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?

What’s the role of governance in a time of a crisis?

Neal Green

Senior Policy Advisor

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

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

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

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

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!

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?

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”

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

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

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

Other kinds of crisis

• “Charity CEO steps down”• “Charity receives £1m legacy”• “New humanitarian crisis”• “Burundi elections delayed”

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?

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

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

Rosamund McCarthy

Partner

What’s the role of governance in a time of crisis?

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

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Crisis Scenarios (1)

A triggering event such as:-

Fraud

Child protection

Loss of data

Terrorism

Theft

Fire

Flood

Storm damage

Reports of serious incidents 2013 - 2014

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Crisis Scenarios (2)

Media Storm:

1. Fundraising techniques

2. CEO or senior staff salaries

3. Campaigning or political activities

4. Investment policies

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

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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

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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:

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Managing Conflicts

Declaration Form on appointment

Annual Review

Maintaining a register of potential conflicts of interest

Declaration at meeting

Quorum

Remaining and speaking

Voting

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Charity Policies

Complaints Procedure

Whistleblowing Procedure

Risk Management

Disaster Recovery

Media/Communications

Also other relevant policies: e.g. safeguarding, data protection, volunteer management etc.

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Transparency and Accountability

How transparent is the Charity?

Can donors, stakeholders, the media readily find the information they need?

Consider FAQS: internal and external

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?

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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

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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

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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

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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

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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

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Bates Wells & Braithwaite London LLP

10 Queen Street Place

London EC4R BE

www.bwbllp.com

Tel: +44 (0) 20 7551 7777

Rosamund McCarthyPartner Charity and Social Enterprise DepartmentBates Wells & Brathwaite London LLP10 Queen Street PlaceLondonEC4R 1BE

T 0207 551 7777F 0207 551 7800Email r.mccarthy@bwbllp.com