Charities and conflicts of interest: is the guidance clear enough?

One of the core statutory objectives of the Charity Commission for England and Wales is to increase public trust and confidence in charities, and its regulatory priorities are often driven by the issues that matter most to the public. This can be seen acutely in the context of statutory inquiries and trustee disqualification cases.

Research shows that the public care most about how charities spend their funds and this is borne out in the stories that tend to hit the headlines. Media coverage of the Captain Tom Foundation inquiry alone illustrates how damaging it can be if there is a perception of personal benefit at the expense of charitable impact.

A lack of understanding by charity trustees about how to manage situations where their personal interests might conflict in some way with the interests of their charity is a very common issue in regulatory cases. So, is the Charity Commission doing enough to educate and support trustees to avoid finding themselves (and their charities) in the spotlight for all the wrong reasons?

Public trust in charities

Each year, the Charity Commission conducts research into public trust in charities and trustees’ experiences. This year’s results were published on 16 August and show that media coverage ‘is particularly influential in leading to distrust’ and that negative stories in the media tend to ‘stick’ in people’s minds. The most important factors in building trust were found to be ‘knowing where the money is spent and that the charity achieves its purpose’.

The results of the trustee research shows that whilst most trustees feel confident about their role in general, they are ‘less sure about basing decisions on personal views, or recognising conflicts of interest’. Given the importance placed by the public on transparency regarding these sorts of issues, this is an important issue to address.

The role of the Charity Commission

Most participants in the research expressed the view that the Commission’s focus ‘should be more on identifying and dealing with wrongdoing’. However, since issues around conflicts and personal benefits are common in regulatory cases and there seems to be a gap in knowledge amongst charity trustees (who are, in the main, volunteers acting in good faith), might it be better to direct more energy at prevention rather than cure?

Investigations are time-consuming and expensive, and high-profile cases are often sensationalised in the media. Whilst headlines abound when something goes wrong, by the time the Commission concludes its inquiry, interest has usually waned, leaving only negative perceptions in the public mind. However, the consequences for individual trustees can be devastating.

Since October 2016, the Charity Commission has had the power to disqualify charity trustees and has shown that it is not afraid to use it. So far this year alone, the Commission has announced a total of 12 trustee disqualifications, including in relation to the Captain Tom Foundation where both Hannah and Colin Ingram-Moore were disqualified in July. Since the statutory inquiry into the charity remains ongoing, there is limited information about how the Commission reached its decision to disqualify the pair. They have publicly stated that they “fundamentally disagree” with the decision but have decided not to appeal because of the “emotional upheaval and financial burden” this would entail.

Goodband v Charity Commission

Given the attention the story has attracted, it is perhaps unsurprising that the Ingram-Moores chose to move on with their lives rather than prolong the experience by appealing. However, appealing a disqualification decision is possible, and it is the course of action that Ms Suzanne Goodband opted for when the Commission ordered her disqualification in December 2022.

The appeal was heard in the First-tier Tribunal on 27 – 29 November 2023, and the decision was given on 19 January 2024 (Goodband v Charity Commission for England and Wales [2024] UKFTT 111 (GRC)). Issues relating to personal benefits and conflicts of interest were at the centre of the case and it illustrates how easily misunderstandings can arise as to how to apply the legal principles to decision-making.

Background to the case

Ms Goodband was appointed as chair of trustees of the Island Health Trust on 29 October 2009. The charity was set up to ‘promote the provision of primary health care in any manner which is deemed by law to be charitable’.

In 2014, the charity was approached by a developer about redeveloping the land on which the Island Health Centre (owned by the charity) was located. The potential to substantially increase the value of the land led Ms Goodband to dogmatically drive forward a new strategic direction for the charity, in connection with which her company provided consultancy services to the charity for which it (and indirectly Ms Goodband) received significant remuneration.

Public interest

There was considerable local concern about the strategic direction of the charity and, on 19 March 2018, Jim Fitzpatrick (the then Labour MP for Poplar and Limehouse) raised concerns about the charity during Parliamentary debate. Hansard reveals comments from Mr Fitzpatrick, including that he wrote to the Charity Commission on 10 February 2017 and the Commission replied that it was ‘satisfied that the Trustees have acted within their powers’ and ‘that remuneration is allowed in the Charity’s governing document’.

Whilst the payments to Ms Goodband’s company were significant (almost £350,000 in two years, representing approximately two thirds of the charity’s income during that period), it is legally possible for charities to purchase services from trustees and connected persons under section 185 of the Charities Act 2011, provided it is not expressly prohibited by the charity’s governing documents. It was not disputed that the governing documents of the charity permitted payments to trustees, subject to charity law and procedural safeguards.

