way ……. but isn’t it time that the Charity sector wakes up  – gets up to date?

Charity Commission / ACEVO viewpoint

The Charity Commission seems to want to defend the status quo (where, according to an ACEVO report from 2007, around 5.2% of CEO’s were Trustees of their Charity).

The CC will, when asked, usually point out in a defensive way, the dangers of conflict of interest over salary and similar issues. This is overcome everywhere else where committees are set up independently of the CEO as required and where CEO’s are asked to leave the room if there is a conflict (as conflict would be dealt with for anyone in such a situation).

The CC seems to have no proper view on this issue but also points out bureaucratically to watch out that the Articles don’t prohibit the change – which most don’t and can easily be changed.

ACEVO is supposed to promote the views of charity CEO’s. I have not yet been impressed with its ability to properly do this formally and forcefully on this issue. It is OK to be a help group for CEO’s in trouble and to promote good governance but the limit of ACEVO’s efforts on this is to state the following on its website:

In a 2007 report:

There was support for the following initiatives:

1. A code of good practice on governance (98% chief executives, 95% chairs).

2. Regular review of governance practices by external experts (68% chief executives,58% chairs).

3. More flexibility with respect to board structures (50% chief executives and 33% chairs thought that chief executives should be voting trustees).

 It goes on with an article:

The role of the chief executive as a bridge – by Paddy Fitzgerald

In the third sector the general practice is for trustee boards where normally trustees are non-executive, chaired by an independent and with the chief executive, who is rarely a trustee, in attendance. Here the primary concerns of the trustees are the mission and future of the organisation, while shorter term issues are for the most part dealt with by a management committee chaired by the chief executive.

If this model is to work, the chief executive becomes the bridge between the future concerns of the trust and the short term issues of the management committee. Most importantly, the chief executive will be responsible for overseeing the journey from short to long term and in deploying management resources to explore this and identify the issues along the way. In this way the chief executive brings to the attention of the trust shorter term questions requiring resolution, and engages the executive staff in the consideration of longer term matters.

This is a much more powerful vision than one of the chief executive as a nontrustee passively awaiting the instructions of his or her board. The bridge role requires positive engagement with the ability to exert powerful advocacy in both trust and management committee, and as leadership becomes less and less a matter of autocratic direction and more and more a matter of persuasion and shared endeavour, so it becomes vital that the chief executive is an inclusive member of both trust and management committee.

 Trusts too should value the extra dimension provided by the sense of a unified team, and should welcome the chief executive as one of their own, for it is under these circumstances that the chief executive is most likely to engage other trustees most, chief executives cannot escape legal obligations placed on trustees since they will be judged as shadow directors with the same penalties in the event of any major problem, so it is in their interests to don the mantle of a Trustee and participate wholly.

 The conclusion may be that the formal appointment as a trustee aids the chief executive in this bridge role and is one of the defining characteristics of the third sector. Recognition of this role for the chief executive is essential to staff appraisal and through this to the management and leadership programmes aimed at staff development and management succession.

 On its FAQ’s – current – ACEVO lists the types of Board structure:

Q: What is the appropriate level of executive involvement in governance?

A: This relates to the structure of organisational boards. Board structures fall into four categories:

  1. The wholly executive board: found most often in small commercial companies. For obvious reasons, such boards usually struggle to offer any independent scrutiny of executive decisions. Such boards are rarely found in the non-profit sector, and it is unlikely that the Charity Commission would permit such a structure for registered charities.
  2. The two-tier board: found in parts of Europe, comprises a ‘supervisory board’ to represent stakeholder interests, and an ‘operational board’ to drive the organisation’s performance. Some charity boards may in practice resemble this structure, delegating operational decisions to a ‘senior management team’. However, a genuine operational board, unlike a senior management team, has a legally recognised governance role.
  3. The unitary board: classic model for business in the UK and Commonwealth countries, includes both executive and non-executive directors, with equal status. Despite the ambiguity concerning executive directors’ role, this model is recommended by many experts on corporate governance. The structure embodies the tension between conformance and performance. If working properly, it can combine executives’ detailed knowledge of the business with the more detached scrutiny of non-executives.
  4. The wholly non-executive board: found commonly in commercial companies based in the USA as well as in the British third sector. Third sector board member are usually, but not always, unpaid.
  5. Recognising that no one model will be perfect for every organisation, ACEVO recommends that its members conduct an audit of their governance arrangements, which should include an examination of governance structures as well as good practice.

ACEVO has not formally proposed a major change and has not acted on this serious issue – although it has a Reform Group which highlights the issue – http://www.acevo.org.uk/Policy+Advocacy/Activity/Governance . However, it is clear that the practice of CEO’s not being on the board is a serious deficiency and one that should be rectified across the board.

Sir Stephen Bubb is generally supportive and, in a recent note from him to me, he wrote the following:

“I absolutely agree with you on this issue. The Acevo board has appointed me to the Acevo board ex officio. It is the right approach and we have encouraged members to do this. Indeed it is part of our arguments and discussions with the CC that charities who want to take this approach should be enabled to do so. You are right on the legal issue as well , in my view. 

 

We will be pursuing this further as we are in the process of setting up a governance Commission to look at how the sector improves it structures and practises.

 

I feel strongly on this myself and indeed the potential chair of the commission is himself on his charity board. I am sorry this is not clearer on our website, though there are those members who take a contrary view when we last asked; but it was ever thus.

 

This issue will be addressed in our work and you can be sure that as the CEO I take the view we must sit on Boards for all the reasons you outline.”

Stephen Bubb

 

So, Charity CEO’s should work to get themselves on their Boards and start to campaign that this makes sense not just for themselves but for good governance and for the best interests of their Charities. As Paddy Fitzgerald wrote five years ago, Charity CEO’s probably already have the responsibility as shadow Directors in law – but, they do not have the legal power as Trustees to even enter into a vote on the issues closest to them and the charity.

CEO’s being outside the Board of Charities is a nonsense. Shouldn’t we change it?

I am a CEO of a Charity but not on the Board as well as a Chair of a large Academy in London where the Head is on the Board and I am involved in setting up a Charity where I will be a Trustee and where the CEO will be on the Board. It is for each Charity to decide, but if ACEVO is supportive, then the Charity Commission should be persuaded to change its basic antipathy to this issue and be supportive of CEO’s becoming Trustees. This would provide the confidence to Trustees of existing Charities who are currently reluctant to support this.

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