This article was first published by Law In Sport , reproduced here with kind permission of the editor.
The former Chelsea and Ivory Coast footballer Didier Drogba made a huge impact on the pitch, with his goals bringing trophies to west London.
He has also made no small impact away from the game. Some have even credited his 2006 plea for combatants to lay down their arms as a significant moment in ending Ivory Coast's civil war. In 2010 he was named one of the world's 100 most influential people by Time magazine.
So it was no surprise when, in 2009, the public-spirited Drogba chose to establish his own charity, the Didier Drogba Foundation, with the intention of furthering charitable purposes for the benefit of the people of Ivory Coast.
Popularity vs. risk
The Foundation is part of an increasing trend for wealthy and high-profile sportsmen and women to set up their own charities. In addition to the charitable outcomes these charities can produce, they also provide a facility for the donors to give in a tax effective way, while keeping a watchful eye over how their donations are used.
An association with a charity can, of course, also bring considerable reputational benefit to the founder whose name the charity bears. Increasingly, celebrities regard their charitable work as a crucial part of their personal brand through identification with good causes.
The Foundation's accounts show that it contributed financial support to education and health initiatives, and built a medical clinic in Drogba's home city of Abidjan. Drogba went on to be presented with a Barclays "Spirit of the Game" award for his Foundation's work in 2015.
Recently, however, the Daily Mail alleged that just £14,115 out of £1.7 million donated to the Didier Drogba Foundation had actually gone to good causes. The Mail further claimed that £439,321 was spent putting on lavish fundraising parties attended by celebrities, and that more than £1 million "languished" in the charity's bank accounts.
The Foundation is apparently now being investigated over "serious regulatory concerns" by the Charity Commission, the regulator for charities registered in England and Wales. For his part, Drogba has threatened legal action and he described the Mail's story as "false and defamatory". He added, "There is no fraud, no corruption, no mismanagement and no lies."
The Mail's accusations may well be groundless, and certainly there may be good reasons for a charity to retain funds it has raised. Some have noted a current trend for the popular press to attack charities, in light of recent high-profile scandals (notably involving Kids Company).
But the allegations show, as other celebrities have learned before, that the reputational benefit of setting up a charity can be very much a double-edged sword.
In recent years, there have been high-profile scandals involving charities set up by figures as prominent as Madonna and Oprah Winfrey. Retired footballers such as Richard Rufus and Bryan Gunn have fallen foul of charity regulation through their own involvement in the sector. More recently, criminal charges were brought against the former NBA forward Kermit Washington, who has been accused of embezzling about $500,000 in charitable donations from a charity founded by him.
Don't forget your legal duties
While there are many jurisdictions where charities can be set up, English charities are highly regulated and transparent in their financial affairs. Registration with the Charity Commission (which is compulsory for charities with an annual income of £5,000 or more) is seen by many as a "kite mark".
The flip side of this, however, is that setting up an English charity brings with it some very onerous legal and regulatory requirements on charity trustees – those responsible for the management of the charity. Charity trustees have a range of duties to discharge, and must act with reasonable care and skill when they do so. They are responsible for ensuring compliance with charity law, which is a mixture of common law and statute – principally the Charities Act 2011, as amended by the recent Charities (Protection and Social Investment) Act 2016). They must also ensure compliance with any other regulation that might be relevant to the work of the charity (including, for example, child protection/safeguarding, data protection, employment and health and safety legislation).
Where a charity is established as a trust, its trustees also take on personal liability for the charity's contractual liabilities as a matter of common law (for example, the obligation to pay rent where the charity takes a lease of office space).
Charity trustees are publicly and legally accountable for their actions. Moreover, there is a risk that any benefit to the founder's brand or reputation can be wiped out if a charity is not seen to be run properly.
It is often noted that English charity law expects a lot from charity trustees (see the Charity Commission's guidance for a flavour), and the fact they are volunteers does not absolve them of accountability if they have acted in breach of their duties, or fallen below the standard expected of them. Where this happens, charity trustees can be personally liable to repay the charity any loss it suffers as a result. They can be disqualified from acting as charity trustees in the future, or even subject to criminal sanctions in cases of serious wrongdoing (for example, in the case of fraud).
For this reason, it is crucial that sportsmen and women (and others in the public eye) who wish to set up their own charities have some understanding of the law in this field, including their own legal duties and responsibilities.
The Charity Commission has wide powers to intervene in the running of charities, and expects charity trustees to be aware both of their legal duties and responsibilities, and the Commission's own best practice guidance. Increasingly, the Commission is taking a "comply or explain" approach to its guidance, where any charity that does not follow best practice will be expected to explain why they consider that this is in the best interests of the charity.
In this era of globalisation, many sporting philanthropists understandably want to benefit causes in poorer parts of the world (perhaps, like Drogba, somewhere where they have a family connection). English charities are popular for global givers, because they offer considerable flexibility to support causes overseas. But here it is crucial the trustees understand that there are additional requirements expected of charities that make payments overseas. Failure to comply with these requirements can lead to a tax bill for the charity – and embarrassment (or perhaps worse) for the founder and his or her trustees.
Minimising the risks
The demands of charity law lead some would-be philanthropists to donate to existing charities and/or to use a donor-advised fund. This is a kind of charitable giving account that allows donors to give in a tax effective way and to recommend donations from their contribution when they wish. It offers some of the benefits of running a separate charity, without the time commitment involved in administration and without the need to take direct responsibility for compliance with charity law. Conversely, there are fees involved in using a donor-advised fund and the donor does not have the same degree of control as with his or her own charity. Importantly for those with a high-profile, a donor-advised fund typically does not offer the same branding opportunities as a separate, dedicated charity.
For those for whom setting up their own charity is important, it is critical they and their trustees understand their legal duties and liabilities, that their charities are properly administered – and that they understand not only the upside, but also the potential reputational fall-out if they get things wrong.
It may be that Drogba and his charity are not at fault at all. But even where there is no wrongdoing, it may be the headlines that the public recall, rather than the eventual vindication from the Charity Commission. This is why it is so important for those in the public eye to minimise the risks of bad publicity, and to ensure their charity's governance is beyond reproach.
Farrer & Co combines a top-tier charity practice (where we are highly experienced in setting up and registering new charities, and advising on good charity governance and dealings with the Charity Commission) with strong experience in the field of reputation management (where we are often able to keep damaging and untrue stories out of the media or limit their coverage). We have an in-depth knowledge of the sports sector.
If you require further information on anything covered in this briefing please contact James Maloney (email@example.com; 020 3375 7114), or your usual contact at the firm on 020 3375 7000. Further information can also be found on the Sports page on our website.
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, July 2016