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Marks of distinction
Rosie Chapman summarises the revised Hallmarks of an Effective Charity guidance...
Achieving, and maintaining, effectiveness is a top-to-bottom job. Our revised guidance The Hallmarks of an Effective Charity recognises that effectiveness needs to be integrated throughout an organisation for all its functions to be fully effective. The six Hallmarks don’t replace the Good Governance Code1, which is owned by the sector – both are complementary. There is, however, always scope to see if some aspects of the updated Hallmarks can supplement or strengthen your charity’s approach to effective governance, management and operation. The complete Hallmarks are available on our website and they give every charity the confidence to develop their framework and evolve innovatively within it.
Hallmark 1: Clear about purpose and direction
Confidence of purpose, mission and values enables a board to use them as the blueprint to direct all aspects of its charity’s work. This is of great practical value, not least in terms of knowing what is, and isn’t, activity consistent with a charity’s objects.
Being clear about purpose and direction also gives an organisation its values and the identity which encompasses all its functions – from its volunteer management to its marketing. It also allows for genuine independence and the recognition that it exists to pursue its own purposes, not to carry out the policies or directions of any other body.
In our recent survey into public levels of trust and confidence2 in charities, 71 per cent of people agreed that charities are effective at bringing about social change. The exercise of charities’ independence is a crucial part of their ability to do this.
Organisations have to think ahead if they are going to have clarity about purpose and direction; this is particularly relevant today. This means considering future sustainability in the context of your mission and purposes; balancing what is needed now with what will be needed in the future will inform everything from re-prioritising activities to identifying the changing needs of your beneficiaries. It may even indicate that your purposes are, or are in danger of becoming, out of date, in which case the Charity Commission can help authorise the changes you need. The Charities Act 2006 makes amending purposes much more explicit – with a specific reference to being able to take into account current social and economic circumstances – but you need to come to us to make it happen. Over one-third of the respondents to our public trust and confidence survey said that ‘charities making a positive difference to the cause they work for’ is the single most important quality in creating public trust and confidence. Ensuring your objects and activities are up to date and relevant is key to equipping your organisation to make that difference.
Hallmark 2: A strong board
The second Hallmark is the existence of a strong board. Our experience shows that weak or unbalanced boards are frequently at the core of a charity’s problems.
Being clear about what kind of board is needed involves going back to basics. The governing document specifies how the board should be constituted and should also cover issues such as the number of trustees considered quorate, terms of office, and frequency of AGMs. Beyond this, listen to your charity. Identify the mix of skills, knowledge and experience it needs to run efficiently and effectively and recruit and appoint accordingly.
Word of mouth remains both the most common recruitment method and the most ineffective. Identikit boards are unbalanced and ill-equipped to deal with change, challenge or crisis. Spread nets more widely; identify the skills and experience your board lacks or seeks to replace and then advertise accordingly.
When you’ve attracted your new trustees it’s vital that you undertake all appropriate checks to ensure they are both eligible and suitable to act in that role. The past year has seen the Commission having to intervene in far too many cases when existing trustee board have decided that a new trustee with previous convictions for offences of abuse is a reformed character – with often horrific consequences for beneficiaries. This is non-negotiable; trustees have an absolute duty to protect their beneficiaries, and this is a paramount responsibility.
Hallmark 3: Fit for purpose
Fitness for purpose is about translating the policies, procedures and structure of an organisation into achievement that takes account of the changing landscape in which the charity operates.
As well as regularly reviewing its policies, procedures and risks, the board of an effective charity takes the time to consider whether collaborations and partnerships could help it improve its services or deliver other efficiency benefits. These partnerships could, at one end of the spectrum, develop into a complete merger or, at the other, involve one-off or occasional coalitions of the willing when it comes to campaigning.
Doing things because they’ve always been done without review or challenge leads to stasis and a lack of relevance – being aware of context is vital when it comes to remaining effective.
Hallmark 4: Learning and improving
This is about an organisation’s ability to learn, to develop and to improve. Benchmarks show where an organisation currently is; setting achievable targets and indicators against which success and improvement is measured and – importantly – evaluation, feeds directly in to forward planning and future direction.
Self-reference won’t do it – getting meaningful feedback is important, both in terms of knowing what’s working and what isn’t. Make it easy for your beneficiaries and others with an interest in your charity’s work to tell you what they think. This involves creating easy and accessible avenues to generating feedback on the things that matter to them, rather than the things that the trustee board thinks matter.
Hallmark 5: Financially sound and prudent
A truly effective charity can tangibly improve its financial position, but there is never one universal magic bullet and what works for one won’t work for all. Boards and finance directors need to ensure their financial strategies are right for their charity.
Policies that exist to control and manage reserves, investments and borrowing need to be reviewed and an organisation needs to know when to take professional advice. Financial sustainability will never be achievable without managing cashflow and monitoring and reviewing financial performance throughout the financial year – not just its start and end – to permit taking timely corrective action.
Boards need to be realistic about the financial risks involved in both new and existing ventures. Trustees have individual and collective responsibility to make sure they have robust financial controls – the harder it’s made to commit fraud, for example, the less the temptation to do so. An effective charity analyses the sources of its income and has firm strategies in place to raise the money it needs, diversifying income streams as much as possible.
Keep abreast of new sources of funding. HMRC, for example, has introduced new and easier options into the Gift Aid3 scheme for smaller charities. Aim to structure activities in the most taxefficient way possible and ensure the operational risk to the charity from any trading activities is strictly minimised.
Balancing fundraising creativity and public trust needs care. Our survey found that one in 10 respondents cited fundraising techniques they didn’t like as the reason they trusted a specific charity less than others. While overall levels of trust are up – from 6.3 on a mean scale from zero to 10 in 2005 to 6.6 today – a full 50 per cent say they believe that charities these days are using more ‘dubious’ fundraising techniques. Fundraisers need to know their audiences well to be fully effective.
A near-universal 96 per cent of respondents said it was important to them that charities provide public information on how they spend their money. The Register of Charities will shortly be relaunched with more transparent and accessible information, and charities whose documents are overdue will be immediately obvious. File early or on time – a lack of publicly available information about expenditure and achievements was the single biggest factor making survey respondents likely to trust a charity less.
Hallmark 6: Accountable and transparent
This isn’t solely about complying with the requirements of SORP4 and meeting filing obligations, crucial though these are. It’s about genuine accountability to both the public and anyone with an interest in your charity in a way which is both transparent and understandable.
Everything from your grant application to your job adverts and website has the potential to be a communications tool, for good or ill. Interestingly, the most common reason given in our survey for trusting a charity more is if people have seen or experienced what the charity does.
The importance on getting across the nature of the work you do will become increasingly apparent when trustees start reporting on their charity’s public benefit from next March onwards. Here, we will do our utmost to make sure good practice and strong examples are disseminated as widely as possible.
1 Good Governance: Code for the Voluntary and Community Sector 2 2008 Charity Commission study into public trust and confidence in charities. Independent research conducted by Ipsos MORI.
3 www.direct.gov.uk/giftaid 4 Accounting and Reporting by Charities: Statement of Recommended Practice (SORP 2005)
Rosie Chapman is execuitve director of policy and effectiveness at the Charity Commission. She is a Fellow of the Institute of Chartered Secretaries and Administrators, a Fellow of the Royal Society of Arts and a board member of Homes for HaringeyRead more articles by this author