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Insights

The Weakest Link – How a Trustee’s Links May Damage a Charity

Posted on 16th February 2017 in Charities and Social Enterprise

Posted by

James Evans

Partner and Solicitor
The Weakest Link – How a Trustee’s Links May Damage a Charity

In January 2015, the Chester Chronicle newspaper celebrated a £24,000 grant by the Earl of Chester Fund to a local company towards its set-up and development costs. Unfortunately, the celebration was short-lived.

It transpires that the grant was to a non-charitable company linked to a trustee. In a report published this week, the Charity Commission has concluded that the trustees failed to consider “the making of the grant in detail” and “failed to identify and manage conflicts of interest”. The trustees recognised their failings and repaid £24,000 to the charity as an act of good faith.

What can trustees learn from this?

Trustees have a legal duty to ensure that the charity’s purposes are carried out to the exclusion of all others. You must review your governing document when deciding on the activities of the charity. Inevitably, its objectives may grow and develop over time. If your planned activities do not truly reflect its purposes, it may be time to change the constitution. The trustees would need to obtain Charity Commission authority before making any changes to the objects or undertaking the activity.

If your charity gives grants to non-charitable bodies, you need to assess whether the grant will further your charity’s purposes. In this case the Commission considered that it would not necessarily do so as it was not limited to a particular purpose. As trustees you must carry out due diligence on any potential candidates for a grant and monitor its use. If you as an individual trustee have concerns, make sure you speak up to the rest of the board and ensure your concerns are recorded in any minutes.

Your charity’s governing document should set out a protocol for decision-making to ensure that any decision is fair and in the best interests of the charity, without trustees being subject to pressure or excessive control. In this case, the minutes did not evidence that the trustees had considered the grant in the context of the charity’s purpose.  They also failed to ensure that any conflicted trustee left the room during any discussion related to the conflicted activity, so they could not demonstrate that they were not influenced by conflicted opinion.

The trustee was acting in breach of trust due to the private benefit received through their link with the company. Depending on the charity’s constitution, this is not generally permitted. The criticism here was that the trustees should have sought permission from the Commission or the courts.

Trustees’ responsibility should not be taken lightly. The law generally protects those who act honestly and reasonably, but the consequences of not acting in a proper manner can affect a trustee personally and financially. The trustees of the Earl of Chester Fund willingly repaid the grant, but those who are unwilling or unable may be pursued by the Commission for restitution if the charity suffers loss because of their mistake.

 

We generally believe that if a decision does not ‘feel’ right, it isn’t right.  Ask yourself – would I be willing to stake my own reputation and money on this decision?

 

Company & Industry

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