Ultimately it is for the trustees to decide whether withdrawal is in the best interests of the charity when this type of conflict has been declared.
Trustees’ other interests and loyalties can generate conflicts of interest from time to time, some of which pose a minor risk to the charity and some of which are more serious. The usual way to record the trustees’ decisions is in the minutes of their meetings. Drawing up a conflicts of interest policy, nationalarchives.gov.uk/doc/open-government-licence/version/3, It’s your decision: charity trustees and decision making (CC27), Charity reporting and accounting: the essentials 2009 (CC15b), The Commission’s model memorandum and articles of association (GD1), Coronavirus (COVID-19): guidance and support, Transparency and freedom of information releases, each have an individual personal responsibility to declare conflicts of interest which affect them, should have strong systems in place so that they are able to identify conflicts of interest, proceeding with the issue in a different way so that a conflict of interest does not arise, not appointing a particular trustee or securing a trustee resignation, must follow any specific requirements in the law or the charity’s governing document which deal with conflicts of interest and how they should be managed (legal requirement), should, where there are no specific governing document or legal provisions, require conflicted trustees to declare their interest at an early stage and, in most cases, withdraw from relevant meetings, discussions, decision making and votes, consider updating their governing document to include provisions for dealing with conflicts of interest, may, exceptionally, need to seek the authority of the Commission where the conflict of interest is so acute or extensive that following these options will not allow the trustees to demonstrate that they have acted in the best interests of the charity, the trustee benefit must be properly authorised and (legal requirement), the trustees must follow any conditions attached to the authority which say how the conflict of interest should be handled (legal requirement), should formally record any conflicts of interest and how they were handled, must, if they prepare accruals accounts, disclose any trustee benefits in the charity’s accounts, individual trustees who fail to identify and declare any conflicts of interest will fail to comply with their personal legal responsibility to avoid conflicts of interest and act only in the best interests of the charity, the trustee body must ensure that any conflicts of interest do not prevent them from making a decision only in the best interests of the charity, there is a potential financial or measurable benefit directly to a trustee, or indirectly through a connected person, a trustee’s duty to the charity may compete with a duty or loyalty they owe to another organisation or person, sell, loan or lease charity assets to a charity trustee, acquire, borrow or lease assets from a trustee for the charity, pay a trustee for carrying out their trustee role, pay a trustee for carrying out a separate paid post within the charity, even if that trustee has recently resigned as a trustee, pay a trustee for carrying out a separate paid post as a director or employee of the charity’s subsidiary trading company, pay a trustee, or a person or company closely connected to a trustee, for providing a service to the charity - this covers anything that would be regarded as a service and includes legal, accountancy or consultancy services through to painting or decorating the charity’s premises, or any other maintenance work, employ a trustee’s spouse or other close relative at the charity (or at the charity’s subsidiary trading company), make a grant to a service user trustee, or a service user who is a close relative of a trustee, allow a service user trustee to influence service provision to their exclusive advantage, the body that appointed them to the charity, the membership or section of the charity that appointed them to trusteeship, another organisation, such as their employer, another charity of which they are a trustee, the trustee’s connection to the arts centre is through membership only, the trustee’s membership is likely to have no bearing on her approach to the decision, any benefits to arts centre members which result from the decision will only affect the trustee in the same way as other members, a local branch to the charity’s national trustee body, by a religious foundation to one of its schools, individual trustees should always declare any conflicts of interest which affect them, any failure to declare a conflict of interest is a serious issue, the trustee body should consider whether serious conflicts of interest should be removed or require authority, affected trustees should not participate in any decisions where they stand to gain, whether directly, or indirectly through a connected person, where there is a conflict of loyalty, trustees should carefully handle any participation by a conflicted trustee, irrespective of the approach trustees take to prevent a conflict of interest from affecting their decision making, they should be able to demonstrate that their decision was made only in the best interests of the charity, have a clear understanding of the circumstances in which they may find themselves in a position of conflict of interest, and understand their personal duty to