How effective are charity trustees? We may be about to find out

Many charities are not effectively governed, says a typically provocative and timely new report from New Philanthropy Capital (NPC). Should we be worried? Being badly governed is not the same as being badly managed.

Charities, after all, can carry weak boards of trustees and still thrive, so long as there's a fair wind and directors keep their eye on the ball. "In practice," says the report, "many large charities are run exclusively by their management."

It's when the fair wind turns foul that the problems start, points out NPC. The banking crisis has shown it is only when catastrophe overtakes us that weakness and failures in corporate oversight reveal themselves. So, as the effects of the recession start to cause more havoc in the charity sector, will its trustee standards prove to have been similarly lax?

Interestingly, trustees themselves seem to think they are doing a good job, at least according to one survey cited by NPC. That's not a view universally shared. A separate survey, of charity chief executives, revealed much less confidence in the robustness of boards.

And when NPC raised the issue with charity funders, they were left in no doubt that trusteeship generally was not up to scratch. It quotes one funder saying: "If we insisted on good standards of governance, then we wouldn't give many grants."

Few seem to hold boards to account, the report suggests, not even the funders who invest in the charity. It explains: "Boards in the private sector answer directly to their shareholders. But it is not clear to whom charitable boards are accountable. Beneficiaries, funders and regulators all have some part to play in this but none of these groups currently exert enough pressure on boards to improve."

Charities – particularly the bigger ones – need to "get more serious" about evaluating their own performance, says NPC, and that should include board performance. It cites a recent charity fiasco, Age Concern's ambitious but ultimately disastrous membership scheme, Heyday, which bombed after burning through £22m in four years.

The Charity Commission's report into the affair, NPC points out, was scathing of Age Concern's governance shortcomings, noting that the trustees did not "exercise sufficent oversight and critical challenge [and] fell short of the standards we would have expected of trustees of a large national charity".

Many charities are seeing their business models come under huge strain as the government funding tap gets tighter, income from corporates and legacies shrinks, and black holes start to open up in their staff pension funds. Strong governance, oversight and accountability is needed. As NPC puts it: "If the board has been sleeping while on watch, something that begins as a short-term crisis can quickly prove disastrous."