governance

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Succession – When is the best time to let go

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Its hard to let go when you have grown an organisation, be it a business or a charity with personal sacrifice, commitment and / or investment Sometimes this question leads to breakdown of relationships, disagreements and even legal fights or regulatory action. Humans are mere mortals, and this question always hangs over every Leader, Founder and Owner. This question can be answered in many ways successfully and sometimes unfortunately by force. In my professional capacity, I have worked to answer this question in the business and charity sectors. My starting position has always been to question and understand the motive of the question as the answers lies therein. Succession should be about success of the business or charity Succession must always lead to success – this is when it becomes utmost important to define what that “success” actually looks like. Does success mean becoming a bigger business or profitable one? Is it about becoming a larger charity or better governed one? Is it about changing the way the organisation is run or just about retiring and passing the mantle? In defining the parameters of success, the timing matters as it focuses the minds and rewards. When the question of “succession” is considered without working out the question of “success”, it risks leading to the wrong answer. Not all business successes require successions. And if not careful, unnecessary successions can lead to disasters and failures due to losing history, commitment, and profile of the leader internally and externally. Artificial term times don’t always work, especially when copy / pasted from other organisations. What success looks like may even require other solutions other than succession. For example, advisors / new positions under the leader, more delegation or just good and better business planning or resources. However, when the succession discussion is underpinned by the need of a clearly identifiable success then difficult discussions become easier to digest and problems turn the mind to “win-win” solutions. Succession planning becomes meaningful and desirable. Good strong successors don’t grow on trees In a family business or a family / friend run charity, the perceptions of control can dominate the succession discussion over the need for real organisational success. Not all seats on the board table mean control – the wrong successor can compromise success – without the real success, control means nothing. However once succession is on the cards, finding the right successor can become an impossible task. The identified success parameters should determine the type of successor required – Leaders don’t grow on trees and may not be just plucked out of thin air. Promoting an amateur and / or choosing an untried hand can be a risky affair – this is why a timely succession planning is always a cornerstone of good governance. Below are some examples of how succession planning works in good governed organisations: Delegation nourishes leadership. This can be achieved in a controlled and a phased manner. The delegation matrix should be meaningful and there should be succession planning thought behind it – This should not just be a HR tool to use when things go wrong. Input leads to outputs. Every great leader started from a junior position and worked their way up. Never underestimate a good effective recruitment strategy at junior grades. These are the stones that can be carved into eye-catching statues of tomorrow. Graduate recruitment of great corporates is designed with this in mind. Mentoring should not be accidently achieved – it should be planned. This is a fruit that can be produced through an effective HR function and through good performance management protocols. Effective leaders budget their time for mentoring – these are the seeds that can grow into the trees of tomorrow. Nepotism can be costly. It comes at the cost of achieving real success. It suppresses real leadership and opportunity. Organisations that keep nepotism in check make succession planning work effectively. These are the organisations that are designed to succeed in their organisational objectives. Those that don’t, lose in the long run. End – Author: Nasir Rafiq BA FCA is a widely experienced Finance Professional and Governance Expert. He works with organisations of all sizes and complexities. Nasir is the Founder Director of Dua Governance Chartered Accountants and Business Advisors. A firm that specialises on governance advisory services to the charity sector.

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When assumptions don’t work

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Those that run organisations are expected to make decisions. These can be trivial and some with significant long-term impacts. They are often presented with scenarios where they are required to make decisions for the betterment of their organisations. These decisions could relate to appointments, procurements, ending or starting partnerships, strategic direction or related to communications. How these decisions are taken determines how risk is managed and disasters averted within an organisation. Bad decisions can indicate Bad governance. The quality of decision is based on the quality of the source. Is it based on assumptions or assurances? The difference between both is crucial and can be explained by how a surgeon conducts surgery. A surgeon when conducting lifesaving surgery must also make decisions. How these decisions are made gives us a glimpse on how assumptions can differ from assurances.   A surgeon regardless of his skill and experiences must rely on assurances provided by test results, machine sounds, camera, touch, tools and importantly opinion of other professionals. The more complicated the surgery, the more assurance is needed. This is how risk is managed. All these together give the experienced surgeon assurances on how much risk he/she can take and/or if the surgery is on track. Just imagine, if the surgeon decides to ignore all and just uses “assumptions” based on past experiences or what he/she may have heard or read from elsewhere to conduct the complex and life-saving surgery. One can imagine, this surgeon is playing with life and risking death on the table. The more experienced the surgeon, the keener he/she will be on relying on assurances from data, test results, tools, and opinion of other professionals. This is not about being weak or being undermined. This is about quality of professional decision making to save lives. Those that run organisations can learn from this example. Those charged with governance that rely on assurances tend to get it right compared to those that rely on assumptions and hearsay. Personal experiences of founders and leaders can be important but also dangerous when ignored over other means of assurances when making important decisions. The larger the organisation, the more need for robust assurance mechanisms. Below are some examples of assurances that can be used in decision making context: Comparing and Contrasting is a skill that leaders must have     Management regularly reports to their Boards. The Board members in their positions should have the ability to compare and contrast that information with other sources of information. Sometimes these alternative sources must be created for this purpose. For example: Does the reported finance information agree back to independently audited accounts? Does the HR report agree back to staff surveys or outcomes of tribunal cases / HR compliant investigations? Does the operations reporting agree back to independent evaluations and client / beneficiary feedback surveys? Is the Management submission on a matter supported by robust legal and finance advice? Do Management individually report to the Board and are these position holders consistent in their representations? Is there an independent and competent Internal Audit function that provides a robust professional assurance to the Board on ALL aspects of the organisation?   If you think it’s expensive to hire a professional to do the job, wait until you hire an amateur Professionals can be individuals or firms. A good widely experienced professional can provide an independent assessment beyond the organisation’s internal politics and embedded assumptions. Home truths from independent professionals can do wonders for cleaning up an organisation. Those leaders that surround themselves with “Yes Men” tend to fall in their own dug holes as they miss them when they eventually appear. Good Governance is about how organisations are run in achieving their objectives. Decision making is part of this. It therefore matters how these decisions are made using assumptions or assurances. End – Author: Nasir Rafiq is the Founder and Director of Dua Governance Chartered Accountants and Business Advisors, a firm specialising on financial governance. Nasir is a widely experienced Fellow Chartered Accountant (ICAEW) and a Charity Financial Governance Expert. Email: info@duagovernance.com

