On 7 October Angela Bowman, Shoosmiths’ National head of Charities and Robert Nieri, Principal Associate, discussed the responsibilities and powers of charity trustees, governance issues that commonly arise within charities and some suggested strategies to help trustees run their charities as effectively as possible in these challenging times.
This short document briefly summarises the key points discussed and further sources of guidance. The information contained in it is for educational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.
Overview of trustee responsibilities and powers
- Trustees should act in their charity’s best interests, which means always doing what the trustees (and no-one else) decide will best enable the charity to carry out its purposes, both now and in the future. (POWER)
- As a fiduciary, a trustee owes single-minded loyalty to the charitable purpose, must not place him/herself in a position where duty and personal interest may conflict and may not act for his/ her own benefit or the benefit of a third party without the informed consent of his/her principal (i.e prior permission in governing document or from Charity Commission or from court). (RESPONSIBILITY)
- The role of the court is to ensure charity trustees exercise their discretion properly and not to interfere in the trustees’ exercise of a discretionary power, unless the trustee is acting improperly or unreasonably (in which case such trustee might be in breach of trust and liable for any resulting loss, although this rarely happens in practice).
- The trustees’ duty does not extend to being right on every occasion.
Common charity governance issues
- Not acting in accordance with charitable objects
- Acting outside authority i.e without necessary powers
- Failing to follow governing document
- Board not leading on strategy
- Cliques within boards where some trustees are excluded from decision-making
- Disconnect between board and executive: inadequate scrutiny and support of staff
- Not properly managing conflicts of interest
- Unauthorised trustee benefits
- Failure to document decision-making
- Policies not implemented/ reviewed
- Use of funds for non-charitable purposes
- Not maximising value from disposal of assets
- Spending funds when they are restricted or comprise permanent endowment
Some straightforward strategies to help run your charity effectively
- INCREASE LEGACY INCOME
- Encourage supporters to give now
- Encourage interim distributions
- Inform executors/ administrators of workarounds e.g Land Registry acceptance of virtual signatures
- ATTRACT AND RETAIN SUPPORT AND FUNDING
- Select one or two of the “pillars” of the Charity Governance Code (CGC) to work on, using the CGC diagnostic tool
- Look with a critical eye at your charity’s details in the revamped register of charities
- Produce a fully compliant (and beyond?) trustees’ annual report to tell your story and evidence compliance e.g rules on fundraising statement requirements and adherence to the CGC
- Ensure you have all key required policies, that they are implemented and are regularly reviewed
- LEARN FROM MISTAKES
- Make serious incident reports where required but ensure that at the same time you provide the Commission with the trustees’ “solution”
- Be open: have a trustees’ email address on your website so anyone can get in touch
- Explain in your trustees’ annual report how you learn from your mistakes (be humble)
- DOCUMENT YOUR DECISION-MAKING
- Get all new trustees/ senior managers to complete a trustee eligibility declaration
- Have standard agenda items e.g declarations of interest
- (Where appropriate) get into the habit of referencing relevant Commission guidance in board minutes and think about how you evidence the reasoning behind your decisions
- COLLECT GOOD DATA
- Do you know where to start? (Check what other similar organisations are doing)
- FOCUS ON HOW BEST TO ADVANCE YOUR CHARITABLE PURPOSES IN 2020 AND BEYOND
- Who might you have to disappoint?
- How will you be able to evidence the decisions you’ve reached?
- Could you generate more income through your charity by repositioning how you advance your charitable objects? (or by using your existing expertise for commercial gain, via a trading subsidiary)
- MANAGE (PERCEIVED) CONFLICTS OF INTEREST AND TRUSTEE BENEFIT
- Train yourselves to spot possible or perceived conflicts of interest, especially within charity group structures
- Spot unauthorised trustee benefit e.g charity employee joins board or trustee is paid for acting as director of trading subsidiary
- ASK GOOD QUESTIONS OF YOURSELVES AND OF OTHERS
- Don’t let board meetings become too comfortable
- Terms of reference for sub-committees
- Scheme of delegation in place, making clear who has authority to do what
- Review of contractual arrangements (or lack of them) with third parties (including trading subsidiaries)
- Strike the right balance between support and scrutiny when the board deals with the executive
- Sign up to Charity Fraud Awareness Week (19-23 October 2020)
- MAKE THE BEST USE OF PEOPLE AND INCREASE THE AVAILABLE TALENT POOL
- Have the right people on the board – and use the skills and time of others who are willing, whether on sub-committees, as patrons, ambassadors or volunteers
- Tap into the potential of Gen Z to help you with digital
- Embrace the flexibility of virtual meetings to improve the diversity of your board
- LIVE THE CHARITY’S VALUES TO STRENGTHEN ITS CULTURE
- The tone should be set at the top: is the board visible to those working in your charity?
