Contents

Page

Introduction 1

Executive summary 2

Findings 5

Thinking about a commercial partnership 5

The value of a charity’s name 5

Charities of any size can establish commercial partnerships 6

What will the charity gain from the partnership? 7

Ethical issues 9

Risks and expectations 11

Research, planning and strategy 14

Approaching companies 15

Entering into a commercial partnership 18

Legal issues 18

Tax issues 21

Negotiating a fair deal with a commercial partner 22

Commercial agreements 25

Maintaining a commercial partnership 27

Monitoring 27

Annex A - Glossary of Terms 28

Annex B - Resources of Trustees 30

Annex C - Bibliography 37

Acknowledgements 39

Charities and RS2

Commercial Partners (Version 07/02)

This study focuses on the commercialpartnership that exists when a charityand a commercial company enter intoan agreement either to raise funds forthe charity or to raise its profile.Typically this will allow the companyto use the charity's name and logo topromote its own products or services.In return the charity receives aproportion of the income, or someother benefit, generated from thepromotion of those products. Thereport does not cover partnerships thatseek to deliver a charity’s service to itsusers, or the relationship that existsbetween a charity and a wholly ownedtrading subsidiary.

As a fund-raising technique,commercial partnerships are just oneoption available for charities to choosefrom among a wider portfolio offunding options and opportunities. Insome cases, commercial partnershipsmay not prove to be an effective orviable option for a charity and thetrustees may wish to use other formsof fund-raising.

A charity's name is a precious assetand using it to help develop andpromote successful commercialpartnerships can generate a wide rangeof benefits for both the charity and thecommercial partner. These benefitsinclude the opportunity to raise fundsand develop effective workingrelationships between the charitableand the commercial sector.

To highlight good practice and legalrequirements, we have consulted ourbank of worked cases and used ourown experiences of the issue. We alsoapproached a range of charities that

Introduction

1

are actively raising funds throughcommercial partnerships to meet anddiscuss the issue.

Executive summary

Charities have much to gain fromentering into commercial partnershipswith companies, both in terms of theopportunities for fund-raising and inproviding a mechanism for generatingsubtler and more pervasive benefitslike improved understanding of thecorporate sector.

Any charity can enter into acommercial partnership with acompany, regardless of its nature andsize. It is not the preserve of largenational charities.

Commercial partnerships can be wortha great deal and represent big business,both for charities and companies.Benefits for charities include financialdonations, gifts in kind, influencewithin the partner company and araised profile, all of which can enhancea charity's reputation, lead to furthersupport and help achieve the charity’sobjects.

However, charities choosing to raisefunds through commercialpartnerships need to recognise that themechanism also carries inherent risks.They should take appropriate steps toidentify and address these risks beforestarting an agreement. A number ofcharities have also stressed theimportance of placing commercialpartnerships within the framework ofa wider fund-raising strategy. Whilstpartnerships can be effective, they maynot be the most effective way of raisingfunds and the more traditional pursuitof legacies and direct appeals cangenerate more with less initial costsand less risk. However, a partnershipcan tap into "new" sources of incomewhich a traditional appeal will not

reach and the raising of a charity'sprofile may, in the longer term, boostother fund-raising ventures.

A successful partnership can raise botha charity's income and profile. Anunsuccessful one, where stakeholdersperceive the charity to have "sold out",can damage income and profile.

The main difficulties that theCommission encounters in this area arecases where charities:

• Have not complied with therelevant fund-raising legislation;Part II of the Charities Act 1992 andThe Charitable Institutions (Fund-raising) Regulations 1994.

• Have not recognised the value oftheir name and reputation andhave failed to take adequate stepsto protect them before entering intoa commercial agreement.

• Have failed to effectively identifyand manage any potential risksthat the commercial partnershipbrings with it.

• Have failed to establish an ethicalpolicy which can be used to ensurethat there is a commonunderstanding of the charity'sethical values.

• Have not considered how they willmonitor and manage thecommercial partnership once theagreement has commenced.

• Have failed to check the credentialsof the company before enteringinto the agreement.

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Executive summary

Charities can mitigate the chances ofproblems occurring with commercialpartnerships by ensuring that theyhave robust policies and procedures inplace prior to entering into anagreement. These should beincorporated within the charity's widerfund-raising strategies and reviewedon a regular basis to ensure they stayrelevant and fresh.

The main points arising out of thisreport are summarised below. Furtherinformation on each point can befound in the main body of the report.Charities may also find the resourceslisted in Annex B, on pages 30-36useful.

• Charities should recognise thattheir name is a valuable asset andthat, in a commercial partnership,association with a charity cangenerate substantial benefits for thecompany. Accordingly, charitiesneed to take steps to protect and,where appropriate takeprofessional advice on valuing,their name.

• Charities need to clearly establishwhat they expect to gain from acommercial partnership prior toentering into an agreement and setup appropriate systems to monitorand review the partnership.

• Charities should considerestablishing an ethical policy whichclearly sets out the charity's values.This will form part of their widerfund-raising strategy and they canuse it to ensure that trustees, staffand any potential commercialpartners, share a commonunderstanding of the charity'sethical values.

• As best practice, charities shouldhighlight their ethical policies andany commercial partnerships theyhave in their Annual Report andyearly accounts.

• Against the framework of theirethical policy, charities need tocarefully consider whether aproposed commercial partnershipis appropriate and in the bestinterests of the charity.

• Regardless of the size or nature ofthe commercial partnership, allcharities should take theappropriate steps to ensure thatthey identify and manage any risksconnected to a commercialpartnership fund-raising agreement.

• All charities need to ensure fromthe outset of a commercialagreement that the expectations ofboth the charity and the companyhave been agreed and can bemanaged effectively andappropriately.

• All charities should research aproposed commercial partnershipcarefully and, if it proves to beappropriate and viable, establish aplan of how the partnership will bemanaged.

• All charities should consider takingadvice from a professional orspecialist prior to commencing acommercial partner agreement.

• Charities must ensure that theycomply with the legal requirementsdetailed in Part II of the CharitiesAct 1992 and The CharitableInstitutions (Fund-raising)Regulations 1994 if they are

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Executive summary

involved in, or thinking ofbecoming involved in, fund-raisingwith a commercial partner.

• Charities must exercise controlover the commercial agreementand must not simply accept anagreement drawn up by a companywithout seeking appropriateadvice.

• Charities should use the legalrequirements detailed in Part II ofthe Charities Act 1992 and TheCharitable Institutions (Fund-raising) Regulations 1994 toprovide a framework forcommercial partnershiparrangements made between thecharity's trading subsidiary and thecommercial partner.

• Charities need to consider the taximplications of a commercialagreement prior to entering into acommercial partnership and takeadvice as necessary.

• Charities need to make certain thatthe proposed commercialagreement represents a fair deal forthe charity. We also recommendthat charities familiarisethemselves with the good practiceguidance available on this topic,before entering into an agreement.

• As best practice charities shouldcheck the credentials of a company,consult with other charities ororganisations that have dealt withthe company and take professionaladvice to ensure they are getting afair deal.

• Charities must establish clearagreements with the commercialpartner before the partnershipstarts. The precise nature and the

complexity of the agreement willdepend on the size of the charityand company and the type ofcommercial partner.

• Charities should exercise theirability under Regulation 5 of the1994 Fund-raising Regulations torequest documentation fromcommercial partners as part of anon-going monitoring and reviewprocess.

• Charities should monitor andreview the performance ofcommercial partnerships on aregular basis, to ensure that theyremain an effective means of fund-raising.

The Commission will seek toincorporate the findings from thisreport into its range of publications.

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Findings - Thinking aboutcommercial partnerships

The value of a charity's name

"If I was giving a charity advice, Iwould say do not compromise yourwork or your principles and don'tunderestimate the power andimportance of your brand, whichmight actually be more importantthan a product brand, even though itis a market leader".1

A charity's name is a unique andprecious asset. Our caseworkexperience and discussions withcharities indicate that most are acutelyaware of this. It is also a message thatis conveyed in articles and guidanceavailable to trustees from a variety ofsources including a number of ourexisting publications dealing withcharities and fund-raising, (CC20,Charities and fund-raising and Fund-raising through partnerships withcompanies). Charity names and logosare widely respected and linked tocertain values and concepts whichmany people wish to support. A goodexample of this is the affinity creditcards which has become big businessand is an example of the added valuethat association with a charitable causecan give a commercial company.

Commercial partnerships existbetween charities and companies formutual benefit. In a commercialpartnership a company uses a charity'sname in association with its own inorder to generate a specific financial orother benefit, part of which is given to,or applied for the benefit of the charity.As an asset, the name of a charity canbe used to further the overall interests

of the organisation; commercialparticipation is a valid way ofachieving this.

