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A New Code of Conduct for Directors   Trustees of charitable companies will be interested to hear that the Institute of Directors (IoD) has released a proposal for the UK government to endorse a Voluntary Code of Conduct for Directors. The Code will apply to organisations of all sizes across all sectors. In June, the IoD launched a consultation (running until mid-August) on the proposed Code and has invited responses from the wider public and business community. The IoD stated that the Code represents a voluntary commitment and “is not intended to hold back directors or create a new burden of compliance.” Rather, it is hoped that the Code will help directors to fulfil their statutory duties and responsibilities by providing a “clearly articulated statement of what good conduct looks like.” There is currently no formal code of conduct for directors in England and Wales. The proposed Code aims to act as a guide to assist directors with making “better decisions” and provide a behavioural framework. The Code is also designed to increase public trust in UK companies (particularly in light of a number of high-profile scandals in recent years). The proposed Code is centred on six key ‘Principles of Director Conduct’, each underpinned by a number of undertakings and inspired by the Nolan Principles of Public Life: 1.   Leading by Example: demonstrating exemplary standards of behaviour in conduct and decision-making 2.   Integrity: acting with honesty and adhering to ethical values 3.   Transparency: communicating and making decisions openly and honestly 4.   Accountability: taking personal responsibility for actions and consequences 5.   Fairness: treating people equitably without discrimination or bias 6.   Responsible Business: integrating ethical and sustainable practices, taking into account societal and environmental impacts The Code will be distinct from the UK Corporate Governance Code and directors’ legal duties under the Companies Act 2006. For charities, there is also the Charity Code of Governance. We would also recommend that trustees (and not just those of charitable companies) familiarise themselves with the Charity Code of Governance which provides an extremely helpful framework for charity trustees to follow as they navigate their way through governance considerations: https://lnkd.in/eGGj2pt Trustees of charitable companies will likely welcome the proposals and will want to familiarise themselves with the Code, particularly as (like with the Code of Fundraising Practice) the IoD’s vision is for directors from all UK entities to voluntarily sign up. IoD’s policy paper: https://lnkd.in/e-8H-hJS IoD’s consultation paper: https://lnkd.in/erQw_HuZ

Thanks you, Pesh Framjee, for another thought provoking post. I find it compelling (and concerning) that so many board members see their role in context to "stewarding, policing and protecting" — rather than as ambitious stakeholders in achieving, or at least fueling, an audacious mission ... like curing cancer ... or peace building ... or ending global hunger... (!) Having served on both for-profit and non-profit boards I wonder if the stats would be a little more "catalyst"-oriented in the for profit world. Having had the pleasure of serving on a board with YOU, I remember with great respect how you would approach conversations about risk from a contrarian point of view — asking the board to consider the risk of NOT acting. That kind of "lean in" mindset is an important (if unusual) way for a board to approach their work! The best way to "protect" the reputation of an organization is to recruit and develop exceptional leaders; build an engaged/transparent relationships with those leaders; then get to work doing whatever it takes to fuel progress. Accepting that (occasional) failure can be a sign that the leadership is willing to try! Our goal of a more just, equitable and sustainable world demands nothing less from us!

