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The Importance of Governance

Social Entrepreneurs Ireland is running a governance workshop with some of its Awardees this month, facilitated by legal and governance experts. Ahead of that workshop, we wanted to ask the question, what is it that makes good governance so crucial?

The importance of good governance for social enterprises and charities cannot be overstated. With good governance comes oversight, public trust and the ability to mitigate against many of the risks an organisation may face.

To a start-up organisation it can appear to be nothing but a hindrance and a drain on scarce resources. However, there is a pertinent time in the development of an organisation for which different aspects of governance can and should be meaningfully applied. This is recognised by the many voluntary codes of governance available, such as that of www.governancecode.ie which is tailored to organisational size and turnover, with different expectations placed on different types of organisations depending on the criteria they meet.

What is involved in Governance?

There can be a lot of confusion about governance requirements and best practice, especially in Ireland where a Charity Regulator is not yet in operation (though it soon will be. So, what exactly does it involve?

‘Governance’ refers to how an organisation is run, directed and controlled. Good governance means an organisation will design and put in place policies and procedures that will make sure it runs effectively. But good governance is not only about rules. It is an attitude, whereby organisations aim to act with integrity and to meet their responsibilities to both supporters and beneficiaries.

Governance encompasses a wide variety of functions of an organisation, such as the means by which it runs and how roles are defined, its risk management, and the mission, purpose and values of an organisation. The board members of a social entrepreneur-led project will play a large role in these matters, and need to extend oversight to the organisation as a whole.

Governance requirements

Good governance requires transparency and accountability to stakeholders, two words which are often used interchangeably but which in reality have very different meanings. If an organisation aims to be accountable, it needs to report to its shareholders on the outcomes of its work rather than simply on its outputs. It can do this through more narrative reporting, but in order to be transparent its reporting and accounting need to be outlined in a particular way so it can be compared to other organisations and its governance can be benchmarked.

This is a particular problem faced by ‘not for profit’ organisations in Ireland; where financial reporting can take many different variations. The Statement of Recommended Practice (SORP) for financial reporting is used in the UK and regarded as best practice for Ireland, and something similar may soon be required under law by the Charities Regulator.

It may at first seem like a huge uphill struggle, but putting the appropriate governance structures in place will ensure an organisation is ready to grow and behave with integrity and openness. Recent failures of governance within the Irish ‘not for profit’ sector have damaged public trust and shown the need for good governance principles to be adopted by all social enterprises and charities, to the best of their ability.

You can find details of governance requirements for your particular organisation here; www.governancecode.ie

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