Rethink your governance, boost your social impact: Five steps boards can take for better outcomes

What does it mean for a social purpose organisation to be well run?

In many ways the same principles apply as with a for-profit organisation – the crucial difference, of course, is that a social purpose organisation must achieve its social mission, not just make a profit. And very different processes are needed to achieve these two things.

Those governing social purpose organisations need to make choices around social impact. A grant-maker will need to make a choice between approving a grant for one versus another project. A social enterprise delivering public services will need to make choices about how to achieve the best outcomes for service users. A social business that delivers products with ethical supply chains must make decisions which suppliers have the best (or least worst) impact on people or the planet.

A board can make these choices based on anecdotal information or verbal updates from senior staff. But better information means better choices. And if an organisation is well run, social impact will be more likely to follow. A lot of the value of impact measurement comes from enabling good governance, because this enables accountability, control – and ultimately, good decisions.

And it’s not just about the choices made by those at the top of an organisation. The day-to-day management is stronger when there is an infrastructure of information and accountability.

Ultimately, good governance should be about improving the work that the organisation delivers, and therefore its impact. This requires an infrastructure that enables sound information and analysis, alongside innovation, the ability to challenge existing processes, and a culture of improvement.

So, what practical steps can board members or CEOs take?

1. Understand your impact

In the UK, the Charity Commission highlights the importance of understanding a charity’s ‘objects’ and its purpose. Understanding this constitutional basis is essential for any social purpose organisation as it provides the foundation and remit for any work that is carried out.

For social enterprises not constituted as charities, the organisational set-up may include an asset lock, but not always.  And, even for those who set out a social purpose in their constitution, the purposes are often very broad. For example, it might talk about ‘relief of poverty’. This does not tell you who the beneficiaries are, what changes the beneficiaries will experience by interacting with the organisation, and how this is to be achieved.

Social purpose organisations will often respond to this by setting out a ‘vision’ and a mission statement. This articulates what the organisation wants to achieve and its purpose.

While vision and mission statements provide a good call to action for the organisation, as short statements they still tell you very little about what the organisation is doing or how these things will be achieved.

So, organisations often also have a ‘theory of change’ or equivalent document. This focuses on the changes that a beneficiary experiences as a result of the organisation’s actions, describing how these actions will actually lead to a change.

This is essential. Failing to clearly articulate how your work changes something would be like trying to sell a newly-invented product without knowing who the potential customers are. It won’t sell and you won’t make a profit. Or, in the social context: it won’t create value for beneficiaries.

To understand the change experienced by beneficiaries, you need credible information. For example, information based on clear data or outcomes analysis compiled using a robust methodology, rather than information that is anecdotal. Asking beneficiaries directly is often the best way forward: it gives a deeper understanding of the changes they desire and how best to achieve them.

2. Clarify your strategy – and check it’s working

Now that you know what changes for beneficiaries, you can design a strategy. The strategy should not just focus on achieving outcomes for beneficiaries; it should also attempt to quantify them. Knowing how much impact you’re achieving is important, because all organisations have limited resources, so value for money matters. Does your strategy maximise impact?

And accountability for delivering the strategy must be real. Failure to deliver financial outcomes often has serious repercussions. But a social organisation that is failing to deliver sufficient outcomes is an issue as well. Therefore, an accountability framework needs to be clear enough enable real accountability. For example, it should include data-driven measures that link to strategic objectives around impact.

Ultimately, the board must know whether its strategy on impact is working, and a few well-designed processes will help make this information easy to find.

3. Find – or develop – the right skill set

To deliver your strategy you need the right people with the right skills. But what are those skills?

Firstly, look at what you already have within your organisation. Most staff will understand the organisation’s basic purpose. Some will understand the technical aspects of the service. They also hopefully understand the finances, the risks, the stakeholders, the contractual arrangements, and so on.

The additional skills that are required are around analysing and reporting impact. Take financial management, for example. Even a CEO with an excellent understanding of how to run an efficient and profitable service will still need a finance function to record, analyse and report information. It is very difficult to make decisions about finances, and almost impossible to govern an organisation’s finances, without this information. The same is true for impact.

So an organisation needs somebody responsible for the processes and reporting around impact. Many organisations cannot afford to employ a specialist to deliver this work; the skill set must often come from existing staff. Those responsible for governance can look to nurture and develop this skill set within the organisation through investing in training and demonstrating that these skills are valued. Training on impact and theory of change can be an important part of this, but it is also important to ensure strong skills in scientifically collecting and analysing data.

4. Create (and question) reporting mechanisms

Impact is inherently difficult to report on, and the kinds of impact we consider to be important may be based on subjective values and judgements. However, the purpose of reporting impact is to support good decision-making. So, as long as the reporting results in decision-making that is better informed, and as long as it's based on evidence, it is doing its job.

But what sort of reporting do trustees and directors need to make decisions?

Most organisations will report the outputs in relation to their services – for example, ‘X people used our service this year’. This analysis is a useful starting point. However, it does not tell you whether services are getting better or worse. It does not directly tell you whether the changes that you are seeking to achieve for beneficiaries are actually happening.

This kind of reporting must be based on outcome data that records what has changed for the beneficiaries. This is often gathered through surveys or post-service destination data (e.g. X people are now in full-time employment).

When this reporting is supplied to the board, it is important that they scrutinise it. Some questions board members might ask:

• How do these outcomes measure up against our expectations?
• Are we measuring the right thing?
• Is this the information we need for the decisions that we need to make?
• How can we be sure that this data has integrity?

As with any reporting, it is important that the underlying data and systems that deliver the reporting are up to scratch.

5. Set accountability processes and review your culture

Accountability is an essential strand of effective governance. But what does accountability look like when you’re also looking to achieve social impact?

Two of the key aspects for accountability are processes and practices (or culture).

The processes around accountability for impact include:

• Clear delegation of responsibility for managing impact
• Regular reporting cycles
• Ensuring impact is integrated into risk management processes
• A clear internal control framework for impact (i.e. establishing checks that ensure that impact information is correctly recorded and reported)

Establishing effective day-to-day practices and a culture of being impact-focused might be more a question of people rather than process. But asking questions such as these can help you check where your culture is – and where you might need to make changes:

• Are people able to challenge assumptions on impact at board meetings? (For example, asking to hear more about the evidence to support an assumption that a proposed method would be better for the beneficiary)
• Are key decisions informed by supporting evidence around impact?
• Do staff strive to provide good quality information on impact?
• Is effort to produce evidence on impact valued within the organisation?
• Is impact information given adequate importance at board level?

Risk management tools, including risk registers, are very useful to enforce an environment of responsibility and ownership of key risks. Integrating the risk of not achieving impact into risk management processes can also be an effective way of creating accountability around impact.

Discover more guides, downloads and expert advice in our Fit for the Future series – helping social businesses build financial health, agility and staying power.