Presented at NCVO's 2015 Evolve Conference by: - Neal Green, Senior Policy Advisor, Charity Commission - Rosamund McCarthy, Partner, BWB. How effective governance can steer charities through the every day challenges they face, and what to do if your charity finds itself in a crisis.

1. CHAIR:
LINDA LAURANCE, GOVERNANCE CONSULTANT
SPEAKERS:
NEAL GREEN, SENIOR POLICY ADVISOR, CHARITY
COMMISSION
ROSAMUND MCCARTHY, PARTNER, BWB
FACILITATOR:
EMMA HERBERT, SENIOR GOVERNANCE
CONSULTANT, NCVO
S4: WHAT’S THE ROLE OF GOVERNANCE IN A
TIME OF CRISIS?

2. What’s the role of governance
in a time of a crisis?
Neal Green
Senior Policy Advisor

3. The law and good practice
• There are some things trustees must do –
legal requirements they must comply with
• Following good practice enables trustees to
comply with legal requirements (the opposite
is also true)
• Good governance is part of that good practice
• The Commission expects trustees to take
good practice seriously

4. Trustees’ responsibilities
• You must:
– Ensure your charity carries out its purposes
– Comply with your governing document and the law
– Act in your charity’s best interests
– Manage your charity’s resources responsibly
– Act with reasonable care and skill
• You should:
– Ensure your charity is accountable

5. Some crises are avoidable!
• Understand your responsibilities
• Understand your charity’s objects:
– Who should benefit and how?
– Who can’t benefit?
– How do the charity’s activities create those benefits?
• Understand your governing document
– Objects and powers
– Trustees – appointment, numbers, terms
– Membership – who? How? rights & responsibilities?
– Meetings
– Amendment, dissolution

6. Some crises are avoidable!
• Make decisions properly
– Act within your powers
– Act in good faith, only in the charity’s interests
– Make sure you are sufficiently informed
– Take account of all relevant factors
– Ignore irrelevant factors
– Deal with conflicts of interest
– Within the range of decisions a reasonable trustee
body could make in the circumstances

7. Some crises are avoidable!
• Deal with conflicts of interest
– Personal interests
– Loyalties to other people or organisations
– Could or could appear to affect your decision
– Identify the conflict
– Prevent it from affecting the decision
– Record what you did
• If in doubt, apply the tabloid test!

8. Some crises are avoidable!
• Make sure you understand financial information
you receive
• Assess and deal with risk
• Ensure your financial controls are sufficient
• Don’t be too trusting
• Challenge assumptions
• Be prepared to ask ‘awkward’ or ‘stupid’ questions
• Make sure your filing with the Commission and
other regulators is up to date
• If things did go wrong, how would you find out?

9. What might a crisis look like?
• “Trustee used charity to launder money made through
brothel”
• “Hounded to death by cold callers”
• “High Court intervenes in row between charity
and learning-disabled beneficiaries”
• “Charity goes into liquidation owing more
than £900,000”
• “Charity in abuse scandal”
• “Charity boss posed with AK-47 fighters”
• “Charity lost personal data of 101 people in theft”

10. What would the Commission
expect?
• Take steps to prevent or minimise any further
loss or damage
• Where appropriate, inform the Commission
and other regulators (RSI)
• Review controls and procedures – how would
you prevent it from happening again?
• Plan communications to staff, members,
beneficiaries, the public, the media
• Informing the Commission gives assurance
that the charity is dealing with the situation
properly

11. When would the Commission get
involved?
• Misconduct (deliberate wrongdoing) or
mismanagement (actions/inaction resulting in
or risking misuse or loss of charity assets or
harm to beneficiaries)
• Trustees unwilling/unable to rectify the
situation
• High risk to charity assets, beneficiaries or
public confidence