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Reading between the lines – Human Appeal Inquiry

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The Charity Commission on the 28th October 2021 published its decision of its 3 ½ year long inquiry into Human Appeal. This was a comprehensive investigation that has had a profound impact on the charity itself and some of the individuals involved. This decision has caught my attention as I feel it has some important governance learning for the wider Muslim charity sector, especially charities with international operations. In 2019, I analysed the accounts of 20 of the largest international relief charities. I found collectively, they raised £350m in UK of which around £80m was raised alone in Ramadan. Hence, there is a lot at stake, and it is imperative that charities learn lessons from such Inquiries. Background to Human Appeal Inquiry On 18th April 2019, the Commission opened a statutory inquiry (a serious inquiry) into Human Appeal. The inquiry focused on how Human Appeal trustees conducted themselves in relation to their duties, decision making, due diligence and financial controls. At the time the Inquiry opened, the charity was of a significant size with an income of £36m, operations in 24 countries and over 100 full-time staff including six directors and a CEO. My reading of the Inquiry report The Commission report is a valuable read and trustees of all Muslim charities should read and understand the findings in this report, as much of it, is relevant to all International NGOs. I will set out my observations below, reading between the lines. The Trustees can’t wash their hands off overall responsibility   In large charities, trustees employ the executive and delegate responsibilities to them. This does not mean trustees have no responsibility and when something goes wrong, the trustees can simply blame the CEO and get away with it. The Inquiry concluded that there had been misconduct and/or mismanagement in the administration of the charity by its then Trustees and identified that a significant factor in the misconduct and/or mismanagement was insufficient oversight of the charity’s executive by the then Trustees. Steve Roake, Head of Compliance Visits and Inspections at the Charity Commission, said “While trustees of larger charities will delegate certain tasks to staff members, we and the law are clear that trustees retain ultimate responsibility for running their charity. and our guidance is clear that trustees must ensure that robust reporting procedures are in place. Responsibility for ensuring they have sufficient information and are adequately informed to make decisions rests with the charity trustees”. It should be noted that in the detailed report, the Commission did not single out the CEO for misconduct, never mind gross misconduct. Ignorance of Trustee(s) is not a defence The Commission report states that part of a trustee’s role is to review proposals and challenge assumptions critically and objectively in making decisions. No one should be able to direct the trustees or drive decisions through without sufficient consideration. Trustees who simply defer to the opinions and decisions of others aren’t fulfilling their duties. In large charities (especially), it is imperative that formal systems and process are in place that provide scrutiny over Executive decision making – this does not mean, the Executive are deprived of decision making – This is one bicycle that requires both tyres to run in sync for good governance. Trustees approve the strategy and budget. The Executive run the charity and provide timely and robust feedback to Trustees so that they are adequately and collectively assured and informed. It is insufficient for the CEO to rely on informal relationships with the Chair of Trustees or a small of group of trustees. It is not enough for due diligence to be done by management; Trustees must have systems in place that can adequately assure them that due diligence is actually done Often when asked, trustees assume due diligence of donors and partners is done by management because they are paid to do it. When public funds and donor monies are involved, this is not sufficient or a responsible answer by any standard. There is a stark difference between assumption and assurance. When someone else’s money is involved which is the case with donor monies in charities, trustees should not be relying on assumptions and mere alone representations from the executive. A system of internal control, policy and independent assurance on their effectiveness is something that should be in place as a standard in large charities. The Muslim charities are often lacking in this area, often because trustees have never experienced similar systems in place elsewhere and there is no compulsion within the sector for such systems to exist. This attitude needs to change – the level of funds and risks involved in the sector demands this. Submitting true and fair statutory returns on time matters and it’s the trustees that are ultimately responsible Charities with annual income above £1m require a statutory audit of their year end financial statements. The External Auditors are required to give an “opinion” on whether the charity’s financial statements are true and fair presentation of charity finances and activities. There are two main types of opinion – Unqualified opinion: means a clean opinion where the auditors consider the financial statement true and fair. Qualified opinion: means a bad / adverse opinion where the auditors raise serious concerns over the financial statements. Human Appeals submitted 2017, 2018 and 2019 (last three years) financial statements consistently show a qualified opinion disclaimer from its External Auditors. The reason for these qualified disclaimers is due to unreliable financial records and a risk of material misstatement in its reported income and expenditure. The qualified opinion also relates to a material uncertainty that the auditors felt exists that may cast significant doubt on the charity’s ability to continue as a going concern. This is a damning verdict on the state of Human Appeal finances, how they are managed and recorded from an independent Auditor. For a charity that raises Zakat and Sadqa monies, this is problematic, more so, as questions can be raised on its ability to account for Zakat

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