The ICSA Charities Act 2016 Conference

Charities (Protection and Social Investment) Conference 20168 September 2016

Chair’s opening remarksLouise Thompson FCIS, Head of Policy (NFP) ICSA

Social investments overviewLuke Fletcher, Partner and Head of Social Finance, Bates Wells Braithwaite

ICSA Charities (Protection and Social Investment) Act 2016 Conference

Charities and Social Investment Luke Fletcher Bates Wells Braithwaite8 September 2016

Charities and social investment

Introduction

The Charities (Protection and Social Investment) Act 2016

Trustee duties and social investment

Charity Commission guidance

The Charities (Protection and Social Investment) Act 2016

Charities (Protection and Social Investment) Act 2016

• Brought into force on 31 July 2016

• Implements a Law Commission recommendation

• A statutory power to make social investments

– financial return

– furthers the charity’s aims

Policy context

• Charity Commission review of CC14

• Lord Hodgson’s independent review of the Charities Act 2006

• Proposal for a statutory power for charities to do social investment

• Lord Hodgson recommended a statutory power

• Government asked the Law Commission to consider

• Law Commission consulted and recommended a statutory power

• Social investment power was included in the Bill

• The Bill became an Act

What is the new social investment power?

• Allows charities to invest:

“with a view to both (a) directly furthering the charity’s purposes;

and (b) achieving a financial return for the charity”

• Intention to remove uncertainty over the ability of charities to make

social investments – and particularly “mixed-motive” investments

• Is the wording of the power as clear as it could or should be?

Summary of the power – Lord Bridges

• No minimum degree of ‘mission benefit’ before the power is engaged

• A combination of mission benefit and financial return

• Where trustees consider investment to be in the interests of a charity

• Charity’s purposes need not be advanced on an exclusive basis

How might the new power be used?

• The full spectrum of social investments is permitted

• Primarily financial, or for primarily social, reasons

• The Act also makes clear that investments made using the power will

not have to be restricted for the investor’s objects

• To use Lord Bridges’ example from the Hansard debates…

Example of mixed motive investment

“A charity might have the care of horses as its charitable purpose. It may

wish to invest in a horse and donkey social enterprise, which provides

joint facilities for both. The social enterprise may also expect to make a

financial return, perhaps from charging visitors. Having weighed the

benefits to horses along with the expected risk-adjusted financial return,

the horse charity is able to invest in the horse and donkey social

enterprise. So long as the trustees have satisfied themselves that the

combination of expected financial return and mission benefit in relation to

horses is appropriate, this is covered under the social investment

power.”

Trustee duties and social investment

Specific duties

• New social investment specific duties• The Act requires trustees to:

– consider whether advice should be obtained;– consider any advice which is obtained; and– consider whether it is in the interests of the charity to invest

• directly furthers the charity’s purposes

• achieves a financial return

– An obligation to review social investments from time to time

• Replace statutory investment duties

The interests of the charity

• No need to quantify and no need for a precise calculation

• Trustees must act reasonably and consider relevant factors

• Trustees should minute and record decisions carefully

• Trustee judgement needed

Restrictions on the scope of the power

• Does not apply if founded by Act of Parliament or Royal Charter• Does not override any permanent endowment restriction• May be specifically excluded by the constitution of a charity• Equally, it may apply without trustees being aware

Private benefit arising from the investment

Private benefit arising from the investment

• Any private benefit must be– necessary in the circumstances– reasonable in amount– in the interests of the charity

• Trustees should consider and document approach– due diligence– risk assessment– documentation– monitoring

Charity Commission Guidance

Charity Commission guidance

• Interim guidance – review expected in 2017– How investments might be realised or exited – Monitoring and managing investment performance– The relationship with investment portfolio and grant-making – The tax treatment of the social investment

• HMRC Guidance - “for the benefit of the charity”

– The likely opportunity cost of making the investment, if any

Luke FletcherPartnerCharity / Social Enterprise / Social Finance

[email protected]

Bates Wells Braithwaite

199999/1062

Evaluating charity governance: learning from failureKirsty Semple, Director, Semple Associates Ltd

