The launch on 13 February by the Charity Commission of consultation on draft guidance for managing relationships between charities and connected non-charitable organisations is a timely reminder of the governance issues facing charitable registered social landlords when handling their relationship with non-charitable group companies. Although the Charity Commission guidance will not have effect in Scotland it raises a number of issues of potential concern for RSLs, particularly as increasingly complex group structures, involving the use of non-charitable trading subsidiaries, are becoming more commonplace.
Increasingly RSLs have established non-charitable trading subsidiaries for the purpose of conducting activities inconsistent with their primary charitable functions, for accounting or other reasons. This can include, for example, companies engaged in development activity, joint ventures and renewable energy projects, established with a view to making profits that can be gift aided back to the parent RSL to support its core charitable activities. It is not unusual for RSLs to make substantial funding and other resources, such as shared staff and shared premises, available to such a subsidiary.
Key issues for the members of a RSL engaged in such activity include:-
- The need to actively manage the relation with the subsidiary.
- The need to preserve clear separation and independence from the subsidiary, with separate boards and decision making functions.
- To recognise that the primary duties of the members are to the RSL.
- To identify and avoid conflicts of interest and to have clearly documented policies.
The importance of clearly documenting the relationship between the RSL and its subsidiary should be emphasised. It should not be left to an undocumented or casual arrangement. Important issues that may need to be addressed include sharing of staff and premises, the provision of services, the sharing of a website and data sharing.
Funding is also a key area. Any provision of finance, whether formal or through, for example, the provision of shared services or accommodation, to a subsidiary must be approved strictly in accordance with the constitution of the RSL and in accordance with its charitable obligations. It should be properly documented. It is likely that it should be on commercial terms and the need for security should be carefully considered, particularly if the funding is significant to the RSL. Again, it should be emphasised that the obligations of the members of the RSL are to act in the best interests of the RSL, rather than the subsidiary, in structuring any such financial support.
As RSL group structures become increasingly complex with a mixture of charitable and non-charitable entities, the need to actively manage the associated issues and to have the correct policies and documentation in place is emphasised by the latest draft guidance.