As the people who carry ultimate responsibility for the affairs and the resources of a charity, trustees carry the can. So long as they work within their governing document and the law, they’re free to make the choices they deem right for their charities.
This is a fairly straightforward principle. However, in practice it can be more difficult to apply. The commission, as the regulator, sets out on its website and in its publications what it considers the legal requirements and good practice to be in relation to a wide range of decisions that trustees might have to make. But, ultimately, it is for the courts and tribunals to determine the law.
As the charity regulator, we have always thought it essential to provide information, advice and guidance to support trustees in carrying out their duties and responsibilities. We have also thought it important to give individual charities specific advice and guidance in a wide range circumstances where trustees have thought it necessary to effectively administer their charities.
We know that service has been very useful to many charities, especially smaller charities with less easy access to legal advice. But is providing legal advice to individual charities – albeit as regulator not as their legal adviser – part of the core role of a regulator? The answer we have come to in our strategic review is that, during a time of very limited resources, it can’t be.
The commission’s strategy review was prompted in part by cuts to our budget of a third over four years. In response, we launched a review of our priorities which began with a full public consultation. That consultation revealed that, while our stakeholders felt our current approach is roughly right, and that many charities do value our advisory role, the cuts to our funding mean that we have to focus more closely on the core regulatory activities that only we can carry out. It also confirmed that our role is primarily to serve the public – not to represent or champion charities.
The core activities include maintaining the register, providing guidance based on charity law and getting involved in charities where there is evidence of serious problems. We will develop the way in which we carry out these functions – for instance by focusing on providing more tailored guidance, for instance guidance aimed at a particular group or class of charities. But some of our current work will have to be scaled back. This includes some of the tailored advice we provide to individual charities, as well as some of the work we have done in the past to promote the charitable sector.
What do these changes mean for trustees and those providing legal advice to trustees? Primarily, we hope that they further self-reliance within the sector and that they help foster trustees’ confidence in their own judgement and ability to make the right decisions on behalf of their charities. Of course, this doesn’t mean we want to leave trustees entirely without specific advice. We are aiming to work with charity umbrella bodies to help them extend the advice service they provide while we, gradually, engage less in this area. But trustees need to be aware that the onus is on them to make sure they fully understand their legal and fiduciary duties, that they seek and consider external advice appropriately and are aware of the potential risks associated with certain activities or decisions.
We will continue to give formal advice to charities under section 29 of the Charities Act in circumstances where not doing so would seriously compromise trustees’ ability to administer their charity properly. We will also continue to provide trustees with general guidance – for instance, we are currently working on new guidance on trustee decision making, more detailed guidance on the charity exemption in the Equalities Act and updated investment guidance. Full details of our new approach will be available later in the year.
Effective risk management
It’s important to note that the impact on charities of the commission’s strategy review will be evolutionary in nature. The importance of trustee decision making is already reflected in the commission’s recently published guidance, which places a renewed emphasis on effective risk-management in charities. Examples of this new approach are found in our updated guidance on ‘Charities and insurance’ (CC25) and ‘Managing your charity’s assets and resources’ (CC25). The updated insurance guidance makes very clear where trustees’ legal duties lie, and consists of concise chapters on a wide range of financial activities a charity might undertake, including investing, managing staff and volunteers and buying and selling land. The emphasis is on the broad principles that apply to their responsibility in each area and the underlying importance of risk management. Trustees are reminded of the more detailed guidance available on our website and of the need to consider the particular circumstances of their charity and its activities.
The commission’s guidance is only guidance. And an aspect of the commission’s guidance to trustees on public benefit in relation to fee-charging charities is currently subject to legal challenge. We expect an outcome in summer 2011. Our guidance was written following full public consultation. We set out in detail our understanding of the law underpinning it – we cannot and do not determine the law. But where there is a scarcity of recent charity cases and these are difficult to interpret our role remains to set out what we think the court would decide now if it had to consider the issue in light of modern social conditions. We accept that, like any public body, our work is subject to review and we welcome any clarification of the law that might emerge from the hearing or from challenges against individual case decisions either in the First-tier Tribunal (Charity) the or High Court.
I am confident that changes at the commission will serve to enhance the sector and empower trustees. Of course, there will be occasions at which trustees will need to seek advice; trustees must ensure they are properly informed when they make decisions and legal advice often forms part of this. Our guidance to trustees often flags where trustees need to consider taking such advice. Although this may be seen as an opportunity for new business, I am aware of the considerable support lawyers give to charities by giving free advice and advice at reduced rates and as voluntary trustees. I am confident that this commitment of the profession to those in society who are helped by charities will continue.
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