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23 Mar 2022

Charity Commission guidance for Trustees

In February the Charity Commission published the results of its inquiry into the collapse of Keeping Kids Company (known as 'Kids Company'). 

The Commission found that the Charity Trustees had operated a high risk business model but agreed with the findings of the judge in the case brought by the Official Receiver that there was no dishonesty, bad faith or inappropriate personal gain by the Trustees in the operation of the charity. In the report the Commission emphasised that while the conditions surrounding Kids Company’s governance and eventual collapse were unique, its operating model and associated problems were not.  The Commission drew four lessons from the case which it considers applicable to all charities and urged all Charity Trustees and funders to consider these lessons and to find parallels between themselves and Kids Company, to avoid repeating the mistakes which led to the collapse of that charity.

The four lessons are as follow:

1. Charity boards should ensure checks and balances – and the right blend of skills and knowledge – are in place, to avoid power imbalances

The Commission recommends that charities of all sizes set an agreed term of office for Trustees.  Longer appointments should be the exception and kept under review.  The Trustees should show in their annual report that they have considered the risks and benefits of continuing a long term appointment.  The Commission reminds all Charity Trustees that they have shared responsibility for their charity and that that responsibility is theirs, not the CEO’s.

It was also noted that a breadth of experience in the Trustees, with a broad range of knowledge and skills is helpful and that diverse boards are more likely to recognise and counter any imbalances in power, perspectives and opportunities in the charity.

2. Charities should identify and balance the risks associated with innovative operating models, and evidence the benefits

The Commission notes that there is no ‘best’ way for charities to deliver public benefit and that diverse and innovative models help keep the sector relevant and dynamic, but that an innovative approach must be balanced by management of the commensurate risks.

3. Charities should undertake financial planning and recording, including maintaining a reserves policy

The Commission notes that there is no single level of reserves that is right for every charity, but that a low level may mean that there is limited resilience against short-term financial difficulties, cash-flow problems or increasing demand (which many charities experienced during the COVID-19 pandemic).

The Commission encourages funders to consider contributing to core costs of a charity, as well as particular projects, to build the financial resilience of the charity in question.

4. Charities should ensure infrastructure, governance and resources keep pace with growth

Trustees should prepare appropriately for expansion, which may include securing a sustainable income stream and reviewing and updating relevant policies to reflect the needs of any expanded or newly introduced group of beneficiaries.

The collapse of Kids Company and the conclusions of the Charity Commission’s inquiry are a salutary reminder for all charity trustees of the importance of adhering to principles of good governance in running their charities. The case highlights the potential damage that a failure of good governance can inflict on both the effectiveness of the charity’s work and the reputation of the charity and its trustees.

Please contact us for help on charity governance. Boodle Hatfield has experience advising charities, ranging from longstanding institutions to pioneering new philanthropic endeavours. We advise on the responsibilities and liabilities of charitable trustees and governing bodies, obtaining orders and schemes from the Charities Commissioners, setting up associated trading companies; property transactions and related tax issues.