Charity Commission issues updated guidance on conflicts of interest

Charity Commission issues updated guidance on conflicts of interest

The Charity Commission has published updated guidance for trustees on identifying and managing conflicts of interest in a charity.

This updated guidance follows the Commission's announcement that compliance cases involving alleged abuse of charitable status for private benefit had risen by 23% in a single year, and that conflicts of interest were a recurring factor in many of these cases.

The Commission has warned that trustees often struggle to recognise conflicts. Consequently, the guidance has been updated to make it more accessible and easier to use – it is now shorter, with a greater focus on scenarios and examples.  

Whilst the approach to managing conflicts is broadly the same as the previous guidance, significant weight has now been placed on the identification / recognition stage. The previous three steps for managing conflicts (identify, prevent, record) has been expanded to five (identify, declare, consider removing, manage, record), and there is greater emphasis on trustees to evidence active recognition of perceived conflicts, rather than just declared interests.

The guidance now also stresses that decisions made without properly managing a conflict of interest may be legally invalid and is clear that trustees may be deemed jointly liable to cover any losses resulting from the conflict from their own money.

The change of emphasis is evidenced in the updated guidance regarding conflicts of loyalty. The definition of a conflict of loyalty has been extended to include friendships, wider relatives, and connected persons and organisations. Moreover, in the previous guidance, the Commission stated that where there was a low-risk conflict of loyalty, it was open to trustees to decide that the affected trustee could participate in the decision. This wording has now been removed, and the guidance states trustees may choose to allow the affected trustee to remain in the meeting – but only on the condition that they do not take part in the decision.

Rachel Wenstone, Assistant Director of Policy at the Commission has commented that 'our refreshed guidance will enable trustees to identify and manage conflicts of interest, to best protect themselves and their charities. This matters – the trust that the public place in charity can be shattered by the perception that some amongst those entrusted to protect a charity may be abusing it for personal gain. Trustees who fail to manage conflicts of interest, even unintentionally, risk becoming part of that problem, and our guidance will help them to avoid this.'

The increased accessibility of the new guidance, such as the new five step framework, will be helpful for many trustees, however there are some concerns which arise in relation to the changes.

• The definition of conflicts of loyalty has been drawn wider than previously with references to 'wider relatives' and 'friends' rather than a trustee having another legal duty. This has the potential to create uncertainty for trustees, particularly for smaller charities.
• The absolute requirement that a conflicted trustee cannot participate in a decision runs contrary to the powers contained in some charities' governing documents and also potentially creates difficult situations for charities dealing with lower risk conflicts. While in many situations it will be the correct course of action for a trustee to withdraw, there are scenarios where this can be managed in line with a charity's governing document.

All charities should review their Conflicts of Interest Policy in light of the new guidance to make sure they are mindful of the changes and to emphasise the Commission's new approach around perceptions of conflicts and conflicts of loyalty to ensure that these situations are appropriate scrutinised and managed when they arise.