Charities often have strong brandnames and personalities which need tobe aligned to their core work to ensurethat the fund-raising message isintegrated and consistent with thecharity's aims and values. The practiceof "branding" charities, ascribing aspecific value to a charity's name andlogo, has gained prevalence in the USAand is designed primarily to assistcharities in negotiating a fair deal witha commercial partner. For charities,establishing a "brand personality" isthe culmination of a process whichentails ensuring there is a commonunderstanding of the objectives, valuesand aims of the charity throughout thecharity.

In our experience, charities can riskpublic confidence and support whentheir fund-raising activities and choiceof commercial partners seem not to beconsistent with the charity's core work,aims, values and image. High profilepress stories and Charity Commissioncases testify to the damage that can becaused to a charity's reputation by areal or perceived clash between acommercial partnership and a charity'score work, image and name.

Every charity has a duty to ensure thatit protects its name and reputationwhen it gets involved in commercialpartnerships. The law does go someway to embracing and protectingcharities, but trustees and charity staffshould remain vigilant and give fullregard to recommended good practiceand professional codes of conduct.

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1 Business Community Partnerships: Fact or Fiction? Business Community Connections (2001)

Developing a successful strategy andusing local companies

This case highlights the steps thathave been taken by a medium sizedcharity to tap into local companiesand form successful commercialpartnerships.

• A recently registered, mediumsized charity has been extremelysuccessful in forging commercialpartnerships with local companies,providing a significant boost tothe charity's income. Thepartnerships were established tohelp the charity meet its aim ofbuilding its own premises. Thecharity has capitalised on itsappeal within the local community,which has in turn improved itssuccess rate in developingcommercial partnerships withlocal companies.

• From the point of registration thecharity has used a comprehensiveBusiness Plan to inform its fund-raising strategies. Additionally,the trustees have clearly andconsistently demonstrated thatthey understand the need for aprofessional and pro-activefund-raising strategy if they areto achieve their aim of buildingtheir own premises.

• Charities should recognise thattheir name is a valuable asset andthat, in a commercial partnership,association with a charity cangenerate substantial benefits for thecompany. Accordingly, charitiesneed to take steps to protect, andwhere appropriate takeprofessional advice on valuingtheir name.

Charities of any size can establishcommercial partnerships

Well-known commercial partnershipsare often those established between alarge charity and a "brand name"company, working together in a jointpromotional venture. However, intheory, any charity, regardless of itssize and nature can enter into acommercial partnership.

The Charity Commission has identifiedproblems with this sort of fund-raisingthrough commercial partners in a widerange of charities. During 2001, 148cases were opened by the CharityCommission in connection withcommercial partnerships.

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2 Refer to page 29 for the income levels used to categorise the size of the charity in this report.

Charities of any size can establish commercial partnerships

Size of Number of % of CasesCharity2 Cases Opened: 2001

Small 16 11%

Medium 42 28%

Large 40 27%

Very Large 50 34%

During this same period a further 217cases, representing 22% of the total ofall cases evaluated by theCommission's Investigations Division,were evaluated because of an apparentfailure to comply with the legalrequirements (for details of the legalrequirements see pages 18 to 21).

What will the charity gain from the partnership?

• The charity appointed anindependent fund-raisingconsultant to help create anunderstanding about the needfor effective fund-raisingstrategies amongst the trusteesand the staff. Before appointingthe independent fund-raiser thecharity ensured that they checkedhis credentials, investigateddifferent methods of fund-raisingand sought professional advice.

• This charity has found that itsforward thinking and professionalapproach to fund-raising throughcommercial partnerships hasmade it a more attractiveproposition to companies.

The different types of commercialparticipation, described on page 28,also have a role to play in determiningthe visibility a partnership will receive.For example a cause related marketingpromotion is likely to attract morewidespread attention than a simpleone-off sponsorship agreement,regardless of the size of the charity.

What will the charity gain fromthe partnership?

Charities need to ask themselvesexactly what it is they want to gainfrom a commercial partnership, priorto entering into an agreement, andensure that the terms that are agreedare of an appropriate level of benefit tothe charity. As highlighted in our fund-raising booklet, CC20 and websitedocument Fund-raising throughpartnerships with companies,association with a charity's name canbe worth a great deal to a company,and responsibility lies with the charitytrustees to protect the charity's best

interests by negotiating and upholdingan agreement that reflects the full andfair share of that added value.

"Harnessed in the right way,companies can also add impact andweight to the charity's cause andeffectively add value to the relationshipin non-financial ways". - Seniorfund-raiser at a very large charity

A partnership can provide "Theopportunity to raise money andpromote the charity's key messagesusing new platforms andcommunication channels andpossibly to new target markets. Theuse of a company's sales distributionnetwork for fund-raising activity canalso be extremely lucrative and costefficient". - A member of the fund-raising team at a national charity

Once a partnership has begun,charities should regularly monitor andreview its performance. This will helpensure that the expectations of thecharity and the commercial partner arebeing met and that the benefit thecharity is gaining from the agreementis not outweighed by its costs to thecharity's reputation or otherwise. Wewould expect a charity to keep thecost/benefit balance of any jointventure under regular review and, ifthe balance turns against the charity, tohave the ability to withdraw from theventure.

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Commercial partnerships can bring withthem a wide range of direct benefitsincluding financial rewards, raisedpublic awareness of the charity's cause,gifts in kind and influence within acompany. Subtler benefits mentionedby charities we talked to included:building mutually beneficial

What will the charity gain from the partnership?

8

relationships with companies, workingtogether creatively to achieve sharedgoals, and developing good practice.However, charities should be vigilantabout the fact that commercialpartnerships can also go wrong, even ifthe appropriate research and planningsteps have been taken, leaving thecharity with very little or no benefit.

Some charities are exploring thepossibility of using commercialpartnerships as a means to further theirobjects by influencing change within acompany. A partnership which sets outto reform the working practices of acommercial company has the potentialto achieve significant results, however,it also carries additional risk. This isespecially true if the charity deliberatelyseeks out a company whose currentpractices are at odds with the charity'sethos and with the aim of using thepartnership as a "lever for change". Inthis scenario the trustees will have somevery fine decisions to make and theymust be confident of the informationthey hold and their ability to use it in away which will further the interests ofthe charity. Trustees also need to guardagainst losing sight of the charity’s object,and they must ensure that the reformsthey are trying to bring about areconsistent with the objects of the charityas defined in its governing document.

Commercial partnerships aslevers for change

This case highlights the steps takenby a very large charity to use itscommercial partnerships as vehiclesto foster and encourage betterenvironmental practice withincompanies.

• Not every commercial partnershipis solely about financial benefits.A number of additional benefitsfor both the charity and thecompany can be established fromthe outset, and a partnership candevelop new facets over a periodof time. In some cases, commercialpartnerships can directly furtherthe objects of a charity throughmeans other than pure fund-raising.

• The charity in this case has ahighly developed approach to thenotion of using partnerships asmechanisms for change. Due to itslarge size and the profile of someof its partnerships, the charity isconscious of the role it has in thecharitable sector and in the widerpublic arena. The charity is awarethat it is potentially setting anexample to other charities that arethinking about using commercialpartnerships to stimulate changein a company's working practice.For this charity, ensuring that goodpractice guidelines are met andthat commercial partnerships arehandled using clear,comprehensive and transparentpolicies, is a way of providing agood example to other charitiesand helping to enhance thereputation of the sector.

• After establishing a commercialpartnership with a credit cardcompany, the charity instigated adialogue which resulted in thecompany making environmentallyfriendly changes to its workingpractice. For example; initiallyonly the charity's credit cardstatements to affinity cardmembers had been printed onrecycled paper; the company

later modified this to incorporateevery statement the companyissued to people, regardless ofwhat type of credit card they had.

• Recent partnerships withcompanies have been designed sothat from the outset they deliverbenefits which, from the charity'sviewpoint, are primarily infurtherance of its objects andsecondly about reaping financialbenefits. These includepartnerships with buildingsuppliers concerning the trade ofwood from sustainable sources,and an integrated and complexrelationship with an energysupplier, which seeks to supportand promote the use of sustainableenergy sources.

Ethical issues

• Charities need to ensure that theyhave clearly established what theyexpect to gain from a commercialpartnership prior to entering intoan agreement and take responsibilityto establish appropriate systems tomonitor and review the partnership.

Ethical issues

Whether to enter into a commercialpartnership with a company can bringwith it a number of ethical questionsfor a charity. It is recommended thatestablishing an ethical policy, which isintegrated with the charity's widerfund-raising strategy, and clearlyoutlines what businesses the charitycan and cannot become involved inand those it is wary of, can helpsafeguard the charity against damageto its name and reputation. It can alsohelp to ensure that staff and trusteesshare a common understanding of thecharity's ethical aims and values and

lead to a more consistent approachbetween different departments inlarger and/or more complex charities.