In recent months, I have seen an increasing number of posts raising concerns over the present model and practice of charity governance. This model originated in the 19th century. Today, this means that although we call charity executives ‘directors’, the trustees are the directors in the legal sense and ultimately responsible for its operation. Under the Charities Act, they have ‘independent control over and legal responsibility for a charity’s management and administration’. This is despite the fact that they are frequently less expert in the charity’s work than the executives and are expected to undertake these unpaid roles in their own time and alongside other responsibilities. In reality, especially in large, complex charities, the executives make many of the strategic decisions, including those with legal implications, as this is the only practical way to run the organisation. The governance structure we have inherently encourages a sense of ‘us and them’. Obviously, it’s true that in many charities there is no great division between trustees and the executive. But much too often there is and major problems can result. The point is that the system enables, even encourages such divisions, not inhibits them. This is not to question the integrity or commitment of most trustees. But, the sheer scale and range of duties means that to do the role effectively can involve a significant time commitment. I’m not suggesting that the present model of governance is ditched. Some charities may be happy with it. What is frustrating is the lack of choice. The charity sector is as varied in size and scope as the corporate one. But companies have different governance structures. Many SMEs don’t have non-execs. However, charities are all expected to operate with a one size fits all model. They should have a choice. For example, to have a unitary board of directors made up of execs and non-execs. This would certainly help enable more sense of ‘one team’ than the present model does. Ironically, they can already do this with their wholly owned trading companies, where it is common for the trustees and execs to serve together as company directors. We saw the advantage of a unitary approach during the early months of the pandemic. The need to make important strategic decisions in a rapidly changing environment at speed became clear. Many charities set up a pro-tem combined trustee and executive group with the power to act quickly and then report back to the wider Board. Arguably, the same need still exists, But most charities have since moved back to their old way of working. At present, it appears that the Charity Commission (est. 1853) is, at heart, committed to the present model, with grudging acceptance to allow changes when individual charities strongly press for them. Obviously, no system of governance can guarantee that a charity will be successful. But only having one system of governance limits the chance of success.  

Charity trustees play a critical role. And the role does carry risks and also great rewards. Here and over a few other posts, I’m going to share some reflections and learnings from when I started out as a trustee to help guide you if you are a new or prospective trustee. REFLECTIONS 1: Becoming a trustee There is always a revolving need for charities to recruit new trustees to fill the places of those who leave. Or plug the skills/experience gaps identified by self-assessment. Yet issues like the recent Major Tom Foundation investigation and recent findings highlight real issues for new and prospective trustee recruits. What are the risks and is it worth it? First, many will have great and relevant charity or industry skills and experience. Few I believe though will start with a real and clear understanding of what corporate governance is. I certainly didn’t know when I started out as a trustee. I was an accountant and former senior banker with business and industry skills. But what corporate governance was - ????? I was and still am though a very analytical person. It goes with the figures background. So, I started to look into it. It was only then that I realised that the charity I had joined was not actually a registered charity. It was on the “deemed list of charities” held by HMRC for the purposes of taxation. Registration with the newly established Charity Commission came later. And I helped oversee that process with the CEO. On initial investigation, I realised that there was quite a bit to it and in fact “corporate governance” was not universally defined and can be a vague concept to grasp initially. For the record, I’ve always used what I believe to be the simplest definition, “corporate governance is the process by which companies are directed and controlled.” (Source: The Cadbury Report 1992). For “companies” I usually insert “charities”. LEARNINGS 1: Becoming a trustee So for now, I would say to new and prospective trustees – there are risks with everything and there are very few Major Tom cases. They just get the headlines while the other charities get on with making a difference to individuals, society and the world around us. Corporate governance is just something that comes with the role. The rewards from being a trustee and helping to make a difference far outweigh the risks. And even then the risks can be managed by taking yourself on a journey to discover what good governance looks like and how to achieve it. It’s only a matter of taking each step, one at a time. I will share more reflections and learnings from my 7 years as a trustee and Chair of the Finance sub-committee in later posts. Meantime feel free to share or comment.....

