13 Feb 2019
Managing Conflict with Third Parties
There is a range of third parties with whom charities may find themselves in conflict. Some common examples include:
- Conflicts with regulators;
- Disputes with suppliers over the quality of goods or services provided;
- Disagreements with HMRC regarding the interpretation of tax law;
- Disputes with the press or media regarding potentially damaging reports;
- Conflicts with funders regarding project delivery and grant clawback;
- Disputes with landlords or tenants.
It is difficult for organisations who face any of these situations. Unlike internal conflicts, disagreements with third parties often carry a heightened risk of reputational damage to your charity. The stakes are therefore high and emotions can run deep. However, often the best course of action is to take a considered and dispassionate approach.
Acting in the Charity’s Best Interest
At the heart of any decision must always remain the core principle of doing what is in the best interests of the charity. Conflicts are often emotionally charged and there can be a temptation to base decisions on matters of principle, or emotions, rather than what is best for the organisation. I have encountered organisations who have incurred significant professional fees challenging an argument on principal, where arguably the potential gains were vastly outweighed by the potential costs of losing.
This is where the board of trustees can really come into their own. Detached from the front-line turmoil of a conflict places them in a good position to stand back and help the charity make the correct business decision, devoid of emotional influence.
Bring in Professional Support When Appropriate
Where the charity and its trustees are not fully equipped to understand the best course of action, it is important to bring in professional support to guide the decision. For instance, when deciding whether to commit to a legal action, one would require a clear view on the likely outcomes of any litigation, as well as the potential losses involved. Unless you are lucky enough to have a lawyer who specialises in litigation on your board, external support will undoubtedly be needed.
Organisations often shoot from the hip and agree settlements outside of court, without the requisite professional advice in place. In these situations, charities could potentially lose large sums. Not seeking professional support in these situations could be considered to be a “breach of trust”, with the trustees personally liable for losses incurred. It is therefore important to seek expert guidance.
Things to Consider Before Taking Legal Action
The Charity Commission stipulates that charitable funds must not be spent on defending legal claims that have no merit or prospect of success. In some cases, consent is required from the Charity Commission before legal action can commence. Where charities are unable to resolve a conflict themselves and where legal action is the next step, careful thought needs to be given.
Before undertaking expensive legal action, mediation can also provide a cost-effective solution to resolve the conflict. The Civil Mediation Council or the Centre for Effective Dispute Resolution are well established organisations that can provide support to charities at a fraction of the cost of a legal action.
The Charity Commission requires charities to report serious incidents, which may result in a loss of charity assets, damage to property or harm to a charity’s work, beneficiaries or reputation. If a conflict has a significant potential impact for your charity, it is important to assess whether it needs to be reported to the Commission.
Managing Risk Through the Risk Register
Managing the risk of conflict with third parties does not always need to be reactive, indeed managing the risk proactively should be encouraged. The charity’s risk register is a helpful place to begin identifying the risk of third party conflict, as well as how the risk can be managed. One charity I know, has recently been able to challenge an unfavourable HMRC ruling, due to them putting in place professional fee protection insurance, which covered the accountancy fees associated with the tax investigation. Having the foresight to identify and manage the risk proactively, has potentially saved the organisation significant sums, as well as allowing them greater capacity to defend their position.
Keeping Calm and Carrying on
It is inevitable that your organisation will encounter conflict with a third party at some point during its lifetime. Although stressful, conflict can also be an opportunity to improve relationships or ways of working. For instance, there has been cases where charities have used conflict with its neighbours
as an opportunity to build bridges with the wider community. Open invitations were sent to local people, who attended workshops to express their concerns, and new ways of working were developed which addressed the community’s complaints.
The initial conflict allowed greater communication and, not only were the relationships repaired, they ended up being better than they had ever been in the past. Provided organisations can keep a level head and work through conflicts rationally and methodically, obtaining outside support when needed, they can be opportunities rather than disasters.
What to do if you are in Conflict with Third Parties?
Most conflicts with third parties can be resolved by the staff or the trustees themselves, sometimes with some advice. However, in serious cases the Commission may need to advise the trustees or take action to protect the charity.
If something goes wrong, the trustees should be asking themselves the following questions:
• Do we need to take any steps to minimise any future losses, or recover losses incurred to date?
• Do we need to report the situation to the Charity Commission?
• Do we need to enlist the help of a professional to support our decision making?
• Do we need to say anything to staff, volunteers, members or the public?
• What do we need to put in place to prevent a similar conflict occurring again in the future?
How we can Help
If you would like assistance with a conflict situation, we are always on hand to provide professional assistance. We can help with a broad range of scenarios; from helping with HMRC investigations to providing ad-hoc governance support. We are also experienced in helping develop risk management strategies to help minimise potential impact.
If you would like to discuss this or any other matter, please call James Gare on 01225 785520 or send him an email