A power to issue positive directions to charities
OSCR has legal powers to issue specific types of direction to charities and charity trustees. Most of OSCR’s powers are interdictory or preventative, requiring charity trustees or others not to take particular actions. OSCR cannot direct charity trustees to take a specified positive action to remedy non-compliance or protect charitable assets.
One option would be to give OSCR a power to issue positive directions. The Charity Commissions for England and Wales, and Northern Ireland both have a wide ranging power of positive direction. If OSCR had such a power this could enhance its inquiry and enforcement powers in terms of protecting charitable assets and supporting good governance.
A positive direction could be coupled with a corresponding obligation on OSCR to publish an associated inquiry report, which could improve public confidence that OSCR was taking positive steps to remedy misconduct and protect assets. If a charity failed to comply with a positive direction that OSCR issued, it could be classed as misconduct. This could mean that enforcement action would be taken against the charity or trustees as appropriate. This is currently the case if a charity fails to comply with a direction from OSCR.
Table 15: Question 10
Should OSCR be given a power to issue positive directions?
Note: Percentages have been rounded therefore percentage totals may not equal 100%.
The vast majority of respondents said that OSCR SHOULD be given a power to issue positive directions (83%).
Only 6% of respondents said that a power to issue positive directions SHOULD NOT be granted to OSCR.
Table 16: Question 11
If you answered “Yes” to question 10, should a power to issue positive directions be wide ranging or a specific power?
|Wide Ranging||A Specific Power||Not Answered||Total|
Note: Question 11 was targeted at those that provided a “Yes” response to Question 10. In instances where the respondent did not respond “Yes” to Question 10 but subsequently provided a response to Question 11, these have been removed from the sample to avoid skewing the results – 7 cases.
There was more mixed feedback regarding whether the power to issue positive directions should be wide ranging or a specific power.
Just over half of respondents that said that OSCR should be given power and a remit to issue positive directions and that this should be WIDE RANGING.
The other (including regulators) and individuals sub-group were more likely to feedback that these powers should be wide ranging. Within the charity sector, there was strongest support among third sector intermediaries and local charities.
Some 44% said that it should be a SPECIFIC POWER. This was more commonly reported by the charity sector, and in particular membership/professional bodies and national charities.
Table 17: Question 12
If a charity failed to comply with a positive direction that OSCR had issued, should this be classed as trustee misconduct?
Note: Percentages have been rounded therefore percentage totals may not equal 100%.
Almost 60% of respondents said that if a charity failed to comply with a positive direction that OSCR had issued, this SHOULD be classed as trustee misconduct. There was strongest support for this proposal among the other (including regulators) sub-group, followed by individuals.
Almost 30% said that if a charity failed to comply with a positive direction that OSCR had issued, this SHOULD NOT be classed as trustee misconduct. The charity sector (and in particular national charities) and individuals were more likely to report that it should not be classed as trustee misconduct.
The final question in Section 4 was open-ended and invited comments to Question 10 to Question 12.
Note: The feedback was not specific to any question, and as such, the following presents our overall analysis of the comments provided.
The granting of power to OSCR to issue positive directions was in the main considered beneficial, with the most common feedback that this would:
- Provide OSCR with stronger powers to intervene and enforce in instances where charities were not adhering to its legal obligations – the power would thereby help remedy non-compliance and support improvements to be made.
- Promote change to protect the reputation of the sector and safeguard charitable assets.
- Safeguard and enhance public (and donor) confidence and trust in charity regulation by ensuring that charities were held to account for the way they operate. Positive directions would provide reassurance to the public/donors that OSCR had sufficient powers to address legitimate concerns about charities in Scotland.
- Make charity regulation consistent across the UK by aligning OSCR's powers with those of the Charity Commission for England and Wales and the Charity Commission for Northern Ireland.
- Improve the reputation and credibility of the sector.
- Support good charity governance and affect a positive impact on improving standards and practice across the sector.
Wider points, however, raised by many respondents who supported giving OSCR a power to issue positive directions included that:
- A cautious and sparing approach was welcomed, that reasonable and proportionate use of positive directions was considered essential, and that the introduction of such powers would need to be carefully managed – a
risk-based regulatory approach (i.e. support to improve in the first instance).
- The granting of such a power was typically viewed as a tool for OSCR to use in exceptional circumstances, with some concerns raised that it could be “easily misused” or become “the norm” or that OSCR could become a “shadow trustee by proxy”.
- There would need to be more detail provided and clear and transparent guidance for trustees which sets out the circumstances when such powers could be used; how the power would be applied; the process it would follow; how OSCR would support charities that had capacity issues; and the potential consequences of a charity failing to comply with a positive direction.
- Positive directions should be seen as a supportive measure to be used by OSCR rather than representing a threat to a charity’s organisational independence - “Telling trustees what not to do is fine but, when a charity is in difficulties, it is in most cases looking for positive guidance on what it must do”.
- Positive directions should only be used following a full inquiry or investigation – with the importance of ensuring a process of appropriate consultation and negotiation to achieve a positive outcome emphasised, and publication of an associated inquiry report.