Which aspect of a board's role is most important When carrying out governance and board effectiveness reviews I usually ask both the board and management to score which aspects of a board’s roles they see as being most important. The table at the end of this post shows the results from one charity with 1 being the most important and 9 the least important . Weighted scores showed ‘oversight of management’ as most important followed by ‘shaping mission and strategy’ and then ‘risk management’  I  found this of interest as although these areas were scored as most important my discussions and wider work with this charity indicated that in practice these were not areas where the board was expending time or focus. I often see this difference between theory and practice. Oversight of management had the highest weighted score with many scoring it 1 and 2. This area requires a delicate balance between scrutiny and support. The Board must ensure it meet its responsibilities to properly scrutinise and challenge assumptions that have a significant impact on decision making and whilst fostering empowerment charities must be ready to develop an accountable culture. Without creating administrative bureaucracies there should be a clear understanding and, if necessary, protocols on what needs to be reported by whom to which group. In my LinkedIn article https://lnkd.in/e2SY4WxD I discussed the importance of striking the right balance between the roles of management and boards and the need to balance empowerment and accountability. This accountability requirement may prima facie appear counterintuitive to empowerment but both are required. The approach should be one of probing and questioning without being undermining. Unbiased data interpretation and presentation is crucial when presenting information for decision making. Board members hve a right to see anything but should not feel the need to see everything. They should be confident that what is being presented to them by management is what should be presented and in the way it should be presented. It is hard to legislate about this and requires a culture of frankness from those presenting the information and also a probing culture from those receiving the information. It also requires a readiness to present information in a balanced way that highlights shortcomings as well as achievements. All this can be hard to do and it would be useful to have some of your experiences and insights on this. CFG : Charity Finance Group The Chartered Governance Institute UK & Ireland ACEVO Charity Commission for England and Wales Association of Charitable Foundations Association of Chairs Chartered Institute of Fundraising National Council of Nonprofits Directory of Social Change NCVO Nonprofit Quarterly The NonProfit Times Bond UK Civil Society Media Ltd Third Sector ACCA ICAEW Crowe UK Crowe Global Charities Aid Foundation (CAF) Charities Internal Audit Network BoardSource

Five reasons NOT to hire me to do your Charity Governance Review. (1) You're looking for a gold star I'm the first to respect and celebrate Trustees for what they do, but an effective Governance Review cannot only be about celebrating what's right. Far more important is identifying what needs to change, and how to fix it. (2) You're doing this to tick a box In my experience, Boards are either well in the habit of doing Governance Reviews, or something has happened that has made them realise they need to start doing them. Either way, the Review is step one. The hard part is changing what you're doing so that it's better. If you're only looking to tick a box, I'm not your consultant. (3) You are sure you know the answers already I will always talk with every Trustee and every senior staff member who is Board-facing, and I will get every perspective to fully understand what is going on. I'll also bring buckets of experience in understanding dysfunctional and highly effective Boards to help you understand why things might not be working. Those explanations might not be what you've considered before, but I just might be right. (4) You want a consultant who will obey orders I'm here to partner with your charity, working with staff and Trustees alike to get your governance operating effectively. I'm an independent expert who will give you frank and fearless advice and my honest opinion. I can't be bought by the promise of more work and I won't be intimidated by hierarchy or other dynamics. My motivation is always going to be doing the best Governance Review possible, in the interests of furthering your cause. (5) You are adamant that Governance doesn't really matter I can probably convince you to change your mind on this one (I have SO many stories...) but, if you don't take governance seriously, I'm going to spend disproportionate amounts of time chasing you to get your Trustees to book a call, and you are unlikely to put the time and resources you need into the action plan that will come. I'd rather work with charities that get that good governance is intrinsically connected with your cause, and bad governance is responsible for everything that goes wrong in the sector. If the above doesn't put you off, drop me a line! This year, I've averaged about one Governance Review a month, working with charities with turnovers between £150,000 and £25 million and consultee groups between 4 and 25. Every report has been different, and every Board has had different development areas. Some have been in crisis, others were highly effective but looking for their next development steps.

