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Charitable Independent Schools - Should You Pay Your Governors?

on Wednesday, 06 December 2017.

Charities carry out some of the most important work in society and operate in ever more technical and heavily regulated fields.

Research published in October's Charity Finance magazine suggests that only 16 of the top 100 charities pay any of their trustees. Why is that, and does it have to be the case?

In the case of most independent schools, their governors are their charity trustees, charged with responsibility for the management and control of a highly skilled and professional staff operating in a complex and heavily regulated field. Outside of the charity sector, these are responsibilities, risks and time commitments that few would take without payment.

What Makes the Charity Sector Different?

The differences are legal and cultural. It is not always clear where the boundary is.

Legal Differences

Charities have to be established for public benefit. This means that an organisation established to benefit individuals or a private group (generally) can't be a charity. The ability to pay those ultimately responsible for running the organisation raises the spectre that those individuals could run the organisation for their own benefit. The implication might seem far-fetched, but any potential for being established for personal benefit rather than public benefit can scupper an application to register as a charity.

Another legal issue is that charity trustees cannot be paid without an express constitutional power.

For some charities, statute adds a power to the constitution to allow the charity to pay trustees for services over and above being a trustee. Where the power applies, it allows a minority of trustees only to earn remuneration from the charity, provided conflicts of interests are managed, the remuneration does not exceed what is reasonable and it is in the best interests of the charity.

Not all charities' constitutions allow them to benefit from the statutory power, although changing the constitution of the charity to allow it is usually not controversial. The legal framework in which charities sit, however, does not allow charities to change their constitutions to allow other payments to trustees without the oversight of the Charity Commission. The way the Commission exercises its oversight is part of sector culture.

Cultural Differences

Sector culture is a complex product of what the regulator, trustees, donors and other stakeholders expect it to be. Ultimately, it is reflected in the practice of the sector and in the pronouncements of the regulator. If only 16 out of the Charity Finance top 100 charities pay trustees, that in itself is a strong indicator of sector culture.

The Charity Commission sets-out its position on trustee pay in its publication Trustee expenses and payments. If a charity wants to pay a trustee for services outside of the statutory power, the Commission describes several criteria before it will assist. The guidance is in terms of authorising individual payments to trustees or persons connected to trustees for the provision of services that the school would otherwise have to pay someone else to do, rather than the approval of sweeping new powers for paying a trustee to be a trustee. Some of the criteria are intuitive including reasonable cost and management of conflicts. Others go further, expecting "a clear advantage to the charity, rather than to the individual concerned" and that personal benefit must not be unacceptable.

Where payment for being a trustee is concerned, the Commission suggest that the threshold is substantially higher, using the 'volunteer principle' as justification. The Commission says the volunteer principle is based on "a general expectation that charity assets should be used directly for the purposes of the charity". Even though this is a cultural rather than legal principle, the Commission considers that payment for being a trustee can only be justified in exceptional circumstances, will have to be fully justified as being clearly in the interests of the charity as a result of a significant advantage. 

Exceptional Circumstances

The Commission's view is that people become trustees for many reasons, and that money is not one of them. Therefore, they say, there should be no difficulty finding trustees. Even where there is difficulty recruiting trustees with the right skills, the Commission expects a charity to try alternatives to recruiting trustees on a paid basis: for example, different recruitment techniques; spreading responsibilities around other trustees or transferring functions to consultants or employees.

What is an exception amongst the charity sector as a whole is not necessarily as much of an exception when you focus on the largest charities employing skilled professionals in a heavily regulated field. At least two of the sixteen top 100 charities that remunerated trustees operate in the school sector and many of the remainder operate in the healthcare sector.

Conclusion

The bottom-line is that the boards of some charities are responsible for the oversight and strategic direction of a professional staff operating complex businesses in an increasingly regulated environment. Schools are a paradigm example. Increasingly we anticipate that robust skills auditing of boards will identify specialist skill-sets and time commitments which are hard to recruit without payment.

Schools should not be afraid of making the case to the Charity Commission to pay trustees. The more the case is made clearly and compellingly, the more circumstances the Commission sees and the more likely it is that sector culture will recognise the role of the paid trustees.


For more information, contact Andrew Wherrett in our Charity Law team on 0117 314 5269. Andrew was previously a senior legal adviser at the Charity Commission. 

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