Additionally, we would recommendthat charities consider informing theirstakeholders of any ethical policies andcommercial partnerships they have byincluding details in their AnnualReport and Accounts. Highlighting thisarea of the charity's fund-raisingactivities directly benefits the charityby ensuring transparency, and helpsmeet good practice guidelines.

Many of the larger charities that wespoke to demonstrated a high level ofawareness of the importance of havingan ethical policy in place to supporttheir fund-raising activities, embracingthose elements discussed above.Medium and smaller charities involvedin commercial partnerships seem lesslikely to have developed specificethical policies. This may be due to anumber of factors, including a lack ofexperience of fund-raising throughcommercial partnerships. Alternatively,the usual types of commercialpartnerships these charities becomeinvolved in are devoid of ethicalimplications for the charity whichreduces the need to have a welldefined policy. Smaller charities mayalso lack the resources and/orexpertise to support the developmentof an ethical policy.

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"The charity will not consider a jointventure with any organisation orcompany whose core business isdeemed to be in conflict with ourown - according to the charity'sgoverning document". - Fund-raisingmanager at a very large charity

Ethical issues

10

Defining the charity's stance on ethicalissues and formulating an appropriatepolicy should form part of the overallresearch and strategy process. In ourexperience, any ethical issues that arisewill be heavily influenced by thenature of the partnership and thepartner itself. The charity should beprepared to treat these on a case bycase basis.

Charity stakeholders rightly have highexpectations of how charities shouldconduct themselves and these viewsare often given a prominent platformof expression as they are capable ofattracting lively public interest anddebate. At times, when expectationshave not been met or a charity hasbeen perceived to be acting unethically,charities have found themselves thesubject of high profile news stories.The process of researching theactivities of a potential commercialpartner to assess the suitability of aproposed partnership might notalways be straightforward. In additionto researching the income generatingactivities of the company, charitiesshould also pay attention to whetherthe company's wider philosophy willbe a good fit with their own. Forexample, the company's policiestowards its employees and customersmay prove important.

During our research some charitieshighlighted their concern that in aneffort to attract and secure support anumber of charities might be temptedto adapt their philosophy to suit thewishes of the commercial partner. Thiscould lead to criticism from uneasystakeholders that the charity has actedunethically by "selling out" to acompany and could possibly lead to abreach of trust.

"Sometimes a charity's message ormission can be diluted orcompromised to fit a company'smarketing strategy. In order to avoidthis, the charity should be clear onits messages and ensure that acompany embraces the charity'sremit. In addition, the charity maybe asked to do more than itsresources allow. To avoid thischarities should be clear in theplanning stage of a partnership toagree with a company respectiveroles and responsibilities". - Acharity’s fund-raising manager

In the case of large companies,charities may not always be able to getthe full picture of the company'sactivities, even after carrying outresearch. Nevertheless, trustees mustbe able to satisfy themselves and theirstakeholders that they have securedenough information to ensure that theyare confident their commercial partnerfits comfortably within the frameworkof the charity's ethical policy.

"We have produced ethical corporatefund-raising guidelines, and alwaysthoroughly research potentialpartners prior to entering into aformal partnership". - Director ofcorporate giving at a very largenational charity

In our experience, charities that enter intocommercial partnerships without givingdue regard to ethical issues are in dangerof putting their name and reputation atrisk, in addition to causing a possiblebreach of trust. Overall responsibilityrests with the trustees to ensure that theyact responsibly and with a sufficientlevel of care when considering anyethical questions that may be attachedto a proposed commercial partnership.

Risks and expectations

11

Charities and ethical partnerships

This case highlights the difficulties acharity faced when it established acommercial partnership with acompany which attracted negativeand contentious criticism, primarilyfrom another charity.

• A very large charity, working torelieve poverty, established acommercial partnership with acompany that attractedsubstantial criticism about itsmarketing tactics. The charityhad no ethical policy in placeand had not anticipated thepossibility of attracting criticismover the partnership.

• The partnership attracted theattention of another charity alsoworking to relieve poverty,which publicly attacked thepartnership on the grounds thatthe company's motives forentering into it were based solelyon an attempt to improve itsimage. The commercialpartnership was deemedirresponsible and unethical bythe protesting charity.

• The dispute was damaging to thereputations of both charitiesinvolved and required theintervention of the Commissionin order to resolve the situation.

• Ultimately, the trustees decidedto terminate the agreementbetween the charity and thecompany in an attempt tomitigate the criticisms it wasreceiving. Commission officerssuggested that the charity shouldconsider establishing an ethicalpolicy for future commercial

partnerships as well asmechanisms for anticipating andanswering questions aboutfuture commercial partnerships.

• Charities should considerestablishing an ethical policy,which clearly sets out the charity'svalues. This will form part of theirwider fund-raising strategy and itcan be used to ensure that trustees,staff and any potential commercialpartners, share a commonunderstanding of the charity'sethical values.

• As best practice, charities shouldhighlight their ethical policies andany commercial partnerships theyhave in their Annual Report andyearly accounts.

• Against the framework of theethical policy, charities need toconsider carefully whether aproposed commercial partnershipis appropriate and in the bestinterests of the charity.

Risks and expectations

"We will seek external legal advice toensure that the charity hasconsidered all risk assessmentcriteria effectively, and that ourwritten agreement covers the charityfor all eventualities". - A charity’sfund-raising manager

We found that charities generally agreedthat identifying potential risks andmanaging expectations is a fundamentalpart of ensuring commercialpartnerships are successful, effectiveand mutually beneficial from theoutset of an agreement.

Risks and expectations

12

Fund-raising through commercialpartnerships is an important source ofincome for many charities, as well asoffering new and innovative means ofpromoting a charity's cause. However,in common with all forms of fund-raising, commercial participationcarries a degree of risk, which trusteeshave a duty to identify and manage ifthey are to effectively discharge theirduty of care.

"We do assess the anticipatedfinancial benefit of any partnership,as well as all likely costs to ourselvesin terms of time and resources. In allcommercial partnerships we ask fora minimum income guarantee,which is based on the value of anassociation with our name and logoas well as the resources we wouldneed to commit to the relationship,and the perceived benefits for thepartner. In a broader sense we havekey performance indicators for targetreturn on investment in all our fund-raising ventures”. - A charity’sdirector of fund-raising

Charities must be careful about howthey allow the charity's name to beused by a commercial partner during ajoint venture. It is the trustee'sresponsibility to ensure that thisprinciple is enforced. We found duringour discussions with charities thatmany have an acute sense of the valueof a charity's name and reputation.This was particularly evident in thelarger "brand name" charities.

Smaller charities may be morevulnerable to risk. It is likely that thisis due, in part, to differences incharitable resources. For examplelarger charities can sustain their ownfund-raising departments.

Choosing a commercialpartner with care

This case highlights the need forcharities to consider the risksattached to commercial partnershipsbefore entering into an agreement.

• A medium sized animal welfarecharity entered into a commercialpartnership with a company thatraised funds by selling roses topeople in restaurants and pubs.The Charity Commissionreceived a query from a policeofficer who, in addition tochecking that the rose sellers hadthe right licences, wanted toverify with us that the charitydetails given by the rose sellerswere accurate.

• When approached by us thetrustees confirmed that they didhave an agreement in place withthe company and were happywith the donations they had beenreceiving.

• The agreement between thecharity and the company did notmeet the requirements of Part IIof the Charities Act 1992 andupon closer inspection byCommission officers, it appearedthat the trustees were exercisinginsufficient controls over themanagement of the partnership.

• The trustees admitted that theyhad failed to check thecredentials of the company withother charities it claimed to haveworked with, so the trustees hadno way of assuring themselvesthat the company was bona fide.

Risks and expectations

• Additionally, no independentprofessional advice was soughton the commercial agreements;the company prepared them all.Trustees have a responsibility toapply the duty of care to the assetsand property of the charity. Failingto take independent, professionaladvice on the proposed venturecan put the charity at risk.

• The charity received a number ofverbal assurances from thecompany that everythingconnected to the successfuloperation of the commercialpartnership was in order.However, nothing was put intowriting for the charity. Thismeant there were no formalrecords available, making itdifficult to establish an audit trailand leaving the charity in avulnerable position.

• The trustees were unaware of thesize of the profit the companywas making as a result of thepartnership. The contribution thecharity received from thecompany was tiny in relation tothe overall sum the partnershiphad generated. Ultimately, thetrustees took the decision toterminate their contract with thecompany.

Some charities have expressedconcerns that there is a danger thatcharities have excessive expectations ofthe benefits commercial partnershipscan bring. During our research, anumber of charities stated they felt thatthe amount of time and effort theyinvested in establishing commercialpartnerships was disproportionatelylarge in comparison to the benefitsthey received. A very large charity

with a number of well-establishedcommercial partnerships stated that ifthe charity was given a windfall topour into its fund-raising activities, itwould not use it to invest in commercialpartnerships. Instead, the charity felt itwould be more beneficial to invest inother fund-raising tools which it feltwere not as resource intensive. Althoughit is often difficult to quantify longerterm benefits that arise from a raisedprofile.