12. What could the Commission do?
• Short of an inquiry:
– Give regulatory advice
• Statutory inquiry:
– Protect charity assets (freezing orders, directions)
– Obtain evidence
– Suspend/remove trustees, officers, agents or
employees
– Appoint new/additional trustees or interim
manager
• Aim – to stop abuse and place the charity
back on a proper footing

13. Other kinds of crisis
• “Charity CEO steps down”
• “Charity receives £1m legacy”
• “New humanitarian crisis”
• “Burundi elections delayed”

14. How should you respond?
• Nothing to formally report to the Commission
• Stick to the plan, change the plan or ‘wing it’?
• Can your systems cope?
• Policies and procedures in place to deal with
it?
• Who needs to be asked, told, involved?

15. Why good governance?
• Before a crisis:
– You might prevent it from happening at all
– (not following good practice could cause it!)
– You could make it less severe
• In a crisis:
– Recover/maintain control
– Deal with it in an organised, strategic way
– Give clarity about roles and responsibilities
– Give assurance to members, beneficiaries, public,
regulators

16. Further guidance
• Regulatory alerts
• Charity trustee meetings: 15 questions you should
ask
• The Essential Trustee (CC3)
• It’s your decision: charity trustees and decision
making
• Internal financial controls for charities (CC8)
• Charities and risk management (CC26)
• Managing financial difficulties and insolvency in
charities (CC12)
• How to report a serious incident in your charity

17. Rosamund McCarthy
Partner
What’s the role of
governance in a time of
crisis?

18. Duty of Trustees – Governance and Risk
 Trustees must safeguard the good name, assets, property and work of the
Charity. Trustees have a general duty to take reasonable steps to assess
and manage risks to their charities
 This risk management includes an obligation to report ‘Serious Incidents’ to
the Charity Commission
 In addition charities above the statutory audit threshold must report on risk
management arrangements in their annual report
199999/0119

19. Crisis Scenarios (1)
 A triggering event such as:-
 Fraud
 Child protection
 Loss of data
 Terrorism
 Theft
 Fire
 Flood
 Storm damage

20. Reports of serious incidents 2013 - 2014
199999/0119

21. Crisis Scenarios (2)
 Media Storm:
1. Fundraising techniques
2. CEO or senior staff salaries
3. Campaigning or political activities
4. Investment policies

22. Crisis Scenarios (3)
 Crisis relating to governance
 Acting outside objects
 Conflicts of interest
 Unauthorised benefits
 Board dispute e.g. about mission and vision
 Board and wider membership in conflict
 Board and Founding Body at loggerheads
199999/0119

23. Crisis and Constitution
 Trustees must be familiar with the charity’s constitution
 Is the charity’s constitution and are its policies fit for purpose?
 Short notice for urgent Board Meetings – virtual/by email
 Quorum
 Majority decisions out of a Board Meeting
 Conflicts of Interest
 Conduct of Board Members, Chair, Patron or Members
 Trustees’ Code of Conduct
 Members’ Code of Conduct
 Serious Incidents
 A person disqualified has been or is currently acting as a trustee
 The charity has no vetting procedure to ensure that a trustee or member of
staff is eligible to act in the position he or she is being appointed to
199999/0119

24. Conflicts of Interest
 Trustees must act in the best interest of their charity
 Trustees should not allow their personal interests or views to override this:
they must exercise independent judgement
 Conflict of interest rules mean that Charity Trustees have:
 A duty to avoid a conflict of interest situation
 A duty to disclose a potential conflict of interest
 A duty to manage an actual conflict of interest
 Conflict of interest rules mean that Charity Trustees have:
199999/0119

25. Managing Conflicts
 Declaration Form on appointment
 Annual Review
 Maintaining a register of potential conflicts of interest
 Declaration at meeting
 Quorum
 Remaining and speaking
 Voting
199999/0119

26. Charity Policies
 Complaints Procedure
 Whistleblowing Procedure
 Risk Management
 Disaster Recovery
 Media/Communications
 Also other relevant policies: e.g. safeguarding, data protection, volunteer
management etc.
199999/0119

