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The revised Code of Governance for Charities and Institutions of a Public Character was launched in April this year.
Some of the key changes such as the imposition of term limits for board members, and the introduction of ESG-related requirements, parallel governance-related changes in the corporate space, particularly for publicly listed companies. This should come as no surprise in a world where lines between for-profit and non-profit entities are becoming more blurred in terms of social expectations and accountability to overlapping stakeholder groups.
This overlap is reflected in my attendance here today. Ms Yeo Lian Sim invited me in my SGX RegCo capacity but she also wants me to share perspectives from my experience in the non-profit sector.
The Code takes a principles-based approach with the intent of encouraging charities to be more active in reviewing and assessing whether their institutional and governance arrangements are in line with the overarching principles of the Code viewed in the context of their unique operating circumstances, rather than simply engaging in a box-ticking exercise. The intention is for charities to comply with the spirit of the Code and not simply the letter. This is an approach similar to that of the SGX Listing Rules and the SIC Takeover Code. But to do that, I will first address the related questions of “why have good governance” and “why communicate”. Let me be clear that I don’t presume to be able to speak to your individual circumstances, and simply wish to offer my thoughts on this subject for your consideration.
Good governance is critical for charities in maintaining integrity and fostering long-term trust. Today’s highly connected world also means that any major flaws in governance will have serious negative reputational outcomes. Good governance is also a fundamental bedrock for a board to effectively address the operational and strategic issues that all dynamic organizations will encounter.
One aspect of good governance is open and transparent communication (including reporting) with stakeholders, in particular volunteers and donors. Good governance and communication provide assurance to volunteers and donors that the resources they contribute in time and money are well-utilised, and encourages them to continue contributing to the cause. It builds trust, which goes to the essence of Principle 5 (that charities should be accountable and transparent) and Principle 6 (charities communicate actively to instil public confidence). Good communication is also a way to show volunteers and donors that they are respected as co-partners in the enterprise, that their efforts are not being taken for granted. In one organization I was involved in, it seemed as if the only time donors heard from the organization was during the annual fundraising window. I’m glad to say this has since changed. In like manner, in the listed company space, we require companies to continuously keep their current and prospective shareholders informed of the affairs of the company, as this will help them decide whether to stay or become part of the company.
I shall now like to briefly make 5 specific points. First, I want to reference Principles 1 and 2 of the Revised Code. Principle 1 states that the charity serves its mission and achieves its objectives. Principle 2 states that the charity has an effective Board and Management. These Principles are without doubt important. Where there is an effective Board and Management comprised of people with the right skills and mindsets, and where board members and staff work well collaboratively, the charity will almost inevitably be able to serve its mission and achieve its objectives.
Yet sometimes there is a tension caused in part by different cultural perspectives. Let me explain. In many charities/IPCs, management is steeped in social service while many board members are drawn from other fields and in particular from the private sector. While all come in good faith wanting to do their best to help the group being served, their perspectives can be different. I have often heard staff saying that they think some board members are being “too corporate”. On the flip side, board members may feel that the operation is not sufficiently “efficient” and the charity should do more.
I can understand both perspectives. Staff often focus on the individual they are serving and to them this is mainly about what matters. They are wary of efficiency being a byword for a less qualitative service. Board members on the other hand ask whether there can be more efficient and cost-effective ways of doing things, and whether it is possible to have more scale. Both perspectives are equally important and the effective charity is one that can find the optimal balance between these perspectives because neither management or the board is arguing for one extreme or the other. There is, for example, no point in serving many beneficiaries if they are all served superficially.
The key to this balance, I feel, is an empathetic and caring board chair, and a broad-minded chief executive/executive director. Both must be prepared to listen sincerely and openly. When this takes place, the right tone at the top will be a powerful catalyst within the organization. So, I would say to management – be open and listen because sometimes your experience can be an impediment as you may be set in your ways. And to the board members, especially those from the private sector, be humble and open to listening and learning because too often there is an air of superiority that management finds jarring.
Second, and this speaks to Principle 1 (serving the mission) and Principle 4 (the importance of planning for the future), it is important every so often to evaluate purpose and to plan accordingly and for the long term. To do all this effectively, there has to be a robust process to monitor, evaluate and report impact. For instance, in the past when there was widespread poverty, meeting such needs financially and with necessities were very important. Today, a fair bit of poverty is underpinned by other fundamental issues. These include mental wellness, dysfunctional families, and lack of relevant skills. So, if a charity/IPC is in this space, can you deliver impact better through retooling your approach? This important issue of whether a charity is still as viable and relevant today as in the past is something that good boards and management may have to think about carefully from time to time.
