The foundational building block of any charity is its system of governance. Without sound governance structures and processes not only is a charity unlikely to comply fully with the myriad of often complex and onerous legal, regulatory and due diligence requirements, but from a resilience perspective it is likely to have many gaps and vulnerabilities.
Despite the criticality of sound governance, it is commonly poorly understood both by charitable trustees and those involved in the day to day running of charitable business, in part because both sets of roles often involve volunteers with other busy lives. Indeed, the number of volunteers who agree to be trustees with little to no real understanding as to what the role entails or its associated legal responsibilities never ceases to amaze me.
For example, many trustees do not fully understand the concept of joint and several liability in law. In simple terms, what this means is that if the charity is liable on a matter which is not covered by its charitable insurance - for instance, a personal injury that occurred in the context of its charitable activities or a breach of contract with a claim for damages – the trustees will be personally liable to pay any related costs which the charity is unable to pay. In the instance of a serious personal injury case or even death (or a significant legal dispute), the legal fees to defend a claim and any related damages payable could be a 5 to 7 figure sum of money. Once the charity’s funds were fully used up (which could result in its insolvency), then technically the trustees could be liable to pay any outstanding monies due from their own personal assets (property, salary, pension, savings, etc). Although in practice this scenario rarely happens, the risk of it doing so remains with potentially very significant implications. Through simple governance mechanisms - such as ensuring that adequate insurance cover is in place including trustee indemnity insurance, and that all of the insurance cover requirements are met – the associated risks can be significantly reduced.
Another important area of potential vulnerability relates to the charity’s governing or constitutional instrument. When a charity is first set up, this is often done by volunteers with only partial understanding of how charities operate in practice and some of the challenges they can encounter. For example, a common weakness is the provisions on trustee removal which may not cater for all possible scenarios of when it might be expedient to discipline or remove a trustee. Additionally, the nature and activities of a charity will often evolve over time, yet potentially be constrained by its governing/ constitutional instrument; or else the trustees risk operating out with the charity’s legal parameters if the instrument is not formally revised via the Charity Commission to reflect these changes. Any decisions and resultant activities which go beyond the charity’s legal limits created by the governing/ constitutional instrument are likely to be technically null and void i.e. invalid, and the trustees may find themselves personally liable for them.
It may be too that the needs of the charity change over time as to what the most suitable governing/constitutional instrument may be. So, if an instrument’s provisions are being revised, for example to reflect changes in the charitable objectives, it may be worth reviewing whether it would be expedient to change the legal basis of the charity also. For instance, many charities which were founded originally by way of charitable trust (the most basic form of charity) are changing to a charitable incorporated organisation (CIO). This can put the charity onto a more professional, robust footing including in terms of reducing the potential personal liability of trustees (though not completely, with trustee indemnity insurance cover still being required).
There are many other issues that fall within the remit of charitable governance too. These range from financial and legal issues, to effective risk management, legal compliance, anti-bribery and corruption and so forth. These and other topics will be explored in subsequent articles.
Katja Samuel is the founder and CEO of GSDM(R4C), with broad ranging resilience experience and expertise.