A very large charity that runs severalhighly successful partnerships sawthese partnerships account for 4.5% ofits fund-raising income. However, inthe same period legacies, which requiremuch less administration, brought in25% of the charity's fund-raising income.

Identifying and managing riskeffectively appears to be an increasinglyimportant concept for charities to tackle.A charity with solid policies andprocedures in place for tackling theissue of risk management also creates aframework for managing expectationsand is likely to inspire confidence inthe charity's stakeholders.

Charity Commission guidelines,including our general fund-raisingpublication CC20, the website document;Fund-raising through partnershipswith companies, and a number of the

Have there been any commercialpartnerships which you regrettedtaking on and why? "Yes-regrets areon the large projects, for example; onemajor supplier went bust, anothersubsequently proved ethicallyunsound. Other difficulties are theresources that charity law requiresus to put behind commercialarrangements". - Senior fund-raisingmanager of a national charity

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Research, planning and strategy

published Commission Inquiries onthe website, all raise the issue of riskmanagement. They also promote themessage that great care must be takento ensure commercial partners arereliable, reputable and that theycomply with the law. It is alsoimportant that charities should havethe means to check and monitor theperformance of the company andothers that use the charity's name. Wehave seen that it can be very difficultto repair damage to a charity's goodname.

• Regardless of the size or nature ofthe commercial partnership, allcharities should take theappropriate steps to ensure thatthey identify and manage any risksconnected to a commercialpartnership fund-raisingagreement.

• All charities need to ensure fromthe outset of a commercialagreement that the expectations ofboth the charity and the companyhave been agreed and can bemanaged effectively andappropriately.

Research, planning and strategy

Before entering into an agreement,charities should consider whether aproposed commercial partnership is aviable proposition. In order to assessthe validity of a proposal and to helpwith the process of risk andexpectation management, charitiesneed to get to grips with the principlesof effective research, planning andstrategy. The more complex theproposal, the greater the need for aprocess which incorporates theseprinciples.

We have found, from discussions withcharities and from looking at CharityCommission cases, that research,planning and strategy are keycomponents in ensuring thatcommercial partnerships are effectiveand mutually beneficial from theoutset.

"We have a wealth of experience inthe development of commercialpartnerships with companies and asa consequence have an increasedknowledge of the area. We are wellinformed about all aspects of charitylaw and have established precedentsfor most corporate partnerships. Incases where a new corporatepartnership breaks a precedent wewould refer to our solicitors". - Afund-raising manager of a very largecharity

Current Charity Commission guidance,including CC20 and Fund-raisingthrough partnerships with companies,recommends that charities develop aninternal policy to cover research,planning and strategy processes, whichincludes establishing flexible writtencriteria for assessing the suitability of aproposed commercial partnership. Aninternal policy should include:whether the partnership is compatiblewith the charity's other policies,strategies and values, whether thecompany will be able to meet theagreed financial and any otherobligations; and how the charity'sstakeholders will view the agreement.

Charities seem to have a high level ofunderstanding and commitment toestablishing internal policies to dealwith commercial partners. However,this principle was far morepronounced amongst the large andvery large charities.

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Approaching companies

"The charity works within theCharities Act guidelines and takeslegal, commercial, and ethical bestpractice seriously in all our fund-raising. Commercial fund-raisingalways involves a comprehensiveletter of agreement with the charity'strading company, and all activitiesfrom sponsorship to public collectionand raffles meet legal requirements".- A charity’s director of corporategiving

Charities have a responsibility to usetheir resources wisely and infurtherance of the charity's objectswhen deciding on appropriate fund-raising mechanisms. Ultimately it isthe trustee's responsibility to ensurethat this requirement is met. Prior tocommitting charitable resources tofund-raising through a commercialpartner, charities might find it useful toobtain advice from an appropriateprofessional or a specialistorganisation.

In our experience, charities which failto research and plan out a suitablestrategy for ensuring their commercialpartnerships are as effective as possibleare more likely to encounter difficultieswhich can require our intervention andcan lead us to open a formal Inquiry.

Part of the research process shouldinclude considering whethercommercial partnerships will actuallyprove to be an effective method offund-raising within the scope of thecharity's wider fund-raising strategy.Other forms of fund-raising mightprove to be more effective and efficientin the context of a particular charity'scircumstances and charities shouldconsider investigating the options thatare available to them.

• All charities should research aproposed commercial partnershipcarefully and, if it proves to beappropriate and viable, establish aplan of how the partnership will bemanaged.

• All charities should consider takingadvice from a professional orspecialist prior to commencing acommercial partner agreement.

Approaching companies

Our research revealed that charitiesapproach companies about thepossibility of a commercial partnershipusing a wide variety of techniques,including networking, pro-active coldapproaches - such as formal pitchpresentations, and through personalcontacts. We found there is a generalconsensus that where charities are ableto capitalise on a personal link to acompany, for example through atrustee, the membership, or member ofstaff, they have an increased chance ofattracting and securing the company'sattention and support.

However, despite the success of usingcontacts to approach companies,charities need to remember that aconflict of interest can arise in thesecircumstances. If a conflict of interest isidentified, it needs to be managedeffectively in order to ensure that thereputation and integrity of the charityis not compromised. In some instances,it might not be possible or desirable tomanage a conflict of interest which hasa detrimental impact on the effectiveworking of the charity for example if atrustee or trustees have to withdrawfrom meetings because of theirinvolvement with the commercial

15

Approaching companies

partner and are restricted fromfulfilling their role in the charity. TheCommission’s booklet CC24, Users onboard, contains further informationand guidance on conflicts of interestand how they can be managedeffectively.

16

How is a potential partnership firstput forward-do companies usuallyapproach you or do you approachthem? "Potential partnerships are acombination of both. The charity isoften approached by companiesand/or PR firms about thepossibilities of commercialpartnerships or through nominationsby staff. The charity also has acomprehensive new businessprogramme which is used to activelysolicit potential company support". -Senior fund-raiser at a nationalcharity

Concerns surrounding the differingnature and characteristics of thecharitable and commercial sector areoften raised in relation to the questionof approaching companies in the bestway possible. Charity and companyrepresentatives alike have expressedthe general opinion that, whereappropriate, charities need to embracethe language of the corporate sector inaddition to developing a business-likeapproach towards prospectivecommercial partners.

We found that a number of CharityCommission cases highlight the needfor clear channels of communicationbetween the charity and the companyfrom the outset of an agreement.Successful communication will beenhanced if the charity's own internalcommunication channels are clear andeffective, prior to entering into acommercial partnership.

Ensuring effectivecommunication

This case highlights the need forcharities to ensure that they haveeffective channels of communicationin place and, where necessary,appropriate policies for delegatingresponsibility for the management ofa commercial partnership.

• A very large charity, establishedto support general charitablepurposes, became the subject of aCommission Inquiry after acomplaint to the Commissionfrom a member of the publicabout the fund-raising methodsused by the charity's commercialpartner. During the course of theInquiry, Charity Commissionofficers discovered that theagreement established betweenthe charity and commercialpartner did not comply with therelevant fund-raising legislation.

• In the absence of correctlydelegated powers of authority,Commission officers found thatcharity staff were making decisionsand undertaking duties in relationto the commercial partnershipwhich should have been carriedout by the trustees. Trustees mustbe able to devote sufficient timeto monitor the actions of theiremployees and ensure that thereare clear channels ofcommunication between staffand trustees within a charity.

• The trustees were also advisedthat they should not haveallowed a situation to arisewhere members of staff weredelegated responsibilities without

Approaching companies

appropriate mechanisms in placeto ensure staff report back to thetrustee body. Where tasks aredelegated, there should be clearguidance showing the scope andlimits of the delegation. Failureto do so can lead to the charitycommitting a breach of trust anddamage the confidence of thecommercial partner.

• It is essential that the relationshipbetween a charity and acommercial partner is transparentand that trustees ensure thatappropriate monitoring proceduresare put in place and enforced.Clear channels of communicationand, where necessary, policies fordelegation are also important inensuring an effective andefficient approach to fund-raisingwith commercial partners.

Companies approach charities withproposals for commercial partnershipsusing a variety of channels. One methodcompanies can use to do this is to gothrough specialist agencies that act asan intermediary, or brokerage, betweenthe commercial partner and a suitablecharity. In these circumstances, charitiesneed to consider any additional risksthat the involvement of an agency maybring, prior to entering into anagreement. It is particularly importantthat charities ensure there are clear andeffective communication channelsbetween the company, the charity andthe agency and that they seek to followthe guidance outlined in this report.

Communication witha commercial partner

This case highlights the need forcharities to ensure that there areclear and open channels of

communication between themselvesand their commercial partner.

• A very large charity workingwith young people commentedthat one of its least successfulcommercial partnerships hadbeen with a company that hadestablished a commercialagreement with the charitythrough an intermediary agency.

