The Charity Commission has released new guidance for charities that have links to non-charitable organisations in response to concerns that some charities with these links are failing to operate independently.
This refines draft guidance prepared early last year and followed by a consultation on the draft within the charity sector, which revealed that many found the proposed guidance "impractical", "too long" and perhaps overly ambitious in its scope.
The final publication is much more user-friendly, the Charity Commission having removed some general information and some very particular guidance in place of six core principles. The intended scope of the guidance, however, remains wide.
For this reason we recommend all charities make efforts to read the guidance, take note of the principles and consider whether and how they might apply to their organisation.
Changes from the draft guidance
The new guidance has been streamlined considerably from the original draft and we recommend trustees read and reflect on the points raised and the principles it sets out in full.
In addition we note that the final publication both leaves behind some of the content from the previous draft and makes some changes, which are also a helpful illustration of the Charity Commission's new approach:
The new guidance removes a very wide definition of conflicts of interest from the draft, which previously included a trustee who also supports the aims or purposes of the non-charity. Instead, the published guidance focuses on situations where a trustee may benefit personally from a relationship with a non-charity or owes a duty of loyalty to a non-charity.
The draft guidance appeared to place quite an onerous responsibility on charities to record any relationship with a non-charity in writing, with minimal guidance as to what form this agreement should be in. The published guidance clarifies that the type of agreement required will depend on the complexity of the work being done and the money and risks involved. It is also clearer that, in some situations, a simple letter will suffice rather than a formal agreement.
The final guidance does not include the lengthy analysis of situations where a charity is paying a non-charity for services (or vice versa) found in the draft guidance, but still mentions that the guidance will apply in that context. Given that the provision of "core services" is not covered by the guidance, this is one area where lack of detailed analysis may in fact lead to confusion as to what types of services are covered.
The Charity Commission has expanded on the guidelines warning trustees against furthering non-charitable purposes when working with non-charities, applying this not only to political activities but also grant funding, research and investing in subsidiaries, which builds on its recent regulatory alerts for think tanks and a regulatory report into investment in a subsidiary by an unnamed grant-making charity last year.
The published guidance also has a strong focus on the risk of the identities of the charity and non-charity becoming blurred and the risks associated with sharing premises, staff, branding and other assets. Responses to the consultation on the draft guidance indicated that it was heavily focused on the risks, perhaps overly so. Although the new guidance does have a greater focus on the benefits of these relationships, the main focus of the guidance remains the risks and potential pitfalls that charities face when dealing with non-charitable organisations.
Who will be affected?
One of the key criticisms of the draft guidance was that it applied to an extremely wide range of relationships, or "connections", between charities and non-charities.
The published guidance has therefore replaced the list of indicators of such connections with a list of specific situations where the guidance will apply, notably it will now apply to your charity if it:
- has set up and owns a trading subsidiary
- has been set up by the non-charity, for example: corporate foundations, or charities set up by social enterprises, campaigning organisations, or government or local authorities
- gets regular funding or support from the non-charity
- gives regular funding to the non-charity, for example: grant makers who regularly fund a non-charity; charities set up to support the activities of a non-charity, such as charities with a link to an NHS body, or ‘friends of’ charities
- works regularly with a non-charity to deliver services, campaigns or other projects
- has a non-charity as trustee, or where the non-charity can appoint some of the trustees
- has a non-charity as its sole or significant member
Helpfully the guidance does also specify a few types of relationships, such as one-off funding arrangements or when only one person serves on the board of both organisations, where the guidance does not apply.
However it maintains its wide scope by including "any other connection" between a charity and non-charity where the risks explained in the guidance are present.
For this reason we would recommend all charities who do not fall into the excepted categories noted in the guidance consider if and how the new principles might apply to them.
It is important that trustees whose organisation might be affected by this guidance read the guidance carefully and consider how it applies to their specific charity and its relationships with non-charitable organisations. Trustees will need to take the guidance into account when reviewing existing relationships and establishing new ones going forward.
There was some concern with the initial draft guidance wide scope and its focus on risk could deter charities from entering into relationships with non-charities that could actually be beneficial to the charity. We consider the changes made to the guidance, and the helpful checklists included alongside it, should provide a 'helping hand' to affected charities rather than a reason to worry!
If your charity does have any concerns about the implications of the new guidance for its own arrangements with non-charities however please do contact any member of our team to discuss further.