By Dipanjali Nagpal (firstname.lastname@example.org)
The Institute of Company Secretaries of India has released the Code for Charity Governance at the 45th National Convention of Company Secretaries to bring about charitable entities within the ambit of good governance as envisioned by the Hon’ble Prime Minister Shri Narendra Modi for empowering the nation.
The Code is applicable to all registered entities receiving grants, donations, privileges, subscriptions and receipts etc. (by whatever name called) for the benefit of the public at large. This covers Section 8 companies, trusts registered under the Indian Trust Act, 1882 and relevant statues formed by respective states, societies registered under the Societies Registration Act, 1860/Multi State Co-operative Societies Act, 2002. All forms of charitable institutions are classified as NGOs, the difference lies in formation, registration and management.
Considering that these charitable entities are entrusted with the responsibility of addressing issues related to human well-being and social welfare and a hold a sizeable amount of the country’s monetary resources it is desirable their functioning be monitored for inclusive growth and development.
Thus, the said code comprising not of practices, but a set of principles to bring about discipline in the functioning of charitable institutions, enhancing the trust of various stakeholders and urge the regulators to facilitate effective monitoring, has been brought about.
A few definitions provided in the Code are reproduced hereunder:
‘Charitable Entity’ (hereinafter referred to as the ‘entity’) by whatever name called means any entity registered under any Central or State law of India or if registered outside India under the law as may be applicable with the primary objective of philanthropy and social well being like for relief of the poor, education, medical relief and the advancement of any other object /purpose of general public utility or common good or for a class of the public.
‘Governing Body’ means Board of Trustees, Management Committee, Board of Directors or group of persons entrusted with the responsibility of management and governance of the entity by whatever name called.
‘Key Management Executive’ means the person performing the role of Chief Executive /Managing Trustees, Chief Financial Officer/Treasurer and a Secretary, singularly or multifariously for the entity.
‘Conflict of Interest’ means any situation in which a member of the Governing Body or any of his relative may have financial and/or other interest which may impair his independence or objectivity in discharging his fiduciary duties.
The Code comprises of the following set of 9 principles which every entity has to abide by in letter and spirit:
Principle 1: Vision and Objectives
- Every entity to have a clear and concise vision and mission statement, approved by the Governing Body and communicated to the public, acting as the guiding light. The objectives of the entity in pursuit of public good shall be enlisted in its Charter of Objectives.
Principle 2: Adherence to Laws
- Every entity to place before the ‘Governing Body’ on a periodic basis a list of all Act, bye laws, rules and regulations applicable to it and obtain a certificate from an independent professional stating status of compliance with the provisions thereof.
Principle 3: Effective Governing Body
- The roles and responsibilities of the Governing Body of every entity be drafted and shall include the following:-
- Setting the entity’s values, its mission and vision statements;
- Providing leadership for the achievement of its objectives;
- Ensuing the availability and effective deployment of resources for the achievement of objectives of the entity;
- Establishing an effective risk control framework for safeguarding the assets of the entity;
- Reviewing the performance of the entity, identifying the obligations of key stakeholders and managing sustainability issues.
- Every entity shall designate the members of the Governing Body demarcating their area of authority;
- Every entity shall be guided by a well formulated policies approved by the Governing Body and be made available in the public domain, which shall cover the following:-
- Fund raising and investment;
- Project implementation;
- Whistle blowing;
- Sexual harassment;
- Remuneration of members of the Governing Body and Key Management Executives;
- The entity shall ensure that the outlay and the proposed outcome of each programme is placed before the Governing Body before operationalization and the same is monitored on a regular basis.
Principle 4: Diversity
- Every entity shall ensure that its Governing Body has an optimal mix of skills, expertise and experience. Diversity in its constitution shall be promoted and the Governing Body shall have an optimum combination of independent, executive and non-executive members and atleast one woman member on board.
Principle 5: Conflict of Interest
The guidelines prescribed for safeguarding conflict of interest include:-
- Disclosure of such interest at the meeting;
- Abstinence from discussion/voting on such item at the meeting;
- Not being counted for the purpose of quorum;
- Occupation of chair by non-interested person with respect to such matter at the meeting;
- Annual disclosure of interest;
- Undertaking all transactions involving conflict of interest on arm’s length basis.
Principle 6: Disclosures and Transparency
The guidelines prescribed for disclosure and transparency interest include:-
- All documents and records relating to the functioning and operations of the entity be properly maintained;
- All information relating to every project/programme undertaken by the entity be disclosed on a continuous basis;
- Charities and Donations
- A record of all donors and members be maintained;
- All donations, grants, subscriptions, receipts and the like should be placed before the Governing Body meeting subsequent to its receipt;
- All donations, grants, subscriptions, receipts and the like be properly accounted for and to be put to use for the intended purpose;
- A certificate to be obtained from an independent professional stating that all donations, charities, receipts, subscriptions and grants received during the year have been utilised towards respective projects and programs.
- Disclosures in Annual Report to include composition/number of meetings/attendance/remuneration to the members of the Governing Body, transactions with group entities, list of major donors etc.
- Disclosures on website to include vision and mission, policies, profile of the members, Annual Report along with Annual Financial Statements, transactions undertaken by the entity with members of the Governing Body etc., list of major donors, material events/information, compliance with the code of conduct by the members etc.
Principle 7: Community Engagement
- The Governing Body shall enhance its engagement with the community, the stakeholders and the target group of the project on a periodic basis to analyse whether the outcomes are in line with the ones proposed and expected.
Principle 8: Integrity
- Every entity to ensure that the Governing Body at all times and in all decisions maintains a high level of honesty and integrity.
- The guidelines prescribed for ensuring integrity include:-
- A Code of Conduct shall be laid for the members of the Governing Body as per the Model Code of Conduct provided in the Annexure to this Code;
- The entity shall also lay down a Code of Conduct for Key Management Executives and employees;
Principle 9: Sustainability
- Every entity shall strive for sustainability by ensuring checks and balances for stable operations and marking its presence.
The Code is an effort to streamline governance and accountability in charitable entities and at present, in the absence of specific enabling provisions applicable to these entities only voluntarily. Several ambiguities in the Code make it passive in nature for no liabilities for non-compliance. For example, the periodicity at which certificate of compliance is to be obtained, specific composition of the Governing Body, the information to be included in the records to be maintained etc. Making the various provisions applicable to all entities irrespective of their size is an another drawback which requiring re-modelling of the Code in a more specific and comprehensive manner.