• In this case the charity stated itfound it difficult to communicatedirectly and effectively with itscommercial partner as allcommunications were routedthrough the agency. The charityfound it was taking anunsatisfactory amount of time toclarify issues or get confirmationon specific queries from thecompany and felt that this waspartly due to the fact it had to gothrough an intermediaryorganisation.

• The charity was also goingthrough a period of significantchange and re-organisationduring the period the commercialagreement was running, whichincluded the transfer ofresponsibility for the partnershipto numerous departments,compounding the charity'scommunication problems.

• Charities should consider anyadditional risks that theinvolvement of an agency maybring, prior to entering into anagreement. It is particularlyimportant that charities ensurethere are clear and effectivecommunication channelsbetween the company, thecharity and the agency.

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18

Legal issues

"Every partnership that weundertake is fully compliant withcharity law and our own ethicalstandards for partnership". -Fund-raiser in the corporate givingteam of a very large charity

Charities must be aware of the legalrequirements contained in Part II of theCharities Act 1992 and The CharitableInstitutions (Fund-raising) Regulations1994 if they are involved in, orthinking of becoming involved in,fund-raising with a commercialpartner. The onus for compliance isplaced on the commercial partner, whois penalised if the requirements are notmet. Trustees must comply with thelaw and ensure that those with whomthey deal also comply with the law.The Commission has highlighted thelegal requirements in CC20 and Fund-raising through partnerships withcompanies. The requirements containimportant controls designed tosafeguard the assets, name, andreputation of the charity, including:

• A written agreement, in aprescribed form, between the charityand the commercial participator orprofessional fund-raiser.

• A statement to be given to informpotential donors what proportionof their donation will be used toremunerate the fund-raiser.

• Direction to inform the public howthe charity will benefit from itsinvolvement with a commercialparticipator.

Entering into acommercial partnership

• The transfer of funds raised byprofessional fund-raisers orcommercial participators to thecharity.

The terms "professional fund-raiser"and "commercial participator" aredefined in section 58 (1) of the CharitiesAct 1992. Please refer to the Glossaryon pages 28 to 29 for the details.

Charities have in their possession legalpowers, contained in the Charities Act1992, enabling them to monitor andcontrol charitable fund-raisingundertaken by a commercial partner.These powers need to be considered inconjunction with the 1994 Fund-raisingRegulations, outlined above, and maybe useful if a charity feels that its nameis being used unlawfully.

Charities should be aware that theprovisions detailed in Part II, section58 onwards of the Charities Act 1992include a number of stringent and pro-active measures designed to protectcharities, the public and the reputationof charitable fund-raising. Charities areby no means impotent to act if theyfind themselves in a position with acommercial partner that needs to beresolved through legal intervention.For example, a charity can apply undersection 62 of the Act3 to the Courts foran injunction to prevent commercialpartners from using the name of thecharity to inappropriately andunlawfully raise funds. There is apower in section 59 of the Act thatempowers charities to apply for aninjunction to restrain anycontravention of a contract, and renderthe contract unenforceable by thepartner except under this section.

3 References to “the Act” in this section are to the Charities Act 1992.

Legal issues

Furthermore, if a contract does notmeet the requirements of the Act andregulations, then no expenses or othercosts may be retained by the partnerunless a court so orders.

It is our experience that many charitiesare not aware of the range of legalprovisions in place to protect theirinterests in a venture with acommercial partner. Accordingly, werecommend that all charities involved,or thinking of becoming involved in acommercial partnership shouldfamiliarise themselves with the fullrange of legal powers that exist toprotect them.

As well as protecting charities, Part IIalso affords protection to the public,for example, through the provision of asolicitation statement4, referred to insection 60 of the 1992 Charities Act andthe remuneration and expensesprovisions in section 58. Theserequirements should be viewed as theminimum starting point for a charitydrawing up an agreement with acommercial partner. In our experience,we have seen that it is vital thatcharities do not simply accept acommercial agreement drawn up bythe company, but retain control overthe process to ensure that theagreement is appropriate and fulfilsthe best interests of the charity.

Avoiding negative publicity

This case highlights a charity whichattracted negative publicity in themedia when its commercial partnerfailed to meet the legal requirementsof Part II of the Charities Act 1992and the 1994 Regulations.

• A very large, high profile charityattracted criticism in the presswhen it failed to state clearly ontickets it was selling for an eventin conjunction with a commercialpartner, the proportion of theticket price that was actuallygoing to the charity.

• We requested that the trusteestake steps to address thissituation by putting a statementon the tickets which met the legalrequirements of the arrangement,clearly stating the level ofdonation from the sale of theticket to the charity. By clarifyingthe situation the trustees couldmitigate the criticisms beinglevelled at the charity in thepress and fulfil theirresponsibilities under Part II ofthe Charities Act 1992.

• Adherence to the legalrequirements not only meetstrustees’ obligations, it also helpsto avoid misunderstandings withsupporters.

We found in our discussions withcharities that there is a high level ofawareness of the existence of the legalrequirements attached to theestablishment of commercialpartnerships. Knowledge of preciselywhat the requirements entail issketchier across charities of all sizes.This is not problematic in itself,provided that charities have readyaccess to the full details of therequirements when they need them.

Relatively few charities had used ourweb-based guidance Fund-raisingthrough partnerships with companies.

19

4 A statement must be given to inform donors what proportion of their donation goes to the fund-raiser.

Legal issues

This document gets approximately 200"hits" a month compared to nearly 900for the web (as opposed to booklet)version of Charities and Fund-raising(CC20). We acknowledge that greaterpublicity for our guidance and/or itsincorporation into the CC range shouldbe considered in response to thefindings of this report.

In 2000, 4% of Commission Inquirieswere opened as a direct result ofcharities failing to comply with therelevant fund-raising legislation. In thesame period, 22% of the cases evaluatedby Commission investigations staffarose directly as a result of an apparentfailure by charities to meet the legalrequirements.

Complying with legal requirements

This case highlights the need forcharities to ensure that theircommercial partners are complyingwith Part II requirements.

• A very large, national charityentered into a cause-relatedmarketing commercial agreementwith a global company. Thecharity failed to comply fullywith Part II of the Charities Act1992 and The CharitableInstitutions (Fund-raising)Regulations 1994, which led tothe Commission opening aformal Inquiry.

• It was brought to theCommission's attention that thecompany was not stating thecorrect information on itsadvertising material. The detailsof the level of donation beingmade were not stated and thename of the charity was given inan abbreviated form which was

not the registered name of thecharity and which members ofthe public would not necessarilybe able to identify.

• Commission officers advised thatthe statements given onpromotional material should beamended to make the level ofdonation from the company tothe charity clear.

• The charity and the companyboth readily accepted theCommission's recommendationsand agreed to amend thestatements made. The Inquirywas subsequently closed.

• Where trustees decide to raisefunds by entering into apromotion with a commercialparticipator they need to beaware of the provisions of Part IIof the Charities Act 1992 and TheCharitable Institutions (Fund-raising) Regulations 1994.Trustees have a duty to ensurethat the name of the charity andthe level of donation it isreceiving from the company as aresult of the agreement areclearly stated on anypromotional material.

Nevertheless, Part II of the CharitiesAct 1992 and the 1994 Regulations donot apply to commercial partnershipagreements made between a charity'strading subsidiary and a company. Inthe interests of ensuring the integrityof the name of the parent charity thetrustees should take steps to promotegood practice and apply the provisionsof Part II and the 1994 Regulations tocommercial partnerships between asubsidiary trading company and acommercial partner. Enforcing these

20

Tax issues

requirements will help the charitycontrol and monitor the tradingsubsidiary, ensuring that the bestinterests of the charity are protected.

Any charities that are unsure aboutmeeting or complying with any aspectof the legal requirements outlinedabove should seek appropriateprofessional advice.

• Charities must ensure that theycomply with the legal requirementsdetailed in Part II of the CharitiesAct 1992 and The CharitableInstitutions (Fund-raising)Regulations 1994 if they areinvolved in, or thinking ofbecoming involved in, fund-raisingwith a commercial partner.

• Charities must exercise controlover the commercial agreementand must not simply accept anagreement drawn up by a companywithout seeking appropriateadvice.

• Charities should use the legalrequirements detailed in Part II ofthe Charities Act 1992 and TheCharitable Institutions (Fund-raising) Regulations 1994 toprovide a framework forcommercial partnershiparrangements made between thecharity's trading subsidiary and thecommercial partner.

Tax issues

The tax treatment of payments to acharity by a company as a result of acommercial partnership can becomplex and payments are usuallytaxable. Trustees need to ensure theyunderstand their duties and

responsibilities in relation to the InlandRevenues requirements if they are tofulfil their duty of care towards thecharity. The Inland Revenue provides afree booklet, IR2001 - Clubs andCharities Series, covering the subject ofcharities and commercial partnerships,which we strongly recommend trusteesread before entering into an agreement.

