Salary Top Ups: The Role of the Board?

The recent bombardment of shocking stories on the use of charitable donations to top up senior management salaries in Irish charities have left many disgusted. There seems to be bewilderment that this could happen in modern Ireland.

Hear-no-Evil-See-no-Evil-Speak-no-Evil

The barrage of contradictory statements on the issue has served only to cause more confusion with conflicting messages. The Central Remedial Clinic (CRC) Board member Vincent Brady’s statement that the Board did not sanction top up payments to the Chief Executive was followed rapidly by Des Peelo the former Chairman of the board telling us that in fact everybody knew all about it, including top management of the HSE.

Regardless of what happened it’s bad news for every charity in the country at their most important time for fundraising. The immediate repercussions are awful in this case for the multitude of charities that are blameless.  Many may now hesitate before our hand goes to our pocket when we see the buckets rattling and the carol singers brightening up our streets over the coming weeks.  The debate now needs to move on to make sure this never happens again.

There have been many corporate scandals in Irish organisations in recent years – from the banks to the semi states to multiple private sector companies, and now in the charitable sector.  And while accountability ultimately rests with the Board, in many cases boards have put forward a defence of “we didn’t sanction” or “we didn’t know”.

This is cause for concern.  Whenever a board uses the “we didn’t know” excuse, this raises more crucial questions – what should a board do?, what should they know?, and what decisions should they always have to sanction?

In any organisation from the large corporate to the SME, management and governance can be hugely strengthened by an effective board. In an SME an advisory board can be a valuable addition to bring in senior expertise in areas like finance, strategy, legal, international selling, which the SME may otherwise lack.

It is imperative to always give a board a clear mandate, usually by agreeing a written charter.  That way there is no ambiguity about what the board needs to know, and which decisions they have to always approve.

The following is a minimal list of items that would normally require board approval:

1)      Overall organisational strategy, departmental plans and financial forecasts (short and medium term)

2)      Risk management strategy – board should have clear oversight of key organisational risks from reputational to operational, and should approve overall risk management strategy

3)      Capital expenditure in excess of an agreed threshold

4)      Appointment and Remuneration of the senior management team, including the design and award of bonuses for all senior management

5)      New product/service development; R&D and other expansion proposals

6)      Funding decisions – plan for funding gaps, and approve any changes in funding strategy including an increase in bank loans or equity capital

It would be interesting to examine the charters of the multiple Irish boards in recent times that saw and heard no evil, but still managed to fail their vulnerable stakeholders.

Fergus Finlay joined calls today for the urgent establishment of a Charities regulator. His comments included powerful points about how the charities can already help themselves:  both in terms of governance and to rebuild their reputations with the public. His simple point that all charities should have a set of audited accounts with full disclosure of senior management salaries posted clearly their website is extremely important.

In the meantime, for the public seeking to assess whether a not for profit organisation is following best practice, one telling symptom is whether accounts are visible. Even if the idea of reading the financials does not appeal to you, it should be easy to see what the charity is paying top management. As usual, the best way to ensure you know where your money is going is to see for yourself.

Moira Creedon is a teacher and consultant in Strategic Finance and has worked with both corporate and public sector clients worldwide helping decision makers at strategic level to understand finance and improve their ability to formulate and implement strategy. She teaches on IMI’s Diploma in ManagementDiploma in Strategy and Innovation and Senior Executive Programme

To view IMI’s programmes in this areas see Finance for the Non-Financial Manager and the Diploma in Business Finance.

 

 

 

 

 

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