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Trustees – acting 'ethically', acting 'charitably'

1 January 2019 | Applicable law: England and Wales

The NCVO Ethical principles

In July the NCVO published its draft Charity Code of Ethics as a reaction to the widespread allegations of harassment and abuse in the third sector emerging in the media and to help charities better consider the role of ethics and values in their organisation.

The Code was designed to 'present a framework for carrying out charitable purposes ethically, regardless of the charity’s size, type or area of operation.' It drew from the 'Nolan' principles of public life, with a timely emphasis on safeguarding issues in particular.

The NCVO has now reworked the Code as the Charity Ethical Principles - which are ‘Beneficiaries first, Integrity, Openness and the Right to be safe’ - and published a full report on the responses received to the draft Code.

We note that one of the most common responses to the Code was ‘that there was a lot of overlap with the Charity Governance Code' which was published in 2017 to guide trustee decision-making. There is indeed considerable overlap between trustees’ compliance with their legal duties, good governance and ‘ethical’ practice by their charity.

So while we encourage trustees to consider the NCVO principles they should remain careful to tease out what they must, should and can do in their charity’s best interests and as good governance practice – not always an easy task!

Ethics, charity governance & the law

The law expects trustees to act in accordance with their charity's objects, the best interests of their charity and with all their fiduciary duties. The Charity Commission is tasked with regulating charities and trustees, monitoring individual compliance with the law‘s expectation in order to increase ‘public trust and confidence’ in charity as a whole.

In this regard we note that the Charity Commission had welcomed the NCVO’s draft as an opportunity to promote standards of behaviour higher than it can expect or require itself. Baroness Stowell, the Chair of the Charity Commission, has spoken about charities avoiding ‘uncharitable’ behaviour which goes beyond strict legal compliance. This forms part of the Charity Commission’s developing regulatory approach.

This is because fundamentally compliance with the law (while essential!) does not necessarily lead to an outcome which all people will agree is 'ethical'. If charity ‘makes the world a better place’ the question remains, what does a ‘better place’ entail and what means are appropriate to take us there?

Trustees’ duties and the role of values

In most cases a trustees’ duty to act in a charity’s best interests accommodates the charity avoiding unethical behaviour which would negate the ‘public benefit’ of the charity’s work, particularly where it risks exposing the charity to liability for causing harm.

For example, the failure of trustees to prevent abuse within or by the charity, or the use of discriminatory means to achieve charitable ends under the Equality Act, will most likely be tangibly harmful to the charity’s reputation and standing and will not be sanctioned by charity law. However the possibility of a conflict between ‘ethical’ and ‘charitable’ action can arise, for example, when it comes to taking decisions on the acceptance and refusal of donations. Trustees will need to be careful that they justify their decision-making and any reference to ethical principles in the charity’s best interests, not just as a matter of conscience.

We note the guidance from the Institute of Fundraising on this issue that ‘for a donation to be refused, or returned, the charity must be reasonably satisfied that the damage caused by accepting the donation will outweigh the monetary benefits’ of accepting the donation; the trustees need to have a tangible, reasoned objection on the facts.'

The potential for conflict also illustrated by the law on ethical investment for charities, which is not explicitly considered by the NCVO Principles. An investment by a charity in its strict legal sense will be an investment made for the sole purpose of achieving a financial return for the charity. This can permit consideration of ethical investments to avoid a clear conflict with the charity's purpose but not otherwise where this would lead to the detriment of the investment.

In this regard the court in the classic case of Harries (Bishop of Oxford) [1992] 1 WLR 1241 held that the charity in question, dealing with the scope of its ethical investment policy, needed to 'seek the maximum return which was consistent with commercial prudence…. and that the Trustees could not properly accommodate divergent views on moral questions if to do so would involve a risk of significant financial detriment to the trust funds.'

Therefore ‘ethical’ considerations need to inform and complement but not override the legal duties of all charity trustees to further ‘charitable’ activities for the public benefit within the purposes of their organisation. In particular it a trustee to act solely in accordance with their conscience; trustees must act in their charity’s beat interests and to further its purposes.

However, how a charity understands and fulfils its purposes will change with the moral and ethical perspective of its time. Trustees should not be hidebound to practices which might have been within the charity’s purposes or its best interests ‘then’ if their values and those of their beneficiaries have since moved on ‘now’.

We note from the Charity Commission's report into the Presidents Club charity last year, concerning its fundraising gala and the scandal arising, the trustees eventual admission that 'model of fundraising may be considered less appropriate to a larger number of people in today’s world', which the regulator found 'in contravention of their duty to not expose the charity to undue risk.'

Therefore good governance and decision-making can require considering the ethical context to a decision, particularly in relation to public expectations, which is otherwise considered legal and consistent with the trustees’ duties.

However a trustee who cannot, in good faith, support the decision of his fellow trustees based on personal, ethical grounds should consider if they are still able to act in the charity’s best interest at all, or if they should resign.

Developing a Code of Ethics?

The principle of ‘integrity’ included in the NCVO Ethical Principles is helpful for trustees to accommodate values in their decision-making. To act ethically and legally trustees should consider a charity’s integrity with its purposes, its best interests, its history and the needs and expectations of its beneficiaries today.

Despite these complexities, the Charity Ethical Principles will undoubtedly be a valuable resource to charities and their boards of trustees. To work through the role that ‘ethics’ play in their work and decision-making charities might also consider developing their own individual Code of Ethics, which the Institute of Business Ethics also recommends.

Any Code should reflect and form part of the charity's broader culture and connect in particular to its policies on safeguarding and dealing with donations. It may help prevent misconduct within the organisation, but more crucially it provides a structure of values for trustees to consider what is best for their charity when these tricky 'ethical' decisions arise within their legal duties and cannot be easily answered.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.

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