2: Trustee benefit, subsidiary companies and conflicts of interests – the Charity Commission report on the Prince Andrew Charitable Trust
On 9 June 2020, the Charity Commission published a regulatory compliance report on the Prince Andrew Charitable Trust (the Charity). The report provides a useful reminder on a number of governance points, in particular that:
- the rules on trustee benefit apply equally to payments made by a charity’s trading subsidiary as to payments by the charity itself; and
- charities should have appropriate policies in place (including a conflicts of interest policy) and be able to demonstrate they have applied them.
The report is also of interest – and serves as something of a warning – because the matter came to the Commission’s attention after the Charity, quite properly, made a serious incident report (on an unrelated point). That did not spare the Charity from the publicity of a regulatory compliance report, and headlines that the Charity ‘broke the law’, when the Commission found some governance failings had occurred.
The regulatory compliance issues
The central issue which the Commission identified was that one of the trustees received unauthorised trustee benefit and that, as the point appeared not to have been spotted within the Charity, there were other accompanying governance failures.
One of the trustees was a member of the Duke of York’s household and a director of the Charity’s three trading subsidiaries. From April 2015 to January 2020 she undertook work for the trading subsidiaries under an employment contract with remuneration which it appears was effected via a reimbursement by the subsidiaries to the Duke’s household in respect of its employee’s time. Over the period, the remuneration amounted to £355,297.
The Commission treats a payment by a charity’s trading subsidiary to a trustee of the charity (or a connected person of a trustee) as being made by the charity itself – hence such a payment requires authorisation either under the charity’s governing document or by the Commission or the Court. This can be a point which is easy for trustees to miss.
- In this case, no authorisation was obtained, so the payments were unauthorised.
- There was a knock-on consequence that the trustees were unable to show that the conflicts of interests arising out of the arrangement were recognised and managed. The report notes that the Charity did not have a stand-alone conflicts of interest policy.
- The trustees were also unable to show that there had been fair competition before appointing the trustee to the roles at the subsidiaries or that the payments amounted to value for money for the Charity.
It can often be all too easy in the limited time available in a trustee meeting to leap straight to ‘how’ to get the deal done, without considering first governance points such as whether there is power to do it (‘can we?’) and what steps may be needed in the decision-making process (‘should we?’).
Had the trustees identified the issue in this case in advance, they would have been able to take appropriate action and may well have been able to authorise the payments or obtain appropriate authorisation.
How the compliance case came about
According to the report, as noted above, the case came to the Commission’s attention when the trustees made a serious incident report in late 2019 (about a potential reputational risk following the media coverage of the Duke’s Newsnight interview in November 2019).
The Commission found that resulting action taken by the Charity and its subsidiaries was appropriate, but that a ‘proactive examination’ of the charity’s accounts and records ‘identified other issues of concern that required further attention’. It appears to have been that ‘proactive examination’ which caused the issue of unauthorised trustee benefit (and related governance points) to be discovered. The Commission raised the point with the trustees, resulting in a decision, and agreement with the Duke’s household, that the sums be repaid to the Charity. It was noted as a post-year-end event in the Charity’s 2019 accounts.
In addition, the report points out:
‘Trustees also have a duty to act with reasonable care and skill, taking account of any special knowledge, skill or professional status. This board of trustees, which included a lawyer, was expected to have had the knowledge and experience to act in accordance with charity law’.
This is why it is important that charities maintain regular health checks of their governance – to pick up anything they may have missed or, preferably, to avoid missing such points in the first place. It is better that the trustees recognise a point and take appropriate action than that the point be discovered by their regulator.
Governance take aways
It might be thought that one lesson to come out of the report may be that, while close association with a public figure can bring much kudos and publicity for a charity, sometimes it can also bring publicity which is less welcome. Whatever the pros and cons of association with the famous, there are some governance points which we can take away from the report:
- Trustee benefit – Where a charity has trading subsidiaries, it is important that all the trustees (and directors of the subsidiaries) are aware that the trustee benefit principle extends to the subsidiaries. The trustees should be clear whether the charity’s constitution addresses authorisation for payments by a trading subsidiary and should understand the process for bringing potential benefits (and interests) to the attention of the charity’s board.
- Record – Where a trustee/connected person is to receive benefit, how will the trustees demonstrate that they have carried out a proper appointments and authorisation process (also managing conflicts) and that the payments are value for money for the charity?
- Policies – Does the charity have a stand-alone conflicts policy? When were the charity’s policies last reviewed? Are they being used and are they fit for purpose? Given the current crisis, when a suitable breathing space arises such considerations may well include lessons learned and new operating practices arising from the pandemic.
- Governance health checks – Regular governance health checks can help trustees to be more practised at recognising potential problems before they happen – and head off potential breaches.
- Trustee skills – Charities should of course be seeking trustees with relevant skills and experience for their role – but, by the same token, trustees with particular skills or knowledge should be aware that they can expect to be held to a high standard.