UK: Presidents Club: Charities Face Tough Decision Over Tainted Donations

Our experts debate when it is appropriate for charities to refuse or return donations

The recent Presidents Club Charitable Trust scandal has raised an important question for charity trustees: when is it appropriate to refuse or return charitable donations? Two charity governance experts debate the question.

Felicia Willow is a consultant and founder of Willow Charity Consulting

The answer to this question may differ depending on the size of the charity – and the donation – concerned.

Over the past 6 years, the Presidents Club has given more than £3 million to dozens of different charities. Following the Financial Times' exposé of alleged sexual harassment of female hostesses at the Presidents Club's annual all-male dinner, four of the charities who had received donations from the organisation in the past pledged to return them.

This included Great Ormond Street Hospital Children's Charity, The Clatterbridge Cancer Charity, Guy's and St Thomas' Charity, and the Royal Academy of Music – although at the time of writing, reports emerged that suggest Great Ormond Street is reconsidering its decision to return the donation.

Also at the time of writing, only one – the Royal Academy of Music – appears to have made a formal request to the Charity Commission to return its £10,000 donation.

Although these charities would have taken this action to insulate themselves from the scandal, they have consequently found themselves in the firing line. The negative media attention that initially focused on the Presidents Club is now being aimed against these same charities attempting to return the donations.

Media commentators expressing shock at the original story and demanding action have now been replaced by those who are fiercely critical of the attempts to return donations, arguing that charitable ends justify the means (provided those means are not used again, naturally).

According to a YouGov poll commissioned by NCVO, two-thirds of the public felt that charities ought not to return donations. The poll reflects that public opinion was split about what charities should do, with negative consequences ensuing for charities regardless of which path they chose.

In the charity world, it seems that you are damned if you do and damned if you don't.

How smaller charities fit into this debate is interesting. For a charity with an income of £250,000 per year, returning a £10,000 donation could be impossible.

Such charities are likely to have spent the donation within a year of receipt and, with many smaller charities struggling to keep adequate reserves in place as unrestricted funding sources come under ever-increasing pressure, for some returning a donation of this size could force closure.

Clearly nobody would expect a charity to return the money in these circumstances.

This differs from the situation of the larger charities who plan to return their Presidents Club donations. For example, the Royal Academy of Music's income was more than £27 million last year. Returning its £10,000 donation represents less than 0.1% of its income.

That would be the equivalent of the £250,000 charity returning a £100 donation: unwelcome news, but not unmanageable, even if already spent. The context of these large donations – which could destroy a smaller charity – is mere pocket change for larger organisations.

In 2016, the Presidents Club gave £1,414 to the Angel Shed Theatre, which represented nearly 2% of its annual income. While in no way suggesting that this money should be returned, it is worth reflecting that this would be equivalent to a £425,000 donation to the Royal Academy of Music.

Returning donations is a serious business for all charities, but the stakes are higher the smaller the organisation. The stark reality is that public pressure to return donations is more likely to happen when the amounts are higher, putting smaller charities under serious pressure.

In the end, the decision whether to return or refuse donations is the responsibility of the board of trustees and must be done only in the best interests of the charity. An example may be where regular or major donors or sponsors would potentially withdraw their support if the donation is not returned or refused.

Permission to return a donation is also required from the Charity Commission and a good board of trustees will undertake stakeholder and beneficiary consultation to gather views and consider the question from all angles before making their decision.

Having a donation refusal and return policy helps charities get ahead of such situations before they occur, providing time for trustees to contemplate what matters and how the situation will be dealt with should it arise, rather than being pressured into a knee-jerk reaction when the social media wolves come howling.

In many cases, charities receiving Presidents Club donations in the past have publicly condemned the alleged behaviour, committed to not accept future donations and explained where the previous donation has been spent already.

This appears an appropriate approach for smaller charities to adopt, provided there is support to do so from beneficiaries, stakeholders, donors and supporters.

Cecile Gillard is legal manager, charities and civil society, at Burton Sweet

Refusal of possible future donations is a tricky legal area and return of donations already received is arguably even more complex for charities of all kinds and all sizes.

Trustees of recipient charities must fulfil their legal duties in this, as in every situation. One of the most fundamental of those duties is to act in what they honestly believe to be the charity's best interests.

The focus of this is the best interests of the charitable purposes of that charity, for charitable public benefit, rather than mere protection of the organisation.

In most circumstances, in the context of a donation received, the trustees meet this duty by safeguarding and correctly spending the relevant sum – and should do so promptly.

If those donations are subject to conditions, in particular donations given for restricted purposes, the trustees must be diligent in ensuring those conditions are adhered to.

If the donation has already been spent, trustees would need to think long and hard about whether it would be lawful and appropriate to consider 'paying back' an equivalent sum out of funds from other sources, particularly funds received from other donors.

Trustees must also ensure the financial stability and solvency of the charity, and that must be factored into any suggestion of 'payback' sourced out of other charitable funds.

The Charity Commission has a limited legal role here, as its prime statutory functions largely focus on the protection and proper application of charitable funds and assets. The regulator also has a function to identify and investigate apparent misconduct and mismanagement of charities (for example, by their trustees).

However, it is not the role of the commission to overturn, or otherwise interfere with, lawful trustees' decisions or the exercise of relevant discretion by trustee boards.

The Charity Commission does have a statutory objective to increase public trust and confidence in charities.

In this spirit, it has pointed out that the trustees of recipient charities should weigh up the risk of reputational damage alongside all other relevant factors, as they consider the right course of action for their charity in relation to any donations received from the Presidents Club Charitable Trust.

The commission has made it clear since this story broke, that:

• The trustees of recipient charities must weigh up all relevant factors and make the difficult judgments about what course of action to take
• Legal advice may be appropriate for some charities
• Different boards may justifiably reach different conclusions on the right course of action for their charity
• Any proposed return of donated funds will, in the commission's view, often require its prior regulatory consent.

On wider issues, the commission has stated that if charity trustees believe there has been a 'serious incident' they should make a 'serious incident report' to the commission, using the normal reporting system. The regulator's published guidance describes the kinds of incidents it may regard as 'serious' in this context.

Alongside this, the commission reinforced that anyone with any information about alleged unlawful behaviour at an event should contact the police, as the relevant investigative authority in matters of alleged criminal behaviour.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.