This article is the first in a series - inspired by recent reforms introduced by the Charities (Regulation and Administration) (Scotland) Act 2023 - aiming to reinforce key considerations that those managing charities must keep at the forefront of their minds. Some provisions of the 2023 Act have already been enacted via secondary legislation, whilst others are due to be brought into force next year. These changes have important implications for individuals and organisations alike. This article will focus on a foundational issue: the importance of appointing suitable individuals to the charity leadership.
What does the charity need?
Regardless of the size of the charity, it is inevitable that there will be a need to appoint new charity trustees at some point. This could be due to an identified skills gap or if the number of trustees has fallen below the amount stated in the constitution. From a governance perspective, it is important to have a diverse leadership to provide depth to a charity's decision-making. Therefore, reviewing any skill or experience gaps is crucial.
The recruitment process itself should be open and must comply with any recruitment policies of the charity. The charity's purpose, values and expectations should be clearly outlined from the outset in order to find candidates that align with these. It is also important that the governing document is consulted to understand what formalities must be followed to validly appoint a new trustee or senior leader.
Importance of due diligence
Existing charity trustees have a general duty under the 2005 Act to act with care and diligence that it is reasonable to expect of a person who is managing the affairs of another person. Therefore, it is the charity trustees' responsibility to ensure that those they appoint to lead are eligible to do so. Conducting vetting on candidates is a vital component of the recruitment process to ensure they have not been disqualified.
Whilst previously the criteria for automatic disqualification under the 2005 Act were only applied to charity trustees, the 2023 Act extends the scope of disqualification to "senior management functions." It is understood that this would include the role of chief executive and chief financial officer. Such change will fill any accountability gaps to ensure that those in power cannot abuse their position of trust. This provision is expected to be introduced in 2025.
Charities must also remain vigilant following the 2023 Act's expansion of the criteria for disqualification to include, among other matters, those with convictions under anti-terrorism or anti-bribery laws.
In addition to ensuring that candidates are not disqualified, it is important that references are sought and that any potential conflict of interest is managed. There may be circumstances when personal interests conflict with the interests of the charity. Whilst this itself should not preclude appointment, it is important to ensure that the candidate can put their personal interests aside. A perceived pursuit of self-interest by those making decisions on behalf of the charity poses a significant reputational risk so appropriate procedures and a robust conflict of interest policy should be in place.
OSCR's new tool: Record of Removed Persons
Prior to the 2023 Act, charities were reliant on prospective leaders voluntarily disclosing any previous issues related to their record as a trustee. This posed a significant risk to charities, who would have to dedicate a significant amount of time and resource to verify said disclosure and ensure the candidate was not disqualified from acting as a charity trustee.
Now, charities have a valuable due diligence tool at their disposal. A new searchable register has been created by the 2023 Act, containing the details of all individuals who have been disqualified from being a charity trustee in Scotland by the Court of Session. This register is now live and acts as an authoritative record which can be easily searched (using the individual's surname) to provide reassurance about the candidate [OSCR | Record of Removed Persons]. Nevertheless, care should still be taken as an individual may be automatically disqualified without having been removed by the Court of Session (and would therefore not feature in the record).
The new register will be extended in the future to also include the names of those with "senior management functions" that have been disqualified. Whilst there are limited exceptions to publication (such as safety concerns), the introduction of the register makes the sector as a whole more transparent and provides charities with a key resource to maintain public trust and confidence.
OSCR's new Register of Charity Trustees
Once the recruitment process for a new leader has concluded and the successful candidate is appointed, charities should be alive to the updated registration requirements under the 2023 Act reforms. There is now a new obligation for all charities to register the names, addresses and contact information of trustees with OSCR. Only trustees names, however, will be publicly available on OSCR's new register. The new public register is not yet live on OSCR's website and we will post an update when this comes into effect mid-2025.
Conclusion
Selecting and vetting a new charity trustee or senior leader can seem a daunting process. The summary above aims to provide some key markers for charities to follow. For those involved in managing charities, this article has emphasised the importance of using effective due diligence strategies to mitigate against the legal and moral risks of recruiting the wrong individual. The new registers introduced by the 2023 Act are a welcome resource and should be adopted as standard in any selection process. However, care should always be taken when appointing someone to your leadership in order to comply with the law, protect the charity, and preserve public confidence.
This article was written by Josh Chambers, a Trainee Solicitor in our Commercial team.
