As part of its continued work to improve public confidence in the sector, in March 2019 the Charity Commission published new guidance on how trustees should manage their connections with non-charities...
It's purpose is to provide a “summary for charities with trading subsidiaries; that:
- have a non-charitable parent company or are set up by a non-charity;
- get regular funding/support from a non-charity;
- give regular funding to a non-charity;
- work regularly with a non-charity to deliver services or campaigns;
- has a non-charity as a trustee or the non-charity can appoint a trustee; or
- has a non-charity as a sole significant member.”
These connections with non-charities can be highly beneficial and help them to deliver their charitable purposes. The new guidance will assist charities and trustees in managing the associated risks as trustees must:
- Ensure that their charity’s resources or activities never fund or support non-charitable purposes; and
- identify, properly address and review any risks that could arise from the connection.
The following is a summary of the six principles stated in the guidance, as well as insight around elements that trustees should be mindful of. As an overview, this should not be regarded as a substitute for trustees reading the guidance in full.
1. Recognise risk
The benefits and opportunities presented through a connection must be weighed against the risks related to independence and best interests. Risks can include acting outside of its charitable purposes or charity law; reputational damage; and causing confusion to the public/donors.
- Identify, regularly review and manage such risks, and;
- Show that they have actively managed and reviewed the connection.
2. Avoid non-charitable purposes
Charities should only support purposes that are charitable. Trustees need to be diligent when carrying out joint ventures, including campaigning, research, giving or receiving funding to/from the non-charity, and when investing in, overseeing and reviewing trading subsidiaries. Any benefit to the non-charity must be incidental.
To assist compliance, trustees should:
- Fully understand their charity’s charitable purposes, scope and limits; and
- Recognise the similarities and differences between the charity and the scope and aims of the non-charity.
3. Operate independently
The charity must operate independently, even where it has been set up by a non-charity or that non-charity is the parent, provides a main source of funding to, or receives significant funding from it.
The charity cannot exist for the purposes of the other entity and the trustees must only act in the interests of the charity, not the connected entity.
Where a non-charity has set up the charity, the trustees must have a choice about accepting funding and any terms related thereto; must identify and address conflicts of interest and must be free to make its own decisions even where a trustee(s) is appointed by the non-charity.
4. Avoid unauthorised personal benefit and address conflicts of interest
Trustees must avoid situations where their legal duty to act in the charity’s best interest conflicts with personal interests or duties to another entity.
Conflicts may arise where a trustee will benefit personally from the charity’s arrangement with the connected non-charity or where a trustee owes a duty to the non-charity, for example by being a director of the non-charity.
To comply, trustees should:
- Have appropriate authorisation processes in place for benefits;
- Be able to identify and address any conflicts, considering whether conflicts should be removed or managed;
- Have enough trustees who are not affected by a conflict of interest.
Particular attention should be given when:
- A trustee is appointed as a Director or employee of a non-charity subsidiary;
- A non-charity can appoint trustees;
- Other circumstances such as where a trustee sits on a board/committee of the non-charity;
- A trustee has a financial interest in the non-charity.
5. Maintaining a separate identity
There may be valid advantages to sharing an identity with a connected non-charity and a charity can do so if it is in its best interests. However, it must be clear to the public:
- Which organisation is asking for, and will receive the money (money should not be routed to the non-charity);
- Which organisation undertakes which activities.
If trustees decide a shared identity is in the charity’s best interests, they must identify and assess any risks including:
- The public and donors not being able to see the difference between the entities;
- Negative reputational exposure on the activities of the non-charity;
- Internal confusion leading to staff not being able to protect the charity or get value for money.
6. Protecting a charity
Trustees should consider how best to protect their charity by:
- Considering whether the connection is the best way to serve the charity’s purpose;
- Being fully informed about the non-charity (ensuring due diligence);
- Ensuring appropriate risk management;
- Acting with reasonable care and skill;
- Ensuring value for their charity’s money;
- Having appropriate written agreements in place.
The Commission has provided three checklists to help trustees test application of the guidance. A regular review of these will help ensure that these relationships are managed in the best interests of the charity.