The Role of Trustees et Different Constitutional

1. The role of Trustees and Different Constitutional
Structures
Moira Protani

2. Understanding the Voluntary Sector
• How charities are regulated
• Role of the Charity Commission
• Important aspects of charitable status
2

3. What is a charity?
• Concept of charity began in medieval times with
religious orders of monks
• Relieving poverty, advancing religion and teaching
people to read and write
• A charity is an organisation established for a charitable
purpose and the public benefit
• Charities Act 2011 codifies charitable purposes
3

4. Public Benefit
• Charities must demonstrate that they exist for the public benefit
• Controversy surrounding religious charities, independent schools and fee-
charging charities
• The law relating to public benefit has not changed in any material respect
• To be a charity a body must exist for the public benefit
• The legal burden of proving public benefit lies with the trustees of the
charity
4

5. Public Benefit
• Public benefit reporting is not a formulaic exercise
• An advance strategy is required and providing public
benefit should be at the core of the strategy
Guidance on Public benefit:
http://www.charitycommission.gov.uk/detailed-guidance/charitable-purposes-and-
public-benefit/
Example trustees’ annual reports and accounts:
http://www.charitycommission.gov.uk/detailed-guidance/money-and-
accounts/example-trustees-annual-reports-and-accounts/
5

6. Know your Governing Documents
Governing Document tells you:
• What your charitable purpose is
• Who your trustees are
• Powers of the charity
• Whether you have a membership structure
6

7. Types of Governing Document
• Company limited by a guarantee
- directors and members. May be, but are not necessarily, the same
persons
• A trust governed by a trust deed, a will, a conveyance
of property or a Charity Commission scheme
- individual trustees or a corporate trustee
• An unincorporated association governed by written
rules and made up of its members
- members elect trustees
7

8. Other types of Governing Document
• Royal Charter bodies
• Charities governed by statute, eg. RSPCA and The
National Trust
• Industrial and provident societies, eg. housing
associations
• Charitable Incorporated Organisation (CIO)
- no settled law
- no public register of mortgages
8

9. Who are the Trustees?
• The persons with legal responsibility for running the
charity
• In larger charities the trustees often delegate the
running of the charity to committees of trustees or
employees
• But the trustees remain legally responsible
9

10. Trustees and their responsibilities
• The trustees may be called directors, council
members, board members, court members or a
management committee
• Specific legal duties
• Duties arise under the common law and statute
• Regulated by the Charity Commission – they are called
“charity trustees” in the legislation
10

11. Duties of Trustees
• A long history and a lot of case law
• Trustees are usually volunteers and do not get involved in day-to-day
business
• Delegated authority to staff
• Who complies with the legal duties in your organisation?
• The job often falls to the chief executive or finance director
• The job description might say “complete all filing and compliance work!”
11

12. Primary duties of Trustees
• Observe the terms of the governing document
• Safeguard the assets of the charity
• Avoid conflicts of interest
What does all this mean?
12

13. Observe the terms of the Governing Document
• Trustees must further the charitable objects in the governing document
for the public benefit
• Beware of mission drift
• Trustees can get carried away in their efforts to secure a funding stream
• Ensure that the organisation has appropriate powers
• e.g. Investing in or guaranteeing debts of a trading subsidiary
13

14. A duty to safeguard the charity’s assets
• Use legal rules and rules of good governance to ensure
that the charity is well run so that the assets and
money are not dissipated through incompetence or
fraud
• A-Z Governance Checklist
14

15. Good Governance
• What does the governing document say about delegation of the trustees’
powers of management?
• What happens in practice?
• Two types of delegation
• Delegation of a specific task
• Delegation of wider functions (with or without a budgetary limit) to staff
• e.g. the task of hiring and firing staff
15

16. Good Governance
• Trustees might delegate the management of bank
accounts and signing of contracts
• Observe the rules in the governing document
16

17. Good Governance
• What is the extent of the trustees’ powers to delegate?
• Unusual to see an express power to delegate discretionary functions to
staff
• Check the governing document, get it amended if necessary following the
correct procedures
• Document carefully the extent of the functions delegated
• Include financial limits and do not leave it open-ended
• Divide the tasks
17

18. Good Governance
• What are the powers of investment of the charity?
• Does the charity have a portfolio of investments or own commercial
buildings?
• Law and practice applicable to charity investment powers and duties
• Trustee Act 2000
• Imposes a standard of care on trustees, requires them to seek proper
advice and review investments for suitability
• Trustees should diversify their investments
• Care with investments in trading subsidiaries
18

19. Good Governance
• Ethical investment policies
• But must have regard to trustee duty to maximise
returns
• The principles may (or may not) be compatible
• Does a particular investment conflict with a charity’s
objects or would it alienate supporters?
19

20. Good Governance
• Powers to delegate investment management – Trustee
Act 2000
• Duty of care in agreeing terms
• Written agreement and policy statement
20

