When Can a Charity Refuse a Donation?

This article takes the form of a conversation between a charity trustee and a charity lawyer. The charity in question is a fictional one, the Puffin Society. The Puffin Society is established for the following purposes:

• the advancement of public education in wildlife, with particular reference to puffins and other members of the auk family; and

• the preservation and protection of puffin populations in the UK’s coastal regions.

Its income in the last financial year was £3.2 million.

Trustee: We’ve received a call from an oil company which has a new CEO. She wants to make a donation of £100,000 to the Society. This will obviously make a huge difference to our work but unfortunately last year the company was implicated in a large oil spill which killed lots of guillemots. I don’t think the donation is in line with our values and I’m not sure what to do. I’m especially worried about the reputational impact on our existing and potential new supporters if we decided to accept it.

Lawyer: You’re absolutely right to think carefully about whether to accept or refuse this donation. Raising money is crucial, but sometimes other considerations can be more important.

As this is a significant donation, it’s a decision that should certainly rest with the trustees, and the overarching principle to apply is that the decision you make must be made in the best interests of the Puffin Society.

It is only in exceptional circumstances that it might be in a charity’s best interests to refuse a donation. That would only be the case where you think accepting it would be detrimental to the achievement of the charity’s purposes.

Trustee: What does this mean, surely the reputational damage that we may suffer is the key consideration?

Lawyer: It comes into play but it’s not decisive – you’ve got to think about the financial impact of turning down the donation too.

You should only refuse a donation if the trustees believe that the reputational damage may outweigh the benefit of the donation. This is quite a stringent test. The presumption is that you should take the money, unless it would most likely lead to:

• a loss of other donations of at least an equivalent value, over the long term, to the value to the donation;
• the loss of volunteers whose services would be of at least as great value as the donation; or
• the loss of staff or inability to recruit staff.

If time allows, you should consult with key stakeholders to help you weigh up the reputational damage because you’re looking for evidence and can’t just be guided by your fear of a bad reaction.

In making an informed decision, the trustees should also be provided with full information on the oil company, so you know your donor, including why they want to donate, and you should follow any acceptance or refusal policy which the charity has.

Trustee: We don’t have an acceptance and refusal policy – does this matter?

Lawyer: Ideally, this would already be in place, and the trustees would be familiar with it, to give you a clear framework for your decision-making to help you get it right.

But as it doesn’t exist, we can help you look at this issue in isolation, so you can make a good quality decision which complies with the legal requirements.

We can then work with you to develop a new policy, so that any future problematic donations are simpler to assess and can be grounded in your agreed policy objectives.

Trustee: Do we need to involve the Charity Commission as well?

Lawyer: There’s no need to do so; as trustees, you have discretion to assess for yourselves whether taking the money is ultimately in the best interests of the charity.

Trustee: How long have we got to make a decision?

Lawyer: You’ve got to decide in a reasonable time. A good place to start is to aim for a week or so, depending on the availability of the trustees and how you decide, in person or in email.

But you may, of course, need to make a more urgent decision if the proposed donation is in the public domain, or if all is quiet, you may have more time.

Trustee: Is there anything else we need to be thinking about?

Lawyer: It’s a good idea to get your ducks in a row in a situation like this, in case your decision about this donation is ever criticised. You’ve got to keep a record of how the decision was reached and the reasons for it, along with any reports which helped the board come to your decision.

I also recommend getting a strong PR statement ready. This will help you to defend your decision if you need to, or you may want to use it more proactively. If you do decide to accept the donation, it’s a great way to shout about the incredible work you’ll be able to do. And there could even be a really positive story to tell here – you could end up with a partnership with the oil company that works both ways and helps them to improve their environmental practices. You’d be killing two birds with one stone, as it were.

We hope that that our Puffin Society scenario illustrates how the legal issues on accepting and refusing donations are fairly straightforward, and how charities need to be wary of falling for the fallacy that they have to stay pure and untainted by “dirty money”. Charities should be mindful of what the public think, say and do but any decision about a proposed donation has to be the right decision for your charity and public opinion informed, not public opinion driven.

For advice on any problematic donations, or assistance with the preparation of an acceptance and refusal policy, please contact a member of IBB Charities Team on 01895 207862 or email charities@ibblaw.co.uk.