Additionally, the trustees took legal advice from well-known firms with charity law expertise, obtained appropriate surveyors reports and decisions were taken by non-conflicted trustees where required. During this time, there was also some engagement with the Charity Commission (a compliance case opened on 14 December 2016 and closed in June 2017 with statutory advice provided to the charity under section 15 of the Charities Act 2011).

However, unsatisfied with the Commission’s response, a meeting took place between Mr Fitzpatrick, a local town councillor and the Commission on 24 August 2017, and a day later the Commission re-opened its compliance case, which was swiftly escalated to a statutory inquiry on 20 November 2017. It is unclear whether further action would have ensued without this public outcry and Mr Fitzpatrick’s intervention.

Issues with decision-making

Ms Goodband had significant experience in the healthcare sector and her strong view was that the trustees should ‘create a charity that was capable of, not only providing the health centre, but also working to improve primary health care within the wider area in which the Centre was based’. However, Ms Goodband’s strategy was not supported by all the trustees, several of whom resigned and were then replaced with a new board of trustees selected by Ms Goodband to pursue her strategic vision. She ‘regarded the recruitment and the strategy as requiring a sophisticated and skilled approach and that she was the best person to do this’.

Additionally, the charity engaged the services of Mr Brooks, who was well known to Ms Goodband and with whom she had worked previously. Mr Brooks was responsible for supervising and managing the consultancy contract between the charity and Ms Goodband’s company and ‘reporting back to a subcommittee of the board of trustees’. Whilst decisions were taken by the non-conflicted trustees, the fact that Ms Goodband was in control of Mr Brooks’ role and then placed him in a position to manage, supervise and monitor the work she undertook as a consultant created a ‘clear and obvious conflict of interest’.

The tribunal’s decision

Ms Goodband maintained that she had acted at all times honestly, in good faith, and in the best interests of the charity. The tribunal found that Ms Goodband ‘did not lack integrity’ and ‘did not deceive or mislead the other trustees’. It was also acknowledged that her primary purpose in providing consultancy services ‘was not to gain any personal benefit’. However, it was found that ‘it must have been entirely obvious to Ms Goodband that significant personal benefit would arise and that a conflict of interest existed that needed to be managed’ and that she had been ‘reckless’ in relation to creating and managing those conflicts and that the remuneration she received was ‘excessive, unreasonable and disproportionate to any value that the Charity received’.

The tribunal commented that Ms Goodband ‘never wavered’ in her strong views about the need for the charity to change its strategy and her ‘a deep rooted belief in her own ability to drive forward the change that was necessary to achieve this operational and strategic change’. Whilst the tribunal acknowledged that proactive and ambitious trustees should not be penalised ‘for radical thinking or ambition’, it was held that Ms Goodband was a ‘dominant force’ who ‘could not see the wood for the trees’ and ‘lacked objectivity and sound judgement’.

The tribunal found that there had been mismanagement in the administration of the charity and that Ms Goodband was responsible for it. The tribunal also concluded that Ms Goodband was unfit to be a charity trustee because she lacked ‘the perspective and objectivity required to effectively discharge a role as a trustee of charity acting for the public benefit’. On the question of whether disqualification was in the public interest, the tribunal concluded that it was, noting that the ‘position where over 60% of the income of a charity is spent paying the chair of the trustees is one which the public is unlikely to understand or accept’. The tribunal therefore upheld the disqualification decision. However, her period of disqualification was reduced (from 12 years to 7 years).

Lessons to be learned from the Goodband case

The clear and overriding issue in the Goodband case was a failure to consider issues of personal benefit and conflicts holistically in decision making. Management of conflicts of interest is not a tick-box exercise. Taking legal advice and involving non-conflicted trustees in relation to contracts does not absolve trustees of considering how their personal interests might conflict with the best interests of the charity in relation to strategic decisions. The appropriate management of conflicts is also an ongoing issue, particularly where a trustee is being remunerated for services to the charity.

The other important lesson to be learned from Ms Goodband’s case is the importance of collective decision making and appointing chairs who are capable of setting aside their own views and listening to those around them. In this case, no consultation took place with key stakeholders and beneficiaries before Ms Goodband ‘decided that a change in the Charity’s strategy was required and selected a new group of trustees in order to develop and pursue the strategy that she had devised’. This is a sage reminder that dogmatic personal views can create conflicts of interest in trustee decision making, which is why collective decision making by a diverse board of trustees is a central facet of good governance within charities.

The dominance and control exercised by Ms Goodband over the strategic direction of the charity created unmanageable conflicts. She ‘was so blinded by her belief in her own judgement and competence that she failed to see the need to address any issue that would have prevented her from proceeding in the manner that she had convinced herself was appropriate and necessary’.

This article was first published in New Law Journal. Read the article published by New Law Journal here.