21. Good Governance
• Specific statutory restriction
• Part 7 Charities Act 2011
• Prior to disposal of land (lease or freehold)
– Instruct a surveyor to advise on terms (unless lease for under
7 years)
– Are they the best terms that can reasonably be achieved for
the charity
– Trustees to consider written surveyor’s report
– Disposals to connected parties (eg. a trustee) require prior
consent of the Charity Commission
Guidance on acquiring land:
http://www.charitycommission.gov.uk/detailed-guidance/land-and-property/acquiring-
land-cc33/ 21

22. Good Governance
• Observe the rules in the governing document for appointment and
retirement of trustees
• If not, the charity may be incorrectly constituted
• A contract made by an improperly appointed trustee could render that
person personally liable on the contract, but not be entitled to an
indemnity from the charity’s funds
• Properly appointed trustees are entitled to an indemnity
• Consult with members and go through election procedures if necessary
22

23. Trustee Appointments
• Co-option by the trustees
• Founder
• Members
• Ex-officio
• Third party nomination rights

24. Avoiding conflicts of interest
• Basic legal rule – a trustee should act in a voluntary
capacity
• Trustees cannot be paid as employees or contract with
charity to buy or sell goods, land and buildings or
services – the self-dealing rule
• Exceptions to the self-dealing rule
24

25. Exceptions to the Self-Dealing Rule
• If permitted by the governing document
–a trustee empowered to lend money in
return for payment of interest at a
reasonable rate
–Power to pay a trustee for the provision of
professional services
–Exercise caution, carefully minute the
decision of the trustees and ensure that it
falls within the power in the governing
document
25

26. Avoid conflicts of interest
• Second exception to self-dealing rule
• Where the Charity Commission has authorised it
• Third exception – power in section 185 of the Charities
Act 2011 to remunerate trustees for the provision of
services
26

27. Avoiding conflicts of interest
• Section 185 - not a blanket authority
• Subject to a number of pre-conditions and restrictions
• Of no use if there is an express prohibition in the governing document on
trustee remuneration
• Only a minority of trustees can benefit
• Trustees must first be satisfied the charity’s best interest will be served
• Agreement in writing and other conditions
27

28. Avoiding conflicts of interest
Conditions
• must be providing a service
• cannot be an employee
• agreement in writing setting out the amount (or
maximum amount) that may be paid
28

29. Avoiding conflicts of interest
• remuneration must be reasonable
• before signing the agreement trustees must be
satisfied that it is in the best interests of the charity
for the services to be provided at the agreed level of
remuneration
• only a minority of the trustees (or connected persons)
at any one time can benefit from this power
29

30. Avoiding conflicts of interest
• There must be no express prohibition on remunerating
a trustee or connected person in the governing
document
• The trustees must have regard to the Charity
Commission’s guidance on remunerating trustees
before entering into agreement to remunerate a
trustee
30

31. Avoiding conflicts of interest
• The trustees have a duty of care
• The trustee to be remunerated must take no part in
the decision
• If a trustee is remunerated in breach of this power he
can be ordered by the Charity Commission to
reimburse any benefits received
31

32. Role of the Charity Commission
• A charity established in England and Wales must
usually register if annual income > £5,000
• Exception for exempt charities – e.g. housing
associations regulated by the Tenant Services Authority
• What happens when you are registered?
32

33. Role of the Charity Commission
• Objectives
• Functions
• Duties
33

34. Role of the Charity Commission
Objectives
• Increase public trust and confidence in charities
• Promote awareness and understanding of the public benefit required
• Promote compliance by trustees with their legal obligations in exercising
control and management of the administration of charities
• Promote the effective use of charitable resources
• Enhance the accountability of charities to donors, beneficiaries and the
general public
34

35. Role of the Charity Commission
Functions
• Determine whether institutions are or are not charities
• Encourage and facilitate better administration of charities
• Identify and investigate misconduct or mismanagement and take remedial
or protective action
• Determine whether public collections certificates should be issued
• Obtain, evaluate and disseminate information concerning the
performance of the Commission’s functions
• Give information or advice to a minister of the Crown on the Commission’s
functions
35

36. Role of the Charity Commission
Duties
• Act in a way which is compatible with its objectives and the
encouragement of charitable giving and voluntary work
• Use resources in the most efficient, effective and economic way
• Principles of best regulatory practice (proportionate, accountable,
consistent, transparent and targeted at cases where action is needed)
• Desirability of facilitating innovation by charities
• Principles of good corporate governance
36

37. Role of the Charity Commission
• The powers of the Charity Commission are extensive
• Enabling a charity to alter its governing document, e.g. to change its
objects
• Enabling a charity to remove a prohibition on remuneration of its trustees
• Giving consent (Section 105) where trustees do not have power to do
something
• Monitoring a charity’s report and accounts for evidence of compliance
with the public benefit test
• Open an inquiry into a charity, powers to suspend and remove trustees,
appoint new trustees, appoint a receiver
Now on to the case study
37