We would also recommend thatcharities seek professional adviceregarding the tax implications of acommercial partnership involving useof the charity's name or logo.

Direct tax elimination may be possibleif a charity operates a commercialpartnership through its subsidiarytrading company rather than throughthe charity itself. In thesecircumstances charities need to beaware that their names and logos arevaluable assets which must beprotected. Charities have a duty toensure that the partnershiparrangements protect their name/logo,act in the charity's best interests andare appropriately secured. We stronglyrecommend that charities considertaking professional advice on whethera partnership agreement is suitablebefore establishing a commercialpartnership, and refer to IR2001.

Further information on charities andtrading subsidiaries can also be foundin the Charity Commission booklet,CC35 Charities and Trading. If anagreement is established between thesubsidiary trading company and thecommercial partner, we recommendthat both parties should comply withthe legal requirements discussed onpages 18 to 21.

21

Negotiating a fair deal with a commercial partner

22

"The charity takes advice from theInland Revenue, legal advisers,consultants and from bodies such asthe ICFM5as appropriate". - Adirector of fund-raising at a verylarge charity

Charities also need to be aware thatdifferent types of commercialparticipation might have differingimplications for the VAT treatment of acharity's affairs, specifically withregard to the nature and status of anydonation made to the charity by thecompany. Charities with any doubtsabout whether VAT should beconsidered need to refer to their localVAT office and HM Customs andExcise Notice, 701/1: Charities, forfurther information. It is likely thatprofessional advice in relation to theVAT aspects of a commercialpartnership will be necessary.

Charities should also consider and takeadvice on establishing an adequatelevel of reserves for any contingentliabilities a commercial partnershipmay entail.

During our research, we found thatthere is generally a high level ofunderstanding about the requirementto acknowledge and consider the taximplications of a commercialpartnership. This was more evidentamongst the large and very largecharities we talked to than in some ofthe smaller organisations we met.

• Charities need to consider the taximplications of a commercialagreement prior to entering into acommercial partnership and takeadvice as necessary.

Negotiating a fair deal with acommercial partner

"The partnerships which haveworked best for us have been thosein which we are an equal partner ina promotion, where the company isopen and honest about its aims andobjectives, where the company hasreal synergy or empathy with thecharity and where an association hasa meaning to shareholders orcustomers". - A charity’s fund-raising manager

A fair deal for a charity is one thatrepresents full value for the charity inreturn for the use of its name and/orlogo, based on the principles ofequality, transparency and integrity.Charities should consider the level ofbenefit the commercial partner willreceive from the agreement and beprepared to negotiate to arrange thebest deal possible. If a commercialpartner will not agree to a charity'sreasonable terms we would expect thecharity to go elsewhere.

Charities should use their resourceswisely when entering into commercialpartnerships and should aim tonegotiate an inclusive and beneficialagreement which represents a fair dealfor the charity. Charities should askthemselves, prior to entering into anagreement, whether the agreement willprotect the name of their charity andthe good name of charitable fund-raising in general.

5 Now the Institute of Fundraising, see page 33 for contact details.

Negotiating a fair deal with a commercial partner

Avoiding negative publicity

This case demonstrates that trusteesneed to ensure they are satisfied thatthe charity is getting a good dealfrom its commercial partners.

• A very large charity wasinvolved in a commercialpartnership which was bought toour attention by a trustee whohad concerns about whether thelevel of charitable donation thecompany was making representeda good deal for the charity.

• In this case, Commission officersraised these concerns with thetrustee body of the charity. Thetrustees acknowledged ourpoints and agreed to investigatethis particular partnership inmore detail, admitting they didnot have a sufficient level ofknowledge about thearrangement.

• The trustees were not sufficientlyinformed to be able to make adecision as a body about whetherthe payments from the companyrepresented a good deal or not.In this respect they were failingto meet their responsibilities bynot applying a sufficient duty ofcare towards the charity.

• Commercial partnerships whichdo not represent a good deal fora charity can damage thereputation of charities in generalby giving the impression thatcharities are willing to becomeinvolved in commercial ventureseven if there is little financial, orother, benefit to be derived. It

can also make companies waryabout entering partnerships withcharities.

• Together, trustees need toconsider all the benefits and risksattached to a proposedcommercial partnership beforeentering into any agreement.Trustees should determinewhether the proposed venturerepresents a good deal for thecharity and ensure that anappropriate level of care hasbeen applied in the process.

The legal requirements of Part II of theCharities Act 1992 and the 1994 Fund-raising Regulations go some way tohelping charities get a fair deal fromcommercial partnerships. For exampleRegulation 5 of the 1994 Fund-raisingRegulations enables charities to call forthe books and records of thecommercial partner kept for thepurposes of the agreement. We alsofound during our research that manycharities do refer to additional goodpractice guidance and specialistorganisations for further informationand support, to supplement theframework constituted by the legalrequirements. Annex B, on pages 30 to36, contains details of guidance andspecialist bodies available to charities.

Based on our experience and casework,it is clear that charities do not alwaysenter into commercial agreements thatrepresent a fair deal. We recommend,as a matter of good practice, thatcharities find out prior to entering intoan agreement what the likely financialbenefit for each partner will be as partof the process of judging the fairness ofa proposed deal.

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Negotiating a fair deal with a commercial partner

Some Commission cases give examplesof charities, particularly smallerorganisations, being approached bycompanies and entering into commercialpartnership agreements from whichthey receive very little financial, orother, benefit. In some of these casesthe added financial value that thecompany derived from its associationwith a charity was disproportionate tothe sum due to the charity. We haveseen that this can damage the name ofan individual charity and also discreditthe wider name of charitable fund-raising.

Ensuring a fair deal for the charity

This case highlights why it isimportant for charities to researchand ensure that commercialagreements give them a fair deal.

• A large charity working toprovide support for people withterminal illnesses wasapproached by a company andentered into a commercialpartnership agreement which didnot comply with the legalrequirements of Part II of theCharities Act 1992 and the 1994Fund-raising Regulations.

• The charity had initially beenquite thorough in its dealingswith the company, requesting atermination clause, a reportingand accounting period at the endof each month, details of therevenue generated and theproportion that was to bedonated to the charity. However,the charity did not check thecredentials or reputation of thecompany with other charities it

claimed to have worked withprior to entering into theagreement.

• The trustees approached theCommission because they wereuncomfortable about the lack ofcontrol they felt they had overthe company's fund-raisingtactics, which they perceived asaggressive and capable ofdamaging the charity'sreputation. This could have beenmitigated if the charity hadaddressed the issue of fund-raising tactics with the companybefore the agreement was signed.

• Charity Commission officersheld a meeting with the trusteesto discuss their concerns. Thetrustees were surprised at thelow level of income they werereceiving from the agreement incomparison to the profit thecompany was keeping. As aresult, the charity decided toterminate their agreement withthe company.

• Charities need to make certain thatthe proposed commercialagreement represents a fair deal forthe charity. Additionally, we alsorecommend that charitiesfamiliarise themselves with thegood practice guidance availableon this topic prior to entering intoan agreement.

• As best practice, charities shouldcheck the credentials of a company,consult with other charities ororganisations that have dealt withthe company and take professionaladvice to ensure they are getting afair deal.

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Commercial agreements

Commercial agreements

The complexity of an agreementdepends on the size and complexity ofthe charity, the company and thenature of the commercial partnershipitself. Charities need to make sure thatcommercial agreements are clear,accessible and in place before thepartnership begins. In order to meettheir responsibilities, charities shouldtake professional advice to ensure thatthe name of the charity is notimproperly used or exploited and thatthe terms of the agreement areprecisely drafted and that the interestsof the charity are fully protected. As anadded safeguard, charities can ensurethey have the right to prevent futureuse of their name by a commercialpartner, if they are not satisfied withthe partnership.

Additionally, charities should givecareful consideration to suitableprovisions for terminating the agreement,together with their commercial partner.A suitable "exit strategy", which coversreview periods, length of term and thepossible consequences the terminationof the partnership would have on thecharity should be drawn up by thecharity. Further guidance can be foundin the Resources section beginning onpage 30.

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"We always retain and exercise theright to proof and approve any useof our name and logo". - A charity’sfund-raising director

Overall responsibility for ensuring thatclear, unambiguous and accurateinformation is provided to the publicusing a commercial partners service restswith the commercial partner. The charitymust ensure that its commercial partnermeets these responsibilities, minimising

the chances of a situation arising inwhich the charity could be criticised ofmaladministration as a result ofneglecting its duties in this area.

Ensuring commercial agreements areclear and appropriate

This case highlights the need forcharities to make sure theinformation the public is receivingabout the charitable donation is clearand unambiguous.

