Jennifer Scott and Sophie Bird, in our Charities & Education team, discuss trustee conflicts of interest and the recent guidance released by the Charity Commission on the topic.
The Charity Commission for England and Wales updated its guidance for trustees on identifying and managing conflicts of interest last week .
These updates follow an assessment which identified a rise in cases of alleged private benefit within charities, many of which were linked to unmanaged conflicts of interest. Analysis by the Charity Commission found that most unmanaged conflicts of interest arise from a lack of awareness rather than deliberate wrongdoing, with trustees often being unable to identify when conflicts arise and therefore unable to act accordingly.
This article aims to assist trustees in identifying conflicts of interests as a first step to managing them effectively and, ultimately, protecting both their charities and the beneficiaries they support.
Conflicts of Interest
A conflict of interest arises where a trustee’s legal duties to the charity conflict with their personal interests or loyalties.
The Charity Commission’s updated guidance identifies two types of conflict of interest:
- Financial conflicts of interest (‘financial conflicts’) - where a trustee, or a connected person or organisation, could gain money or something else of value from a decision made by the charity; and
- Conflicts of loyalty (‘loyalty conflicts’) - where a trustee’s obligations to a connected person or organisation could influence their decision making.
There is a broad scope as to who might be considered a ‘connected person or organisation’ but to simplify, such a person or organisation might include (but is not limited to):
- a trustee’s spouse or civil partner;
- a trustee’s immediate family;
- a trustee’s business partner; and
- a business where a trustee has an interest through ownership or influence.
In some cases, the law or a charity’s governing documents will define who is considered a connected person or organisation. Many charities will also have a conflicts of interest policy.
Examples
An example of a financial conflict includes:
- The child of a trustee carries out part-time paid employment at the charity’s second-hand shop on weekends. (A connected person receives a financial benefit from the charity.)
- A trustee of a village hall charity uses the hall at a reduced rate, and on occasion, free of charge. (The trustee receives a financial benefit through discounted or free use of charity property.)
- A charity is leasing out an unused commercial property it owns, which a trustee is considering leasing for their business, even at a full market rate. (The trustee could obtain a financial benefit through a contract with the charity.)
An example of a loyalty conflict includes:
- The charity accepts sponsorship for one of its events from the employer of one of its trustees. (The trustee may feel influenced by their loyalty to their employer.)
- An almshouse charity requires maintenance work, and the preferred contractor is a local company owned by a friend of one of the trustees, though the trustee is not connected to the company. (The trustee’s personal relationship could influence their decision-making.)
- The charity decides to partner with the local parish council on a project, where that council has the power to appoint trustees. (Trustees may have competing loyalties between the charity and the appointing body.)
Note that conflicts of interest may arise more than once and must be identified each time they occur. Our recommendation would be to err on the side of caution and disclose any issues that could give rise to a conflict so it can be openly and properly assessed.
Conclusion
Identifying a conflict of interest is the first and most important step. While a conflict of interest does not necessarily prevent a charity from proceeding with a particular course of action, it must be properly managed. Trustees should ensure any conflict is addressed in accordance with the law, the charity’s governing document and the guidance issued by the Charity Commission, so that all decisions are made solely in the best interests of the charity.
For further information or legal advice on conflicts of interest, or another matter of charity law, please email law@blandy.co.uk or call 0118 951 6800.
This article is intended for the use of clients and other interested parties. The information contained in it is believed to be correct at the date of publication, but it is necessarily of a brief and general nature and should not be relied upon as a substitute for specific professional advice.
