University governance and the Charity Commission
Number 98: #USSbriefs98
Dermot Feenan, Associate Research Fellow, Institute of Advanced Legal Studies
Recent news that the Charity Commission had instructed parties to a dispute about governance at Christ Church, University of Oxford, to enter into mediation draws attention to a somewhat little-known area of regulation in higher education.
This article summarises the role of the Commission in relation to universities, and the increasingly important accompanying responsibilities of trustees in university governance. This might seem a somewhat arcane focus, but most attention to this aspect of governance seems to have come from lawyers, policy wonks, and administrators. The article is, therefore, a reminder of Alex Posecznick’s observation that to sustain the critical traditions of the academy, scholars must address questions of university governance.
The Charity Commission
The Charity Commission for England and Wales is the statutory regulator and registrar of charities in England and Wales. It is a ‘body corporate’, independent of ministers or any government department.
There are equivalent bodies in Scotland (OSCR, The Scottish Charity Regulator) and in Northern Ireland (The Charity Commission for Northern Ireland), each subject to its own legislative framework. I focus here on the Charity Commission for England and Wales to illustrate this area of regulation.
The statutory framework for the Charity Commission is set out in the Charities Act 2011 and Charities (Protection and Social Investment) Act 2016.
The Commission has five statutory objectives. Four of these objectives are directly relevant to universities:
- The public confidence objective to increase public trust and confidence in charities.
- The compliance objective to promote compliance by charity trustees with their legal obligations in exercising control and management of the administration of their charities.
- The charitable resources objective to promote the effective use of charitable resources.
- The accountability objective to enhance the accountability of charities to donors, beneficiaries and the general public.
So just what is a charity, and where do universities come in?
What is a charity?
Research in 2018 revealed that most people think of Oxfam, Cancer Research UK and the British Heart Foundation when they think of a charity. Very few people think of educational organisations. But they share essential characteristics.
A charity is statutorily defined as an institution which is established for charitable purposes only and which falls within the jurisdiction of the High Court. A ‘charitable purpose’ is one or more of the purposes listed in the Charities Act 2011 and any other purposes including those that may reasonably be regarded as analogous to, or within the spirit of, any of the listed purposes. One of the listed purposes is ‘the advancement of education’. A charity must also be for the public benefit.
A charity’s ‘objects’ describe and identify the purpose for which the charity has been set up. Regents University London is a charity whose objects are:
‘The advancement of education for the public benefit; and the foundation, maintenance and support of an educational college or colleges for students both male and female to include residential accommodation and all necessary and proper ancillary services for such establishment.’
Those having general control and management of the administration of a charity are known as the ‘charity trustees’. They typically sit as a board. Within the university, this will be the governing body (variously, the council, board of governors, or — in Scotland — court), though some universities, such as the University of Bristol, have replaced the old name of the governing body (in their case ‘Council’) with ‘the Board of Trustees’.
The trustees must apply the charitable assets for the charitable purposes of the charity. This was one of the grounds of complaint to the Charity Commission in the matter involving Christ Church — as will be explained shortly.
Members of governing bodies have further responsibilities, with six main duties:
- Ensure the charity is carrying out its purposes for the public benefit.
- Comply with the charity’s governing document and the law.
- Act in the charity’s best interests.
- Manage the charity’s resources responsibly.
- Act with reasonable care and skill.
- Ensure the charity is accountable.
Each trustee shares equal responsibility for the charity. Their authority is set out in the charity’s governing document(s) (which may be a constitution, trust deed, articles of association or similar document). The document(s) will also set out the objects of the charity. The title(s) of the document(s) may vary from institution to institution: Charter/ Statutes/ Ordinances/ Regulations/ By-laws/ Articles of Association. The University of Oxford’s Statutes and Regulations set out the constitutional framework within which it operates. In the case of Regent’s University London, the governing document is the Articles of Association.
In general, every charity must be registered in the register of charities (which can be searched online). However, some charities are not registered. One class of non-registered charities is ‘exempt’ charities.
Most higher education (HE) institutions come within the category of ‘exempt’ charities under the Charities Act 2011 (s. 22, Sch. 3). They are not subject to the same regulatory functions, powers and duties that the Commission has over registered charities such as Oxfam — hence their ‘exempt’ status. However, as charities, principles of charity law still apply to HE exempt charities.
