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Chapter 13
MEMBERS OF THE GOVERNING BODY

HODGSON RECOMMENDATIONS ON GOVERNANCE AND TRUSTEESHIP

Updated 18/8/13. This information updates chapters 13, 15 & 16 in The Russell-Cooke Voluntary Sector Legal Handbook (VSLH3).
In his review of the Charities Acts presented to Parliament on 16 July 2012, Lord Hodgson made the following recommendations in relation to governance and trusteeship, and the government commented on some of them in its interim response on 3 November 2013. The government's full response will include consideration of the Commons public administration select committee's report on its inquiry into the Charities Act 2006 and the regulation of charities, which was published on 6 June 2013.

I have added comments in italic, in particular about the controversial recommendations that charity governing documents should in general limit trustees to no more than three three-year terms, and that charities with annual income over £1 million should have automatic power to pay trustees.

• The Charity Commission should instigate a set of key indicators to help identify charities which might be at higher risk of failing to meet their legal obligations and should then take steps to improve organisations' performance or take the necessary action against them [Chapter 4 recommendation 9]. Some of the criteria the Commission might use are set out in para 6.42 of the report. The government's interim report did not comment on this proposal.


• Charities with annual income over £1 million should have the power to pay their trustees for their role as trustees, subject to clear disclosure requirements on the amount and terms of any remuneration in the charity's annual report and accounts [Chapter 4 recommendation 10].
  
  The government's interim report rejected this recommendation, saying there is no strong evidence that paying trustees would result in more effective governance, and that charities that wish to pay their trustees for acting as trustees can already ask the Commission for consent to do so. The government has recommended that the number of such applications the Commission receives, and the number of them that are granted or refused, should be monitored. If over time there is perceived to be a problem, the issue of trustee payment can be reconsidered.
  
  The public administration select committee did not support the proposal, saying the current arrangements allow for payment of trustees where it a convincing case can be made that it is in the charity's interest.
  Sandy's comment: This recommendation is very controversial. Apart from a very few exceptions where charities are regulated primarily by legislation other than the Charities Acts, a charity can currently pay a trustee for acting as a trustee only if this is allowed by the governing document, or the Charity Commission or court explicitly authorises such payment.
  
  The charity law review advisory group set up by NCVO to operate alongside the Hodgson review recommended against a general right to pay trustees, saying it should be assessed by the Commission on a case by case basis. It suggested that funders with an interest in governance should undertake research into whether paying trustees helps with recruitment, diversity and improved governance.
  
  As an immediate response to Lord Hodgson's recommendation seven sector bodies — the National Council for Voluntary Organisations, Volunteering England, National Association for Voluntary and Community Action, Institute of Fundraising, Directory of Social Change, Small Charities Coalition and Community Matters — wrote to minister for civil society Nick Hurd saying the proposal undermines the voluntary principle of trusteeship, and urging the government to reject the proposal. Lord Hodgson's own research, undertaken as part of his review, showed that 61% of the public do not support payment of trustees. Of the main sector umbrella bodies, only ACEVO actively supports an automatic right to pay trustees.
  
  Charities of any size (not just those over £1 million) that can make a case for paying one or more trustees can already apply to the Commission for consent to do so. There is concern that if the power to pay trustees is more widely available, it will create a two-tier sector, could reduce the amount of charity funding available for beneficiaries, and could create conflicts of interest within boards that are difficult to manage, in relation to setting remuneration and monitoring performance.
  
  If Lord Hodgson's recommendation is to be implemented it will need primary legislation, so is unlikely to happen soon. Bates, Wells and Braithwaite Solicitors make the point that if it is to be implemented there will need to be stronger safeguards, such as that payment must be reasonable; any payment should be personal to an individual trustee rather than to a charity's trustees generally; the automatic power should be limited to a certain number of trustees (say one or two) per charity i.e. not all the trustees can automatically be paid; and arrangements must be subject to regular review.


• Trustees of all charities should consider reimbursing trustees' expenses, especially if they consider this would result in a wider range of individuals taking on the role [Chapter 4 recommendation 11].


• The government, through the civil society red tape challenge which took place in summer 2012, should consider the totality of the regulation facing charity trustees with a view to reducing it where possible [Chapter 4 recommendation 12].


• The Charity Commission should work with umbrella bodies and other groups in the sector, such as infrastructure organisations, to promote their best practice guidance on trustee recruitment [Chapter 4 recommendation 13].


