The argument that has been heating up for eight years between the Charity Commission and the Royal Albert Hall finally boiled over this week as a result of an interview with the commission's chair, William Shawcross, in The Sunday Telegraph.
The interview contained only five paragraphs about the hall, which is a charity. But there was enough there to prompt the hall to fire off a strongly worded, four-page protest to the regulator that accused it of infringing its statutory purpose of increasing public trust and confidence in charities.
In the past the commission has confined itself to saying no more than that questions of conflicts of interest and the independence of the hall’s governing council needed to be resolved. Further published detail has come from correspondence released under freedom of information law and individuals who want reform.
But the Shawcross interview goes further: he is quoted questioning whether the hall is operating for the public benefit, as required by charity law, and saying that the trustees should consider whether its current governance structure risks damaging public confidence in the hall.
Urged to 'put its house in order'
The article also includes statements that are not in direct quotes from Shawcross but which the hall says are "attributable to him by implication" unless he disassociates himself. These include that the hall has been given until May to "put its house in order or face a statutory inquiry" and that the hall’s seat-holders, from whom the trustees are elected, have been selling tickets for their seats at inflated prices.
The commission has said it will reply to the hall’s protest but has not disowned the statements, so it looks as if the dispute is taking a more acrimonious turn as it enters the new year.
The heart of the matter is the hall’s unusual constitution: the building was partly financed in 1866 by the sale of 1,276 of its 5,272 seats to private investors; ownership of seats, which have been inherited or traded over the years, confers "membership" of the Corporation of the Arts and Sciences (the formal name of the hall); and the 19 voting members of the 24-strong ruling council – the charity’s trustees – are elected from among the hall’s members, also known as seat-holders.
The seat-holders can do as they like with tickets for their seats, which are their private property: they can use them, give them to friends or charities, return them to the box office to be sold at face value, or sell them on the open market for the best price available.
At the same time, however, the seat-holders elected to the council are in a position, by setting guidelines and influencing the choice of events through the programming and marketing committee, to take decisions that might affect the open market price of their tickets.
Good returns on seat sales
For long periods in the past this was not seen as an issue because events at the hall rarely commanded high unofficial prices. Indeed, there were periods when seat-holders were required to make financial contributions to help keep the hall solvent.
But since the refurbishment of the hall with money including a £40m grant from the Heritage Lottery Fund and the Arts Council in 1996, the hall has become more commercially successful, attracting stars such as Eric Clapton, Adele and Cirque du Soleil. This means that seat-holders, aided by the internet and modern marketing websites, can make substantial sums by selling their tickets. Some receive requests from ticket agencies to sell their tickets at prices well above face value.
The charity’s annual report for 2015 stated for the first time how many seats are owned by the 19 council members: they own 54, and 91 more are owned by parties related to them, such as family members or companies in which they have an interest.
The report did not mention potential earnings from seats, but Richard Lyttelton, a former president of the hall who is campaigning for reform, has said that each of his four seats, for which he returns most of the tickets to the box office for sale at face value, earns him a net income of about £5,000 a year.
He estimates that selling tickets at the highest available price on the internet could significantly increase that revenue or even double it, and he fears that so much internet selling is now going on that the hall is, in effect, being controlled by commercial interests.
Regulator calls for changes
The commission first took an interest in 2008, looked more closely when stories about soaring earnings appeared in the press in 2012, and in 2015 told the hall there was "a real risk that council members will prefer their own interests to those of the charity". It gave the hall until September that year to come up with a proposal to deal with the conflict of interest it perceived, preferably by creating a voting majority of non-seat-holders on the council.
The hall did not comply with the deadline and commenced its own review of its governance, which it agreed could "do with some modernisation". The commission then decided to defer the matter until completion of this review, due in time for the hall’s annual meeting in May this year.
The commission has recently been pressing the hall to finalise the review well in advance of the annual meeting so that it can consider the proposed reforms and decide if they deal adequately with the questions it has raised about conflicts of interest, the independence of the council and the risk of reputational damage to the charity.
The hall has insisted that the majority of the council will continue to be elected seat-holders: the president of the hall, Jon Moynihan, former executive chairman of the PA Consulting Group, has told members that "the principle of non-seat-holder majority on the council is not the focus of the review, council having already come to a clear position on that".
There have been signs of possible compromise on other fronts recently: the commission has indicated interest in seat-holders being prohibited from selling their tickets above face value while on the council and being bound by a robust conflict of interests policy. This is backed by some reform-minded members of the hall, although Lyttelton wants all seat-holders forbidden from selling above face value, whether they are on the council or not.
The hall has also indicated a willingness to reduce the size of the council, create a new category of non-seat-holder council member that would broaden the council’s perspective and place an upper limit on the number of seats that can by owned by a member and his or her related parties.
But the latest communication from the hall’s governance review, seen by Third Sector, indicates that the hall is unlikely to agree to prohibiting council members from selling tickets above face value. The review is led by hall vice-president Ian McCulloch.
It says that restrictions on how council members should dispose of their tickets are too simplistic, would be an unwarranted intrusion into private property rights and would work against attracting good people to serve on the council.
Meanwhile, the commission is about to rule on a complaint that Lyttelton has made to it after obtaining advice from a senior charity accountant and a specialist barrister. He alleges that the hall’s accounts are not compliant with the Statement of Recommended Practice for charity accounts on the question of "related-party disclosures".
The hall argues that the Sorp rule that a charity must disclose transactions between it or its trustees and persons or entities closely connected with them does not apply to its trustees in respect of their seats because the seats are their private property rather than a benefit conferred on them by the charity.
But Lyttelton points out that the hall provides seat-holders with services that enable them to generate income, which should therefore be disclosed. These include printing and circulating their tickets, running the box office return scheme, charging them for upkeep of the seats, reimbursing them when they give up their tickets for so-called "exclusive" events and sending them accounts.
Lyttleton’s complaint has been discussed by the commission’s public interest and high-risk cases committee and two senior staff have had a lengthy meeting with the hall. In its letter this week to the commission, the hall complained about delays by the commission in settling the matter.
It also complained about delays by the commission over changes to its objects proposed in the constitutional review and its request to incur the expense of preparing a parliamentary bill to put proposals from its review into practice.
The governance of the hall is laid down the original royal charter, a supplementary charter and acts of parliament of 1927, 1951 and 1966. It can be changed either by a new act or by a scheme to amend existing acts. The commission has the power to impose a scheme, but only if it can demonstrate that the trustees should apply for one in the interests of the charity but have unreasonably refused or neglected to do so.
Given the impasse between commission and hall over the central question of the composition of the council, a clash appears to be looming over the governance of one of the country’s most iconic and popular institutions. Whether it ends in court, in parliament or in compromise is hard to predict.