27. Transparency and Accountability
 How transparent is the Charity?
 Can donors, stakeholders, the media readily find the information they need?
 Consider FAQS: internal and external

28. Investigation by Trustees (where necessary)
Investigation
 Board to approve process for the investigation
 Trustees may be allocated different roles
 Smaller group to oversee investigation
 Some Trustees sealed off to hear Appeal?
 Ultimately, responsibility for decision making still lies with the Board as a
whole
Learn wider lessons
 How did it the crisis happen?
 Should there be changes to risk controls, procedures, policies or
governance?
199999/0119

29. Charity Commission – Reporting Serious Incidents – guidance for
trustees
 The term ‘Serious Incident’ does not appear in charity legislation
 The obligation to report stems from a requirement in s169 of the Charities Act
2011 for charities to prepare an annual return containing such information
that is prescribed in regulation made by the Commission
 If a charity has an income of over £25,000 it must, as part of the return, sign a
declaration that there are no serious incidents that should have been brought
to the Commission’s attention but were not
 The exact wording of this declaration states that “The Trustees were satisfied
that there are no serious incidents or other matters which they should have
brought to the attention of the Committee and had not done so already”
 If the charity does not make this declaration or says that there has not been a
serious incident, when there has, the charity will be in breach of s169
 Under Section 60 of the Charities Act 2011 it is an offence to provide false or
misleading information
199999/0119

30. Role of Trustees
 Responsibility for reporting serious incidents to the Commission rests with
the Charity’s trustees
 The Commission expects regular reporting and not just in the annual return
as a matter of ‘good practice’
 Standard item on each Board meeting agenda: serious incidents/reports to
other Regulators e.g. Ofsted, Information Commissioner, Care Quality
Commission, Local Authority Safeguarding unit
199999/0119

31. Examples of “Serious Incidents” Reasonable Suspicion or
Allegation
 A serious incident need not have actually taken place for the charity to have
to report it
 Trustees should also report where they have a reasonable suspicion that a
serious incident has occurred, or when there has been an allegation of a
serious incident by a third party
 In many cases, trustees will be required to make a judgement call as to
whether an incident is sufficiently serious to warrant reporting
 Multiple Incidents
 Some serious incidents may happen more frequently in some charities due
to the nature of their work. The Commission has stated they are happy to
accept periodic summary reports rather than separate reports for each
incident including some key information about each incident and the
frequency of them
199999/0119

32. Use of Information
 The Charity Commission is sometimes required to disclose information under
The Freedom of Information Act 2010
 The Charity Commission might resist such a request, but in some cases it
may be required to disclose the information
 In any event, the Charity Commission may disclose a serious incident report
to another regulator or agency
 Consider carefully use of personal data, confidential information or
information that may defame a third party
199999/0119

33. Media and reputational issues
 “A significant event in a charity is likely to attract press interest. If you have
let us know in advance about the serious incident, then we are better placed
to deal with media enquiries without causing unnecessary damage to the
Charity and its action in resolving the problem. It will also reassure the
public to know that the Charity has already been in contact with us. We can
confirm the trustees have acted responsibly by informing and involving the
regulator”.
Charity Commission SIR Guidance
 Media/Communications Plan in place
 Pre publication
 Post publication
 Set the Record Straight – Subject to ongoing regulatory/civil/criminal
proceedings, libel risk and need to protect vulnerable beneficiaries
 Defend and Protect Reputation – any action must be proportionate
199999/0119

34. Bates Wells & Braithwaite London LLP
10 Queen Street Place
London EC4R BE
www.bwbllp.com
Tel: +44 (0) 20 7551 7777
Rosamund McCarthy
Partner
Charity and Social Enterprise Department
Bates Wells & Brathwaite London LLP
10 Queen Street Place
London
EC4R 1BE
T 0207 551 7777
F 0207 551 7800
Email r.mccarthy@bwbllp.com