Governance Structures for charities, not-for-profits and social enterprises
07 Feb 2017 Post by:
, Steven Moe
One theme often comes up again and again for charities, not-for-profits and social enterprises relates to how the organisation will be governed. This same issue applies whether the particular involvement is in education, relief of poverty, youth work, the arts or some other worthy cause. Governance structures are of critical importance.
Different organisations have different approaches to governance and the appointment of those in charge. Below we have described some of the options which are open when considering how to structure a board or governance body.
These represent what we consider to be the most commonly used methods for governance as well as the pros and cons of each for you to consider. Obviously this is an overview document so there are many factors to think through but we hope this will provide a good sense of the options.
Governance Structures Option 1: Trustees appoint Trustees
Overview: When a vacancy or specific need becomes apparent, the Trust identifies a possible trustee and a working relationship is begun. The Board appoints trustees to fill vacancies or as additional trustees. This is then approved at next AGM by those attending / members. Often there are provisions that at each AGM one fifth of Trustees are to retire (longest serving first).
It is fairly common for Charitable Trusts to have an appointment process like this that gives the power of appointment to the current trustees but gives a veto right to another defined group.
- Trustees retain control over who is approached.
- Board can appoint trustees directly.
- AGM involved in process so two levels of approval are required.
- Process not always followed well creating possible irregularity in the appointment of trustees.
- Less involvement of wider community.
Potential for incoming trustees to shift the focus of the Trust over time without any control mechanism to preserve original vision.
Governance Structures Option 2: Trustee Elections
Overview: Election of Trustees at each AGM so public call for nominations before that.
- Wider community involvement in process.
- Greater potential pool of trustees with diverse experience.
- Uncertainty as to background of potential candidates and understanding of special character.
- External engagement required eg advertising vacancies.
Governance Structures Option 3: Hybrid Model
Overview: Provide for election of some Trustees from certain backgrounds eg one Trustee appointed by employees. Others to be appointed by combination of above eg election / Trustees choose who to appoint.
- Incorporates elements that are positive in above examples eg diversity, involvement in process, ability to choose some trustees.
- Has more checks and balances.
- More complex appointment process may be harder to administer.
- Some voters may not have a strong connection with any special character.
Reflections on these options
In our experience the most common structure is for the existing trustees to have the power to appoint replacement trustees. The simplicity of this approach is one of the key reasons for its popularity.
In some cases, the trustees’ power of appointment is subject to a right of veto granted in favour of the group or entity that originally established the Charitable Trust. This is a viable approach and reduces the risk that the incoming trustees may over time shift the focus of the Trust.
Having elected trustees is more akin to an Incorporated Society model where members of the society elect Board members from time to time. The main negative of this approach is the complexity it adds to the appointment process. If notice deadlines are missed by the trustees, irregularities will arise in the appointment of trustees.
In considering which approach to adopt, the trustees should also take into account the different roles a Trust performs – governance vs administration/upkeep of properties etc.
Every situation is unique. We hope this short summary of some common options is helpful and would be happy to discuss any of them with you in more detail than can be contained in this overview.
Please note that this article is not intended to be legal or investment advice, and is only intended as a general guide. Reliance should not be placed on this article where any specific issues are concerned.