Guarding against divorce when married couples are on charity boards
The much publicised divorce of Bill and Melinda Gates was finalised this summer, ending 27 years of marriage between them. As a married couple they set up and ran one of the world's largest private charitable foundations - The Bill and Melinda Gates Foundation - with assets valued at circa $50 million according to its financial statements.
The divorce settlement therefore not only dealt with the usual division of personal assets upon divorce but also brought into question the future of the foundation, given that Bill and Melinda Gates run the foundation together as co-chairs and trustees.
In brief, the outcome is that Bill and Melinda Gates have set themselves a period of time to “test the water” to see whether continuing as trustees will work for the foundation. If they find, within a period of two years, that they cannot effectively work together in this way following their divorce, Melinda Gates will resign from the foundation. Further, Bill Gates will transfer assets from his personal estate to her to use to further her philanthropic aims separately to the foundation.
It is worth noting at the outset that the assets of the foundation will not and cannot be affected by the divorce agreement. The assets added to it by Bill and Melinda Gates are now held in trust for charitable beneficiaries.
However, the agreement reached as part of the divorce to continue to work together, if they can, in running the foundation does raise the question of how the governance of a charity can be affected by breakdowns in personal relationships amongst trustees, particularly charities which are set up and run by married couples. No matter how amicable the end of a marriage might be, it cannot be ignored that inherent tensions will arise and potentially find their way into the trustee boardroom.
Good governance is a key component of any successful organisation, not least a charity. Tensions and conflict can give rise to poor decision making. As the guardians of governance, trustees need to take appropriate steps to prevent, or at least keep to a minimum, tensions within the charity. In the event of divorcing trustees, the following should be considered:
Transparency and clarity
Steps should be taken at the outset to establish and agree what the roles of the divorced couple will now be in the charity. As a married couple this might have been an easier shared role but, as a divorced couple, the sharing of responsibilities will not flow so naturally. Clarity over their separate responsibilities will be essential.
Divorce in the life of a charity set up by a married couple is a highly significant event and would signal a key time for a wholesale review of the governing documentation for the charity to ensure that policies and procedures are clear to all involved. For example, trustees should check that the charity's governing document remains fit for purpose.
Does the charity have appropriate provisions to deal with changes in trustees or the management of conflicts? Are there appropriate policies in place offering clarity to all involved to aid the smooth running of the charity? For example, conflict of interest and/or risk management policies. Do these need updating in the light of the current circumstances?
The trustees could also consider putting in place a trustee code of conduct policy to provide clear guidelines on the standards of behaviour and good practice expected by trustees. Having such a policy in place is recommended by the Charity Governance Code (a code endorsed by the Charity Commission which sets principles and recommended practice for charities) to address matters such as the role and function of trustees, standards of conduct, acting in the charity's best interests and with honesty and integrity etc.
Monitoring and exit strategy
Trustees should identify tension arising as a result of divorce as a risk factor for the charity's effective governance that needs to be monitored. They should devise a plan to manage it. Forward and strategic planning are essential.
Bill and Melinda Gates were clearly alert to this in the light of their agreed two year time frame for continuing their roles in this new phase as divorced trustees. Acceptance that there may be no other option than for one of the divorced trustees to walk away, if the position becomes unworkable, is essential. An exit strategy must be created to allow for this. The trustees should decide in advance which of the couple would be the one to leave and on what terms to avoid unnecessarily prolonging tensions further down the line.
Expanding the board
Following the resignation this year of Warren Buffet as trustee of the foundation, the foundation has now been left with only two trustees to manage it, namely Bill and Melinda Gates. The foundation is now taking steps to expand its trustee board, crucially, to ensure its smooth running in terms of decision making but also to bring on increased diversity at board level.
Being a US non-profit entity, the foundation is structured slightly differently to a UK charity. On this side of the Atlantic, it would be unusual to only have a married couple acting as trustees of a charity, not least because the Charity Commission's preference is for there to be a minimum of three trustees, ideally unconnected (to ensure that any conflicts of interest that might arise can be managed), and who bring a variety of skills to the board.
There should therefore always be other impartial trustees on the board who can help maintain the smooth running of the charity during and following divorce, not least to ensure that there is no deadlock in decision making if two trustees disagree on any matter.
Recruiting new blood
In any event, following a divorce, trustees should consider recruiting new blood to the trustee board to bring on added neutrality, new ideas and ultimately galvanise the charity's work in the interests of its beneficiaries. A varied skill set, knowledge and a rounded perspective on the trustee board is vital for a successful charity. Trustees made up of friends or family alone can prevent healthy questioning of, or challenges to, views and can cause problems so far as conflicts of interests are concerned.
The case of Lehtimaki and Others (Respondents) v Cooper (Appellant)  UKSC 33, involving the UK charity Children's Investment Fund Foundation (UK) set up by Sir Christopher Hohn and his then wife Ms Jamie Cooper, highlighted the difficulties in decision making that can arise where those empowered to make decisions on behalf of a charity are limited in numbers when a divorce on the board occurs.
In that case, as Mr Hohn and Ms Cooper were conflicted from making a decision for the charity to distribute a proportion of its assets to another charity so that Mr Hohn and Ms Cooper could go their own way with their charitable ventures following divorce, an application to the Charity Commission was needed as there was only one other person able to vote on that step.
The detail of that case is outside the scope of this article, but the fact that the matter was referred to the court, and went all the way to the Supreme Court, illustrates the complexities the divorce situation gave rise to not least due to the management of conflict of interests.
Fostering fresh ideas
In recruiting new trustees, consideration should be given to whether there should be any limits on trustees' terms of service introduced into the charity's governing documents to provide for regular turnover on the trustee board to foster fresh ideas. Ideally, a balance between continuity and change should be an ongoing policy for the trustee board where possible.
The chair role
In the foundation's case, Bill and Melinda Gates will continue to act as co-chairs. In the event of divorce it will be important to consider whether the right person has the role as chair. The chair plays a key role in managing dynamics and behaviours on the trustee board and their role will be tested in the event of divorce on the board. Trustees should consider whether the chair should have a casting vote in trustee decisions.
There is no doubt that working together following a divorce will be a challenge. However, with careful planning and a shared commitment to the success of the charity it is possible for there to be a working relationship beyond divorce provided of course personal feelings can be set aside. Ensuring that personal resentments or disagreements do not find their way into the charity trustee role is imperative for the future success of the charity.
A key duty of any charity trustee is not to let their personal interests influence their decision making as a trustee – it is only the interests of the charity that must be considered when making such decisions. It is important for all trustees on the board, including the divorced couple, to be alert to this and accept that if they can no longer comply with this duty, it is time to walk away from their role as trustee in the interests of the charity and its beneficiaries.