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Are Things Getting A Little Too Close For Comfort?

Are Things Getting A Little Too Close For Comfort?

A review of the charity's commission's draft guidance on charities and connected organisations

A blog on Charity Commission guidance, I hear you say?  Won’t that only apply in England and Wales?  Technically, yes, but OSCR will generally-speaking have an eye on what their much longer established cousin (publisher of considerable rafts of guidance over the years) is up to.  And what happens south of the border could quite readily work its way up here.

The title of the draft guidance is “Charities that are connected with non-charitable organisations: maintaining your charity’s separation and independence”.  The consultation period has now closed and the Charity Commission is currently analysing responses.

Having reviewed the guidance, it is not a million miles removed from similar guidance issued by OSCR in the past (including OSCR’s review of control and independence vis-à-vis charitable ALEOs).  But here are some key points made in the draft guidance which I think are worth being aware of:

  • The Charity Commission will expect charity trustees to have applied, to their management of the relationship with a connected organisation (e.g. a trading subsidiary), the relevant principles in the Governance Code.  The Governance Code has been developed south of the border and is not mandatory.  But our concern has always been that it will begin to be treated as if it were law (even though aspects of it are not necessarily appropriate across all organisations within the third sector).  The manner in which the Code has been referred to in sections of this guidance lends weight to our concerns i.e. if English and Welsh charities have not complied with the Code, the Charity Commission can find them wanting. 
  • Shared or similar names/branding.  The Charity Commission wants the identity of the charity to always be clear and separate from the connected non-charitable organisation so that supporters, the public at large etc can readily identify the actions etc of the charity.  If the charity is trying to provide a full package of activities, such as a charitable cultural ALEO running a café facility (albeit one that can be accessed by anyone, and not just those intending to view museum exhibits), then it becomes a question of degree as to what is drawn to the public’s attention.  Certainly, it is fair enough that the public should understand that a separate entity is delivering the café offering, but connected branding is important i.e. it will be important that service users appreciate that the entity running the cafe is connected to the charity, and that use of the branding can be shared.  The Charity Commission states that the risk is that too close an association results in the charity trustees failing to consider the charity’s best interests – but this fails to recognise that each entity will have a separate board (and ideally, this ought not to be comprised of entirely the same individuals).
  • Making independent decisions.  The Charity Commission states that the charity must establish procedures identifying the range and type of information which the trustees will need, to make informed decisions - including information from sources that are independent of the non-charitable organisation.  No further guidance is given as to what this means.  But in terms of the charity’s own activities, it is allowed to rely on information provided by its senior management team (without always seeking independent validation of this), so why should the same not be true of information provided by the subsidiary board?  Provided that the trustees exercise their own independent judgement, I don’t think there should be a requirement to look further (whatever that actually means) unless the trustees have concerns arising from the information provided.  At the end of the day, trustees of charities are generally volunteers and it is unreasonable to expect this level of proactive engagement.
  • The Charity Commission has taken the quite radical step of saying that their authorisation must be obtained before a charity can take decisions where a conflict (arising due to trustees’ links to the connected organisation etc) affects all or so many of the trustees that no-one can validly make an independent decision.  In Scotland, it is theoretically possible for the board of a non-charitable trading subsidiary to be composed of exactly the same individuals as the charity board – charity boards might want, however, to give consideration to the current composition of both their own board, and that of their subsidiary.  Having said that, I think it less likely that OSCR would take a similar line to the Charity Commission in terms of requiring their prior approval (to do so would need a change in the legislation, unless OSCR were to shoe-horn this into existing legislative powers).  In addition, I think the greater issue (from a conflict of interest perspective), is that those managing the board of a subsidiary might tend to prioritise the interests of the charity, where they also sit on that board.
  • The Charity Commission wants to see written agreements in place between charities and connected companies which might cover issues such as data sharing, sharing of the brand, sharing of staff and premises etc.  This is in line with our current guidance to clients.

All in all, I am generally supportive of any guidance that gives greater clarity to charity trustees as to what is expected of them.  But on the other hand, we need to remember that charity trustees are giving of their own free time and that very often associations with connected bodies (which are most often non-charitable trading subsidiaries) are designed to support the activities of the charities – although it is critically important for charities to understand the need for separation and independent decision-making, some of the material in the draft guidance arguably goes too far and could be a distraction from the core mission of the charity.

By Gillian Harkness
Senior Associate, Public & Third Sector

Burness admin