Certain nonprofit organizations are indeed required to adhere to the Corporate Transparency Act's (CTA) Beneficial Ownership Information reporting obligations, though exemptions exist for many based on their nature and activities. The CTA aims to deter money laundering, terrorist financing, and other illegal endeavors by mandating the disclosure of beneficial ownership information. This means that reporting entities must furnish details about their beneficial owners—those who significantly own or control the company—to the Financial Crimes Enforcement Network (FinCEN). For nonprofits, compliance with the CTA hinges on their operational structure and purpose. Key points include: 1. **Exemptions:** A significant number of nonprofits may not need to fulfill these reporting requirements due to exemptions specified in the CTA. For instance, subsidiaries of larger compliant organizations might be exempt from separate reporting. Similarly, regulated charities and certain nonprofits may also find themselves exempt. 2. **Mandatory Reporting:** Nonprofits ineligible for exemptions are obligated to report beneficial ownership information as per CTA criteria, including names, addresses, birth dates, and identification numbers (like a driver’s license) of each beneficial owner. 3. **Entity-Specific Guidelines:** The applicability of these rules can vary greatly depending on the nonprofit type: - 501(c)(3) organizations could be exempt based on specific revenue figures and transparency in operations. - Different considerations apply for other 501(c) entities depending on their funding sources and activities. Nonprofit organizations should evaluate their status under the CTA through legal or compliance advisory services to determine their reporting obligations or potential exemptions. It's vital for all entities, including nonprofits, to stay abreast of any changes in compliance regulations pertaining to the Corporate Transparency Act. For more detailed insights: https://lnkd.in/eCeRJbFd #cta #corporatetransparencyact #beneficialownership #nonprofits #compliance

CSR's Relevance to Section 8 Companies (Part-1)   Sec. 135 of the Companies Act, 2013 (“Act”) states that any Co. meeting specific criteria must spend 2% of its net profits on CSR activities. Further, Sec. 8(2) of the Act states that Charitable Co. are treated like limited Co. and must follow the same rules as regular limited Co. unless specific exceptions exist.   Since CSR applies to "companies," it raises the question of whether charitable Co. needs to comply with CSR provisions. It's worth noting that other charitable entities, such as trusts and societies, do not have to follow the CSR Rules because they are not classified as companies (Groups like ICAI, ICSI, and ICMAI might not have any CSR costs as they are established as corporate bodies rather than companies).   Regulatory Guidelines:   Committee Report, 2015 - The report pointed out that Sec. 8 Co. is aimed at social and development efforts. They are entirely committed to philanthropic activities. These Co. also generate income and expenditure reports that show their surplus or deficit rather than profit. The surplus is not given to members but is reinvested into the Co. for social welfare projects. As a result, the committee decided that CSR requirements should not apply to Sec. 8 Co.   MCA FAQs 2016 - No specific exemption is given to Sec. 8 Co. regarding the applicability of Sec. 135. Hence, Sec. 8 Co. must follow CSR provisions.   Committee Report, 2018 - The Committee observed that all Sec. 8 Co. is not necessarily formed with charitable objects and are like any other Co. Therefore, the Committee noted that there seemed no justification to exclude this Co. from the CSR provision.   MCA FAQs 2021 - Focused on the words “Every Co.” and thus applies to Sec. 8 Co. as well.   If CSR applies to charitable organizations, various issues might come up:   1- Applicability is triggered by Net Profit and not by surplus. The CSR Rules themselves specify that the calculation of Net Profit will be taken as per Sec. 198 of the Act. Therefore, technically, it will never allow a Sec. 8 Co. to contribute towards CSR.   Profit means the amount available for distribution to its members. Sec. 8 Co. cannot distribute its profit to its members. That means the ultimate surplus/profit will only be ploughed back for charitable purposes.   2- Rule 2(d) of the CSR Rules makes it clear that activities done in ordinary business are not included in CSR. Sec. 8 Co. that engage in activities from Sch. VII, as part of their everyday operations, do not need to spend separately on CSR. They already direct all their income towards socially responsible activities outlined in Sch. VII.   3- Initially, the Committee report indicated that Sec. 8 Co. was not subject to CSR requirements. However, they later decided that all Co., including Sec. 8 Co., must adhere to CSR. Does this seem logical? Moreover, the Companies Act of 2013 does not contain any provisions that make these FAQs and Committee reports compulsory for Co.

