Charities Urged to Review Commercial Partnerships

The UK Charity Commission has issued an alert to Not for Profit trustees warning them to review any commercial relationships they may have.

The move follows concerns raised with the commission and in the media regarding the commercial arrangements of some charities.

“Charities have many legitimate commercial arrangements raising funds for good works, however trustees need to protect the reputation of their charity and ensure their actions reflect the values of their charity as well as meeting legal requirements,” the Commission said in letters to Not for Profits.

The alert sets out the expectations of the commission, including checking for conflicts of interest, ensuring arrangements are properly documented and reviewed regularly, and that the commercial benefits to the charity are made clear.

The commission has contact 1,700 charities that it knows to have some form of commercial arrangement. The alert warns that failure to comply with the commission’s expectations could result in regulatory action.

“This alert should prompt trustees to check their ties to commercial operations. These bring in important income for charities and fund valuable work for beneficiaries,” the chairman of the UK Charity Commission, William Shawcross, said.

“It is essential, however, that any arrangements are transparent and that they do not jeopardise the reputation of the charity. The public expects charities to abide by the values they claim to represent.

“A charity’s name and reputation are valuable assets which trustees must protect. Trustees must have effective oversight of any partnership or agreement with commercial organisations and be able to show their decisions are made in the best interests of the charity and they have acted responsibly.

“Recent media reporting of charity partnerships with commercial organisations have highlighted the potential for such arrangements to affect public trust and confidence and damage a charity’s reputation.

“The commission therefore expects that trustees review any current arrangements to satisfy themselves they remain in the charity’s best interest.”

In the UK a trading subsidiary is a company, owned and controlled by one or more charities, usually to generate income for the parent charity. Some commercial partnerships are with a charity’s trading subsidiary and not with the parent charity.

However, the commission said the use of the charity’s name and the extent to which it can be used in any marketing or other commercial exercise must be both formally agreed with and monitored by trustees.

“Trustees must routinely monitor the performance of all trading subsidiaries, and of the parent charity’s investments in them, to ensure the good and proper use of the charity’s assets,” the commission said.

“They must be prepared to assert the rights of the parent charity as shareholder and must always put the interests of the parent charity first. The directors of the trading subsidiary are responsible for its management, but other major decisions are for the trustees, as representatives of the parent charity.”

It said trustees have a responsibility to intervene in the affairs of the subsidiary company in the manner indicated if they are dissatisfied with the way the partnership or agreement with the commercial body is being implemented or serious issues affecting the reputation of the charity arise.

The  Australian Charities and Not-for-profits Commission (ACNC) said it has watched the fundraising scandal unfold in the U.K. and the impact that this has had on public trust and confidence in charities.

“This is something that we would like to avoid happening in Australia,” a spokesperson said.

“It is important that board members of charities in Australia see the oversight of fundraising and associated commercial arrangements as a core governance activity.

“The public does not often draw a distinction between activity carried out by a commercial agent and the charity itself; to them they are one and the same. This means that charities should ensure, for example, that contracts with third party fundraising agencies provide for proper checks and oversight of the actions of employees of the agencies.”

The ACNC said it expects charities to comply with their legal obligations under the Privacy Act particularly privacy principle five regarding the collection of information, principle six on how information is used and disclosed, and principle seven concerning direct marketing activities.

“Charities in Australia are exempt from the Do Not Call Register so they should ensure that they treat donors fairly, can identify vulnerable people who may not be able to make informed decisions about donating and have processes in place that enable people to opt out of ongoing communications,” the spokesperson said.

The ACNC said it will be producing guidance for charities on good governance regarding these matters.