The increasing importance of trusteeship in university governance has given rise to a growing literature, including Trustee Responsibilities in Higher Education: A Guide for Governors (2017) produced by the Leadership Foundation for Higher Education (before it was absorbed into Advance HE). Dennis Farrington and David Palfreyman devote a section to charity trusteeship in their textbook The Law of Higher Education, 2nd edition (2012).
The law on charities goes back centuries, is extensive, and falls within that broad area of law known as Equity and Trusts. Anyone wanting a more in-depth analysis may wish to refer to some of leading academic textbooks on the subject, such as Alastair Hudson, Equity and Trusts, 9th edition (2016), or more practitioner-oriented texts such as Cecile Gillard and Kirsty Semple’s, Charity Law and Governance: A Practical Guide, 2nd edition (2018).
The Commission has six general functions, two of which are most directly relevant to universities:
- Encouraging and facilitating the better administration of charities.
- Identifying and investigating apparent misconduct or mismanagement in the administration of charities and taking remedial or protective action in connection with misconduct or mismanagement in the administration of charities.
In addition, the Commission has six statutory duties. The most relevant to universities is the duty to have regard to the principles of best regulatory practice (including the principles under which regulatory activities should be proportionate, accountable, consistent, transparent and targeted only at cases in which action is needed).
The Commission has a number of powers over charities. It can open an inquiry into a charity. It can issue a warning to a charity or trustee of a charity when it considers there has been a breach of trust or duty or other misconduct or mismanagement. The Commission’s official warning power was introduced by the Charities (Protection and Social Investment) Act 2016 to supplement the Commission’s existing powers to deal with wrongdoing in charities and to tackle problems that do not justify the opening of a formal inquiry. An official warning is designed to ensure that charity trustees know that a breach, misconduct or mismanagement has taken place and that they are aware it is a serious matter, encouraging them to act where they may previously have been reluctant to do so.
While the Commission is the regulator, all charities are subject to the jurisdiction of the courts. All charitable assets are under the ultimate protection of the courts, acting as guardian of the public interest on behalf of the Crown.
Appeals can be made against decisions of the Charity Commission to the First-tier Tribunal (General Regulatory Chamber). The Tribunal may review other Commission decisions; for example, a decision to open an inquiry into a charity.
Christ Church, and others
So, how does Christ Church come before the attention of the Charity Commission? It is a registered charity. Unlike most HEIs, it is not an ‘exempt charity’.
In September 2019, it was reported that Jonathan Aitken, former Conservative Party minister and a Christ Church alumnus, wrote to the Chair of the Charity Commission to raise concerns about ‘wrongful charitable governance’ at Christ Church. Aitken claimed that individual members of the governing body were, without the authority of the full body, instructing lawyers (paid from the charity’s funds) to provide them with opinions to justify redaction of their names from the report of a tribunal which rejected their allegations of misconduct against the Dean of Christ Church, the Very Rev. Professor Martyn Percy. Mr Aitken claimed that Christ Church had already spent £1.6 million on convening the tribunal and that the bill could rise to more than £2 million.
The Commission replied that the trustees appeared to have followed the charity’s rules but that it was concerned at the large sums reportedly spent. It requested the trustees to set out the actual costs and explain how they oversaw and controlled them. Both parties in the Christ Church dispute also called on the Charity Commission to intervene. It told them to enter into mediation.
Another university which has been embroiled in a controversy which has drawn in the Commission is Richmond, American University in London (RAUIL), a non-profit university set up in 1972 by Sir Cyril Taylor. It was funded through the Cyril Taylor Charitable Foundation. In December 2019, RAUIL’s vice chancellor, Lawrence Abeln, resigned after filing a complaint with the Commission claiming that the Foundation was operating as a ‘shell’ for the commercial interests of a company, American Institute for Foreign Study (AIFS). AIFS is a private company headquartered in the USA which is a provider of au pairs in America, study abroad, foreign student exchange, gifted education, student travel insurance and high school study abroad. Its chair is Stephen Rasch. Taylor died in 2018 and left shares worth £195m in AIFS to the Foundation.
In March 2020, the Foundation — which, in 2018, had income of over £200m and grants of £5m — confirmed that it would no longer fund the University.
Rasch is a member of the Board of the Foundation. The local MP, Sarah Olney MP, wrote to the Commission, calling for an investigation. She said she believed it was a ‘contradiction of the charity’s stated aims’ to stop funding the university and that there was an ‘inappropriately close relationship’ between the governance of Taylor’s charitable foundation and AIFS.
Each of the HE institutions mentioned in this section are registered charities but HE exempt charities may also fall within the scope of the Commission’s work.
