Can charities restore the public's confidence?

The summer of 2015 was a difficult one
for charities and the fundraising sector. Starting with allegations in the press that major charities were pressuring vulnerable supporters into making donations, and culminating in the furore caused by the death
of Olive Cooke, charities have come under unprecedented scrutiny for their fundraising practices.

So, why have charities' fundraising methods come under fire recently, and why are they problematic?

• Professional fundraisers: Irrespective of
  the methods used, the public perception of professional fundraisers is not a wholly positive one. If you are stopped in the street or asked on the phone to make a donation to a charity, it may make a difference to you whether the person you are speaking with is an impassioned volunteer raising funds for the charity of their choice or an employee of a profit-making organisation (possibly working for commission) that will be raising funds for a different organisation tomorrow. Increased public awareness of the cost implications for charities is also a factor: it can take up to a year for charities that employ professional firms to recoup their investment. But it is often more cost effective in the long term for a charity to employ a professional fundraiser than to conduct its own fundraising.

• ??Use of supporter data: Based on the principle that people who give once to charity are more likely to give again, ‘targeted marketing lists’ (or ‘suckers lists’ as they have unfairly been called) of charity donors are a valuable commodity in the fundraising sector. These lists mean that if you have previously given your details to a charity (for example, by making a small text message-based donation to a charity appeal), you are more likely to be known to fundraising charities (or the firms that raise funds on their behalf ) and therefore to be the recipient of further calls and print appeals. In September, the Institute of Fundraising announced new guidance on data sharing. Charities, it said, should only share the details of people who have ticked a prominently located opt-in box. The effect of this is to restrict charities’ pool of potential donors (including removing those people who would not mind being contacted but may not have bothered to read the small print), consequently decreasing the amount of funds charities can raise.

• Aggressive fundraising: Charities rely heavily on street fundraising and direct marketing, whether it is face to face or on the telephone, and a large amount of money is raised in this way for charitable causes. Sometimes, though, there is a feeling that the techniques used to extract money from the potential donor are too intrusive, particularly when used on vulnerable people. The code of fundraising practice makes clear recommendations about how fundraisers should treat donors, including vulnerable or credulous donors. The Institute of Fundraising provides guidance on how to identify vulnerable people and how to decide when
  it is not appropriate to take a donation.
  The guidance exists - the problem is with
  the enforcement of that guidance.

The perception of these practices and the negative press levelled at fundraising charities has resulted in a real drop in public confidence in charities generally, hitting the sector hard at a time of increasing need. In response, the government commissioned a review entitled 'Regulating fundraising for the future', conducted by Sir Stuart Etherington, Lord Leigh of Hurley, Baroness Pitkeathley, and Lord Wallace of Saltaire. In parallel, the House of Lords, during its readings of the draft Charities (Protection and Social Investment) Bill, introduced new provisions to further regulate the way in which fundraising is conducted.

Etherington review

The review makes a number of recommendations for the conduct of fundraising by charities, building on the concept of a 'three lines of defence' model.

The first line of defence is the trustees: they are accountable for the way in which the charity's fundraising is carried out and they are responsible for any non-compliance with the law and ethical standards. It is not a defence for charities to say that fundraising is carried out by a third party. The draft Bill before parliament prescribes provisions that must form part of any agreement between a charity and a professional fundraiser, ensuring
this is addressed.

The second line of defence is one strong industry regulator that has the power to intervene to protect the public interest when malpractice occurs by enforcing a single, unified fundraising code. The review recommends that the Institute of Fundraising's code of fundraising practice, the Public Fundraising Association's rule book, the Fundraising Standards Board's (FRSB) fundraising promise, and the Charity Commission's CC20 guidance on charities and fundraising be united into one code, for this purpose. The review recommends scrapping the FRSB in favour of
a new regulator (for our comment on the role and limitations of the FRSB, please refer to our previous article in CAS Volume 21, Spring 2015).

The new regulator would not have a membership structure and therefore would
not be subject to the vested interests of members who are professional fundraisers, although
the Cabinet Office suggests that professional fundraising expertise will contribute to the creation and setting of standards by the new regulator. The new body would not have statutory powers but should be able to impose stronger sanctions for non-compliance, and should have strong links to the statutory regulator and a universal remit to adjudicate all fundraising complaints. It should be adequately resourced: the review suggests it should be industry funded and that any charity which spends more than £100,000 a year to generate donations from the public - approximately 2,000 charities - should be required to pay a levy on fundraising expenditure.

The third line of defence is the Charity Commission. The review invites the commission
to work in closer co-operation with the new fundraising regulator, acting as an additional 'backstop', on the basis that non-compliance with the fundraising code is suggestive of a breach of the trustees' duty to safeguard the reputation of the charity and the charity sector as a whole.
Such governance failures fall within the remit of the commission. The review suggests that the commission should play its part in supporting
and providing visibility for the role of the new fundraising regulator. This includes, for example, flagging non-compliant charities on the charity register, in the same way as it does for charities that are late filing their accounts.

Charities Bill

The government is expected to organise a
summit with key bodies in order to implement
the recommendations of the Etherington review.
In the meantime, the draft Charities Bill has completed its passage through the Lords and has had its second reading in the Commons. The Bill was drafted in 2014 and had its first reading in the Lords in May 2015. This was well before the fundraising furore erupted, so the Bill was not originally intended to address these aspects of fundraising. It is regrettable that the timing of the review has not yet allowed the recommendations to be inputted into the draft, but amendments proposed in the Lords address some of the issues identified in the review.

For example, a new section is proposed which reflects the first line of defence. This requires the trustees of charities to ensure that any agreement with a professional fundraiser specifies which (if any) voluntary regulatory scheme the fundraiser undertakes to be bound by, how it will protect vulnerable people from unreasonable behaviour, and what arrangements are in place that enable the charity to monitor compliance with these undertakings.

The Cabinet Office has also indicated that we
can expect to see amendments being made to the reserve power to make regulations imposing good practice requirements on fundraising charities (and their agents) and fines (though not of more than £500) for persistent non-compliance. It is interesting to note that an amendment proposed by Baroness Hayter of Kentish Town - to oblige
the government to make fundraising regulations rather than simply having the option to do so
- was rejected.

It is clear that we can expect a lot of new developments in the fundraising sector in the coming months, though the exact form these will take remains unclear at present. There will be a new fundraising regulator, that much seems clear, but exactly what the role of the Charity Commission will be and how actively the government will intervene to regulate fundraising remains to
be seen.

For charities and fundraisers - and indeed solicitors acting for them - it's a question of wait and see. We who work with the sector firmly hope that the right balance is achieved between protecting donors and enabling charities to fundraise effectively. SJ

Clive Vergnaud is a solicitor and Darren Hooker, pictured, is an associate in the charity and social enterprise team at Stone King