New Charity Commission guidance on charities’ links to non-charitable organisations

Today, NCVO submitted its response to the Charity Commission’s consultation on new guidance for charities ‘connected’ to non-charitable organisations. This covers everything from corporate foundations, through to trading subsidiaries, to educational charities formed as subsidiaries of NGOs, which are not technically charities.

How relationships with non-charities should be handled has interested the Commission for a while. This includes issues like a charity funding research by a non-charitable organisation with political aims and making clear when a service is provided by a trading subsidiary to raise funds.

How close is close enough to count?

Exactly how connected do you have to be to come within this guidance? We think the Commission’s definition of a connected organisation in the detail of the guidance seems broader than its summary at the beginning. At first, the guidance says that connected means that the connection between the charity and the non-charitable organisation is deliberate. But later on it lists the indicators of a connected relationship:

• ownership: does the charity own all or most of any shares in the non-charitable organisation?
• membership: is the non-charitable organisation the sole or significant member of the charity? Or is the charity the sole or significant member of the non-charitable organisation?
• appointment: does the non-charitable organisation have the right to appoint and remove the trustees of the charity?
• common staff: are there some people who are directors (trustees), senior executives, or employees at both the charity and the non-charitable organisation?
• identity: does the charity and non-charitable organisation purposely share a similar name, branding, website, or premises?
• funding: does the non-charitable organisation regularly fund the charity? Or does the charity regularly give grant or investment funding to the non-charitable organisation?
• shared projects or initiatives: do both organisations routinely share projects or initiatives?
• shared mission or common goals: do both organisations work towards common goals or have a shared mission?

The guidance specifically says:

If any of these applies to your charity, this guidance is relevant to managing your relationship with the non-charitable organisation.

We think it would be better for the guidance to ask charities to weigh the criteria up in the context of the other criteria, before deciding if a charity is connected to a non-charitable organisation. This is probably more in line with what the Commission has in mind.

We also think the criteria of ‘shared projects or initiatives’ and ‘shared mission or common goals’ should be defined more narrowly.

Lost in translation? The problem of replicating existing guidance

A lot of this guidance basically brings together existing guidance. That sounds like it might make charities’ lives easier, but we think there’s some risk of confusion. The broad definition of ‘connected’ relationships could increase confusion about what kinds of situations require charities to refer to the existing guidance. And where the Commission has summarised existing guidance instead of quoting directly, some people may think it’s saying something different when it isn’t.

We think the Commission could make charities’ lives easier by signposting to existing guidance in some areas of the new guidance. It could also quote from it directly where it thinks an excerpt is particularly relevant.

There are two main areas where differences in wording could cause problems:

• First, the language around campaigning and political activity is less supportive than the language in existing guidance (CC9).

The draft guidance says:

It may be legitimate for the charity itself to undertake political activity in furtherance of its purposes for the public benefit as outlined in our guidance CC9.

CC9, meanwhile, says that:

Campaigning, advocacy and political activity are all legitimate and valuable activities for charities to undertake.

• Second, the wording about grants to non-charitable organisations differs from existing guidance. It says that a charity cannot fund the connected organisation’s general running or administrative costs. Of course the charity should ensure such decisions are solely made in the charity’s best interests. But could it never be in a charity’s best interests to fund such costs for a subsidiary whose only purpose is to support the charity?

In both cases it would be much simpler to stick to the current language, or even just signpost to existing guidance.

Different relationships need to be treated differently

We’ve mostly stuck to the main issues in our response, rather than focusing on the many different ways non-charitable organisations work with charities. But trading subsidiaries, corporate foundations, charities set up by NGOs and other models are all very different. We imagine colleagues will be raising several issues here, and we’d expect the Commission’s final guidance to take them into account.