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In the public interest
Law Society Gazette – 5 April 2007

As the work-load for solicitors in charities increases, Mark Smulian looks at the rewards of operating in a sector that can rarely match the financial incentives offered elsewhere.

How many solicitors can boast that they spend their working days surrounded by pleasant clients engaged in worthwhile tasks?

Charities lawyers believe they do, but there is a catch. The job satisfaction, and the interesting work, come with lower earnings than their expertise might command elsewhere.

Demand is high, however, for those willing to make that trade-off, because the charity sector is growing. As the government and local authorities increasingly encourage voluntary organisations to take on their services, charities are being drawn into complex public sector contracts.

This widens the responsibilities of the large charities in particular, and is a new legal concern in addition to their traditional ones, which can range from mergers and employee rights abroad, to negotiating celebrity endorsements.

Charities are regulated by the Charity Commission, and must have charitable objectives. In the past, any charity that was concerned with the advancement of education or religion, or the relief of poverty, was deemed 'charitable'. The Charities Act 2006 changed that to a requirement to demonstrate 'public benefit', and laid down 13 categories for this.

Commission chairwoman Dame Suzi Leather says in her foreword to the commission's recently released consultation paper on defining public benefit: 'There is an implied covenant between charities and society: in return for having purposes which are charitable and provide public benefit, charities may enjoy the benefits that come with being a charity - such as the reputation and tax advantages.

'Since these apply through the life of a charity, and not just when it is first set up, it is reasonable that charities continue to publicly account for the benefit to the public they provide.'

Defining public benefit is causing controversy because, as Charity Law Association chairwoman Anne-Marie Piper explains, it is difficult to create definitions in a developing field with such varied and complex activities.

Ms Piper, a partner at London firm Farrer & Co, says: 'Charity is growing as an area of law because of the huge increase in the number of public services being delivered through contracts by the voluntary sector that used to be delivered by the public sector.

'One can surmise that greater public disillusionment with the political process has given rise to alternative approaches, with people working through charities and campaigns, and these groups increasingly providing welfare services.'

That trend draws charities into the public realm more than ever, and the outcome of the commission's consultation must shape a regime that can deal with this. Ms Piper says: 'In theory the change is not radical at all because it was always assumed that public benefit was implied and that charities that matched the old categories were acting for the public benefit. We argued that there was no need to start again.

'Now there will be pressure on charities to demonstrate public benefit. The majority of charities will have no problem with that. The 13 categories cover pretty well everything, but you will have to show where the benefit will come.'

Nothing in the changed definition will automatically make any charity non-charitable, or vice versa. But Ms Piper predicts: 'Charities that charge high fees may have problems, in particular independent schools and hospitals. Some hospitals charge high fees to rich patients to subsidise poor ones but turn out not to have many poor patients, and they would have to justify charitable status.'

Stephen Lloyd, the partner who heads charity work at London firm Bates Wells & Braithwaite, thinks the controversy over independent schools and hospitals makes it unfortunate that the commission was left to sort out the public benefit issue.

He explains: 'The government lacked the courage to legislate for this and turned the matter over to the executive in the shape of the commission. That is difficult for the commission, and drags it into politics and the possibility that another government will reverse its ruling. The government did not want a Labour backbench rebellion because its MPs would have wanted something much tougher over independent schools and hospitals.'

Fee-paying schools and hospitals could be caught by whether their work benefits a large enough proportion of the public to count as charitable. Mr Lloyd says: 'The commission has done quite a good job but there will be big arguments. When they say, for example, that a charity's services must be available to those who cannot afford to pay, where do you draw the line? Is it 5% or 50% of them? Nobody knows or can agree.'

What could solicitors who like the idea of engaging with these issues expect from the work? Ms Piper admits: 'It is not a specialism that pays as much as commercial work.' She handled the merger of two leading charities in 2002. 'It was a decent-sized merger, but you'd probably get paid three times as much doing mergers and acquisitions in the commercial sector.

'It's worthwhile, though, because you get to spend your days as a solicitor surrounded by nice people who are doing things that are important to society, and I enjoy it.'

Mark Harvey, head of legal services and company secretary at Help the Aged, was once a property lawyer, and then had a non-legal job at a charity during which he developed an interest in the sector's law.

'The work is wide ranging, and a lot of charities have decided to have in-house legal departments because their work has become increasingly complex and that is seen as cost-effective,' he says. 'It is an interesting area to work in, and people come in from a variety of routes. Some people have had enough of the pressure of City firms and take a cut in pay, so you do get high-calibre people. They still have to work hard here, but not 15-20 hour days like you can get in magic circle firms.'

Mr Lloyd also emphasises the 'great variety of work in charity law as there are so many different areas in which charities are involved'. Lawyers in this field might deal with 'the Office of Fair Trading inquiry into price fixing by independent schools, overseas work, fund-raising, public sector contracts, volunteer insurance or the employment status of staff abroad', he says, among a vast list of examples.

They can also get involved in work with celebrities, such as Mr Lloyd's work with the Global Cool Foundation, which aims to get famous people in the entertainment world to act as ambassadors of a low-carbon lifestyle.

Then there is scope for legal innovation; Mr Lloyd developed the idea of the community interest company. After he submitted the idea, the government liked it and introduced the concept. It allows someone who has an idea for a social enterprise - a business that works for community rather then private benefit - to pursue this as a director through a company that reinvests its profits to further its work, rather than distribute them to shareholders.

There are now some 800 such companies. They have the advantage that the people who set them up need not be accountable to a board of trustees - who could remove them from office - 'but the other side is that you don't get the tax breaks that charities do', Mr Lloyd says.

He says that lawyers in the charities field 'need a good commercial discipline and a good understanding of trusts, and a willingness to engage with people who are involved in a great variety of issues but are in organisations that are not rich and that do not pay huge fees. In a sense, you trade interest and job satisfaction for money'.

Recruitment is an issue in the sector because of the lower pay and the large number of charities that need legal advice. Ms Piper says: 'There are lots of charities that would say that I'm their lawyer, and it all rather works on hoping that they do not all get into trouble at once. If you get overload in commercial law, you can get a locum, but you cannot do that in charity law easily because few people work in it.'

She says most firms active in charities 'grow their own' talent and hope that they do not fall prey to the sector's pervasive headhunting.

'We tend to recruit people from other specialisms,' Ms Piper says. 'They need to be interested in it, but it's a wide area of law with a lot of variety.'

The public may not be thinking of lawyers when they put money in a collecting tin, but legal advice remains an essential cost to allow charities to pursue their work of helping others.

Mark Smulian is a freelance journalist