Presentation slides for ICSA Charities Act 2016 Conference, 8 September

1. Charities (Protection and Social
Investment) Conference 2016
8 September 2016

2. Chair’s opening remarks
Louise Thompson FCIS, Head of Policy (NFP)
ICSA

3. Social investments overview
Luke Fletcher, Partner and Head of Social
Finance, Bates Wells Braithwaite

4. ICSA Charities (Protection and Social
Investment) Act 2016 Conference
Charities and Social
Investment
Luke Fletcher
Bates Wells Braithwaite
8 September 2016

5. Charities and social investment
Introduction
 The Charities (Protection and Social Investment) Act 2016
 Trustee duties and social investment
 Charity Commission guidance

6. The Charities
(Protection and Social
Investment) Act 2016

7. Charities (Protection and Social Investment) Act 2016
• Brought into force on 31 July 2016
• Implements a Law Commission recommendation
• A statutory power to make social investments
– financial return
– furthers the charity’s aims

8. Policy context
• Charity Commission review of CC14
• Lord Hodgson’s independent review of the Charities Act 2006
• Proposal for a statutory power for charities to do social investment
• Lord Hodgson recommended a statutory power
• Government asked the Law Commission to consider
• Law Commission consulted and recommended a statutory power
• Social investment power was included in the Bill
• The Bill became an Act

9. What is the new social investment power?
• Allows charities to invest:
“with a view to both (a) directly furthering the charity’s purposes; and
(b) achieving a financial return for the charity”
• Intention to remove uncertainty over the ability of charities to make
social investments – and particularly “mixed-motive” investments
• Is the wording of the power as clear as it could or should be?

10. Summary of the power – Lord Bridges
• No minimum degree of ‘mission benefit’ before the power is engaged
• A combination of mission benefit and financial return
• Where trustees consider investment to be in the interests of a charity
• Charity’s purposes need not be advanced on an exclusive basis

11. How might the new power be used?
• The full spectrum of social investments is permitted
• Primarily financial, or for primarily social, reasons
• The Act also makes clear that investments made using the power will
not have to be restricted for the investor’s objects
• To use Lord Bridges’ example from the Hansard debates…

12. Example of mixed motive investment
“A charity might have the care of horses as its charitable purpose. It may
wish to invest in a horse and donkey social enterprise, which provides
joint facilities for both. The social enterprise may also expect to make a
financial return, perhaps from charging visitors. Having weighed the
benefits to horses along with the expected risk-adjusted financial return,
the horse charity is able to invest in the horse and donkey social
enterprise. So long as the trustees have satisfied themselves that the
combination of expected financial return and mission benefit in relation to
horses is appropriate, this is covered under the social investment power.”

13. Trustee duties and
social investment

14. Specific duties
• New social investment specific duties
• The Act requires trustees to:
– consider whether advice should be obtained;
– consider any advice which is obtained; and
– consider whether it is in the interests of the charity to invest
• directly furthers the charity’s purposes
• achieves a financial return
– An obligation to review social investments from time to time
• Replace statutory investment duties

15. The interests of the charity
• No need to quantify and no need for a precise calculation
• Trustees must act reasonably and consider relevant factors
• Trustees should minute and record decisions carefully
• Trustee judgement needed

16. Restrictions on the scope of the power
• Does not apply if founded by Act of Parliament or Royal Charter
• Does not override any permanent endowment restriction
• May be specifically excluded by the constitution of a charity
• Equally, it may apply without trustees being aware

17. Private benefit arising
from the investment

18. Private benefit arising from the investment
• Any private benefit must be
– necessary in the circumstances
– reasonable in amount
– in the interests of the charity
• Trustees should consider and document approach
– due diligence
– risk assessment
– documentation
– monitoring

19. Charity Commission
Guidance

20. Charity Commission guidance
• Interim guidance – review expected in 2017
– How investments might be realised or exited
– Monitoring and managing investment performance
– The relationship with investment portfolio and grant-making
– The tax treatment of the social investment
• HMRC Guidance - “for the benefit of the charity”
– The likely opportunity cost of making the investment, if any

21. Luke Fletcher
Partner
Charity / Social Enterprise / Social Finance
L.Fletcher@bwbllp.com
Bates Wells Braithwaite
199999/1062

