The Charity Commission has today published its long-anticipated new guidance on “Charities with a connection to a non-charity”, following its publication of draft guidance in February of last year.
Bates Wells intends to organise a seminar to discuss the new guidance and its implications. Please contact Simon Steeden at firstname.lastname@example.org if you would be interested in attending.
The guidance is extremely wide in scope, meaning that it will apply to a wide range of charities and non-charities, including:
- Charities with trading subsidiaries
- Corporate foundations
- Charities associated with campaigning organisations
- Charities established by government or local authorities
- Charities which regularly fund, or receive funding from, a non-charity
- Charities which work regularly with a non-charity “to deliver services, campaigns or other projects”
- Charities which have a non-charity as a trustee or “a sole or significant member”, or where a non-charity has rights to appoint trustees.
Bates Wells was heavily involved in the Charity Commission’s consultation on the draft guidance, raising extensive concerns along with others in the sector about its scope, tone and content.
To its credit, the Commission has taken on board many of those concerns. It gives more recognition to the “benefits and opportunities” that can result from these arrangements, even if there is still much more emphasis on the risks. There is much less paraphrasing of existing guidance on political activity, grant making and other areas, in favour of signposting. At 12 pages it is much shorter than the previous draft, though it still adds to an ever burgeoning suite of guidance for volunteer trustees to navigate.
Most importantly, some of the most unworkable aspects of the draft guidance have been removed or amended. In particular, an unreasonably wide and unworkable definition of “conflicts of loyalty” of charity trustees has been replaced with recognition that these conflicts result from conflicting duties of loyalty, and not where trustees simply “support the aims or purposes” of the non-charity.
There are other sections of the guidance which could still be improved. For example:
- It is not entirely clear when the Commission believes that a trustee should be excluded from decisions solely because they were appointed by the non-charity. In our view this does not constitute a conflict of loyalty, unless the trustee also owes duties of loyalty to the non-charity, e.g. as a board member or employee.
- It provides that charities “must” not allow the charity’s resources and activities “to fund or support non-charitable purposes”, failing to recognise that the same activity might simultaneously further both the charitable purposes of a charity and different purposes of a non-charity.
- The suggestion that a charity “can’t exist for the purposes of the other organisation” ignores the possibility that the charity and non-charity have the same purposes, as will often be the case with international federations, for example.
- The guidance places undue emphasis on ensuring public understanding of these relationships, such as suggesting that donors “must be able to tell which organisation undertakes which activities.” Although donors should know if they are donating to a charity, they will often be happy to donate on an unrestricted basis, trusting the charity to decide how best to second the funds, and whether to use them directly or to give them to another organisation for charitable use.
- A requirement that charities should have a contractual right to exit the relationship with the non-charity will be difficult to apply to many pre-existing relationships and those in which the non-charity is the sole member of the charity, as is often the case with corporate foundations. In our view, the key requirement should be that the trustees manage the relationship in the charity’s interests, in line with the Commission’s existing guidance on corporate foundations.
But there is more scope in this final version of the guidance to interpret these and other aspects of it in a sensible, workable way, taking account of other relevant guidance.
What do charities need to do now?
For better or worse, the guidance sets out in more detail the Charity Commission’s expectations about the management of charities’ relationships with connected non-charities.
These include expectations that:
- Charites must regularly check the performance and effectiveness of trading subsidiaries, and be willing to exert their shareholder rights where appropriate.
- Charities should carry out appropriate checks on the non-charity before providing funding, to ensure that it is “genuine, suitable for your charity to work with and competent to carry out the funded work”.
- Charities should periodically review the relationship, in many cases at least annually, to consider whether it continues to be purposeful and effective, and to reassess risks and risk management.
- The financial structures of charities and non-charities should be kept separate.
- Trustees should make express decisions about whether sharing an identity with a non-charity is in the charity’s interests and ensure that appropriate licensing arrangements are in place for shared names and logos.
- A charity should explain, on its website and in other communications, that the charity is independent of the non-charity, and ensure that it has editorial control over charity-related content of the non-charity’s website and public materials.
- Charities should apply the Code of Fundraising Practice standards, particularly those standards that relate to avoiding confusion amongst donors about the relationship between the charity and non-charity.
Bates Wells will be hosting a seminar to discuss the new guidance and how it will apply to different types of charity. Please contact Simon Steeden on email@example.com or your usual Bates Wells contact if you would like more details, or if you have any questions.
Posted on 29/03/2019 in Legal UpdatesBack to Knowledge