The charity sector is “recognised as a vehicle of powerful human endeavour and instinct to do good, the impact of which is important to the Government, the economy and to society” (The Value of the Charity Sector: An Overview, the Charity Commission and Frontier Economics). It is perhaps unsurprising that when a dispute within a charity arises, this can draw media attention and public scrutiny, given the interest in charities and their work.
Disputes within charities can arise between or among trustees, staff and members. In this article we explore principles for preventing internal disputes and consider how such disputes should be handled when they arise.
Disputes within the trustee board
Most trustees don’t join charity boards intending to make redundancies, handle insolvency, or navigate difficult personal issues. These things of course do occur, however, and when they do, disagreements can happen. Some trustees will withdraw from trouble (and occasionally resign), but others will engage with difficulties positively and energetically. Trustees need to be mindful that “grasping the nettle” shouldn’t come at the expense of good governance though.
To help prevent board-level disputes, charities should:
- ensure there is a power to remove trustees in your charity’s governing document (and try to have it in place before you need it),
- have in place a trustee Code of Conduct, which sets expectations for how trustees should behave, and
- ensure trustees are appropriately trained on their legal responsibilities and have a thorough understanding of the remit and limits of their role as well as being fully inducted on the charity’s policies and procedures.
Where a board-level dispute arises, the Charity Commission’s guidance on trustee decision-making, The Essential Trustee: what you need to know, what you need to do, is a useful reference document. It tells dissenting trustees to raise their concerns at trustees’ meetings, that they are entitled to have their dissent registered in the minutes, but if they cannot agree to abide by a decision of the trustee board, they should resign.
Where such trustees do not want to resign, however (and when they may not agree to termination of their trusteeship under the relevant provisions of a charity’s policies and governing document), they can choose to “fight their corner” using legal means. Litigation involving a dispute between trustees will normally fall within the definition of “charity proceedings” for which the Charity Commission’s consent is required before such litigation can be pursued. When board disputes arise, it is sensible to take early legal advice so that the board can identify any conflicts of interests or other “red flag” issues and with the benefit of legal advice consider the right pathway for resolution of the potential dispute.
The Charity Commission will often initially insist on trustee mediation instead of providing this consent, regardless of the efforts previously made to resolve the dispute. Mediation can help to solve the problem (and is sometimes the most sensible way of approaching an evenly split board where decision-making becomes impossible). But mediation is not an answer in every case, particularly those where compromise positions have already been explored (and rejected) by the trustees. Even after an unsuccessful mediation, the Commission may not be forthcoming with consent for charity proceedings. At that point, trustees still keen on a legal fight can seek leave from the courts to pursue charity proceedings, and often sympathetic judges can give claimants the benefit of the doubt.
When board-level disputes do arise, charities should bear the following tips in mind:
- Ensure key decisions are taken validly, with proper authority, and that meetings are properly convened (not paying attention to basics like these can mean fodder for legal challenges);
- Do not rush the removal of a trustee, and extend as much fairness as possible in dealings with the individual whose removal is being contemplated;
- Identify conflicts of interest early and ensure that the right people withdraw from decisions where necessary. Board members seeking independent legal support can at times be appropriate;
- Always take steps to protect the charity’s reputation. Seeking PR advice, even if only to have a prepared statement in place (although, often more will be required), can be useful to keep stakeholders and the public reassured and informed;
- Often (as with the other kinds of charity disputes discussed below), board disputes can give rise to circumstances which cause or risk serious harm to the charity and / l.;]or its beneficiaries. In scenarios like this, the trustees should be mindful of their serious incident reporting obligations to the Charity Commission; and
- Consider seeking legal advice to help the board manage conflicts and navigate the issues.
Disputes with staff
Charities are often employers with duties and responsibilities to staff and volunteers. Conflicts with or between staff can occur within charities. In our experience, trustees and senior managers within charities can reduce the possibility of conflicts with staff by putting in place measures to maintain a safe and inclusive workplace culture which fosters a positive working environment.
Trustees should be aware of risks such as discrimination, harassment or bullying; the whole board should be aware of what these concepts mean and be aware of the risks of this happening within the charity. Senior staff and HR should be appropriately trained to handle processes such as investigations in the workplace; and the trustees should have oversight of the procedures in place to reduce these workplace risks. This includes having appropriate risks assessments in place, training and induction, policies and procedures to prevent and then deal with the various cases that may arise in the workplace or stem from a dispute with a staff member.
