Conflicts of Interest – updated Charity Commission guidance

On 22 April the Charity Commission updated one of its cornerstone pieces of guidance, on identifying and managing conflicts of interest in a charity (CC29). The Commission’s accompanying press release explains that it is seeing an upward trend in cases of poorly managed conflicts of interest, resulting in the abuse of charitable status for private benefit. The regulator’s experience is that this often arises from a lack of awareness, rather than deliberate wrongdoing, with trustees unsure on how to recognise and deal with conflicts of interest. 

The Commission’s new guidance is a laudable step towards tackling this problem, by making the guidance simpler. The aim is that the guidance is more accessible, for more trustees, albeit with the inevitable trade-off that some detail has been sacrificed for simplicity.  

So, what’s changed? 

Importantly, the legal rules on conflicts of interest have not changed. The guidance documents are not law and are not intended to be comprehensive guides. However, they do reflect the Commission’s expectations, and charities need to consider departing from “should” obligations carefully. Instead, the new conflict of interest guidance is intended to be practical, with worked examples of what might be a conflict of interest and how a charity should deal with them in practice. 

The other key point is that, although shorter, the actual content has not fundamentally changed. As with the previous version, the guidance distinguishes between two types of conflicts - “financial conflicts” and “conflicts of loyalty” - and deals with each separately. It now sets out the process for dealing with conflicts in five clearer steps - identify, declare, consider removing, manage and record – rather than the three used before. It is clearer that charities “should” have a conflict of interest policy, a register of interests, and have conflicts as a standing item at each trustee meeting. It also urges charities to check that their governing documents have adequate rules to deal with conflicts - and to fix them if they don’t. 

The Commission is also using accompanying blogs to highlight basic, but important, issues that they see trustees regularly underestimating. The example given is a trustee’s husband offering to paint a village hall for half the usual price - which many trustees may think is not a problem as the charity is getting a good deal – but which is still a conflict which needs to be properly managed.

What is not covered?

There are some areas where the shorter guidance does not provide as much detail, and where trustees may need to go back to basic principles to work out the best way to proceed: 

• The new guidance now lists “trustees' friends” in the examples of relationships that may involve a conflict of loyalty. There are plenty of scenarios where a close friendship could influence a trustee’s decision making – the guidance gives the example of a contractor working on a village hall who is a “longstanding friend” of a trustee. But there also examples where a trustee could make a valid decision, despite it involving a friend. The guidance does not go into detail in this area, and many trustees find it difficult to decide what is and is not acceptable – not least as many friendships start on boards – with the risk that some boards may take an over cautious approach.
   
• There is also less detail on “low risk” conflicts of loyalty - for example, the previous guidance noted that low risk conflicts, such as when a trustee is appointed by a local branch to the charity’s national trustee body, or by a religious foundation to one of its schools, might be adequately dealt with by simply declaring the conflict.
   
• Perhaps unsurprisingly, the new shorter guidance does not contain detail on some areas that the previous longer guidance also did not cover. One common situation is where all board members have a low risk but universal conflict – for instance, where all the trustees may be technically conflicted if they were taking out or renewing trustee indemnity insurance.    

What to do now 

Although the guidance has not changed significantly, charities should read the new guidance to refresh their understanding of conflicts of interest and consider if they need to take any action. Some practical steps could include: 

• Check your governing document has provisions dealing with conflicts. If they are missing or inadequate, update them and don’t wait until a conflict comes along.
   
• Check you have a conflict of interest policy and a register of interests - and make sure declarations of conflicts are standard agenda items for all board (and committee) meetings.  
   
• Follow the “identify, declare, consider removing, manage, record” steps recommended in the guidance. You may also want to update your policy to reflect the steps.
   
• Be aware that for “financial conflicts”, the Commission expects conflicted trustees to always leave the meeting and not to take part in discussions or be counted in the quorum - even if your governing document might allow this.
   
• The expectation is still that “loyalty conflicts” should be managed depending on the risk. The guidance gives some examples of different steps that could be taken, but trustees may need to apply the Commission’s decision-making principles to decide whether the conflict is high or low risk, and how to deal with the conflict.
   
• Consider if you have a clear understanding of what conflicts may be serious or complex, and what further steps might be needed - such as appointing independent trustees or seeking professional advice.
   
• Finally, consider if some training or awareness raising is needed. The guidance helpfully confirms that boards can use charity funds to pay reasonable costs for training and resources. 
   

Conclusions 

The new guidance is a laudable move to simplify what can be a daunting and confusing area. Charities with more complex or nuanced issues not covered by the examples in the code will need to apply the principles in the guidance, and the Commission’s separate decision-making guide, and take advice if they are unsure.