- Processes would require to be put in place to review decisions made by OSCR, including rights to appeal and managing conflicts of interest.
Wider points raised by a few respondents included:
- The granting of such a power would potentially have resourcing implications for OSCR and charities.
- There would need to be a clear distinction between the powers held by OSCR and the powers of the Court of Session.
- It would appear disproportionate for multiple regulators to take action in relation to one issue. Cross-border charities highlighted that the existing approach whereby one lead regulator takes action should be continued.
- OSCR should be able to issue a positive direction not only to trustees but also to members. This point was raised in relation to enhancing the scrutiny of Arms’ Length External Organisations (ALEOs) and single member charities.
In the relatively few cases were positive directions were not supported (6% - see Table 15), the main feedback was that this might place additional burden on smaller charities.
A wide range of other factors were mentioned (often by individual respondents), including: the extra cost to the public sector of ensuring OSCR was sufficiently resourced to fulfil this function; that current powers were considered appropriate; that a strong enough case had not been made for the power to issue positive directions; that any such power should rest with the Court of Session; that Designated Religious Charities which in effect have their own regime should be exempt; and potential for conflicts of interest if, for example, another body was able to give positive directions to Non Departmental Public Bodies (i.e. those established by an Act of Parliament or a Royal Charter).
Where respondents indicated the need for the power to issue positive directions to be “wide ranging” (i.e. just over half), the most common feedback was that it would be difficult for OSCR to list in legislation all the circumstances in which it might be needed and/or be impossible for the legislation to correctly envisage the different situations in which a positive direction was needed.
Other factors raised by some respondents was that a wide ranging power would prevent the need for future iterative legislation changes as new circumstances emerged which required OSCR’s intervention. In this regard it was frequently reported that having wide-ranging powers would provide OSCR with much needed flexibility to address issues as they arose, and that this would enhance and support its regulatory function.
Where respondents indicated the need for power to issue positive directions be a “specific power” (just under half), the most common feedback reported was that OSCR should only intervene on aspects specific to the governance of charities, rather than having power to issue positive directions relating to the day-to-day operational management of charities. The importance of protecting and maintaining a charity’s independence from the public sector was further emphasised, and that any legislation would require to be clear about the specific circumstances in which OSCR could use this power.
Much of the feedback from these respondents emphasised that the power to issue positive directions should not be “too broad” or be an “open-ended discretion”. A “narrower focus” was in the main preferred (e.g. directing a charity to act in such a way that compliance with law or regulation was secured, that compliance with the charity's governing document was enforced, etc.).
Other feedback reported by some respondents highlighted that a specific power would have the added benefit of:
- Ensuring the same standards were applied across the whole charity sector.
- Minimising dubiety regarding the specific circumstances when OSCR could intervene.
Other points raised by a few respondents were that a wide-ranging power might make it more difficult for charities to recruit trustees, and that there was a need for further consultation with the charity sector regarding how the specific power could be defined.
As highlighted in Table 17 above, almost 60% of respondents agreed that it should be classed as trustee misconduct if a charity failed to comply with a positive direction from OSCR. The following points were raised by many respondents:
- That individual trustees would need to be made aware of the positive direction, and have sufficient opportunity, time and support to comply.
- That any change to legislation should not place an undue burden on organisations with limited resources. For example, it was frequently reported that smaller charities might not have the capacity to implement required changes within the given timescales, while others might be experiencing difficulties or “struggling” in some way which might prevent it from complying) - “There could be a legitimate reason that the charity has been unable to follow the positive direction, such as lack of support, time and resources. We would like to see a support and challenge model of intervention rather than a punitive one. This will of course have implications for OSCR’s own resources and time”.
Many of the respondents who answered “Yes” to the question - if a charity failed to comply with a positive direction that OSCR had issued, should this be classed as trustee misconduct - reported that it should “not be automatically” classed as trustee misconduct. The main feedback across respondent sub-groups was that:
- It should only be classed as trustee misconduct following a full inquiry or investigation into non-compliance, otherwise it could be considered disproportionate. It was felt that reasons for issuing a positive direction were likely to be varied in nature and seriousness, and so each case should be considered on its own merits.
- An investigation would help assess whether there was a potential case of trustee misconduct, identification of any repeated wrong-doing, and for a judgment to be made which took into account the specific circumstances and context, including any mitigating factors (e.g. “genuinely tried their best or acted in good faith”, “every practicable step has been taken”). An example provided in a number of cases was failure to recruit additional board members due to a lack of applications rather than a lack of recruitment activity.
- There must be a fair and effective rights to appeal process.
Those respondents who reported that failure to comply with a positive direction that OSCR had issued should not be classed as trustee misconduct typically raised similar points to those outlined above. Wider points raised included that not every trustee involved in not carrying out the positive direction should be assumed to have been culpable.
More generally, wider points raised in a few cases included:
- That there should be a process whereby charities could apply to vary the order (i.e. agree a different course of action).
- That due regard must be had when giving positive direction in cases that may be “sub judice” in any way.
- That enforceability would be difficult to manage.