• A member of the publicapproached the CharityCommission with concerns aboutthe level of money being donatedto a small, newly registeredcharity via the sale of amagazine. She felt that thepublishing companymisrepresented the level ofbenefit going to the charity.

• The Commission approached thecharity in order to gain anunderstanding of the situation. Itemerged that a number of thecharity's trustees were alsodirectors of the publishingcompany, resulting in a conflictof interest. The trustees had usedtheir connection with the companyto instigate a commercialpartnership and establish amagazine to raise funds for thecharity. Naturally, the magazinealso generated income for thecompany, making it especiallyimportant for the trustees’actions to be transparent andaccountable, due to the conflictof interest.

• Working with the trustees,Commission officers were able toreassure the individual member

Commercial agreements

26

of public that the charity and thepublishing company had theappropriate commercialagreements in place and that theproceeds from sales of thepublication were being appliedas stated. The trustees wereencouraged to appoint additionaltrustees who were unconnectedto the publishing company inorder to help manage the conflictof interest.

In some circumstances, such as thoseoutlined in the case study above, theremay be a conflict of interest issue toconsider in a commercial partnership.In these cases, once the conflict ofinterest has been identified anddeclared, it must be managedeffectively and openly in order toensure that the integrity of the charityor persons involved is not in doubt. Inour experience, charities that haveestablished appropriate conflict ofinterest policies are better placed torespond to this issue when it arises,answer any criticisms which may belevelled at the charity, and in turn helpto protect the name and reputation ofthe charity. Some conflicts may beimpossible to manage. Some mayresult in a trustee receiving a benefit,albeit an indirect benefit (eg if he/shewas a shareholder in the company),which would have to be allowableunder the charity’s governingdocument.

• Charities must establish clearagreements between themselvesand the commercial partner priorto the commencement of thepartnership. The precise nature andthe complexity of the agreementwill depend on the size of thecharity, company and the type ofcommercial partnership itself.

Maintaining a commercialpartnership

Monitoring

"Review points are systematicallybuilt into all commercial partnerships".- A senior fund-raiser at a very largenational charity

Once the terms of the commercialpartnership have been agreed, charitiesshould consider putting in placemonitoring and reassessmentprovisions to ensure that thearrangement continues to be aneffective means of fund-raising.Charities should not automaticallyrenew commercial partnershipswithout assessing whether anychanges are needed.

Under Regulation 5 of the 1994 Fund-raising Regulations commercialpartners are legally required to makeavailable to charities upon request anybooks, documents or other records(however kept), which relate to themand are kept for the purpose of theagreement. Using this Regulationenables charities to see exactly howmuch the commercial partner ismaking from the agreement, andshould assist them in monitoring andassessing the performance andsuitability of a commercial partnership.

Additionally, as discussed in the 'Legalissues' section (pages 18 to 21),charities should consider using thelegal powers they have at theirdisposal, where appropriate, tomonitor and control charitable fund-raising by commercial partners. Forexample, in cases where the charitiesname is being used unlawfully, or theprovisions of the commercial

agreement need to be enforced by thecharity. As discussed on page 19,charities do have considerable legalpowers designed to assist themsafeguard their name, donors and thereputation of charitable fund-raising,which can be applied, if necessary, as aresult of an effective monitoringprogramme. The effective monitoringof the commercial partnership by thecharity, awareness of the relevant legalpowers and a willingness to tacklesituations where the charity's bestinterests are not being met ensurescharities will be able to meet theirresponsibilities.

Charities should periodically reviewand consider the consequences andimpact the termination of apartnership agreement will have ontheir fund-raising income. There mayalso be additional and complex factorsto consider in some cases, such aspublicity and safeguarding a newdonor base to ensure the charity's bestinterests are protected.

• Charities should exercise theirability under Regulation 5 of the1994 Fund-raising Regulations torequest documentation fromcommercial partners as part of anon-going monitoring and reviewprocess.

• Charities should monitor andreview the performance ofcommercial partnerships on aregular basis, to ensure that theyremain an effective means of fund-raising.

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Annex A - Glossary of Terms

Commercial partnership: Any partnership between a charity and a commercial companywhereby the charity endorses a product or agrees to allow the use of its logo in return fora benefit (usually financial). Throughout this report we refer to a commercial "company",however, it should be noted that a partnership could also be with an individual e.g. a soletrader. Some common examples of partnerships are below.

Examples of Commercial Partnership

Type of commercial partnership Example of fund-raising mechanism

Cause-related marketing/joint The charity plays an integral part in thepromotional venture marketing of the company's image, product

or service. The company seeks to establish alink in people's minds between the companyand the charity's cause.

Licensing agreement The charity gives the company a licence touse the charity's name and/or logo in sellinga product or a service. Includes a wide rangeof commercial products, the best known beingcharity Christmas cards.

Sponsorship agreement A company, in effect, pays a charity topublicise the company and the fact that it hascontributed to the charity. The companyagrees to meet some or all of the costs of, forinstance, one of the charity's publications,projects or fund-raising events.

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Commercial participator is defined by section 58 (1) of the Charities Act 1992. Acommercial participator is any person who carries on for gain a business which is notfund-raising business but who in the course of that business engages in any promotionalventure (i.e. any advertising or sales campaign or any other venture undertaken forpromotional purposes) in the course of which it is represented that contributions are to begiven to or applied for the benefit of a charity.

Professional fund-raiser is defined by section 58 (1) of the Charities Act 1992 and is anyperson (apart from the charitable institution or a company connected with such aninstitution) who carries on a fund-raising business for gain which is wholly or primarilyengaged in soliciting or otherwise procuring money or other property for charitablepurposes; or any other person who solicits for reward money or other property forcharity apart from:

• Any charity or connected company.

• Any officer or employee of a charity or connected company.

Glossary of Terms

• Any charity trustee.

• Any public charitable collector-other than promoters.

• People who solicit funds on TV or radio.

• Any commercial participator.

Small, Medium, Large, Very large charity

• Small - Income band less than £10,000.

• Medium - Income band £10,001-£250,000.

• Large - Income band £250,001-£999,999.

• Very large - Income band £1,000,000 +.

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30

There are many resources which charity trustees can tap into to help them withcommercial partnership issues. While this is not a definitive list of all the sources ofinformation available, it does offer an overview and is useful as a starting point. Thepublications listed in Annex C may also be useful.

Organisations

These organisations can provide you with a wide range of help, support and information.

� The Charity Commission for England and Wales

Responsibility for charities is split between our three offices. Further information can beobtained from the Commission at:

London Liverpool TauntonHarmsworth House 2nd Floor Woodfield House13-15 Bouverie Street 20 Kings Parade TangierLondon Queens Dock TauntonEC4Y 8DP Liverpool L3 4DQ Somerset TA1 4BL

Tel: 0870 3330123Minicom: 0870 3330125E-mail: feedback@charity-commission.gov.ukWebsite: www.charity-commission.gov.uk

� Advertising Standards Authority (ASA)

Deals with complaints about printed advertisements and provides free information aboutpromotions established to benefit charities.

Advertising Standards Authority2 Torrington PlaceLondonWC1E 7HW

E-mail: inquiries@asa.org.ukWebsite: www.asa.org.uk

Annex B -Resources for Trustees

Organisations

� Business in the Community (BiTC)

BiTC is a movement of companies committed to continually improving their positive impact on society. BiTC have a wide range of services and information, especially inconnection with cause related marketing.

137 Shepherdess WalkLondon N1 7RQ

Tel: 0870 600 2482E-mail: information@bitc.org.ukWebsite: www.bitc.org.uk

� Business Community Connections (BCC)

BCC is a charity dedicated to helping other charities obtain more support from business.

14 NorthfieldsLondon SW18 1UU

Tel: 020 8875 5700E-mail: info@bcconnections.org.ukWebsite: www.bcconnections.org.uk

� Charities Aid Foundation (CAF)

CAF helps non-profit organisations in the UK and overseas to increase, manage andadminister their resources.

Kings HillWest MallingKent ME19 4TA

Tel: 01732 520000Fax: 01732 520001E-mail: enquiries@caf.charitynet.orgWebsite: www.cafonline.org

31

Organisations

� Charity Finance Director’s Group (CFDG)

CFDG provides information for its members on a range of issues and specialises inhelping charities to manage their accounting, taxation, audit and other finance relatedfunctions.

Charity Finance Director’s GroupCamelford House87-89 Albert EmbankmentLondon SE1 7TP

Telephone: 020 7793 1400Fax: 020 7793 1600E-mail: mail@cfdg,org.ukWebsite: www.cfdg.org.uk

� Directory of Social Change (DSC)

Kings HillWest MallingKent ME19 4TA

The Directory promotes positive social change and provides a wide range of resources fortrustees.

