Collaboration With Businesses and Public Sector Bodies
Charities interact frequently with the business sector and the public sector
The Business Sector
There is an expectation that businesses, and especially those which interact with the general public, should do something more than make a profit for shareholders – this is enshrined in company legislation which places a duty on a director to act in a way which would be most likely to promote the success of his or her company for the long-term benefit of the company’s members. This includes the need to have regard to the impact of the company’s operations on the community and the environment. It is commonly known as Corporate Social Responsibility.
For this, as well as profit-making motives, the business sector is keen to be involved with the charitable sector and it manifests itself in a number of different ways. Here are examples of ways in which the business sector becomes involved with charities:
- The supermarket which represents to the public that it will donate five pence to its “Charity of the Year” out of the proceeds of every tin of baked beans which are sold
- A manufacturer of baby milk formula donates formula to maternity wards in third world countries which cannot otherwise afford to buy it – this is commonly called “Cause Related Marketing”
- A credit card company donates one penny to an environmental charity every time a credit card is used to buy petrol – also “Cause Related Marketing”
- A telecom business sponsors a charitable fund-raising event or exhibition
- A business matches staff donations to the charity of their choice
- A business releases staff from their duties for a number of days each year to enable them to volunteer for charitable activities
- A significant investment in the shares of an oil and gas company enables a charity which preserves the environment to vote at shareholders’ meetings to prevent the company’s polluting activities
- A businessman gives a majority of the shares in his private company to a charity of which he is the founder and a trustee
These relationships can give rise to legal consequences for a charity which should operate at arms’ length, ensure that its intellectual property rights are protected, that conflicts of interest are properly managed and that the benefits to the charity are maximised. A charity’s reputation is important and it will not go unnoticed that the Charity Commission is placing a great deal of emphasis on the preservation of the good reputation of the charitable sector. There are also regulatory considerations – in particular where a business makes claims to the public that it is donating money or goods to the charity – both parties should comply with the commercial participator and professional fund-raiser rules in the Charities Act 1992 and subsidiary regulations. Last, but not least, direct and indirect tax consequences can arise, especially if the source of the returns to charity are classified as non-charitable trading income. A charity should regularly take stock of its relationships with the business sector and, where necessary, seek professional advice.
The Public Sector
The public sector is heavily involved with charities. The public sector consists of Central Government departments, local authorities and non-departmental public bodies such as the Arts Council. Here are examples of the relationships which commonly arise between public sector bodies and charities:
- As regulator – the Charity Commission is the principal regulator of charities; HMRC oversees the gift aid regime and other tax reliefs for charities; the Care Quality Commission is the regulator of care providing charities; the Department for Education oversees the regulation of Universities, Colleges and Academies; local authorities oversee public fund-raising for charities in their geographical areas;
- As funder – local authorities are the principal statutory funders of many charities which deliver services to their clients – especially in the areas of social welfare and care, and recreation and leisure activities. Central government departments, such as the Department for Education provide funds direct to Academy schools; and the Department for International Development provides funds to overseas aid charities
- A local authority might be a charity trustee and own significant open spaces or other charity property in its own right, eg, The London Borough of Haringey is the trustee of the Alexandra Palace and Park, and the Borough of Hastings is the trustee of the Hastings and St Leonards Foreshore Charitable Trust.
- Lottery distributors provide significant amounts of funds to the charitable sector
Regulation by the Charity Commission is in the ascendency, as manifested by the rise in reported inquiry cases. the corollary is a reduction in the level of assistance being provided to charities by the regulator. The reduction in public funds available for statutory service delivery charities is leading to increased competition with the private sector and, it must be said, to the imposition of tougher terms and conditions and the requirement for charities to do more for the money they receive in order to provide value for money.
The risks and rewards of collaboration
When charities interact or collaborate with the business sector and/or the public sector they will encounter risks and rewards. The rewards are usually financial. The risks are:
- Mission drift – it can happen in the race to secure a sum of money for charity from a source with a different “agenda”
- Conflicts of interest – leading to misconduct or mismanagement of charitable resources by trustees
- Loss of a charity’s good reputation – perhaps by selecting an inappropriate commercial partner or by reason of publication of an inquiry report by the Charity Commission
- Loss of control – over-representation on a charity’s board by local authorities or business people or inappropriate terms and conditions for funding may lead to a misplaced strategy
Charities should seek advice before taking decisions which could have far-reaching consequences for their organisation.
Contact our charity law experts today
For more information on how we can support your charity, social enterprise or other organisation, please contact one of our charity solicitors today on 01895 207862 or email email@example.com. Alternatively please visit www.ibblaw.co.uk/service/charities.