What have we – and the sector – learned during the pandemic (so far)?
1 December 2020
As we go to press, it will be 253 days since the UK first entered lockdown. As individuals, in the eight months or so since midnight on 23 March, we have learned many things: how to go to work while also not going to work; the detailed geography of the North East and the huge advances in ophthalmology that have been made in that part of the world; and that a Cornish pasty does not, in itself, constitute a substantial meal, even though it was originally designed to be precisely that.
But charities have been disproportionately affected by the pandemic, and have learned some rather more salient lessons since everyone was first told to stay at home, protect the NHS and save lives. So, we thought that it would be helpful to share what we think has most affected the sector, and perhaps provide some insight into what charities can do to prepare themselves for future waves – or indeed the next set of unforeseen circumstances. Because that’s the irritating thing about unforeseeable circumstances: it is all too foreseeable that there will be some.
Outdated governing documents
Having had to adapt to the various protective measures that have been put in place – particularly those relating to public gatherings – many charities have found their governing documents to be more restrictive than would otherwise have been helpful. This has been especially true of charities that were formed some time ago – charitable companies that were established prior to the enactment of the Companies Act 2006, for example, and other forms of charity that came into existence before the Charities Acts of 2006 and 2011.
The most common difficulty has been the provisions in governing documents that govern the conduct of trustees’ meetings and meetings of the members, which might have been drafted well before the concept of virtual meetings came about and tools such as Zoom and Microsoft Teams were developed. This hasn’t necessarily been a problem – at least in respect of members’ meetings – because the Charity Commission made it clear fairly early on that it would be taking a relaxed approach to the way in which charities (of all types) conducted their general meetings during the crisis, saying that it would understand if trustees decided to postpone or even cancel meetings, provided that they recorded the reasons for their decision.
And parliament helped too: one of the less intrusive pieces of legislation passed during the pandemic is the Corporate Insolvency and Governance Act 2020, which was designed, among other things, to help companies and other corporate bodies (including CIOs) to hold general meetings and AGMs during the pandemic by relaxing the usual rules on how members' meetings must be held – even if the organisation's constitution requires something different.
While the provisions are in force, a corporate charity’s general meeting or AGM:
- need not be held in a particular place (not generally an express requirement of a company's Articles but an implied requirement on the basis that the notice of the meeting is usually required to state various things, including the "place" of the meeting);
- may be held and votes may be cast by electronic or other means (regardless of whether the votes cast can all be taken into account at the same time); and
- may be held without a quorum of participants having to be "present", either in person or by proxy, in one place (this requirement has not been tested in recent years but there is older case law that would suggest that a quorum needs to be physically present at the "place" of the meeting, even if the Articles allow participation by other means).
In addition, members' rights in relation to general meetings and AGMs are limited so that, while members continue to have a right to vote by some means, they will not have the right to:
- attend in person;
- participate other than by voting (so they do not necessarily have to be given the right to speak); or
- vote by particular means (in other words, if they wish to vote, they must vote by whichever means is specified by the charity, which could be, for example, by means of a poll taken online during the meeting).
However, the provisions were only ever intended to be temporary: to begin with, they were due to expire on 30 September. Just prior to that date, the government announced that they would be extended to 30 December and, last week, they were extended again. Unless they are further extended, they will now expire on 30 March 2021.
So, whether your charity is incorporated or unincorporated and the provisions governing members’ meetings in your governing document need updating, there’s no immediate rush. But neither the Commission’s willingness to turn a blind eye, nor the statutory relaxation of the usual rules, will last forever, and so you may wish to think about an overhaul of those and any other outdated provisions of your constitution – particularly if, as is sometimes the case, doing so will itself involve a meeting of the members.
It is also worth bearing in mind that the conduct of trustees’ meetings is not affected by this temporary regime and so, although it is possible that your constitution already allows the trustees to make decisions by electronic means (such provisions having become common earlier than was the case with those relating to member decisions), if it appears to restrict you to face-to-face meetings, now might be the time to change it.
