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Charity Governance Standards

William Shawcross, Chair of the Charity Commission, recently gave a speech where he stated that "It is crucial that charities invest in governance, with time as much as money". He went on to say that Trustees, the Commission and others, need to "improve the standard of stewardship in our charities".

Further evidence of the focus on governance standards in charities was demonstrated by the comprehensive review and revised guidance issued by the Charity Commission (CC3 – The Essential Trustee) which is the key guidance for all charity trustees in England and Wales.

The guidance explains what the Charity Commission as regulator expects of Trustees and outlines their responsibilities and also aims to help Trustees to be confident about fulfilling their responsibilities as a Trustee and is designed to help Trustees make decisions as a team. For those Trustees who do not take their legal duties seriously enough, the guidance is the standard against which they will be measured.

There are six key duties of charity trustees:

1. Ensure your charity is carrying out its purposes for the public benefit
2. Comply with your charity’s governing document and the law
3. Act in your charity’s best interests
4. Manage your charity’s resources responsibly
5. Act with reasonable care and skill
6. Ensure your charity is accountable

Duty 1: Purposes for the public benefit

You should read the objects clause in your charity’s governing document and ensure you understand:

1. What the charity is set up to achieve - its purposes;
2. Who the charity is there to benefit – its beneficiaries;
3. How they will benefit – what the charity will do for them;
4. Any order of priority to the services and benefits the charity provides;
5. Any restrictions on what the charity can do or who it can help – geographical or specific criteria etc.

The Trustees are responsible for deciding and planning how the charity will carry out its purposes.

Duty 2: Duty to comply with governing document and the law

The Trustees must make sure that the charity complies with the governing document, which usually contains key information about:

1. What the charity exists to do;
2. What powers it has to further its objects;
3. Who the Trustees are – how many there should be and how they are appointed/removed;
4. Whether the charity has members and if so who can be a member;
5. Rules about meetings, how they are arranged and conducted, how sessions must be made and recorded and so on;
6. How to change the governing document; and
7. How to close the charity down.

Every Trustee should have an up to date copy of their charity’s governing document and regularly refer to it.

The governing document should be reviewed from time to time to ensure that it continues to meet the charity’s needs and be updated if necessary.

Duty 3: Acting in the charity's best interest

This means always doing what the Trustees decide will best enable the charity to carry out its purposes, both now and for the future. Sometimes Trustees need to consider collaborating or merging with another charity, or even spending all of the charity’s resources and bringing it to a close.

The Trustees are ultimately responsible for deciding what activities the charity will undertake, what resources it will need, how it will obtain them and use them. Collective decision making is one of the most important parts of the Trustee role.

When making decisions, Trustees must:

1. Act within the powers;
2. Act in good faith and only in the interests of the charity;
3. Make sure they are sufficiently informed, taking any advice they need;
4. Take account of all relevant factors they are aware of;
5. Ignore any irrelevant factors;
6. Deal with conflicts of interest and loyalty; and
7. Make decisions that are within the range of decisions that a reasonable trustee body could make in the circumstances.

Duty 4: Manage resources responsibly

Trustees must act responsibly, reasonably and honestly. This is sometimes called the duty of prudence. Prudence is about exercising sound judgement.

Trustees should put appropriate procedures and safeguards in place and take reasonable steps to ensure that they are followed. Otherwise, the Trustees risk making the charity to vulnerable to fraud or theft, or other kinds of abuse, and being in breach of duty.

Under this duty, risk management is a key area. The risk that your charity might face will depend on factors such as its size, funding and activities. Trustees have a duty to avoid exposing their charity to undue risk and must manage risk accordingly.

Duty 5: Act with reasonable care and skill

Trustees must use their skill and experience to inform decision-making and benefit their charity. Trustees must “exercise such care and skill as is reasonable in the circumstances”. What is reasonable in the circumstances will depend on any special knowledge or experience that the Trustee has (or claims to have). It also depends on whether a Trustee is acting in a professional or paid capacity and what it would be reasonable to expect such a person to know.

In order to discharge this duty, I would recommend giving serious thought to the time commitment of becoming a Trustee in the first place and giving sufficient thought and energy to your role as a Trustee including preparing for, attending and actively participating in all Trustees’ meetings.

Duty 6: Ensure your charity is accountable

Trustees must comply with statutory accounting and reporting requirements.
In doing so, they will be to demonstrate that the charity is complying with the law and that it is well run and effective.

In addition, the Trustees must ensure accountability within the charity particularly where they have delegated responsibility for particular tasks or decisions to staff, volunteers or sub-committees.

Failure to submit accounts and accompanying documents to the Charity Commission is a criminal offence. The Charity Commission also regards it as mismanagement or misconduct in the administration of the charity. Providing timely, accurate and informative financial information that will help funders, donors, beneficiaries and others to understand your charity and its work will encourage trust and confidence.

Good governance

A starting point is always having a clear and shared understanding of why the organisation exists and what success would look like.

A routine agenda format will help to cover standard management reports but should also allow time for discussion of other issues. A governance calendar can also be useful to diarise standard reports, decisions and actions which are needed over the course of a charity's financial year. Reporting against trends, rather than just current performance will help to highlight exceptions.

Finally, Trustees should be ready to celebrate success while also looking to learn together from things which go wrong.

This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.

Catherine Rustomji

Director - Head of Charities & Social Enterprise

I am an experienced charities solicitor who advises on all aspects of charity law and regulation, in particular governance, constitutional issues and advising charity trustees on their duties and responsibilities.