- The board should be concerned with “how” as well as “what” and promote compliance with the set of charity ethical principles devised by NCVO.
Our answers to your questions
- How do we avoid trustees becoming risk averse while acknowledging good risk management?
There is helpful Charity Commission guidance available. CC3: The Essential Trustee states:
A risk is anything that could, if it happened, affect your charity achieving its purposes or carrying out its plans. All charities face some risk. You and your co-trustees should manage risk responsibly. You have a duty to avoid exposing your charity to undue risk. This doesn’t mean being risk averse. Risk management is the process of identifying and assessing risks and deciding how to deal with them. It may involve an element of responsible risk taking, and is central to how trustees make decisions.
There is also specific Charity Commission guidance on managing risks in your charity:
- Managing relationships between charities and companies where there are directors in common.
Again there is useful Charity Commission guidance (CC35). Section 4.15 is of relevance:
A charity and any trading subsidiary are different entities. Anyone involved with the administration of both has two distinct responsibilities, and it can at times be difficult to balance conflicting pressures. As a matter of good governance there should be both:
- at least one person who is a trustee, but not a director or employee of the trading subsidiary; and
- at least one person who is a director of the trading subsidiary but not a trustee or employee of the charity
- In these uncertain times how do you deliver on your mission if that mission is about inclusion?
Perhaps a trustee board could focus upon Principle 6 of the Charity Governance Code – Diversity – and work through the diagnostic tool by noting recommended practice, providing evidence of any current application of such practice and, where there might be gaps, identifying areas for improvement and seeking to implement such improvements:
- Any aspects in charity governing documents that may need review and revision
As a rule of thumb it is considered good practice for a charity to consider reviewing its governing documents every five years or so.
By virtue of the Corporate Insolvency and Governance Act 2020, during these unprecedented times the Government has relaxed the requirements for the holding of general meetings by corporate charities so that it will remain possible for such charities (eg charitable companies, CIOs and charitable community benefit societies) to hold their AGMs or other general meetings entirely remotely until 30 December, regardless of the provisions of their governing documents.
And before that deadline the opportunity could be taken to pass a special resolution at such virtual meetings to change the charity’s governing document, to allow for people to attend future general meetings remotely, as well as in person or by proxy (as well as to allow people to attend trustee meetings remotely if the governing document does not already permit this).
- What do trustees expect by way of training? Do they require a separate mandatory training package to other staff and volunteers?
While there might be some training designed specifically for trustees - eg charity governance or perhaps development of leadership skills - we think it might also help promote “one vision” and a strong culture within charities if trustees did attend some training along with members of staff and volunteers – not least so people working at all levels of a charity had the opportunity to see and interact with trustees, who may sometimes appear remote from or even invisible to staff.
The executive may also help trustees to identify what training the board might need: by analogy, while the setting of strategy is the preserve of the board, in practice often the executive does a lot of work to help the board with development of strategy, because staff are at the “coal face” on a daily basis.
- Potential liabilities for trustees due to COVID
There are no additional liabilities for trustees as a result of COVID. Provided they act through a separate legal entity the risk of personal liability for charity trustees should be minimal in practice, provided they fulfil their fiduciary duties as trustees by acting in good faith in what they consider to be the best interests of their charity’s purpose, only advancing that purpose, and also that they do not fall foul of the legislation on wrongful trading.
There is also the possibility of trustees benefiting from trustee indemnity insurance paid for by the charity and which covers trustees from having to personally pay legal claims that are made against them (by their charity or by a third party), for a breach of trust, or a breach of duty or negligence committed by them in their capacity as trustee.
Helpful coronavirus resources