Some charities, having identified a need to rethink their activities or adapt the services that they provide, have discovered that their charitable objects no longer reflect what they are doing now, or plan to do in the future, and have had to consider changing them – something that can usually be done, but which may require the prior consent of the Charity Commission. If you are finding that your charity’s objects are no longer reflective of what it does in practice, or if you believe that changing them might enable your charity to operate more effectively, it might be worth reviewing them.
This is especially true for charitable companies because, once Covid-19 and Brexit stop occupying parliament’s every waking moment, there is every chance that the recommendations made by the Law Commission in its 2017 paper, “Technical issues in charity law”, will be enacted. The changes have been expected since early last year and, once they have been introduced, the criteria used by the Charity Commission to determine whether or not to give consent to an amendment to the objects of a charitable company will be aligned with those applied to unincorporated charities.
At present, where a charitable company needs authority to change its objects, the test applied by the Commission is fairly relaxed: generally, consent will be forthcoming provided that the change is not inimical to or inconsistent with the original objects. However, once the Law Commission recommendations are enacted, the more stringent conditions currently applied to unincorporated charities will also be applied to charitable companies. Before giving its consent, the Commission will have to have regard to: the spirit and purpose of the original objects of the charity; the desirability of securing that the objects of the company should, as far as possible, be similar to the original objects; and the need for the charity to have purposes which are suitable and effective in the light of current social and economic circumstances. In other words, if you think the objects of your charitable company need to be changed, you should deal with them sooner rather than later.
If you would like us to give your charity a “governance health check”, which would cover the matters we have outlined above, as well as recommending other ways in which your governance arrangements might be streamlined or improved, please feel free to get in touch and we will let you know how we might be able to help.
Age profile of trustees
The lack of diversity on the boards of charities has been a concern for some time. According to research carried out by the Charity Commission in 2017, only 8% of trustees are non-white compared with 14% of the UK population (based on the 2011 census), two thirds are men and the average age is between 55 and 64, rising to between 65 and 74 in smaller charities. In 2017, the boards of 8,000 registered charities had an average age of 75 years, whereas the research estimated that only 0.5% of the trustee population was made up of people between 18 and 24.
The age profile of trustee boards in particular has been brought into focus during the pandemic, given that older people (and, specifically, older men) have tended to be more adversely affected by Covid-19. At the onset of the outbreak, the over-70s were classed as “clinically vulnerable” and people with certain medical conditions were classed as “clinically extremely vulnerable” and, while it was only those in the latter category who were actually advised to “shield” for 12 weeks, the messaging was far from clear and so many of the clinically vulnerable ended up shielding anyway. Other older people decided for themselves that it was best to stay at home: after all, that is what we had all been asked to do, regardless of age.
As a consequence, charities with a high proportion of older board members have found it more difficult to operate during the pandemic – in most cases simply because they have been unable to hold quorate trustees’ meetings. Between July and October, while indoor meetings of up to six individuals were permitted, some boards were unable to meet, either in person or virtually, because a significant number of the trustees were still shielding and not sufficiently well equipped to take part in virtual meetings (assuming such meetings were permitted by their charity’s governing document at all).
If your charity’s board is on the less diverse side – which might be the case if it is one of the estimated 81% of charities that recruit trustees by word of mouth or personal recommendation – you might consider either rethinking the way in which you advertise vacancies, or appointing additional trustees with a view to redressing the balance. After all, who knows which demographic groups might be disproportionally affected by the next set of unforeseen circumstances?
Even in the absence of unforeseen circumstances, diversity helps boards to stay informed and responsive, and to navigate the changes facing the charity sector. As the Charity Governance Code points out, boards whose trustees have different backgrounds and experience, and who think in different ways, are more likely to encourage debate and to make better decisions.
Reliance on single sources of income
We have all seen what can transpire when a charity is dependent on a single source of income – one only has to look at what happened to Kids’ Company, which relied almost entirely on government grants, to see how devastating it can be when the source dries up (or, as happened in that case, is abruptly removed).
