Charities 'forced to rely more on legal support'

06 Sep 2016 News

Charities are relying more on legal support than ever before, partly because of stricter regulation by the Charity Commission, according to lawyers quoted in an analysis of this month's Charity Finance Legal Survey.

Sam Macdonald, partner at the charity law firm, Farrer & Co, said his firm has seen a marked increase in charities seeking regulatory support, which has gone “hand-in-hand with the Charity Commission’s shift in approach to regulation and focus on compliance as opposed to guidance”.  

The development has led some charities to become “more wary about their engagement with the Commission”, he said.

“Legislation is brought in all the time - quite often without sufficient regard to the impact it will have on the charities. And so, it is sort of inevitable that the legal landscape they have to navigate becomes more complex and bumpier. And so there is a need for more expert help,” he said.

“Where legislation has not been properly thought through, that’s almost inevitably going to be to the disadvantage of charities.”

Susan Gent, deputy chair of the Lawyers in Charities Group, said the heavy reliance by charities on legal support is a relatively new phenomenon for a sector that once relied mostly on part-time lawyers - if at all.

“Just seven years ago, these positions were all part-time roles,” says Gent. “I think at that stage charities were just beginning to realise that they have actually got a large commercial organisation. They have a lot of contracts and they have to comply with more law than most organisations, because not only do they have company law, they have charity law.”

“Charities need to raise more and more money and are looking at lots of different ways to do that – whether that is licensing their brand and looking at their trading companies. And as each charity extends, the contracts and the legal workload behind that has increased as well.”

Today, according to Gent, large charities are highly likely to employ at least one internal legal staff member - and use multiple external firms, often on a more ad-hoc basis.

Tighter fundraising controls

Research by Charity Finance magazine reveals that charities are also using greater numbers of external law firms, following changes to the fundraising environment.

According to Con Alexander, partner at the firm Veale Wasbrough Vizards, charities are seeking support in an effort of tighten controls in response to events of last summer – including changes to fundraising practices.

“There is clearly an increased demand by charities that are involved with things like public fundraising, because there is so much spotlight on that - as well as demand from charities which are facing financial difficulties, because again there has been a real spotlight on that,” he told Charity Finance.

Similarly, there has been an increase in demand for support to negotiate mergers and the creation of group structures.

Shivaji Shiva, senior associate for Anthony Collins Solicitors, said his firm has seen an increased demand for support with the creation of group structures and other mergers – partly in an effort to navigate a harsher landscape.

“Recently, we have seen an increased focus on complex governance advice, including mergers, as charities delivering public services seek to reach the scale needed to survive in a world of fewer larger contracts,” he said.

“It’s a difficult challenge to deliver consistently high quality care and support to the charity’s beneficiaries, while meeting the regulatory requirements of the Care Quality Commission, the Charity Commission and other regulators, and maintaining a distinctive organisational ethos”.

According to Charity Finance research, charities using the most external law firms, include NSPCC, Marie Curie and RNLI.

Nicky Nelson, head of legal services at RNLI - which uses seven external legal providers as well as an in-house team — puts it down to “a reflection of the changing legal landscape”.

“With the call for greater regulation and greater transparency, we have had to work with a lot more policies and procedures,” she said.

RNLI’s decision to become an opt-in only charity from January next year has further contributed to an increase in legal workload, she said: “That has obviously meant a fair amount of work on the protection area and data security side. So I think there is just more of it.”

Gent estimates the average legal spend for a large charity at between £25,000 to £50,000 on external support for a “business as usual” situation. In-house costs for one legal member of staff would cost a further £50,000 to £100,000 a year, she said - although specific projects would cost more.

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