Evaluating charity governance: learning from failure

8th September 2016

Kirsty Semple

Reading materials

• Tackling abuse and mismanagement 2014-15 - full report – Charity Commission

• The collapse of Kids Company: lessonsfor charity trustees, professional firms, the Charity Commission, and Whitehall – PACA Committee

• Cosmopolitan Housing Group Lessons Learned- Altair

• Failings in management and governance(Co-operative Bank) – The Kelly Report

Charity Commission

Most common governance failures•A breakdown of collective decision making – often due to dominance•Unauthorised private benefit / management of conflicts of interest.

Tackling abuse and mismanagement 2014-15 - full report

What goes wrong?

• Dominance• Delegation• Conflicts of Interest• Information and understanding

Semple Associates.

Nobody Speaks pNobody Speaks Up

Dominance

• Kids Company• Air Ambulance Service

“A lack of oversight by the charity’s trustees, with the charity’s chief executive and chairman making important decisions without seeking input of the full board.”

Delegation

• Bhagavat Educational Trust Limited• Air Ambulance Service• Khalsa Centre “it was not clear who had effective and

continuing control of the management of the Charity or its assets.”

.

Conflicts of Interest

• Holmewood Animal Rescue Charitable Trust • House the Homeless • White Horse Stables - Horse Rescue • Raleigh Limited

“The conflicted trustees had been dominant in managing significant aspects of the charity at the exclusion of the other trustees. The trustees were also unable to explain how the trustees were managing the ongoing conflict of interest arising from the situation.”

Information and understanding

• Kids Company• Cosmopolitan Housing Group• The Co-operative Bank

Cosmopolitan Housing Group

• “There was little information given to the Boards on the non-social housing activities undertaken (other than in the form of minutes which, from the documentation we have seen, were not discussed), the financial risks were rarely discussed, and information was not requested.”

• “it could be argued, the Board of CHA all knew or should have known that CHA was acting as a guarantor for part of the student housing business. Did they understand the risks associated with this? “

• “The Board of CHG appeared to be unaware of the extent of the financial risks that were being placed on the organisation.”

• “Our view is that the information provided to the CHA Board was insufficient to enable them to make an informed decision.”

Information and understanding

Often seen as weaknesses of skills and competencies on Boards, but - how do you address this?- does having the skills really make a difference?

Kids Company

• Information and understanding• Dominance• Delegation…..• Conflict of Interest

Kids Company

• “Primary responsibility for Kids Company’s collapse rests with the charity’s Trustees… if the Trustees had not allowed the charity’s weak financial position to persist for so long, Kids Company would not have been so vulnerable to the impact of the allegations..”

Kids Company

• “The Board failed to protect the interests of the charity and its beneficiaries, despite its statutory responsibility to do so. Trustees repeatedly ignored auditors’ clear warnings about Kids Company’s precarious finances. This negligent financial management rendered the charity incapable of surviving any variance in its funding stream.”

Kids Company

• “Kids Company’s Board of Trustees lacked the experience of youth services or psychotherapy necessary to interrogate the decisions of the Founder-Chief Executive…… It is essential that Trustees of all charities ensure that some members of the Board have experience of the area relevant to the charity’s activities, in addition to the necessary skills, and that all Trustees have the appropriate attitude towards responsible governance. “

How to avoid these failures?

• Terms of office and renewal• Clarity re delegation• Monitoring and control• Management of conflicts of InterestBUT“Trustees (must) have the appropriate attitude

towards responsible governance.”

