Understanding Conflicts of Interest and the Role of Connected Persons in Charities and Social Enterprises

As we have shown before, the recent controversy surrounding the Captain Tom Foundation highlights the critical importance of transparency, good governance, and proper management of conflicts of interest within charities and social enterprises. Public trust in voluntary sector organisations relies heavily on clear distinctions between personal and organisational interests. 

So, what is classed as a conflict of interest?

A conflict of interest arises when a person involved in decision-making for an organisation has competing personal, professional, or financial interests that could influence, or appear to influence, their decisions. The onus is on individuals, such as trustees or directors, to declare these conflicts. It is better to over-disclose and manage potential conflicts than to leave them unresolved, risking reputational damage or regulatory scrutiny. 

Who Is a Connected Person? 

In the context of charities and social enterprises, a connected person typically refers to close family members, business associates, or entities where an individual has a controlling interest. Many funding bodies require that social enterprises have at least three unconnected directors to ensure independent oversight and accountability. 

So, what can we learn from the Captain Tom Foundation Case? 

The Charity Commission's investigation into the Captain Tom Foundation revealed governance failures, including unaddressed conflicts of interest, personal benefits to trustees, and blurred lines between private and charitable activities. Key findings included: 

Unauthorised Personal Benefits: 

• The use of funds and assets for personal gain, such as a spa complex and personal salaries not aligned with charity sector norms. 
• Lack of transparency regarding income from publishing deals associated with Captain Tom's books. 

Blurring of Boundaries: 

• Instances where private business dealings of trustees overlapped with the charity's brand, without consultation or approval from other trustees. 

Mismanagement of Governance: 

• Failure to adequately manage conflicts of interest, including removing clauses from contracts to avoid accountability. 
• A trustee negotiating her own salary and rejecting legal norms for conflict management. 

These actions deemed "misconduct and mismanagement" by the Charity Commission, damaged public trust not only in the foundation but also in charities more broadly. 

To avoid similar issues and maintain public trust Charities and Social Enterprises should follow these simple guidelines: 

• Disclose any potential conflicts, erring on the side of caution. These should be documented and mitigated through policies and oversight. 
• Establish clear guidelines on how connected persons can interact with the organisation to prevent undue influence or benefit. 
• Ensure robust financial and operational reporting, subject to external audits. 
• Meet funders’ requirements for unconnected directors and ensure a diversity of independent perspectives on decision-making boards. 
• Make sure to consider instances where you have a conflict of loyalty as well as more obvious conflicts of interest.  

Why It Matters 

Cases like the Captain Tom Foundation serve as cautionary tales. They underscore the need for ethical governance, especially when public donations and goodwill are involved. Trust, once lost, is challenging to rebuild. By fostering transparency and accountability, charities and social enterprises can ensure their missions are upheld and public trust is preserved. 

We have resources, including template Conflict of Interest policies, which are available to our Silver Members. Charity Commission guidance on managing conflicts of interest can be found here.