How recruiting a new chair of a board of charity trustees can give rise to breaches of the Charity Governance Code

You would think that recruiting a new successor to the outgoing charity chair would be a straight forward matter and not likely to call into question a charity’s integrity, openness and accountability and diversity, equality and inclusion. Yes, however there are risks of breaches of the Charity Governance Code and few years ago we were called in to intervene in one such exercise for one of our clients, that threatened to divide the board over charity governance issues.

The Scenario

This featured a medium-sized charity, providing services to children and adults with physical or learning disabilities.

The Chair of the Trustee Board wished to step down and a process was begun to recruit a new Chair. It was the responsibility of a panel of Trustees to first consider a longlist of candidates. At this point in the process one of the Trustees on the panel, who we will call Edna, expressed her disapproval of one of the candidates for the Chair vacancy, an internal candidate, another Trustee, who we will call Fred. Edna shared her concerns with the other two panel members, including that she had had suffered a number of personal interactions with Fred that left her feeling uncomfortable and that she was aware that Fred had made inappropriate, politically incorrect comments to the outgoing Chair. The outgoing Chair then went on to speak with a former colleague of Fred, who was far from complimentary of him and reported that Fred had had a similar reputation of acting inappropriately.

Edna, however, remained on the panel and Fred remained a candidate. The longlist of potentials was whittled down, and the panel of three Trustees convened to consider the shortlist of five candidates. Edna shared her concerns with the other panel members again, but Fred remained on the list of candidates and Edna remained on the panel.

The final two candidates were an external candidate provided by an executive recruitment agency, and Fred. One of the panel staunchly supported Fred, while Edna and the remaining panel member preferred the external candidate. Without total agreement, no replacement Chair was chosen. Fred’s supporter on the panel, let us call him Peter, was furious at how the process had been carried out, including that Edna remained on the panel despite her apparent bias against Fred. Peter threatened to report to The Charity Commission. Edna meanwhile was unhappy with Fred and Peter and she handed in her resignation from the Board to the outgoing Chair.

The Question for us?

The outgoing Chair approached us and asked: could the board of Trustees legitimately choose from one of the candidates, or was the process flawed and did they have to recommence from the beginning?

We advised that the process was flawed.

Why was the process flawed?

Referring to the Charity Governance Code, we advised that the recruitment process lacked integrity, which is the 3^rd of the 7 pillars of good governance under the Charity Governance Code. We diagnosed that the charity was not able to legitimately pick from the final two and it found itself with a fractured board of Trustees, one resignation, a bill for £20,000 on recruiter fees and no new Chair. The most prominent failure in the process related to the conflict of interest between Edna and Fred.

This is what we advised, referring to the Charity Governance Code:

Key Outcome 3.4 of the Charity Governance Code states that the board makes objective decisions about delivering the charity’s purposes. It is not unduly influenced by those who may have special or personal interests. This applies whether trustees are elected, nominated, or appointed. Collectively, the board is independent in its decision making.

Key outcome 3.5 states that no one person or group has undue power or influence in the charity.

Edna clearly had a personal prejudice against Fred as a result of their personal interactions. However reasonable that prejudice might be we asked ourselves how could she be independent in her decision making? We answered that she could not be and she should have recused herself from the panel at the earliest opportunity after declaring her conflicting interest.

Recommended Practice 3.8.4 of the Code is that the Trustees must keep their independence and tell the board if they feel influenced by any interest or may be perceived as being influenced or to having a conflict.

In later correspondence Edna said that she was not influenced by her prejudice and would make any decision purely on the merit of the candidate. Even if she could demonstrate this to be true, there needed only to be a possible perception of conflict, which in light of her behaviour, i.e. reporting Fred’s reputation to the others, there certainly was.

It is not just the conflicted person that has a duty. Under Recommended Practice 3.8.1 the board should understand how real and perceived conflicts of interest or of loyalty can affect a charity’s performance and reputation. The outgoing Chair was aware of the conflict, but let the process continue without alteration, apart from ensuring that Edna and Fred were seated far away from one another. The disruption could have been easily limited by changing the make-up of the panel early on in light of the obvious conflict of interest. We advised that the Chair must consider the potential impact to the reputation of the charity in the eyes of the recruiter, and therefore how word may spread to other parties, including stakeholders.

It is not just integrity that is relevant here, we also advised that under the 7^th pillar of the Charity Governance Code of openness and accountability, Recommended Practice 7.6 is to develop a culture of openness within the charity, which includes under 7.6.2 that the board makes sure there is a transparent, well-publicised, effective and timely process for making and handling a complaint and that any internal or external complaints are handled constructively, impartially and effectively. Edna had been made to feel uncomfortable and had let the Chair know. This was a complaint, yet little more was done except move her and Fred to different sides of the room. We advised that she probably felt that she had not been responded to adequately.

A third relevant pillar of equality, diversity and inclusion (pillar number 6) was highly relevant to this case. It was reported that Fred had made non-pc remarks to the Chair and was said to have made inappropriate gender specific remarks towards different women. There was not only the matter of his personal integrity at issue, which impacted on his Nolan Principle Standards in Public Life duties, but also why he felt it was appropriate to make such remarks. Outcome 6.2 is that the principles of equality, diversity and inclusion must be embedded in the organisation and help to deliver the charity’s public benefit. Making inappropriate comments about certain kinds of people, for whatever reason, was contrary to this Outcome.

The Recommendation

This case was a particularly good example of where there was a failure to recognise the pillars and outcomes of the Charity Governance Code. There were so many opportunities to put in place measures to prevent breaches of the Code occurring or deal with them with minimal damage. So, having advised that the process was flawed in the light of the above, the charity would have to start afresh with a new recruitment process with a new constituted panel.

We also advised that:

In order to best manage conflicts of interest when they arise, it is wise to have a Code of Conduct on Conflicts so Trustees know how to behave in response to their own or others’ conflicts, or indeed to perceived conflicts which can have just as much of an impact.
It is also prudent to keep a Register of Conflicts because the board has a duty to record conflicts too.
In the interests of maintaining transparency, the charity’s reputation and therefore integrity in the eyes of the public and stakeholders, it is advisable to not only maintain the register but publish an Annual Report listing those conflicts and how they were managed.
It is very important to always have a Standing Item on any meeting agenda to ask about conflicts of interest. This can help ensure they can be dealt with, or nipped in the bud, as promptly as possible once they have come to light.
One point about a Code of Conduct on Conflicts is that creating one is often not enough. There must be training in using such a Code in order to be able to recognise conflicts when they arise and know how to respond.
Similarly, it would be ideal if merely creating a watertight Governance Manual or Code of Conduct would put a stop to any breaches of the code or of the law. Although it is an imperative start, it is critical that Trustees are introduced to such manuals or codes and are trained in their interpretation in line with the charity’s values. Taking equality, diversity and inclusion (EDI), as an example, merely knowing what diversity means will not curb inappropriate behaviour. Training in line with the charity’s statements on EDI as written in a charity’s Code or codes (which should in turn be in line with the Governance Code) is much more likely to comply with the EDI pillar of the Governance Code.

If your charity would like advice on how to put in place a Governance Manual or Code of Conduct or is embroiled in a conflict of interest that threatens to divide the board and undermine the integrity of the charity, do please reach out to me at nick.hobden@ts-p.co.uk