What is the law?
Charity trustees are the persons with “ultimate authority and responsibility for directing and governing the charity” (CC3). Like the board of directors in a commercial company, they set out the strategic direction of the organisation. Their duties are, broadly to:
- be responsible for directing the affairs of the charity
- ensure that the charity’s funds and resources are used only in furtherance of the charity’s objectives and are not placed at undue risk or misused
- ensure that the charity complies with relevant regulation and legislation
- ensure that the charity remains true to its charitable purposes, acting within its powers and in accordance with any special trusts
- act with integrity and avoid conflicts of interest
Underpinning all of these duties is the idea that trustees must act in the best interests of the charity. Trustees can delegate certain functions and activities to executives, but they cannot delegate their overall responsibility.
Should it all be about trustees?
The Charity Commission’s recent guidance on fundraising (issued in response to the practices highlighted in the media) made repeated reference to the fact that responsibility for fundraising practices ultimately rests with trustees.
This is an accurate reflection of the law as described above.
But it does in many ways ignore the reality on the ground which is that running a charity is incredibly complicated and cannot be done on a purely voluntary basis unless the volunteers involved have sufficient time to dedicate to doing so. In many cases volunteer trustees delegate the day to day running of their organisation to paid executives out of practical necessity. Whilst they must of course scrutinise and maintain oversight of what the executive is doing they must also give the executive the necessary autonomy to carry out the functions assigned to them and avoid becoming over-involved.
This reality is increasingly recognised. For example the Charities (Protection and Social Investment) Act 2016 now disqualifies individuals from senior positions on the staff of a charity on exactly the same criteria as trustees are disqualified. This is perhaps the first time that staff are explicitly brought within the scope of charity legislation.
Executives will of course be accountable to the trustees, but in the commercial as well as the charity world, the public face of an organisation when something goes wrong is that of the chief executive who steps down or apologises, acknowledging publicly their individual responsibility for matters over which they exercise a high degree of control, rather than members of the board.
Should the focus of the Charity Commission’s guidance and wrath be on trustees when there are employees in the picture with duties to act in the best interests of the charity? And whilst the legal theory is that trustees delegate areas of authority to staff would it be better for Charity Commission guidance to refer more to a joint endeavour? If we keep loading trustees with responsibilities we may come to find ourselves short of volunteers for this unpaid role.
Should chief executives be on boards?
Various discussions have been had recently as to whether, particularly in large organisations, either some trustees should be paid so as to enable them to commit their resources to the charity full-time, or whether chief executives should be on boards.
Having chief executives on boards would reflect the position in commercial companies, where ’insider’ directors sit on the board alongside ’outsider’ directors, bringing both a stakeholder perspective and on-the-ground knowledge/expertise to the board. It would mean the chief executive was legally subject to the same responsibilities as the trustees.
However this would also increase the likelihood of conflicts of interest and diminishes the clear separation of powers inherent in the current system, whereby (in theory at least) a board of trustees scrutinises and brings an outside, more objective and strategic perspective to the day to day activities of the executive. Having members of the executive on the board rather than merely reporting to it can make it harder for trustees to maintain the objectivity required to ensure that they and their charity serve the cause, not the interests of staff or the organisation for its own sake.
In the end
Legally, the buck really does stop with trustees – and the Kids Company case is evidence of the importance of trustees properly fulfilling their duties of oversight.
For more information on the relationship between trustees and the executive, in particular the chair and the chief executive, come to our seminar on Wednesday 18 January, where James Sinclair-Taylor will explore the relationship between the chair and the chief executive and the key role it plays in good charity governance.