declare them, are so acute or extensive that the trustees are unable to make their decisions in the best interests of the charity, or could be seen to be unable to do so, are present in significant or high risk decisions of the trustees, mean that effective decision making is regularly undermined or cannot be managed in accordance with the required or best practice approach, are associated with inappropriate trustee benefit, proceeding with the issue in a different way so that a conflict of interest does not arise - this might mean deciding not to consider using a trustee’s company to do some work for the charity if this would mean that the number of payments to trustees, although authorised, is at risk of introducing levels of conflict of interest which could be difficult to manage and to justify - it could, exceptionally, mean seeking the Commission’s prior authority to a continuing and widespread conflict of interest, securing the resignation of a trustee affected by a conflict of interests, not making trustee appointments which will introduce a conflict of interests, the trustee benefit must be authorised in advance, the Commission expects the affected trustee to be absent from any part of any meeting where the issue is discussed or decided - the individual should not vote or be counted in deciding whether a meeting is quorate, the affected trustee does not stand to gain any benefit, there are no specific governing document or legal provisions about how the conflict of loyalty should be handled, having registered and fully declared the interest, can otherwise participate in the decision - the governing document of some charities allows the non-conflicted trustees to authorise a conflicted trustee to fully participate in this type of decision, can stay in the meetings where the decision is discussed and made but not participate, should withdraw from the decision making process in the way described, must always make their decisions only in the best interests of the charity, should always protect the charity’s reputation and be aware of the impression that their actions and decisions may on have on those outside the charity, should always be able to demonstrate that they have made decisions in the best interests of the charity and independently of any competing interest, should require the withdrawal of the affected trustee from any decisions where the trustee’s other interest is relevant to a high risk or controversial trustee decision or could significantly affect, or could be seen to significantly affect, the trustee’s decision making at the charity, can allow a trustee to participate where the existence of his or her other interest poses a low risk to decision making in the charity’s interests, or is likely to have only an insignificant bearing on his or her approach to an issue - if the charity is a company this approach must be allowed by the governing document, should be aware that the presence of a conflicted trustee can affect trust between trustees, could inhibit free discussion and might influence decision making in some way, should, where there are no governing provisions setting out how conflicts of interest should be handled, consider updating their governing document to include provisions for dealing with conflicts of interest, including the circumstances were they will require withdrawal from decision making, whether any conflicts of interest were declared in advance, whether anyone withdrew from the discussion, how the trustees took the decision in the best interests of the charity, the impact of the conflict of interest on the charity is low, there is little or immaterial loss or damage to the charity, the trustees can show that the failure to act properly was an error, take reasonable steps to assess and manage any risks to the charity’s work and reputation, make a full record of the issue and how they have handled it, review or develop a conflicts of interest policy, ensure that all trustees are made aware of its content and meaning, and fully implement the policy in the future, stop abuse, trustee misconduct and mismanagement - this includes where the trustees fail to fully take steps to resolve the issues or are incapable of doing so, intervene in a charity’s affairs and take steps to recover any sums lost to charity, where the trustees are unable or unwilling to do so, and the amount involved is significant, promptly provide full and frank disclosure of all relevant facts and information they have about the incident, co-operate and work with the Commission, if required, to get the charity’s management right, act responsibly and take action to ensure that they fulfil their legal responsibilities in the future - this often requires the serving trustees to decide whether to take action themselves to recover any sums lost to the charity - very often it means that the serving trustees are required to appoint new independent trustees to work with them, review or develop a conflicts of interest policy and ensure that all trustees are made aware of its content and meaning, and fully implement the policy in the future, acting only in the best interests of the charity to prevent the conflict of interest associated with the trustee benefit from affecting decision making, ensuring that there is an appropriate authority in place before any decision conferring trustee benefit is made, the law says that trustees can only benefit from their charity where there is an