European Governance, Carrots and Sticks

On Friday Euclid Network is holding an event in Paris to compare third sector governance in the UK and France. This event is part of a significant project led by Euclid Network to define the common principles of governance across the EU. The commonalities in Anglo-French governance will later be tested against standards in Scandinavia, Germany and Mediterranean countries.

I have been delighted to be part of the steering group for this project. It is important for a number of reasons. If the sector doesn’t lead on defining high standards of governance then it is only a matter of time before these standards are imposed by regulators or governments. The European Union is the largest funder of civil society in the world and so has an interest in how the organisations it supports are run. Equally important though is the way codes which outline universal principles and best practice can be a major catalyst for improving governance and raising the profile of organisational performance.

The Code of Good Governance in the UK has been a crucial part of improving governance standards in the UK. Created in 2005 by ACEVO, NCVO, ICSA and Charity Trustee Networks, the code is very well known across the sector (88% of ACEVO’s members knew about it by 2007) and forms the basis for many governance assessment tools such as ACEVO’s own governance review service. The Code’s principles are currently undergoing a refresh to ensure that they are universally understandable across the sector.

The relationship between the Code and the Charity Commission as the regulator has been one of the keys to the code’s success. The code was created by the leading sector support organisations rather than the regulator, but the Commission has warmly endorsed it. This balance means that there is a clear standard which the sector, funders and regulators can all agree upon but the sector also feels complete ownership of the principles. Achieving this at a EU-wide level will be an important step.

Why does this matter I hear you ask?! Well the sector faces a number of significant challenges and we still have a long way to go to improve our governance. 70% of ACEVO members think that this is a priority for the sector. Only half of those who are aware of the code are actually using it regularly. We know that the public don’t understand us, and we know that we need be better at demonstrating the impact that we bring, and make the case for it, if we are to play a more significant role in transforming the public realm. Improved accountability and performance management are key elements of improved governance. You cannot meet the principles of the Code without understanding your stakeholders and effectively communicating with them, and without measuring your performance and improving what you do as a result. Well governed organisations are pretty much always effective organisations which deliver for their beneficiaries, and that is no coincidence.

It is true that governance is not a particularly sexy subject. Much more attention has been given to issues such as chief executive pay and expenses in the sector press over recent months. But as ACEVO argued strongly in our response to the consultation on expenses, all that fuss is an attempt to solve a problem that isn’t there. Any board no matter how incompetent can spot a fraudulent expense claim. Cost control is important in all organisations but we’re not prescriptive about how a charity chooses to buy its envelopes, or even its computers, so why should we need rules about expenses? Good governance and effective internal controls take care of all these issues, but they also take care of the real issues about accountability and performance and that is where we should we focusing our attention.

So what’s next? I hope that the eventual outcome of Euclid Network’s work will be a standard of good governance against which organisations from across Europe can seek accreditation; a passport for funders and other stakeholders to know that the organisation is properly run.

I hope too that we can move in that direction in the UK. This is something for which ACEVO has been calling for many years since our Rethinking Governance report in 2004. The steering group for the Code of Good Governance has more immediate priorities but we will need to revisit this ambition soon. It may be that accreditation is appropriate for some of the larger organisations in the sector. A combination of carrots and sticks may be what is needed to get the whole moving on improving governance.