London24 Stephenson WayLondon NW1 2DP

LiverpoolFederation HouseHope StreetLiverpool L1 9BW

Tel (books): 020 7209 5151Tel (training and events): London 020 7209 4949 & Liverpool 0151 708 0117E-mail (training and events): London training@dsc.org.uk & Liverpool: north@dsc.org.ukWebsite: www.dsc.org.uk

32

Organisations

� HM Customs and Excise

For information relating to VAT queries refer to your local telephone directory for thecontact details. General information is available from:

Tel: 0845 0109000Website: www.hmce.gov.uk

� Inland Revenue (IR)

For information on tax issues relating to charities.

IR (Charities)St John's HouseMerton RoadBootleMerseyside L69 9BB

Tel: 0151 472 6046 (trading enquiries)0151 472 6036 (general enquiries)

Website: www.inlandrevenue.gov.uk

� Institute of Fundraising (formerly ICFM)

The Institute of Fundraising aims to promote the highest standards of fund-raisingpractice. They have developed a code of practice for commercial partnerships.

5th FloorMarket Towers1 Nine Elms StreetLondon SW8 5NQ

Tel: 020 7627 3436E-mail: info@institute-of-fundraising.org.ukWebsite: www.institute-of-fundraising.org.uk

33

Journals, magazines and newspapers

� National Council for Voluntary Organisations (NCVO)

Information available on fund-raising and governance issues and a range of generalsupport services.

National Council for Voluntary OrganisationsRegent's Wharf8 All Saints StreetLondon N1 9RL

Tel: 020 7713 6161E-mail: ncvo@ncvo-vol.org.ukWebsite: www.ncvo-vol.org.uk

� Wales Council for Voluntary Action (WCVA)

WCVA supports charities and the voluntary sector in Wales.

Baltic HouseMount Stewart SquareCardiffCF10 5FH

Tel: 029 20431700E-mail: enquiries@wcva.org.ukWebsite: www.wcva.org.uk

Journals, magazines and newspapers

The following publications often cover fund-raising issues, including charities andpartnerships with commercial partners.

� Charity Finance

Website: www.charityfinance.co.uk

Subscriptions

Tel: 020 7819 1200E-mail: sbailey@charityfinance.co.uk

34

Books and other publications

� Charity Management

Subscriptions

Mitre House PublishingThe Clifton Centre110 Clifton StreetLondon EC2A 4HD

� Charity Times

Website: www.charitytimes.com

Subscriptions

Tel: 020 7426 0496/0123

� Community Affairs Briefing

Provides an overview and round-up of current issues largely through case studies.

Fax: 020 7945 6138E-mail: mail@corporate-citizenship.co.ukWebsite: www.corporate-citizenship.co.uk/publications

� Corporate Citizen

Published three times a year by the Directory of Social Change (DSC).

Website: www.dsc.org.uk/corporatecitizen

� The Guardian - Society

The Society section in Wednesday's edition of The Guardian is particularly useful.

Website: www.SocietyGuardian.co.uk

35

Books and other publications

6 Due for publication in August, 2002.

� Third Sector

Subscriptions

Tel: 020 8709 9050

� Voluntary Sector

Contact NCVO for details - see above.

Books and other publications

The following publications are a good starting point for trustees who want moreinformation about fund-raising through commercial partnerships with companies. Amore detailed list of books and other publications can be found in the Bibliography.

• Bates, Wells & Braithwaite/Centre for Voluntary Sector Development, (2000) Thefund-raisers guide to the law, Directory of Social Change, London.

• Botting, N and Norton, M. (2001), The Complete Fund-raising Handbook, Directoryof Social Change, London.

• Charity Commission (2000), Charities and trading (CC35), Charity Commission,London.

• Charity Commission (2000), Charities and Fund-raising (CC20), Charity Commission,London.

• Charity Commission (2000), Fund-raising through partnerships with companies,Charity Commission, London.

• Hudson, M. (1999), Managing without profit, 2nd Edn, Penguin, London.

• Morton, V. (1999), Corporate Fund-raising, Charities Aid Foundation, Kent.

• Mullin, R. (2002), Fund-raising Strategy, Directory of Social Change/Charities AidFoundation/Institute of Charity Fundraising Managers, London6.

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37

Annex C - Bibliography

Adkins, S., Using cause related marketing, Charities Management, Spring 2000.

Bates, Wells & Braithwaite/Centre for Voluntary Sector Development, (2000), The fund-raisers guide to the law, Directory of Social Change, London.

Botting, N and Norton, M. (2001), "The Complete Fund-raising Handbook", Directory ofSocial Change, London.

Business Community Connections (2001), Business Community Partnerships: Fact orfiction?, Business Community Connections, London.

Business in the Community (1998), The cause related marketing guidelines, Business inthe Community, London.

Canning, V. (1999), "A practical guide to fund-raising and public relations", ICSAPublishing, London.

Carnie, C. (2000), Find the funds - a new approach to fund-raising research, Directory ofSocial Change, London.

Charity Commission (2000), Charities and trading (CC35), Charity Commission, London.

Charity Commission (2000), Charities and Fund-raising (CC20), Charity Commission,London.

Charity Commission (2000), Fund-raising through partnerships with companies, CharityCommission, London.

Charity Commission (2000), Avoiding donor disgust, Charity Commission presentation,London.

Charity Commission (2000), Fund-raising and charities, Charity Commissionpresentation, London.

Charity Commission, Commercial participators and Christmas Cards, in CharityCommission News, Issue 3, Autumn 1995.

Charity Commission, Fund-raising using commercial participators and fund-raisingbusinesses, in Charity Commission News, Issue 5, Autumn 1996.

Charity Commission, Fund-raising, in Charity Commission News, Issue 7, Autumn 1997.

Coe, D, Spanking new brand, in ThirdSector, 4 October 2001.

Dabson, B (ed.) (1991), "Company Giving in Europe", Directory of Social Change,London.

Elischer, T. (1995), Teach yourself fund-raising, Hodder & Staughton, London.

Epstein, S. (1998), "Licensing Deals for Charity Christmas Cards", Charities AdvisoryTrust.

Fishel, D. (1993), "The arts sponsorship handbook", Directory of Social Change, London.

Gibson, A., Charity at a price, in The Times, October 13 2001.

Gilchrist, K. (2000), Looking after your Donors, Directory of Social Change, London.

Griffiths, J., Companies and the second term:the voluntary sector, Community AffairsBriefing, April/May 2001.

Hazell, R and Whybrew, T. (1997), "Resourcing the Voluntary Sector - the fundersperspective", Association of Charitable Foundations, London.

Hind, A. (1995), The Governance and management of charities, The Voluntary SectorPress, High Barnet.

Home Office Voluntary and Community Unit (1995), "Charitable fund-raising:professional and commercial involvement, The Stationary Office, London.

Hudson, M. (1999), "Managing without profit", 2nd Edn, Penguin, London.

Inland Revenue (2001), "Trading by Charities-Clubs and Charities Series IR2001", InlandRevenue.

Lawrence, J., Invest in the future with WWF, in Sponsorship News, Vol 20, Issue 7, July2001.

Leat, D. (1989), Fund-raising and grant making: A case study of ITV Telethon '88,Charities Aid Foundation, Kent.

Logan, D. (1994), "Transnational giving - an introduction to the corporate citizenshipactivity of international companies operating in Europe", Directory of Social Change,London.

McCurry, P., Givers, Takers, in The Guardian/Society, 12 May 2001.

Morton, V. (1999), "Corporate fund-raising", Charities Aid Foundation, Kent.

National Center for Non-Profit Boards, Choose for-profit partners wisely, Board Member,Vol 8, No 3, March 1999.

NCVO (1999), The Good Trustee Guide, NCVO, London.

NCVO (1991), Finding Funds, NCVO, London.

Bibliography

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39

Bibliography

Picarda, H. (1995), The law and practice relating to charities, 2nd Ed., Butterworths,London.

Pollock, L., "More than a cheque", in Voluntary Sector, June 2001.

Ramrayka, L., Charities go on-line with big-name partners, in The Guardian/Society, 22October 2001.

Rowell, A., Sleeping with the enemy, in BBC Wildlife, August 2001.

Sawyer, P., Diana marge? Just think of the charity cash says Flora, in the EveningStandard, 23 March 1998.

Smallwood, J., Harnessing cause related marketing, in Charities Management, Autumn2000.

Sweatman, S., Fund-raising is about relationships, in Charities Management, Summer2001.

Tweedy, C., Bringing the arts to work, Community Affairs Briefing, February/March2001.

Villemur, A. (1996), Applying to a grant making trust - a guide for fund-raisers, CharitiesAid Foundation, Kent.

Vintner, L., "Take your partners", in Voluntary Sector, June 2001.

Warburton, J (1995), Tudor on Charities, 8th Ed., Sweet & Maxwell, London.

Wells, C (2000), Finding Company Sponsors, 1st Ed., Directory of Social Change, London.

Acknowledgements

We would like to thank everyone who has co-operated in the production of this report,especially the charities that gave their time to speak to our staff.

Notes

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Notes

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