Article

Managing conflicts fo interest

The recent fracas over the purchase by the Tate Gallery of paintings by one of its trustees has brought to public attention an important aspect of charity law, namely that charity trustees should not place themselves in a position where a conflict between the personal interests of the trustee and the interests of the charity may arise. You will remember that the trustees of the Tate agreed to purchase paintings by one of their number, the artist Chris Ofili, for £600,000. They failed to obtain permission from the Charity Commission as required by their constitution. When the Commission looked into the matter
they found that basic rules of good practice designed to ensure that trustees are seen to have acted properly and solely in the best interests of the charity had not been followed. The artist whose paintings were to be purchased did not withdraw from the meeting and the paintings were not independently valued. This was an obvious example of a conflict of interest. As a trustee, the artist had a duty to act only in the best interests of the charity which would include taking reasonable steps to ensure that the arrangement was advantageous to the charity. As the seller of the paintings, however honourable and principled he might be, his interests would be best served by obtaining the best possible rice for his work and the prestige attached to having his work in the Tate. It would therefore be difficult for him to be seen to be objective in any discussion of the purchase.

This was a particularly dramatic example but similar situations often arise when a trustee provides services to the charity for which he is paid. Conflicts can also occur when, for example, a friend of one of the trustees applies for a job with the charity or one of the trustees is associated in some way with an individual or another charity applying for a grant. The trustees in question should declare that he has an interest and, since he would find it difficult to be objective, itwould usually be best if he left the meeting while the application is discussed. The rule that trustees should not receive any benefits from their charity unless this is permitted by the constitution came into being in order to avoid conflicts of interest arising. Until fairly recently this rule was strictly applied, the only exceptions being for professional trustees such as solicitors and accountants. Gradually the rule has been relaxed and most modern charity constitutions include a provision to allow trustees to receive reasonable payment for services to the charity but subject to safeguards designed to prevent a conflict of interest arising. The trustee in question must be absent while the matter is discussed and should not be counted in the quorum. Many older charities still prohibit any benefits to trustees and any payment needs to be specifically authorised by the Charity Commission. This will change when the Charities Bill becomes law. It will then be permissible for trustees to receive remuneration provided that:

= There is a written agreement between the charity and the trustee setting out the amount of remuneration;
= The trustees must be satisfied that the arrangement is in the best interests of the charity; and
= Only a minority of trustees benefit from such an arrangement at any time.
These new rules encapsulate the current recommended best practice for managing conflicts of interest and should be observed in any situation where there is a financial or other conflict. There should be complete transparency about the nature of the transaction. The trustees should undertake research or
obtain competitive quotations to ensure that the proposed deal is the best possible for the charity.
Finally, the trustee concerned should not be involved in any of the discussions. If these guidelines are observed charity trustees should not be embarrassed by suggestions that they have behaved
improperly.

For further enquiries please contact Elizabeth Cairns (view full profile) on 01892 510000 or email elizabeth.cairns@ts-p.co.uk.

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