The aim of the new guidance is to encourage a risk based approach and ensure charities' relationships with non-charitable organisations never advance non-charitable interests. This is an important principle of charity law.
However, the Commission recognises that many close partnerships between charities and non-charitable organisations are a crucial part of helping charities deliver their objects. Helen Stephenson, the CEO of the Commission has said: "operating alongside other organisations should always be well-considered and trustees must manage the risks that can arise carefully, and with probity. Charities hold special status in society and the public rightly have high expectations of them, including that they are driven only by their charitable mission and purpose and that they work to defend and promote their independence from non-charitable organisations at all times."
The new guidance has a very wide scope. For example, it will apply to:
- charities trading subsidiaries
- those associated with campaigning organisations
- charities with a non-charity as a sole or significant member
- charities which regularly fund or receive funding from a non-charity
- those charities which frequently working with a non-charity to deliver services/campaigns/projects etc
- corporate foundations
This is not an exhaustive list, but it illustrates the reach of the guidance, which comes as a result of growing concerns that some relationships between charities and connected non-charities have not historically been managed with sufficient care.
The most important thing for charities to note from the guidance are the six principles to assist trustees in ensuring arrangements for working with a linked body sufficiently protect the charity's interests and do not compromise independence. The principles are:
- Recognise the risk - risks to the charity should be recognised and properly recorded. Examples of risk include giving support outside the charity's purposes, not recognising and/or managing conflicts of interest, inappropriately benefitting or becoming indistinguishable from the third party.
- Do not further non-charitable purposes - the charity's resources and/or activities must not support non-charitable purposes and any benefit to the non-charity must be no more than a minor necessary result of furthering the charity's purposes. With specific reference to trading subsidiaries, trustees can only use their charity’s money, or other resources, to set up a non-charity where the purpose of doing this would benefit the charity by:
• providing a return on its investment in the non-charity. For example, where the non-charity trades to raise money for the charity
• carrying out activities which the charity could carry out itself to further its objects and/or
• managing the administration of the charity or its resources, more effectively
Performance of the subsidiary and the financial support a parent charity provides to it must be regularly monitored, ensuring the charity's interests always come first and conflicts are properly managed.
- Operate independently - the charity must be independent of any connected non-charities it works or operates with and the trustees must only run the charity in the interests of its beneficiaries.
- Avoid unauthorised personal benefit and address conflicts of interest - it is long established that trustees cannot benefit directly or indirectly (including through a connected party) unless authorised, for example by the Commission, or by the charity's governing document. As such, conflicts that may potentially arise between a charity and a third party must be anticipated and there should be a sufficient number of trustees who have no connection with the third party (so are not its directors, employees, or contractors, for example) to form a quorum.
- Maintain your charity's separate identity - it must be clear internally which organisation is which and from an external perspective there should be transparency about how the charity works with the connected party. Any shared use of names/branding/websites etc. must be in the charity's best interests and should be regularly reviewed.
- Protect your charity - all decisions should be carefully taken based on sufficient information, ensuring the charity's position is protected through written agreements about the arrangements made.
The Commission expects charities to create a clear audit trail of how the above principles have been applied when dealing with connected third parties. The guidance will be used as a "tool to hold charities to account" in the words of the Chair of the Commission, a comment which sits amongst wider concerns in the sector about the ever increasing amount of guidance that volunteer trustees are being required to follow. Nevertheless, it seems clear the Commission intends to regulate these standards.
For more information, please contact Kate Parkinson in our Charity Law team on 0117 314 5460, or complete the form below.