explicit authority, obtained in advance, a clause in the charity’s governing document, a statutory provision such as the power in the charities act which allows charities, in some circumstances, to pay trustees for additional services they provide to the charity over and above normal trustee duties, a director, or a person connected with a director, has a personal financial interest in a transaction with the charity - the interest may be direct or indirect, a director, or a person connected with a director, has a conflict of duty/loyalty, there is even the possibility that a director’s personal interests or duties/loyalties could affect his or her decision making, has been authorised by the company’s articles, has been authorised by the Commission or the court, is affected by a conflict of duty/loyalty where the unconflicted directors have authorised this type of conflict of interest using a constitutional power - in the Commission’s view, the articles of the company should limit directors’ power to authorise a conflict in these circumstances only to situations where there is no direct or indirect benefit of any nature received by a director or a connected person - such a limitation will only permit authorisation of conflicts of loyalty, rely on an adequate express power in the charity’s governing document or the charities act, apply for Commission authority and demonstrate that the transaction is expedient in the interests of the charity, afforded the benefit of the incorporated charity’s limited liability status, relieved of all or some of their former personal liability as trustees of the unincorporated charity, given indemnities against any potential continuing liability, a conflict involving a significant financial interest where the trustees of a charity, that was founded by a family and has a family member trustee, are proposing to sell the charity’s shareholding in a family company, a conflict of loyalty where the charity is in a significant dispute with another organisation and a trustee is a member of that organisation’s governing body, the issue of the conflict of interest so that any potential effect on decision making is eliminated - this may mean the trustees deciding to remove serious conflicts of interest, obtaining independent expert advice about how they should respond to the conflict, including advice on whether any elements of conflict of interest or benefit to a trustee require authority, getting advice from the Commission, in high risk cases, including advice on whether any elements of conflicts of interest or trustee benefit should be authorised, appointing new trustees, who are not conflicted, to help decide the issue and demonstrate that the decision is being taken only in the best interests of the charity, not making trustee appointments which would risk introducing further conflicts of interest, the trustees cannot act because the majority of the trustees are conflicted on a particular issue - similarly, the charity might have a sole trustee such as a local authority or parish council which finds that in its trustee and council/authority role, it has an interest in ‘both sides’ of a transaction or decision, a large proportion of trustees have interests which conflict with those of the charity - this might be where several of the trustees, or people or companies connected with them, have links with each other, the interests of one or more of the trustees is regularly in competition with those of the charity, getting advice from the Commission, in high risk cases, including advice on whether any elements of conflict of interest or trustee benefit should be authorised, not making any further trustee appointments which would risk introducing a conflict of interest of this type or scale, reviewing their trustee appointment provisions and recruitment practices so that more ‘independent’ people can be appointed, a trustee borrows money from, or lends money to, their charity on terms that cannot be justified in the charity’s interests, the level of payment made to a trustee, or person or organisation connected to a trustee, is not commensurate with the size of the charity or the nature of the work involved, the number of trustees, or people or organisations connected to trustees, benefitting from the charity in some way is too high, ensure that prior authority is in place for any trustee benefits, ensure, where any trustees are receiving a benefit, that each of the arrangements affecting trustees and the overall balance and extent of payments is clearly justifiable in the interests of the charity, consider reducing the number of trustees, or people or organisations connected with trustees, in receipt of benefit - the Commission’s starting expectation is that the total number of trustees, or connected people or organisations, receiving authorised payments or benefits from the charity are in a minority, explain that trustees have a personal responsibility to declare conflicts of interest if they are to fulfil their legal duty to act only in the best interests of the charity, give an account of what the charity’s governing document says about conflicts of interest, define all interests that trustees should declare, including business and personal interests and those of their spouse, partner, family and close relatives, define trustee benefits and highlight the requirement to obtain legal authority before any transaction involving trustee benefit is undertaken.