Update | Charity: trustee decision-making

Household name charities have been very much in the public eye this quarter. The RSPCA was accused of "muddling charity and politics" in an article by Charles Moore in The Daily Telegraph on 4 January, and, earlier this month, The Diana, Princess of Wales Memorial Fund, was described as having been "hijacked" by the political left, for its funding of charities working in the field of asylum and immigration. These two case studies illustrate the important role of trustees in charities, and their responsibilities when making decisions.

Trustee decision-making

The RSPCA's decision to bring a private prosecution against the Heythrop Hunt generated a hostile response among some members of the press and MPs. The Daily Telegraph in particular published a series of articles which questioned whether the charity is becoming increasingly political, and is moving away from being an animal welfare organisation to an animal rights one. A group of MPs reported their concerns about the charity's legal expenditure on the private prosecution, which totalled some 326,000, to the Charity Commission.

For its part, the RSPCA lodged a complaint with the Press Complaints Commission (PCC), on the grounds that The Daily Telegraph's reporting of the position breached the editors' code of conduct, because it contained factual inaccuracies and failed to provide suitably balanced reporting. The PCC ruled against the RSPCA earlier this month, but the commission decided not to exercise any of its regulatory or investigatory powers in response to the MPs' complaint.

The RSPCA's decision to bring the private prosecution fell squarely within its charitable objects (to promote kindness and to prevent or suppress cruelty to animals) and it was clearly within the discretion of the society's council to decide to bring such a prosecution in pursuance of those objects.

However, in doing so the society was stepping into political waters, prompting consideration of the extent to which political campaigning can be carried out by charities. The commission describes campaigning activity as (among other matters) something "which aims to ensure that existing laws are observed".

The RSPCA's support of the Hunting Act 2004 is a type of political activity. However, this political activity should be considered in the wider context of the RSPCA's purpose and activities. The charity only brings private prosecutions in relation to cases of animal cruelty i.e. in furtherance of its charitable objects. Nor is this its sole method of furthering its charitable purposes.

According to the RSPCA's report for the year ended 31 December 2011, investigations which led to prosecutions were around 1 per cent of the numbers of complaints about animal cruelty which were investigated during the year. The vast majority of complaints were dealt with through the provision of education and advice.

The accusation which has been levelled against the trustees of the RSPCA in relation to the Heythrop Hunt prosecution was that they were motivated not so much by animal welfare concerns but by political considerations. While it is correct that a charity cannot exist for a political purpose (and the amount spent on the Heythrop prosecution was certainly significant), the trustees' decision to pursue the Heythrop Hunt falls within the charity's objects and its stated strategy for pursuing its goals.

The 2011 annual report said that the charity would "take prosecutions under the Hunting Act to show that it is enforceable".The commission spokesman on this matter said that it is the trustees who consider the matter of bringing prosecutions. They must assess whether the prosecutions will further the charity's objects, whether they fit within the charity's stated strategies and whether the costs of bringing the prosecution are commensurate with the possible outcome. It is to be expected that the trustees of the RSPCA considered all of these (and other) factors when making the decision to proceed with the Heythrop Hunt prosecution.

Ultimately, this was a trustee decision which, in order to be justifiable, must have been made because the trustees reasonably considered it to be in the best interests of the charity's objects to proceed.

The trustees of the Diana Fund, which in fact ceased its operations at the end of 2012, have also come under fire for their decisions to fund charities working in the areas of immigration and asylum seekers. The charity was described in a recent Daily Mail article as having been "hijacked" by the political left, and the article complained that Diana, Princess of Wales was not known to have had any interest in such issues.

The fund had very wide charitable objects, essentially, to do anything which is charitable under the law in England and Wales. The trustees may have had regard to those charities and charitable causes with which Diana, Princess of Wales was associated during her lifetime but, crucially, such regard could not have fettered their discretion in the years following her death in 1997.

Again, this comes down to the need to recognise that it is the charity trustees' responsibility to decide what their charity does in order to fulfil its charitable purpose. Immigration and asylum seekers may not have been issues with which Diana, Princess of Wales was associated during her lifetime, but charitable imperatives and concerns change over time. In this instance, the trustees of the fund had a very wide discretion. Undoubtedly it was reasonable for them to decide to fund work in these areas, with decisions informed by research about this area of work, statistical data and other evidence. Ultimately, it is up to charity trustees to decide how best to fulfil their charity's objects.

What is important is that trustees make reasonable and informed decisions, based on good evidence, so that when a charity's activities are challenged (and press and parliamentary scrutiny is no bad thing), trustees can explain the reasons for their decisions and the public benefit provided by their actions.

Cutting red tape

The commission's draft guidance on decision-making by trustees seems to be an example of it preaching what it practises. Labelled 'It's Your Decision - Charity Trustees and Decision-Making', it emphasises that it is for trustees to decide what is in the best interests of their charity's objects. Trustees do not need to check their decisions with the regulator and the commission does not monitor trustees' decisions. This is, of course, to be welcomed, and does tie in with the commission's response to the MPs' complaint about the RSPCA.

However, we cannot forget that guidance encouraging trustee self-reliance is being issued in the midst of budget cuts which mean that trustees cannot look to the commission so readily for help. It is our experience that the new hands-off approach, whereby the commission will only get involved when charities can show that it absolutely has to, can mean that it is unwilling to take action in matters in which it could otherwise be involved to offer reasonably quick and cost-effective solutions. The commission has closed the consultation on the guidance, and should be issuing the final form shortly.

Another measure which will help to cut red tape, and give trustees greater decision-making power, is one which is admittedly more technical: the Trusts (Capital and Income) Act 2013. Previously, trustees of charities which hold permanently endowed assets had to follow the standard trust rules on allocation of investment return, which meant that some types of investment return had to be added to the trust for application (income) and that other types of investment return had to be added to the trust for investment (capital). Trustees used to have to apply to the commission for an order which authorised them to allocate the investment return from assets held on trust for investment (capital) at their discretion, rather than in the way dictated by the standard rules.

The Act, which received Royal Assent on 31 January, allows trustees to resolve to adopt a total return approach to investment without the need for commission authorisation, i.e. they can decide that they no longer have to account for investment return as separate capital and income returns, and they will be able to spend capital appreciation as if it were income. In other words, if trustees consider that it is in the interests of the charity's objects to do so, they can decide to spend capital appreciation as well as income.This is a welcome step in the drive towards cutting red tape.

Charities with significant endowments found themselves in the unenviable position of being unable to use the income element of investment returns to mitigate against capital losses, nor could they spend capital appreciation on current beneficiaries.

The new legislation empowers trustees to exercise their discretion when managing charity funds and enables them to take a holistic approach to how the return on investment can best be applied. The Act provides that the commission can make regulations governing how trustees exercise the statutory power.

While some red tape will continue, in that the commission's regulations are likely to contain notification and reporting requirements, overall this is a move to be welcomed as one which enables trustees to exercise their discretion in the best interests of their charity.