In this ebriefing, we identify what we see as the key messages arising from recent prosecutions in the care and housing sectors.
Much of the discourse around charity independence comprises guidance for charities on ensuring political neutrality when campaigning, separation of charities from the state/non-charitable organisations and arms-length relationships with trading subsidiaries.
What is not often considered is a charity’s independence from charitable partners that it considers beneficial, or even essential, to its success.
Do charity trustees have a duty of independence?
According to Charity Commission guidance, independence means that your charity must:
- exist only to further its charitable purposes for the public benefit;
- not exist for the purposes of another organisation; and
- be governed by its trustees acting only in the interests of the charity.
The Charities Act 2011 set out the only explicit duty regarding independence; that a director of a charitable company must exercise their powers independently, without subordinating themselves to the will of others.
However, some duties apply to all charities, no matter what their legal structure, seeking to ensure that trustees are independent of external influences. For example, trustees must avoid putting themselves in a position where their duty to their charity conflicts with a personal interest or loyalty to another entity (including another charity). The Charity Governance Code also advises that trustees must be independent in their decision making, must not be unduly influenced by others and must act in the best interests of the charity.
What does a lack of independence look like?
The lack of independence in a charity is often the sum of small parts.
For example, if your charity has an umbrella body as its sole member, there is nothing wrong with this on its own. However, if that umbrella body also appoints the trustees (and the trustees have no ability to co-opt) or requires its own representatives to be trustees then arguably the charity is controlled by a third party at both membership and trustee level. The trustees may also have consistent conflicts of interest or conflicts of loyalty because of their relationship with the umbrella body and be unable to manage those conflicts.
Independence may also be lost by degrees in cases where:
- there is an over-emphasis on the engagement with members of a charity;
- there is an over-reliance on services provided by a third party; or
- there are obligations placed on trustees to provide charitable funds to other organisations without the ability for them to agree that this is the best way for the objects of the charity to be advanced.
What are the consequences of a lack of independence?
The consequences of a charity’s lack of independence and a failure to manage conflicts of interest with its partners are that:
- the trustees are likely to be failing to fulfil their duties as charity trustees to act in the best interests of the charity;
- there could be tax and other financial consequences for the charity (for example, an inability to claim Gift Aid); and
- in cases where the trustees are unable to make independent decisions, there is a risk that the charity may not be a charity within the definition of the law of England and Wales.
Is my charity independent enough?
If you think your charity would benefit from advice on its independence, our Charity Governance Team will be happy to help you review your charity’s structure, its group structure or draft a comprehensive conflict of interest policy.
For more information
Please contact Catherine Gibbons.
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