The seven principles of trustee decision-making: An overview of the updated Charity Commission guidance

The Charity Commission has updated its guidance on trustee decision-making, which was first published in 2013. Like its earlier incarnations, the guidance collects into a single, easily accessible document the principles that have been developed by the courts over the years, when the decisions of charity trustees have been called into question.

The document provides a clear framework to help trustees meet their legal and ethical obligations while managing a charity effectively. If you are a trustee and unfamiliar with the guidance, we recommend taking the time to familiarise yourself with the changes. Our article summarises the most significant updates.

What has changed and why?

Sometimes referred to as CC27, the guidance has been reviewed so that it focuses more closely on the areas where the Commission has seen some charities fall short. In particular, the Commission believes that some trustees may not fully understand that they have a duty to make decisions collectively, or that that they are jointly responsible for decisions that are made even where they did not take part in the meeting, get involved in the discussion or vote in favour of what was being discussed. It also believes that trustees are failing to ensure that decisions (including decisions made outside of meetings) are properly recorded. There are sections that deal specifically with these points in the revised guidance.

The Commission estimates that, in its new form, the guidance will take on average 12 minutes to read, which means that it is now considerably shorter than it used to be (the previous version having taken approximately twice as long to digest). The Commission's aim in reducing the length of the guidance was not to water it down but to make it more concise, in the hope that more trustees will actually read it. The latest research indicates that, while around a quarter of trustees refer to the Commission's guidance whenever they are unsure about something, the majority of them are more likely to ask a colleague or another trustee, despite evidence showing that those who do read the guidance have a better understanding of their responsibilities and how they should go about meeting them.

When investigating why some trustees do not access its support, the Commission has found that the length and style of some of its older guidance was considered off-putting. Because it wants trustees to read and understand its guidance – and to put it into practice while running their charities – it has been focusing more closely on the language and structure used to help ensure that they are user-friendly. It believes that this is particularly important now that people tend to read what it produces from a screen, rather than from a printed document.

What hasn't changed?

Although the guidance has been reviewed, the principles that underpin it remain unchanged. There are seven principles in all, which the guidance states that trustees must be able to demonstrate they follow whenever making decisions.

The guidance elaborates on each of the principles, but in summary it explains trustees must:

• Act within their powers – this means that trustees must make decisions that are within the powers available to them under the charity's governing document or the general law, following any additional rules that come with the power and taking professional advice where necessary. They must only make decisions that are intended to help achieve the charity's objects.

• Act in good faith – this requires trustees to make decisions with honest intentions, with the aim of furthering the charity's purpose. It involves being fair, sharing all details relevant to the decision, asking for more information or advice if necessary and considering all the available options.

• Be sufficiently informed – this means being able to show that decisions were based on enough relevant information, bearing in mind the impact and risks of the decision, the cost implications, the urgency of the matter and so on. Again, this may involve reading relevant guidance or seeking professional advice.

• Take into account all relevant factors – such as why the decision is being made, its significance, what its impact might be on the charity's reputation, the other options that are available and so on.

• Identify and disregard irrelevant factors – what is irrelevant will vary depending on the decision that is being made and the impact that it will have, but the guidance is clear that irrelevant factors include personal feelings and prejudices, which must not be allowed to influence a decision.

• Manage conflicts of interest – this involves not allowing decisions to be influenced (or appear to be influenced) by the personal interests of trustees or people or organisations they are associated with. Any conflicts must be identified and appropriately managed because, if a conflict is not properly managed, it might invalidate any decision made.

• Ensure that their decision is within the range of decisions that a reasonable body of trustees could make – it is for the trustees to decide which option is the most appropriate for their charity and that they can demonstrate their reasons for selecting that option.

The guidance points out that the seven principles overlap and that they are interdependent in some respects. In particular, it states that in most cases trustees will not be able demonstrate that they have met the final principle unless they have followed the others.

Why should the principles be followed?

In the Commission's view, following the seven principles of decision-making will help trustees to ensure that they:

• Act within their powers and charity law.
• Comply with their trustee duties.
• Show that they have acted properly and managed risks to their charity.

It will also help ensure that they are protected if something goes wrong, and that they are in a position to claim back where appropriate the costs and expenses of carrying out a decision.

Once trustees have made a decision, the Charity Commission will not generally impose its own view, provided that the trustees can demonstrate why the decision was made, that it was reasonable and that it was in the charity's best interests. If something goes does go wrong, however – if a decision is challenged in the future, for example – it can ask for evidence to show that decisions were made in accordance with the seven principles. If they were not, the Commission might consider this to be evidence of misconduct or mismanagement within the charity and, if its further investigations lead to serious concerns, it could even open a statutory enquiry – a process that could take many months, even if the outcome is ultimately satisfactory.

We would therefore advise trustees who are not familiar with the seven principles to take 12 minutes to read the new streamlined version. Equally, if you have a question or concern about trustee decision-making, or about your charity's governance, please contact a member of the team.