HE exempt charities
The ‘principal regulator’ of universities that are ‘exempt’ charities has, since 1 April 2018, been the Office for Students (OfS) — established by the Higher Education and Research Act 2017. The OfS and the Commission have a Memorandum of Understanding to assist their respective functions in 5 ways.
- Promote a common understanding of each other’s responsibilities, working procedures, legal powers and constraints.
- Promote co-operation between staff at a strategic and operational level.
- Facilitate effective investigation with the objective of prevention, detection and remedy of misconduct or mismanagement in the administration of charities and charitable funds.
- Ensure the effective disclosure of information in compliance with all relevant legislation.
- Ensure appropriate consultation on matters of relevant and significant policy initiatives to ensure that charities comply fully with their legal obligations and adopt best practice in governance and accountability.
The Memorandum sets out extensive expectations and requirements of universities.
Helen Stephenson, the Chief Executive of the Commission, and Nicola Dandridge, Chief Executive of the OfS have written:
‘[w]here the OfS does not have the power it needs to address abuse or wrongdoing, it will refer the issue to the Commission — which may then investigate and consider any necessary remedial or protective action.’
As principal regulator of HE exempt charities, the OfS has a ‘compliance objective’, which is to do all it reasonably can to promote compliance by the trustees of HE exempt charities with their legal obligations in exercising control and management of the administration of their charity.
In general, therefore, the Charity Commission will not become involved in regulation of most universities in England — the principal regulatory role falling to the OfS. The Commission is, however, directly responsible for charity regulation of the small number of registered HEI charities, such as Christ Church, and, according to the Memorandum of Understanding between the OfS and the Commission, will become involved where the OfS refers matters to the Commission.
New ideas for governance?
In the United Kingdom, these concerns have arisen as a result of scandals over the conduct and excessive pay and benefits of some senior officers in universities, such as at De Montfort University and the University of Bath. These controversies in the sector have been compounded by wider concerns over racial harassment, sexual misconduct, and the themes of the University and College Union’s industrial actions over pensions in 2018 and, additionally, ‘Four Fights’ in 2019/20.
These concerns have emerged out of broader critique of the neoliberalisation of higher education which has been characterised globally by marketisation, corporatisation, competitionisation, financialisation, consumerisation, and managerialisation. These developments have led some, such as Susan Wright and Cris Shore, to wonder whether the public university is dead, while others, such as John Holmwood, have already posted its requiem.
A charity must be for the public benefit. The Commission’s latest guidance on public benefit was published in 2013. The ‘public’ aspect of this requires that the charitable purpose:
- Benefit the public in general, or a sufficient section of the public — what is a ‘sufficient section of the public’ varies from purpose to purpose.
- Not give rise to more than incidental personal benefit — personal benefit is ‘incidental’ where (having regard both to its nature and to its amount) it is a necessary result or by-product of carrying out the purpose.
In general, and unless otherwise specified, for universities a ‘sufficient section of the public’ will be the students undertaking education at the university.
The concept of ‘public benefit’ does not equate precisely with the concept of ‘the public good’, but the relationship is worth interrogating. In doing so we enter the territory of jurisprudence and how the analysis of concepts and theories in charity law may help orient new directions of travel. Broadly speaking, a ‘public benefit’ is something that contributes to the good of either the public in general or a section of it, whereas the ‘public good’ refers to the good of the public in general.
Might this core requirement of charity law to provide a public benefit be leveraged against those aspects of neoliberalisation in universities — extreme emphasis on individualism and opposition to collectivism — which undermine the public good? Not in the abstract. However, while acknowledging Jonathan Garton’s observation in his book Public Benefit in Charity Law that ‘there has been no real consistency in how the term, or its constituent principles, has been conceived by the courts’, the concept of public benefit might be deployed by those who continue to advocate for idea that the function of the university is to contribute to the public good. There is no shortage of recent reminders of the value of such public good, from Morten Levin and Davydd Greenwood’s Creating a New Public University and Reviving Democracy (2016) through to Jason Owen-Smith’s Research Universities and the Public Good (2018).
It is also worth noting that the requirement of public benefit contrasts with the legislative duty of the director of a company to ‘act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole.’ The LSE would provide an interesting case study for comparison of these duties in practice because it is both an HE exempt charity and a registered company.