How to avoid these failures

How do you make your trustees speak up?• Openness• Confidence• Understanding• Challenge• Support

The Secretary

Panel Discussion: trustees and disqualificationChair: Cecile Gillard, Legal Manager, Charities and Civil Society, Burton SweetNick Mott, Head of Policy Development, Guidance & Review, Charity CommissionRuth Lesirge, Chair, Association of ChairsSir Stuart Etherington, Chief Executive, NCVO

Fundraising regulation updateStephen Dunmore, Chief Executive, Fundraising Regulator

Fundraising agreements and gathering informationDaniel Fluskey, Head of Policy and ResearchInstitute of Fundraising

Excellent fundraising for a better world

Doing fundraising by the book:Charities Act 2016, compliance and regulation

Daniel Fluskey, Head of Policy and Research

[email protected]

mailto:[email protected]


About the IoF• The Institute of Fundraising is the professional membership body

for UK fundraising. Our mission is to support fundraisers, through leadership, representation, standards-setting and education, and we champion and promote fundraising as a career choice.

• Over 5,500 individual members, and over 450 charity members, as well as Corporate Supporters

• Our vision: Excellent fundraising for a better world


The Charities Act and fundraising: 1

Legislative requirements on charities working with third parties/professional fundraisers. New terms will need to included in written agreements charities have with third parties to cover:

• Any fundraising standards that the commercial organisation has committed to be bound by.

• How the commercial organisation will protect people in vulnerable circumstances and others from unreasonable intrusion into their privacy, unreasonably persistent approaches or undue pressure to donate to the charity.

• Any arrangements in place that will enable the charity to monitor compliance with the requirements in the agreement.


The Charities Act and fundraising: 2 It also requires that charities include a statement in their annual

report which sets out:

• Whether a professional fundraiser carried out any fundraising activities.

• Whether that professional fundraiser is bound by the regulatory system for fundraising.

• Whether the charity monitored the activity carried out by professional fundraisers and how.

• The number of complaints that have been received about fundraising activity

• What the charity has done to protect vulnerable people.


The Charities Act and fundraising: FAQs 1. What is a ‘professional fundraiser’?

2. What is the ‘regulatory system’?

3. What is a ‘fundraising complaint’?

4. What information to include on ‘monitor compliance’?

5. What does ‘unreasonably persistent’ or ‘unreasonably intrusive’ mean?


The Charities Act and fundraising1. What is a ‘professional fundraiser’?

A “Professional Fundraiser” is:

i) any person who carries on a business for gain which is wholly or primarily engaged in soliciting or otherwise procuring money or other property for charitable, philanthropic or benevolent purposes (but charities themselves and their trading subsidiaries are excluded)

ii) any other person who solicits money or other property “for reward” (but again charities themselves, their employees and trustees and charity trading subsidiaries are excluded.)

2. What is the ‘regulatory system’?


The Charities Act and fundraising2. What is ‘the regulatory system’?

http://www.fundraisingregulator.org.uk/

http://www.fundraisingregulator.org.uk/


The Charities Act and fundraising

3. What is a ‘fundraising complaint’?

To be determined!

A narrow or broad approach?

A ‘complaint’ can have different forms: an administrative error, a dislike of material, dissatisfaction with the choice a charity makes, a preference for how activity is carried out, or a breach of rules.

Need guidance and clarification from Charity Commission on implementation.



4. What information to include on ‘monitor compliance’?

Likely to be asking charities for a statement of actions/steps they take.

E.g, regular meetings with an agency to review performance, complaint resolution process, setting appropriate KPIs, reviewing of scripts/fundraising materials, involved in training, mystery shopping or reviewing activity.

Follow up question: what is ‘sufficient’ monitoring?

Some help…..



5. What does ‘unreasonably persistent’ or ‘unreasonably intrusive’ mean?

- Not defined

- Could be determined by case law or precedent

- Likely that it will be taken as meaning practice consistent with the Code of Fundraising Practice

Remember: legislative requirement is providing a statement on practice (could include policies your charity has, monitoring arrangements, training, compliance processes etc).

http://www.institute-of-fundraising.org.uk/library/treatingdonorsfairly/

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The Charities (Protection and Social Investment) Act 2016: an assessmentGareth Morgan, Charity Consultant, The Kubernesis Partnership LLP and Emeritus Professor of Charity Studies, Sheffield Hallam University

Thank you.

The ICSA Charities Act 2016 Conference

Government & Nonprofit

Transcript of The ICSA Charities Act 2016 Conference