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Charity Trustees legal and governance webinar update series

In recent years the Charity Commission has concentrated on its statutory objective to increase public trust and confidence in charities and many in the charity sector consider it has dwelt unduly on the negatives. However the Commission has four other objectives set out in the Charities Act 2011 and we now see more attention paid to promoting compliance by charity trustees with their legal obligations and the effective use of charitable resources.

Among the Commission’s current priorities is to ensure “trustees will find it easier to get the help they need, either from our contact centre or our guidance, in a format they can understand” and as we begin to emerge from lockdown Angela Bowman and Robert Nieri of our charities team considered the suite of 5-minute guides for charity trustees recently launched by the Commission, in the light of key legal and governance developments over the last 12 months or so, covering the five guides in two sessions.

1. Charity purposes and rules

We highlighted that charity trustees need to keep asking themselves if they are fulfilling their charity’s purposes and to keep these under review. At the onset of the pandemic the Commission first issued its COVID guidance for the charity sector and reminded trustees of the need to ensure help provided in our time of national emergency fell within the compass of their charity’s purposes.

We considered recent examples of charities acting outside their purposes (National Rifle Association); fulfilling and re-prioritising their purposes (St Margaret’s Somerset Hospice and the National Trust); and explained how the Government has recently agreed to implement proposed Law Commission reform to ensure all charities meet the same test when looking to alter their charitable objects.

Although corporate charities can no longer take advantage of the Corporate Insolvency and Governance Act 2020 to convene virtual/hybrid general meetings, if any charities have not already reviewed their governing documents to provide this flexibility in future (presenting an opportunity to engage more widely with membership rather than just to respond to future emergency situations?) then they can still do so, at the same time as checking the adequacy of other provisions e.g. managing conflicts of interest and the delegation of board powers.

2. Managing charity finances

Charities’ finances are under threat like never before and there’s no more immediate Government money on the way. Guarding charities against fraud and cybercrime is a case of “What we have, we keep”. (Learn more about this from Robert Nieri on 12 May: Prevention and cure: good governance and legal redress for charities dealing with fraud (shoosmiths.co.uk)

The Commission’s advice, to set a budget and follow it and to get the funds you need, may be truisms but are no less important just because they are. As charities are once again free to engage in face-to-face-fundraising we reminded the delegates of larger charities of the importance of providing fundraising statements in their annual reports, in particular to outline the steps charities have taken to protect vulnerable people and other members of the public from unreasonable intrusions into their privacy, unreasonably persistent approaches for money or undue pressure to give. No doubt the vast majority of charities do take such steps – but not many tell the rest of us that they have.

3. Managing conflicts of interest in a charity

Trustees need to learn how to spot possible conflicts of interest, especially as charities look afresh at income-generating opportunities using trading subsidiaries and other third parties. They should use the tools available – standard agenda items, registers of interests and conflicts policies which are read and followed, as well as written. Conflicts will always arise – it’s removing or managing them properly that counts. The Combined Funds Limited Inquiry reminded us that just because no loss to a charity results from an inadequately managed conflict doesn’t get trustees off the hook.

And the Afghan Heroes Inquiry showed that the road to hell can be paved with good intentions and the perennial failing of unauthorised trustee benefits.

4. Making decisions at a charity

Before following the principles of good decision-making charity boards should consider whether they have the right people to make them. Diversity makes business sense and is not a tick-box exercise. It can’t be right that there are more than 60,000 trustees called either “John” or “David” (with no offence to all the Johns and Davids out there). We noted CRUK has published its first EDI Strategy and that the Royal Horticultural Society is changing its rules to prioritise attracting more diverse talent to its governing council.

The guidance flags that trustees may be able to delegate some decision-making to others at their charity – to committees, staff or even to other volunteers. Many charities have the power to do this (but they should first check the scope of that power in their governing document). In our disruptive times when rapid responses may be called for, many charities are taking the opportunity to re-engineer their decision- making. We noted the extensive decision-making powers delegated by the board of Kids Company to its former CEO which a High Court judge considered was not inappropriate because the trustees had retained overall supervision and control.

5. What to send to the Charity Commission and how to get help

We encouraged charities to get the basics right. The revamped Register of Charities opens a bigger window into the work of every registered charity and if it doesn’t reflect all the great work your charity does and indicate how well run you are then do something about it – don’t be late with your filings, consider whether you have all relevant policies in place and reflect on whether some of your board members may have been around for too long. And consider the preparation of the trustees’ annual report to be an opportunity, not a chore. The Commission’s recent review of over 100 reports filed for the 2017 financial year indicates that many charities can do much more not only to report on their public benefit (as they are required to) but on the impact they have. Surely they must do this to secure continuing support.

Several years ago the Commission told charities they were not doing enough to report serious incidents (RSIs). The statistics indicate the sector got the message but we cautioned charities trustees to ensure that when they decide to make RSIs not only do they present the Commission with the solution to the problem they have flagged but, as far as possible, they ensure their governance house is otherwise in order. The Prince Andrew Charitable Trust regulatory compliance case illustrates how the reporting of reputation risk from the fall-out of the Emily Maitlis interview led the Commission to take a close look at the Trust’s filed accounts and spot the unauthorised benefit to a charity trustee through payment for work for a trading subsidiary. This resulted in repayment by the Duke’s household of over £300,000 to the Trust.

Recently accepted Law Commission proposals for reform will enable charity trustees to take more lower value and lower risk decisions without first having to secure Charity Commission authority e.g. to release permanent endowment and to make ex gratia payments.

Conclusion

The Commission has a statutory duty to act to encourage voluntary participation in charity work. The Kids Company court case underlined clear public policy: the charity sector depends on there being capable individuals with a range of different skills who are prepared to take on trusteeship roles.

The role of the court is to ensure that the trustees of a charity exercise their discretion properly and that the court does not interfere in the trustees’ exercise of a discretionary power unless they act improperly or unreasonably (Lehtimäki and others v Cooper (the “CIFF case”) - “the trustees’ duty does not extend to being right on every occasion.

The role of charity trustee affords great power as well as responsibility- and we are all rooting for you.

In our Information Age it’s not what information charity trustees have that counts but how they use it.

Reading and taking on board these simple guides will help to instil/consolidate a collegiate charity board culture where all trustees remain alert and questioning, focused on acting in the best interests of their charity, to advance its purpose and to make a positive difference.

Disclaimer

This information 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.

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