New guidance for charity trustees following increase in unmanaged conflicts of interest cases

Prompted by a rise in compliance cases involving the alleged abuse of charitable status for private benefit, the Charity Commission has revised its guidance regarding charity trustees and managing potential conflicts of interest.

The new guidance, CC29 Conflicts of interest: a guide for charity trustees is targeted at approximately 900,000 trustees in England and Wales, and outlines their legal duty to identify, manage and record conflicts.

With half of the Commission’s inquiry reports published so far this year citing failings to manage conflicts, but with an acknowledgement that most conflicts arise from a lack of awareness, the Commission has streamlined the guidance from 35 pages down to 21 to make it more accessible for trustees.

In the guidance a conflict of interest is defined as ‘when what is in the charity’s best interests conflicts with, or may conflict with:

• your personal interests, or
• the interests of people or organisations connected to you.’

Aaron Spencer, Partner at Furley Page, who coordinates the firm’s Charity law team, said: “Trustees have a duty to make decisions based solely on what is in their charity’s best interests, but at the same time trustees often have a number of different personal and professional interests, which can raise conflicts of interest.

“The key for trustees is to know when conflicts may occur, identify when they do occur, and manage them properly each time they occur. Unfortunately, ignorance of the guidelines is not a valid excuse, and not managing conflicts can have serious consequences for trustees and the charity.”

CC29 makes it clear that it is the responsibility of all the trustees of a charity to manage conflicts of interest, not just the responsibility of the chair or the person who has the conflict. Consequences for not complying can include decisions being challenged, resulting in the charity losing money and the trustees may be jointly liable to cover the loss from personal funds. In addition, a charity’s reputation can be damaged, making it hard for it to get funding, and in extreme cases the Charity Commission will take action in its role as the regulator.

To avoid breaches, the new guidance provides a step-by-step guide to managing conflicts, and starts with the requirement to check that your charity’s governing document sets out rules about conflicts of interest. If the governing document does not contain any rules on managing conflicts of interest or the rules are inadequate, the rules need to be changed.

The updated steps for managing conflicts are: identify the conflict; declare conflicts of interest; consider removing the conflict of interest, otherwise manage the conflict; and always record it.

Aaron continued: “In Kent alone there are over 3,000 registered charities, so this new guidance is relevant for many thousands of trustees who need to familiarise themselves with their duties before inadvertently breaching the rules.

“All charities should have a conflict of interest policy in place to help them ensure that trustees know what a conflict is, to enable the charity to manage conflicts and to demonstrate that trustees are meeting their legal duties and take conflicts seriously.”

The new guidance can be found at: https://www.gov.uk/government/publications/identifying-and-managing-conflicts-of-interest-in-a-charity-cc29