22. Evaluating charity governance:
learning from failure
Kirsty Semple, Director, Semple Associates
Ltd

23. Evaluating charity governance: learning
from failure
8th September 2016
Kirsty Semple

24. Reading materials
• Tackling abuse and mismanagement 2014-15 -
full report – Charity Commission
• The collapse of Kids Company: lessons
for charity trustees, professional firms, the
Charity Commission, and Whitehall – PACA
Committee
• Cosmopolitan Housing Group Lessons Learned-
Altair
• Failings in management and governance(Co-
operative Bank) – The Kelly Report

25. Charity Commission
Most common governance failures
•A breakdown of collective decision making –
often due to dominance
•Unauthorised private benefit / management of
conflicts of interest.
Tackling abuse and mismanagement 2014-15 -
full report

26. What goes wrong?
• Dominance
• Delegation
• Conflicts of Interest
• Information and understanding
Semple Associates
.

28. Nobody Speaks pNobody Speaks Up

31. Dominance
• Kids Company
• Air Ambulance Service
“A lack of oversight by the charity’s trustees,
with the charity’s chief executive and
chairman making important decisions without
seeking input of the full board.”

32. Delegation
• Bhagavat Educational Trust Limited
• Air Ambulance Service
• Khalsa Centre
“it was not clear who had effective and
continuing control of the management of the
Charity or its assets.”
.

33. Conflicts of Interest
• Holmewood Animal Rescue Charitable Trust
• House the Homeless
• White Horse Stables - Horse Rescue
• Raleigh Limited
“The conflicted trustees had been dominant in managing
significant aspects of the charity at the exclusion of the
other trustees. The trustees were also unable to
explain how the trustees were managing the ongoing
conflict of interest arising from the situation.”

34. Information and
understanding
• Kids Company
• Cosmopolitan Housing Group
• The Co-operative Bank

35. Cosmopolitan Housing
Group
• “There was little information given to the Boards on the non-social
housing activities undertaken (other than in the form of minutes
which, from the documentation we have seen, were not discussed),
the financial risks were rarely discussed, and information was not
requested.”
• “it could be argued, the Board of CHA all knew or should have
known that CHA was acting as a guarantor for part of the student
housing business. Did they understand the risks associated with
this? “
• “The Board of CHG appeared to be unaware of the extent of the
financial risks that were being placed on the organisation.”
• “Our view is that the information provided to the CHA Board was
insufficient to enable them to make an informed decision.”

36. Information and
understanding
Often seen as weaknesses of skills and
competencies on Boards, but
- how do you address this?
- does having the skills really make a
difference?

37. Kids Company
• Information and understanding
• Dominance
• Delegation
…..
• Conflict of Interest

38. Kids Company
• “Primary responsibility for Kids Company’s
collapse rests with the charity’s Trustees… if
the Trustees had not allowed the charity’s
weak financial position to persist for so long,
Kids Company would not have been so
vulnerable to the impact of the allegations..”

39. Kids Company
• “The Board failed to protect the interests of
the charity and its beneficiaries, despite its
statutory responsibility to do so. Trustees
repeatedly ignored auditors’ clear warnings
about Kids Company’s precarious finances.
This negligent financial management rendered
the charity incapable of surviving any variance
in its funding stream.”

40. Kids Company
• “Kids Company’s Board of Trustees lacked the
experience of youth services or psychotherapy
necessary to interrogate the decisions of the
Founder-Chief Executive…… It is essential that
Trustees of all charities ensure that some
members of the Board have experience of the
area relevant to the charity’s activities, in
addition to the necessary skills, and that all
Trustees have the appropriate attitude
towards responsible governance. “

41. How to avoid these
failures?
• Terms of office and renewal
• Clarity re delegation
• Monitoring and control
• Management of conflicts of Interest
BUT
“Trustees (must) have the appropriate attitude
towards responsible governance.”

42. How to avoid these
failures
How do you make your trustees speak up?
• Openness
• Confidence
• Understanding
• Challenge
• Support
The Secretary

45. Panel Discussion: trustees and
disqualification
Chair: Cecile Gillard, Legal Manager, Charities and Civil Society, Burton
Sweet
Nick Mott, Head of Policy Development, Guidance & Review, Charity
Commission
Ruth Lesirge, Chair, Association of Chairs
Sir Stuart Etherington, Chief Executive, NCVO

46. Fundraising regulation update
Stephen Dunmore, Chief Executive,
Fundraising Regulator

47. Fundraising agreements and
gathering information
Daniel Fluskey, Head of Policy and Research
Institute of Fundraising