Sometimes we see disputes arising between trustees and senior staff where there is a misunderstanding about roles and remit. It is critical to have clear role / job descriptions in place so there is clarity. If trustees exceed their remit, in the eyes of senior management, this can create an atmosphere of confusion and mistrust. To combat this, communication and periodic review of roles and responsibilities are vital.
Charities should ensure the following processes and procedures are in place to help mitigate the risk of disputes between trustees and staff:
- Appraisal systems are key, so that charities have tools in place to identify performance and role-related issues early on and provide arena forum for staff (or trustees who would be appraising the CEO) to address issues;
- Clear codes of conduct, and policies on bullying and harassment, should be put in place. Effective and thorough inductions should be required of all staff to avoid any misunderstandings regarding expected standards of behaviour;
- Anonymous surveys to discover issues within the culture of a charity can be helpful – feedback should be listened to and actioned (when appropriate) and some attention should be paid to the dissenting voices who speak against the common narrative to explore whether they are raising issues that need more consideration or focus; and
- Where there are allegations of staff misconduct, the charity needs to follow its normal disciplinary processes, which should be clearly available and understood by all staff and trustees.
In circumstances where disputes between trustees and staff arise, it is in everyone’s interest to curtail tensions, whilst not dismissing real issues that may be present in the organisation. Trustees should think about using mediation which can resolve issues before they escalate into bigger problems. Using mediators and investigators external to the charity can also help to create fair and balanced solutions for all parties involved.
In the circumstances when the correct action is for staff to be dismissed from the charity, trustees should be careful of the use of settlement agreements. Charities are legally bound to apply their funds towards their charitable purposes and for the public benefit and not for private benefit. Settlement agreements including relatively large sums of money may need the approval of the Charity Commission and legal advice should be sought in these cases. Equally, charities should be careful of highly restrictive confidentiality clauses which are increasingly seen as inappropriate in most cases and are being more regulated (by for example ACAS and the SRA). Settlement agreements can contain confidentiality clauses as long as they do not preclude the departing executive from speaking to the Charity Commission, other regulators, and / or law enforcement bodies.
Where trustees could reasonably be regarded as under a moral obligation to make a payment, ex-gratia payments can be made. However, trustees would generally need consent from the Charity Commission unless the amount is below the new de minimis levels brought in by the Charities Act 2022, for which consent from the Charity Commission is not required. In the event that the Charity Commission refuses to give consent, that decision can be appealed to the Charities tribunal.
Disputes with members
Charities can also face disputes with one or other sections of their members or supporters. These need to be dealt with sensitively and with care, given the strong responses that disputes like this can generate.
Charities should aim to listen to and engage actively with complaints from their membership. Sometimes dialogue between members and trustees can cut through to the heart of a problem affecting a charity. Having a sound complaints policy in place is also likely to be helpful.
Frequently an argument between members can provoke a serious crisis for a charity. Charity trustees and executives facing a well-organised and determined faction that understands the charity’s constitution, and will seek to leverage it to gain control, should generally seek professional advice on managing the situation.
Ultimately communication is key, both in seeking to mitigate the risk of membership disputes arising, and in dealing with them when they rear their head.
Charities can of course become embroiled in external disputes including those with subsidiaries, partners, and third parties more generally.
Charities can fall out with subsidiaries, for example, where the subsidiary requests further investment or wants to expand its activities in a way that the charity is uncomfortable with. The Charity Commission’s guidance is clear that charities should maintain an arms’ length relationship in their dealings with subsidiaries, but nevertheless maintain adequate oversight of commercial subsidiaries. This can most effectively be managed through a mixture of contractual and constitutional provisions governing the relationship between the two entities.
Charities can also find themselves in quarrels with funders, grant recipients, and commercial partners. Whatever kind of organisation your charity is in dispute with, some points to be borne in mind are as follows:
- Wherever possible, ensure that your charity’s relationship with a third party is appropriately legally documented, so that each side understands its responsibilities and expectations vis-a-vis the other;
- Conflicts of interest can and do arise in all sorts of situations and circumstances when it comes to engaging with other organisations – often a conflicts policy can help to manage difficulties surrounding conflicts, and trustees should always remain vigilant; and
- As in all disputes, charity trustees should think about (and seek to protect) their charity’s reputation.
To sum up
Internal disputes arise in all types of charities. However, those charities best able to navigate disputes tend to be those that are well managed with good governance structures and clear governing documents. This is more likely to provide a framework and set of powers in which disputes can be addressed and, in many circumstances, swiftly resolved.
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, October 2023