In addition to the traditional ‘public benefit’ test, the Higher Education and Research Act 2017, s. 13(1)(b), conferred power on the OfS to include in the initial or ongoing registration conditions for higher education providers a public interest governance condition. The Act does not define ‘public interest’. Instead, the OfS must, according to s. 14(2), ‘determine and publish a list of principles applicable to the governance of English higher education providers.’ The Act goes on to provide, in s. 14(3): ‘The principles must be those that the OfS considers will help to ensure that English higher education providers perform their functions in the public interest.’
While the Act does not define ‘public interest, it does provide, in s. 14(7), that the OfS must, in publishing its list, ‘include the principle that academic staff at an English higher education provider have freedom within the law — (a) to question and test received wisdom, and (b) to put forward new ideas and controversial or unpopular opinions, without placing themselves in jeopardy of losing their jobs or privileges they may have at the provider.’
One of the ongoing conditions of registration with the OfS is, therefore, that a HEI’s governing documents ‘must uphold the public interest governance principles that are applicable to it’.
Another condition states, among other things, that providers
‘must have in place adequate and effective […] governance arrangements to: […] Deliver, in practice, the public interest governance principles that are applicable to it’.
The OfS has published public interest governance principles. There are nine principles for all registered providers (and, additionally, two for providers in receipt of financial support from the OfS or from UKRI, and one for providers authorised with degree awarding powers). One of the nine principles requires that the
‘size, composition, diversity, skills mix, and terms of office of the governing body is appropriate for the nature, scale and complexity of the provider.’
These are specific public interest requirements but they resonate with the broader case by Bill Rammell, former Universities Minister, for protecting public interest in higher education.
Charity law and regulation comprises requirements of public benefit and public interest that might be utilised more productively in thinking about the purposes of universities and holding trustees to account. ‘Public interest’ may come within the regulatory purview of the Commission upon a referral from the OfS, and might inform consideration of ‘public benefit’.
It is significant that under the Higher Education and Research Act 2017, the OfS may revise the public interest governance principles. The current number and content of principles are not set in stone; they can be modified and or added to. The Board of the OfS sets the strategy of the OfS, and currently comprises 15 fifteen members including the Chief Executive of the OfS, who in turn, heads a 6-member senior team. What of the Charity Commission, which may attend to referrals from the OfS? According to charity law specialist Professor Debra Morris, writing in 2016, ‘[s]igns of a more active and (some might say) aggressive Commission are emerging.’ Vacancies on the Commission are, as HM Government Public Appointments, advertised through the Cabinet Office.
However, referring a matter of university governance to the Charity Commission even if it has authority to intervene may not resolve concerns with governance. Recall that in the Christ Church matter, the parties were advised to enter mediation. The Commission’s reasoning is somewhat odd. It stated: ‘any regulatory intervention can be effective only if relationships between all parties are stable.’ This is not true for regulation generally. Is it possible the Commission sat on the fence, partly with an eye on the Dean’s application to an Employment Tribunal (with the case reportedly ‘due to be heard next year’) — which would judicially dispose of the dispute?
Senior officers in universities will also need to be reminded of their public benefit responsibilities. In the latest version of the Committee of University Chairs’ The Higher Education Code of Governance (June 2018), there is no mention of ‘public benefit’ and only two superficial references to ‘public interest’. As Felix Minto notes, the Code ‘could go so much further.’
Another challenge to optimising accountability lies in countering the obfuscations of lawyers, consultants and policy wonks on the issues at stake, such as the false antinomy and specious normative claims advanced by Sam Macdonald and Rachel Holmes that
‘[a]t the heart of this debate is a tension between traditional governance in higher education — in which the academic body played a fuller democratic role — and modern governance, in which smaller boards are preferred (partly for their flexibility) and board members are held to high standards in decision-making.’
Those of us who have studied so-called ‘modern governance’ in universities know that nether flexibility nor high standards of decision-making are the counterpoints to supposed ‘fuller democratic’ ‘traditional governance’.
The recent strikes by UCU members in higher and further education have demonstrated widespread dissatisfaction with university governance, from those both within and outside the university. The controversy at Christ Church (and Buckingham) and the increasing attention to trusteeship in higher education from the Commission and the OfS suggests that charity law will likely provide further opportunities for university governance to be placed under scrutiny and potentially held accountable.
This paper represents the views of the author only. The author believes all information to be reliable and accurate; if any errors are found please contact us so that we can correct them. We welcome discussion of the points raised and suggest that discussants use Twitter with the hashtag #USSbriefs98 ; the author will try to respond as appropriate. This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.