48. Excellent fundraising for a better world
Doing fundraising by the book:
Charities Act 2016, compliance and
regulation
Daniel Fluskey, Head of Policy and Research
danielf@institute-of-fundraising.org.uk

49. Excellent fundraising for a better world
About the IoF
• The Institute of Fundraising is the professional membership
body for UK fundraising. Our mission is to support fundraisers,
through leadership, representation, standards-setting and
education, and we champion and promote fundraising as a
career choice.
• Over 5,500 individual members, and over 450 charity members,
as well as Corporate Supporters
• Our vision: Excellent fundraising for a better world

50. Excellent fundraising for a better world
The Charities Act and fundraising: 1
Legislative requirements on charities working with third
parties/professional fundraisers. New terms will need to included in
written agreements charities have with third parties to cover:
• Any fundraising standards that the commercial organisation has
committed to be bound by.
• How the commercial organisation will protect people in vulnerable
circumstances and others from unreasonable intrusion into their privacy,
unreasonably persistent approaches or undue pressure to donate to the
charity.
• Any arrangements in place that will enable the charity to monitor
compliance with the requirements in the agreement.

51. Excellent fundraising for a better world
The Charities Act and fundraising: 2
It also requires that charities include a statement in their annual
report which sets out:
• Whether a professional fundraiser carried out any fundraising activities.
• Whether that professional fundraiser is bound by the regulatory system
for fundraising.
• Whether the charity monitored the activity carried out by professional
fundraisers and how.
• The number of complaints that have been received about fundraising
activity
• What the charity has done to protect vulnerable people.

52. Excellent fundraising for a better world
The Charities Act and fundraising:
FAQs
1. What is a ‘professional fundraiser’?
2. What is the ‘regulatory system’?
3. What is a ‘fundraising complaint’?
4. What information to include on ‘monitor compliance’?
5. What does ‘unreasonably persistent’ or ‘unreasonably intrusive’
mean?

53. Excellent fundraising for a better world
The Charities Act and fundraising
1. What is a ‘professional fundraiser’?
A “Professional Fundraiser” is:
i) any person who carries on a business for gain which is wholly
or primarily engaged in soliciting or otherwise procuring money
or other property for charitable, philanthropic or benevolent
purposes (but charities themselves and their trading
subsidiaries are excluded)
ii) any other person who solicits money or other property “for
reward” (but again charities themselves, their employees and
trustees and charity trading subsidiaries are excluded.)

54. Excellent fundraising for a better world
The Charities Act and fundraising
2. What is ‘the regulatory system’?
http://www.fundraisingregulator.org.uk/

55. Excellent fundraising for a better world
The Charities Act and fundraising
3. What is a ‘fundraising complaint’?
To be determined!
A narrow or broad approach?
A ‘complaint’ can have different forms: an administrative error, a
dislike of material, dissatisfaction with the choice a charity makes,
a preference for how activity is carried out, or a breach of rules.
Need guidance and clarification from Charity Commission on
implementation.

56. Excellent fundraising for a better world
The Charities Act and fundraising
4. What information to include on ‘monitor compliance’?
Likely to be asking charities for a statement of actions/steps they
take.
E.g, regular meetings with an agency to review performance,
complaint resolution process, setting appropriate KPIs, reviewing
of scripts/fundraising materials, involved in training, mystery
shopping or reviewing activity.
Follow up question: what is ‘sufficient’ monitoring?
Some help…..

57. 57

58. Excellent fundraising for a better world
The Charities Act and fundraising
5. What does ‘unreasonably persistent’ or ‘unreasonably intrusive’
mean?
- Not defined
- Could be determined by case law or precedent
- Likely that it will be taken as meaning practice consistent with
the Code of Fundraising Practice
Remember: legislative requirement is providing a statement on
practice (could include policies your charity has, monitoring
arrangements, training, compliance processes etc).

59. http://www.institute-of-fundraising.org.uk/library/treatingdonorsfairly/
59

60. Excellent fundraising for a better world
Keep up to date
• Check our news section
• http://www.institute-of-fundraising.org.uk/about-us/news/
• Any Questions?
policy@institute-of-fundraising.org.uk

61. The Charities (Protection and
Social Investment) Act 2016: an
assessment
Gareth Morgan, Charity Consultant, The Kubernesis
Partnership LLP and Emeritus Professor of Charity
Studies, Sheffield Hallam University

62. Thank you.