The decision about when to accept a donation or turn it down is complex. With sources of wealth often a cause for controversy, and reputations on the line, this is a significant topic within philanthropy.

What arguments apply when charities choose whether to accept or refuse a donation? In this era of heightened focus (not always fair, perhaps) on certain practices and sources of wealth, this is an important topic. It also feeds into how philanthropy is pregnant with reputational considerations, both for potential donors and recipients. (This, by the way, also reminds us of the role of the philanthropy advisor, a topic this news service has discussed here.)

To delve into the details are Ella Pudney and Roman Kubiak, at Hugh James’s Private Wealth and Legacy Disputes team. They discuss the Charity Commission’s plans to update its guidance for charity trustees regarding when they can accept or refuse donations and how this reconciles with the High Court decision in Butler-Sloss and Others v The Charity Commission for England and Wales [2022] EWHC 974 (Ch) regarding charity investment policies.

The editors are pleased to share these insights; the usual disclaimers apply with outside contributors’ views. Jump into the conversation! Email tom.burroughes@wealthbriefing.com

Charities refusing donations
The refusal or return of donations is a delicate topic for charity trustees having to balance the purposes of the charity with the need to ensure continued funding and maximise returns and financial support, while assessing the potential impact of controversial decisions on future donations.

Orlando Fraser KC, chair of the Charity Commission, recently lectured on a trustee’s ability to refuse or return charitable donations. The Charity Commission guidance will be published in early 2024 with the aim of impelling (though some may say compelling) trustees to consider their choices in accepting or refusing donations.

This is all against the backdrop of a time when charities, and other institutions, are carefully looking to protect their brand while ensuring they can thrive into the future for the benefit of their stakeholders. It is also a time when the monuments and legacies of those who built our cities off the back of slavery and moral corruption are being questioned while states with, at the very least, questionable human rights records are freely investing in the sports and media spaces of apparently civilised societies.

The previous guidance came hot on the heels of the scandal of the Presidents Club Charitable Trust. That guidance was withdrawn on 6 November this year.

Refusing a donation is an immediate loss for a charity. In a time when many of those who rely on the support of charities are struggling financially, scrutiny has increased on not only the decision itself, but the reasons behind it. Arguments can be, and have been, made that the refusal of a donation from a specific individual or group may ultimately further a charity’s purposes. As many readers will know, in Butler-Sloss and Others v The Charity Commission, the trustees of two charitable trusts sought, and were granted, permission to adopt an investment policy which specifically excluded investments which were at odds with the Paris Climate Agreement. They successfully argued that, while charity trustees have a duty to maximise financial returns, that does not need to be at the expense of the furtherance of that charity’s purposes, in this case environmental protection.

However, in comments which some may feel are at odds with that approach, and others may feel simply seek to remind trustees of their overriding fiduciary duties, Fraser draws a clear distinction between what he calls “the personal squeamishness around sources of philanthropic funding [which] may benefit the sense of righteous progressiveness of a trustee or chief executive” but which likely do not “serve the beneficiary reliant on the services a charity provides” on the one hand, and in ensuring existing charity policies on returning or refusing donations are “fundamentally in the best interests of the charity, rather than reflecting the opinions of those who wrote them” on the other.

While charities can refuse donations for illegality or reputational risk, the focus is likely to be on personal moral conflicts. Fraser went on to comment that “given the financial detriment to a charity from refusing or returning a donation, the counterweighing reasons justifying the refusal or return will need to be significant.”

At first glance this appears to be slightly at odds with the Commission’s view just four years ago when Sarah Watkinson, then director of policy, planning and communications for the Commission, commented that: “From where I stand, it seems that the sector is increasingly emboldened by its own values, not just in what it does, but also in how it acts and behaves. As regulator, we welcome this. Charities are more than just a sum of their balance sheet and services they provide to a community. They belong to the public, and exist for the betterment of society, so it is right that they are considering what the public, their beneficiaries and volunteers think and feel about sensitive issues when making decisions about money.”

Changes in the sector, financial pressures and the evolving landscape may have influenced this shift.

Conclusion
Mr Justice Michael Green hearing the Butler-Sloss case, and Orlando Fraser KC as chair of the Charity Commission, have demonstrated the potential disparities in the power trustees have when making financial decisions.

While trustees now arguably have more power, or at least, freedom to scrutinise the source of donations and to refuse them where appropriate, to what extent the updated guidance will marry up with the Butler-Sloss decision remains to be seen. It will inevitably see a shift from the earlier guidance potentially making trustees’ roles more complex and open to challenge.

Ultimately, what appears to underpin the changes which are likely to come into effect is a desire to ensure that the sector continues to benefit from philanthropy to avoid what Fraser describes as “the immediate alternative to high net worth individuals giving generously to charity,” namely “high net worth individuals not giving generously to charity and keeping their wealth to themselves and their families.”
Charity trustees and chief executives will no doubt be paying close attention.