Posted by Chris Deeley, Legal Assistant
Which one are we again? Separation in charity governance
The findings of the Charity Commission’s recent inquiry into the Durand Academy and its supporting charities are an important reminder to charity trustees that no matter how much overlap there may be between a set of charitable and non-charitable organisations, the duties of the trustees and governors of each remain separate and cannot be assumed to be automatically fulfilled even when the relationship is running smoothly.
The inquiry looked into the position of no less than five interrelated entities:
1. the Durand Academy, a school in south London
2. the Durand Academy Trust (DAT), the charity that runs the school
3. the Durand Education Trust (DET), a charitable company that owns the school sites and fundraises for DAT
4. London Horizons Limited (LHL), a non-charitable company set up by the school governors to raise income from public use of the school’s leisure and accommodation facilities, and
5. GMG, a group of other non-charitable companies owned by Sir Greg Martin (the former head teacher of the Academy) and contracted by LHL to operate the leisure and accommodation facilities.
With many of the school governors acting as trustees of both DAT and DET and directors of LHL, and Sir Greg also being a trustee of DET, there was little risk of a serious commercial disagreement between the entities. However, the Commission’s report makes it clear that even in circumstances like this, the trustees’ duties towards each individual charity will not be automatically discharged.
Issues highlighted by the inquiry
The inquiry took particular issue with a contract awarded to GMG by LHL on behalf of DET. The inquiry remarked that “further steps should have been taken” by the trustees of DET to ensure the level of remuneration was reasonable, such as seeking professional and legal advice, or offering the contract out to tender, neither of which they did.
To top matters off, confusion about the overlap between the charities led to the contract eventually being given the rubber stamp by DAT instead of DET.
The Commission also ruled that the trustees of DET had failed to discharge their duties in other areas, again due to the crossover in governance. In particular, there were virtually no leases or licences in place to govern the terms on which the school’s facilities were used by GMG or by the staff and pupils who occupied them, with things operating almost entirely on a good faith basis.
The inquiry also strongly criticised the fact that the trustee meetings for DAT and DET were held as one long meeting, which while convenient given the fact the groups of trustees of each were virtually identical, did not give sufficient recognition to the risk of conflicts of interest and gave rise to confusion (like that seen in relation to the contract with GMG) as to which charity was which.
Importance for the wider charity sector
The Commission have taken this as an opportunity to issue a timely reminder to charity trustees about their duties:
- Where a charity holds land, trustees should make sure it is held, used and insured on appropriate terms, obtain relevant professional advice in relation to decisions, and review circumstances regularly.
- Charities with commercial trading subsidiaries must take careful note of the different aims of each part of the organisation and the conflicts of interest that inevitably come with this.
- Charity trustees cannot benefit from their role of trustee, be it as an employee, beneficiary or from a transaction with that charity for goods and services, without specific authorisation and careful management of the conflict of interest.
- Trustees must follow principles of good governance when making decisions, including acting within their powers, obtaining relevant information (including professional and legal advice where appropriate) and disregarding irrelevant factors, managing conflicts of interest, and acting in good faith.
For further information on charity governance and trustees duties contact our Charities team on:
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