💭 Is a “Hook” Ethical or Unethical in business? Today, I had the privilege of speaking to a group of incredible charities about the role of free wills in legacy fundraising. It’s clear that free wills, when offered transparently and ethically, can open doors for people who might not otherwise prioritise estate planning. But it’s also a topic that sparks debate in our industry. 🎯 What’s the Issue? Free wills are often labelled as a “hook”, and hooks can carry negative connotations—suggesting a lack of transparency or an attempt to upsell. But does that always have to be the case? When tied to a clear purpose—like raising funds for charity or honouring specific groups such as the military—hooks can serve as a force for good. ✨ Transparency is Key Clients should always know who is funding their free will and why—whether it’s a charity inspiring legacy giving or an employer offering it as an employee benefit. It’s also crucial to present any optional upgrades, like powers of attorney, clearly and without pressure. Transparency builds trust, and trust is what turns a hook into an opportunity. 🍏 Hooks Are Everywhere Think of the free sample handed out on the high street to entice you to buy the full product, or the seven-day free trial for software that introduces you to the service’s value. A free will is no different—it’s the entry point, the “trial” that gets people thinking about their future. Estate planning, in its entirety, is the full product. The will alone isn’t enough, but it starts the conversation about trusts, LPAs, and proper advice, paving the way for more comprehensive planning. 🤔  • Can a hook like a free will ever be ethical if it’s tied to a purpose and delivered transparently? • How do we, as an industry, strike the balance between engaging clients and maintaining professionalism? I’d love to hear your thoughts—especially from those working in charities, estate planning, or organisations offering similar initiatives. Let’s open the floor for discussion! 🔖 P.S. Did you know we were the first estate planning company in the UK to achieve BCorp certification? For us, it’s about setting the highest standards in transparency, accountability, and purpose—values that guide everything we do, including how we approach free wills.

New Pathway to Obtain DGR Endorsement as a Community Charity Fund https://lnkd.in/gQVuWj9h <a href=""> - The Federal Government introduced the Treasury Laws Amendment (Support for Small Business and Charities and Other Measures) Bill 2023 (the Bill) to Parliament. The Bill, amongst other things, proposes the creation of a new deductible gift recipient (DGR) category for “community charity funds.” The Bill (and the exposure draft that came before it for consultation) follow on from the Federal Government’s commitment in the 2022-23 October Budget and the 2023-24 Budget to list 28 ‘community foundations’ (associated with Community Foundations Australia) as DGRs as “community charity funds,” subject to ongoing endorsement by the Commissioner of Taxation and new ministerial guidelines. Why does this matter? For context, under current taxation laws, a charitable organisation has two ways to become a DGR: the organisation fits within a pre-existing DGR category, which is already set by legislation, or the organisation can be specifically listed by name. To do so, Parliament must amend taxation laws to include the organisation by name. The decision to list an organisation as a DGR is only made in exceptional circumstances by Federal Government. However, for some charitable organisations, neither of these existing pathways may be suitable or achievable. For instance, a charitable organisation may want to undertake a number of charitable activities. Each may fall within a DGR category, but due to the existing pathways, it must choose to pursue only one (or establish multiple charities). The Government had also recognised that, the specific listing regime has a low level of regulatory oversight and lacks appropriate compliance or governance infrastructure. The Bill provides a new pathway for such charitable organisations to obtain DGR status. This is achieved by applying to the relevant Minister to be ‘declared’ a ‘community charity fund,’ thereby enabling the fund to apply for DGR endorsement as a ‘community charity fund’. By being a ‘community charity fund’, it also enables the fund to be subject to regulatory oversight and compliance, unlike organisations that are listed. What is a “community charity fund?” Under the Bill, an organisation may be classified as a “community charity fund” if it is operated or established for the following two mandatory purposes: to provide money, property or benefits to a fund, authority or institution where gifts to such fund, authority or institution are tax deductible (i.e. DGRs) and the gifts provided must be for any of the purposes for which the DGRs may receive funds; and to engage in an activity that is the principal activity or involves pursuing the principal purpose of a fund, authority or institution that falls within one of the recognised DGR categories. In terms of a compliance framework, the...