Charity Commission asked to change guidance on connected companies

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Sector umbrella bodies have urged the Charity Commission to make changes to draft guidance on companies connected to charities because they say the guidance is too burdensome and could deter charities from campaigning.

The Commission published draft guidance in February setting out how charities should handle relationships with connected entities such as funders, public bodies and trading subsidiaries.

The regulator said it had seen a number of cases where connected organisations had caused problems for charities, including those where a connected company received substantial financial benefit, where a charity had funded party political activity, and where the charity’s reputation suffered because of the actions of the connected company.

NCVO, the Charity Retail Association, Association for Charitable Foundations and Charity Finance Group have all submitted responses to the consultation which urge the regulator to change aspects of the guidance, amend its language or consult further.

‘Could discourage campaigning’

In its submission, NCVO said that the definition of a connected entity was “potentially very broad” and suggested the Commission clarify what it means by “shared mission or common goals” and asked the regulator to provide specific examples.

NCVO said it had “some concerns” about the wording of the section on political activity, which it said “is not consistent with the language in the Charity Commission’s guidance at CC9”.

Inconsistency of language could result in “confusion and uncertainty for charities,” it said.

“We would be concerned by any change in language which made charities any more cautious about legitimate campaigning activity – especially as the Commission itself noted its experience that charities were often overcautious in this regard,” NCVO said.

NCVO also raised concerns about the section on grant funding, particularly that charities should not fund the connected company’s running costs.

“Of course the charity should ensure any such decision is solely made in the charity’s best interests, but why could it never deem it in its interests to fund such costs for a wholly-owned subsidiary whose only purpose is to support the charity?” The submission said.

NCVO also urged the Commission to make sure its language was consistent with guidance for funding non-charities.

‘Should not apply to charity shops’

The Charity Retail Association has called for the Commission to exempt charity shop chains from the guidance.

“A charity running some trading operations through a wholly-owned subsidiary, is simply not in the same category as other commercial relationships,” it said.

By being wholly owned by the charity the subsidiary “will inevitably embody the principles” of the parent charity it said.

It added that operating charity shops through trading subsidiaries was an “efficient means of ring-fencing funds and managing risk”.

“We believe it is clearly inappropriate to include trading companies used to run charity retail operations in the scope of this guidance,” the CRA said. “We therefore recommend that the draft guidance is amended to make it clear that it does not apply to wholly-owned trading subsidiaries operating in the charity retail sector.”

‘Corporate foundations have not been sufficiently considered’

ACF said that it was also concerned that the guidance became confusing and overemphasised the risks.

“It creates a burden of documentation for charities that appears to be higher than what is already expected, leaving otherwise well governed and compliant charities with less resource to spend on achieving the charities’ objectives,” it said.

ACF also urged the Commission to engage further with the corporate foundations and offered to “enable dialogue”.

“We are also concerned that corporate foundations have not been sufficiently considered or consulted in drafting this guidance. Corporate foundations are one of the primary audiences of the guidance, yet it does not adequately reflect the realities and issues that many face,” it said.

‘Deeply concerned about operational interference’

CFG is “deeply concerned” that the guidance strays “into operational interference” and said many examples are not appropriated for connected companies like trading arms and corporate foundations.

It warned that the guidance could mean charities do things in a way which could “confuse the public” and also “create unnecessary burdens and costs”.

CFG said that the principles of the guidance were “worthwhile” but the problems come when it “tries to operationalise these principles” and called on the regulator to clarify that it is not referring to “wholly-owned trading subsidiaries and corporate foundations”.

In its response CFG suggested that the Commission move away from a “one-size-fits-all approach”.

Engaged with over 50 charities

The Charity Commission said it had  engaged with over 50 charities through the online survey and at roundtable events.

A spokeswoman said: “We welcome the positive levels of engagement with the consultation and will be considering the responses carefully to inform the final guidance. We aim to publish an analysis of submissions within 3 months.

“Our early analysis of the feedback has highlighted the need for improvements in some areas but we are pleased that many of those responding said they support production of new guidance in this area and feel it has the potential to help charities better manage their important relationships with linked non-charities.”

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