Third, there is one aspect of Principle 3 that is becoming increasingly important and this is the “E” and “S” in “ESG”. To many people, the environment and social dimensions are basic hygiene factors for volunteers, donors and also potential employees. They can also be competitive levers that make the charity/IPC more desirable. The very essence of charity stakeholders is that they want to do good and therefore the organization’s commitment to the environment and being a socially conscious enterprise that is concerned about its employees and its relationships with other people will be important to such stakeholders.
How can charities approach this? I am no expert but in one of my previous organizations, there was an aspiration to be an environmentally conscious organization. Management took several steps such as turning up the thermostat a little, avoiding single use plastic, using reusables, recycling, and going digital as much as possible to reduce the use of paper. In the social area, we were conscious of the need to look after staff welfare and satisfaction through means such as medical benefits, training and development, ‘flexi’ work (even pre-Covid), helping with stress and mental wellness issues, and trying to get all employees to feel a sense of engagement and purpose through group meetings and discussions.
Increasingly, another “S” that is important is sustainability. Here there is a link to the “E” we spoke about but sustainability also includes how to future-proof the mission and work of the charity. In this regard, much of what has been said applies here. The ability to see societal change, to anticipate new needs, to engage stakeholders effectively, and to be able to think strategically for the long term are all important elements to ensuring that the charitable enterprise can be maintained and supported adequately moving forward. In a previous organisation, the board felt that doing what we had been doing in the past – being a platform to raise resources for related non-profits – was not sufficiently ambitious. This was because we felt that our related charities and other associated organisations could do more than what they were doing, and we should therefore also be a platform to help them to do so. This will be a very long journey that has only begun but all journeys begin with initial steps.
Fourth, let me mention the importance of compliance referred to in Principle 5 given the recent anti-money laundering (AML) cases being investigated. The Office of the Commissioner of Charities and ACRA recently published guidance on how charities/non-profit organisations can protect themselves against money laundering / terrorism financing risks. The guidance includes:
- Having robust financial management and internal processes that promote transparency and accountability to safeguard themselves from such risks with regular reviews of key charitable programmes and partnerships.
- Knowing your key donors and beneficiaries, which require charities/IPCs to conduct due diligence checks on key donors and beneficiaries.
- Conduct financial transactions through regulated financial channels.
- Report suspicious transactions to the Suspicious Transaction Reporting Office of the Singapore Police Force.
Not all of this guidance is straightforward to follow. While (c) and (d) are not difficult in themselves, how does a charity approach (a) and (b). For example, clearly it would be impracticable to screen every donor whatever the amount may be. And what are appropriate due diligence checks? The issue is made more challenging by the fact that guidance can only be guidance rather than fixed rules. It would be simple for charities if say a financial threshold was set but this will be regarded by many as arbitrary and can be easily bypassed by a gift of a few cents less than the threshold amount.
Therefore, boards and management will have to adopt a common-sense approach. A charity may for instance look at the amounts donated over the last 3 to 5 years and take the view that donations above a certain threshold should be scrutinised because such donations are unusual. The charity may also want to pay particular attention to donations made by foreigners/cross-border entities. Using publicly available information on the Internet can help to some extent. So, for instance, if a charity receives a donation of $20,000 which is very unusual, it may wish to see if there is any information about the donor on the Internet. If the donor is a Singapore citizen with what appears to be a stable job, the conclusion may well be that there is no cause for concern. But if the donor is a company registered in the Cayman Islands and there is no information about it doing any business in Singapore, it may well be that this ought to raise a red flag.
Finally, this brings me to the theme today which is “Beyond the Words – Communicating Charity Governance and Transparency”. As mentioned earlier, the Code adopts a principles-based approach, rather than a prescriptive set of requirements. While it may be easier from a compliance perspective to simply have a set of boxes to check, the intention behind this principles-based approach is so that charities can adapt the requirements to their own circumstances, while also ensuring that they comply with the spirit of the Code, rather than just the letter. The aforementioned point about money laundering is a good illustration of how we live in an ever-changing environment, and because of this, we ought to afford charities the flexibility in responding to new developments through a principles-based approach.
The reference to “Beyond the Words” also reminds us that to be able to communicate effectively, a charity must have substance in terms of its governance, processes, mission and execution. A message is ultimately only as good as the reality of what is being conveyed.
On the flip side, and here I will speak primarily in my capacity as Chairman of RegCo, it’s also important as a regulator to listen, exercise flexibility, be patient with those that we regulate, and ensure any new requirements are progressively introduced with appropriate transitional arrangements. What we don’t want is compliance as a box-ticking exercise, but for the actions by those we regulate to accord with the underlying policy intention. A practical approach is to get everyone started on the journey, giving sufficient time for the sector to mature and improve.
Thank you.
