Trustees: Acting in good faith; honest but still liable?

Most of us will be aware of recent tabloid headlines about the Presidents Club Charitable Trust, involving all-male fundraising events staffed only by females with inappropriate dress requirements.

The Charity Commission (the Commission) has now issued its report and, interestingly, has concluded that the charity’s trustees acted in good faith and in what they honestly considered to be the charity’s best interests. Most trustees would consider this to be sufficient – what more could be asked of them? – but, in the world of charity governance, honesty and good faith are not the only requirements. 

As well as being honest, trustees must act with reasonable skill and care when making decisions about a charity. They must consider the impact of their decisions on the charity’s reputation, beneficiaries and assets etc. A trustee might act honestly and in good faith but still deemed to have fallen short of the required standard of care.

In the case of the Presidents Club Charitable Trust, the Commission concluded that the trustees failed to:

• Identify and deal with risks to the reputation of the charity.
• Have adequate procedures and policies to deal with harassment and improper behaviour.
• Put in place adequate arrangements for proper management of the events.

Whilst, at this stage, the case has not resulted in any personal liability for those trustees, if such actions did result in a loss to the charity, there is potential for trustees to be liable to repay this loss from their personal funds. This is regardless of whether a charity is corporate (a charitable company or a charitable incorporated organisation) or unincorporated (for example, a trust).

Taking another example, if trustees decide to invest the charity’s money without the appropriate independent professional investment advice, resulting in serious loss to the charity, then the trustees' honesty and good faith will not stop them from being personally liable to repay that money to the charity (if they could not recover it) from their personal funds.

The lesson here is that good faith and honesty are not sufficient for charity trustees.  They need to be aware of all their duties as trustees and how to act with reasonable skill and care while running the charity. It is important for trustees to look at their charity and its specific circumstances to consider how best to manage the risks.

For more information

We regularly provide interactive training for charity trustees with case studies based on the specific circumstances of their charity. If this would be of interest, please do not hesitate to contact Edwina Turner.