A number of our charity clients have been struggling since March to make ends meet, simply because it has been impossible for them to continue their usual methods of raising funds. This has been a particular difficulty for charities that depend predominantly on public fundraising events for their income, all such events having suddenly become unlawful with very little warning. But it is not just large charities known for their annual extravaganzas that have suffered: smaller charities that rely, say, on a handful of local authority contracts that are currently impossible to perform, or that promote the arts in venues that are currently not allowed to open, are in a predicament too. Charities that raise the majority of their funds from public donations are also reporting significant drops in their income, much of the general public having had to decide that, for the time being, charity begins at home. Macmillan Cancer Support, for example, expects to be down on donations this year to the tune of about £95million.
Fundraisers have been saying for years that charities should have a range of income streams, but getting to that point is perhaps easier said than done. It means thinking “outside the box”, which is often difficult, but if a charity doesn’t have a range of income streams on which it can rely, it is not going to be resilient in a world that is becoming increasingly volatile and unpredictable. It means talking, not only to those people who already give you money, but also to those who don’t – and nobody likes cold calling. If you’ve never considered corporate partnerships in the past, perhaps now is the time to do so. Have you thought about asking local businesses if their employees might consider payroll giving? Is your social media presence up to scratch? If not, could you refresh it and perhaps crowdsource for a particular project? And are you sure that you’re applying to the right grant-making foundations?
Unfortunately, there isn’t a one-size-fits-all approach to this problem, because a charity’s ability to diversify its income streams will depend to a large extent on the resources it has available. But there are consultants out there who will be only too glad to help and, while engaging their services might involve an initial outlay, it could pay dividends in the future. And you could always ask your charity’s staff or volunteers for ideas: they wouldn’t be with you if they didn’t care about what your charity does, so why not see what they think?
Force majeure and cancellation clauses
Whoever thought we would have to look so closely at the force majeure and cancellation clauses contained in contracts between charities and service providers? After all, they’re just boilerplate clauses, aren’t they – like the ones that confirm that the governing law will be that of England and Wales, set out how notices should be served and so on? Not anymore. In fact, never – but we’ll come to that shortly.
The thing with force majeure clauses is that they’re generally quite difficult to construe and will almost certainly not be in the charity’s favour. Let’s presume your charity has booked the ballroom in a hotel for a fundraising dinner. The dinner can’t now go ahead because it will mean multiple households mixing, which is currently prohibited – surely, that constitutes a situation beyond the control of either party, making the performance of the contract impractical or impossible? Potentially, no: the dinner can’t go ahead but the hotel is still allowed to be open, so it is still quite possible for the hotel to rent your charity the space. You just can’t use the space in the way that you were planning.
And so we’ve found that a number of our charity clients have had to fall back on the cancellation provisions in their venue hire contracts – and these have tended not to be user friendly either. Why would they be? Renting out space is one of the venue’s various income streams (see above), so why would the owners make it easy for hirers to wriggle out of the arrangement without paying at least something? During the pandemic, a number of our clients have had to make what turned out to be a difficult decision: cancel now and accept that the deposit (and, potentially, later instalments already paid) will be lost, or wait in the hope that the hotel will be forced to close and, consequently, to refund them in full.
The pandemic has highlighted the need for charities to be more vigilant when signing up to contracts - in other words, for them to think about where they will be if the situation that seems really rather unlikely to arise actually arises. This should always have been the starting point for charities entering into contracts, and it certainly should be in future. If your charity is planning to enter into a contract but you have any concerns about it, we would gladly review it for you. It might save you unnecessary expense in the future. And if you are in the unfortunate position of needing to cancel an event, we would be happy to review the cancellation provisions in the contract before you do so.
How can you help?
We hope that the above musings have given you some food for thought and, of course, we would be very happy to discuss any of them with you further. But we would be equally happy to hear from you about changes that you have already implemented: if your charity has adopted some new measures during the pandemic that you’re prepared to share with the wider sector, do let us know and we will consider including them as a case study in a future issue.