• The government, working with business, should produce best practice guidance for employers on what trusteeship is, the benefits for employees and employers, and how to support effectively employees who are trustees to meet the commitments of their role [Chapter 4 recommendation 14(a)].


• The government should lead the way in demonstrating good practice by encouraging staff to consider trusteeship and enabling them to use volunteering days in this way [Chapter 4 recommendation 14(b)].


• Businesses should explore the potential for lending or seconding staff to charities [Chapter 4 recommendation 15].


• Trusteeship should normally be limited in a charity’s constitution to three terms of no more than three years' service each, and the Charity Commission and umbrella bodies should amend their model constitution documents to reflect this. Any charity which does not include this measure in its constitution should be required to explain the reasons for this in its annual report [Chapter 4 recommendation 16]. The government did not comment on this recommendation in its interim response (nor on any of the other trusteeship recommendations, other than payment).
  Sandy's comment: Any such expectation would need to make clear that there will be acceptable exceptions. For some charities, such as family grant-making trusts, it is normal to have family members appointed as trustees for life; for others, one or more trustees may serve ex officio, for example a vicar as trustee of a charity linked to the church, with the trustee's term dependent on how long he or she remains in office. In other situations where trustees are elected, a constitutional prohibition on serving longer than nine years could render the charity unable to operate if it is unable to find a replacement, or it could have no choice but to recruit an unsuitable person. In my view this proposal needs more thought about the implications.


• Umbrella bodies should, working with the Charity Commission and government, investigate ways to draw together and promote a centralised portal for trustee vacancies [Chapter 4 recommendation 18].


• The government should introduce a "right to know" for all charitable trustees i.e. a right confirming that they can access any information, within the confines of data protection law, held by the charity that they reasonably judge necessary to discharge their duties effectively [Chapter 4 recommendation 19].


• The government should consider whether and how to widen the types of criminal offences disqualifying individuals from charity trusteeship, while taking into account the need to support rehabilitation of former offenders [Chapter 4 recommendation 20].
  Sandy's comment: Lord Hodgson points out that the only criminal offences precluding trusteeship are those involving deception or dishonesty, and asks whether other convictions, in particular for terrorism-related offences, should be included. I have always thought it strange that a person with a unspent conviction for minor shoplifting cannot be a trustee (unless the Charity Commission waives the disqualification), while a person with an unspent conviction for an offence involving violence can, provided the violence did not involve deception or dishonesty.


• The Commission should be given a retrospective power to authorise a trustee retaining an unauthorised benefit of a small amount [Appendix A recommendation 6].


• The Commission should have wider powers to work out who the properly elected or appointed trustees of a charity are and wider powers to remove trustees (including, in membership charities, power to remove trustees from membership) [Appendix A recommendations 11-12].


• Minor, non-substantive amendments to the governing documents of trusts and charitable companies should not require the authorisation of the Charity Commission (for example changes to cross-references or renaming defined terms. Guidance will be needed on the meaning of non-substantive [Appendix A recommendation 13].


• The statutory power for a trustee to be paid, with defined safeguards, for services provided to a charity and goods supplied in connection with those services, should be extended to apply to the provision of goods even if they are not connected with a service [Appendix A recommendation 14].

Go back to list of all of Lord Hodgson's recommendations

COMPANIES MUST HAVE AT LEAST ONE HUMAN DIRECTOR

Updated 7/11/10. This information is included in s.13.2.2 in The Russell-Cooke Voluntary Sector Legal Handbook (VSLH3).
Under the Companies Act 2006 s.155, since 1 October 2008 companies have had to have at least one director who is a natural person (a human being), so it has no longer been possible to have a company with a corporate body as sole director. But if on 8 November 2006 none of the company's directors were natural persons, the new requirement to have at least one director who is a natural person did not apply until 1 October 2010.

This does not affect companies where a parent charity or other incorporated body is the sole company member — a common arrangement for charities' trading subsidiaries. But it does affect companies where an incorporated body is the sole director. Any such companies which do not have at least one human being as a director should ensure one is appointed immediately.

The Companies Act 2006 (Commencement No.5...) Order 2007 sch.4 para.46, which provided for the grace period until October 2010, is at www.opsi.gov.uk/si/si2007/uksi_20073495_en_1.

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