Improving your governance – workshop

for membership organisations

Sandra De Lord, Partner,

Kingston Smith LLP

Thea Longley, Partner,

Bates Wells & Braithwaite

LLP

...about Kingston Smith� Top 20 UK full service accounting firm

� Over 60 partners and around 450 staff

� Largest non-national firm of accountants

� Founding member of KS International

� 15 years of Sunday Times “Business

Doctor”

dedicated trade associations

team...

� 4 partners dedicated to trade

association sector

� In-house association management team

� Specialist fundraising advisory

department

� Regular newsletters and updates

As a reminder…As a reminder…As a reminder…As a reminder…

Workshop outline

� Overview of governance

� Alternative constitutional forms and attracting

the ‘right’ board - followed by group discussion

and feedback

� Refreshment and comfort break

� The framework for good governance: decision

making and the role of the board - followed by

group discussion and feedback

What is a governance

Governance is the Governance is the Governance is the Governance is the process by which process by which process by which process by which

decisions are made and decisions are made and decisions are made and decisions are made and implemented…implemented…implemented…implemented…

What is a governance

….taking account of the need to:

� Deliver the purpose and vision of the

organisation

� Operate within a framework that complies with

internal rules; organisation culture; external

regulation

� Understand the risks and rewards of decisions

and actions

� Move the organisation forwards in a timely way

Benefits of good governance

Useful frameworks

� NCVONCVONCVONCVO code of governance for the voluntary and code of governance for the voluntary and code of governance for the voluntary and code of governance for the voluntary and

community sector community sector community sector community sector

http://www.governancecode.org/full-code-of-governance/

� Financial Reporting Council UK corporate Financial Reporting Council UK corporate Financial Reporting Council UK corporate Financial Reporting Council UK corporate

governance code governance code governance code governance code

http://www.frc.org.uk/Our-Work/Codes-Standards/Corporate-

governance/UK-Corporate-Governance-Code.aspx

� Nolan Principles Nolan Principles Nolan Principles Nolan Principles –––– Committee for standards in Committee for standards in Committee for standards in Committee for standards in

public life public life public life public life

http://www.public-standards.gov.uk/about-us/what-we-do/the-

seven-principles/

Useful frameworks

NCVONCVONCVONCVO Code of Governance Code of Governance Code of Governance Code of Governance FRCFRCFRCFRC UK Corporate Governance UK Corporate Governance UK Corporate Governance UK Corporate Governance

Code Code Code Code

Nolan Principles Nolan Principles Nolan Principles Nolan Principles

Understand the role Leadership Selflessness

Deliver organisational purpose Effectiveness Integrity

Work effectively as individuals and as

a team

Accountability Objectivity

Exercise effective control Remuneration Accountability

Behave with integrity Relations with shareholders Openness

Be open and accountable Honesty

Leadership

Trade AssociationsConstitutional forms and getting the ‘right’ BoardThea LongleyThursday 14 March 2013

What will we cover?

• Introduction – legal forms

• Terminology

• Incorporated / unincorporated

• Directors’ Duties

• Governance triangle

• Chair/CEO relationship?

• Getting the ‘right’ Board

• Conflicts of Interest

• Bear traps

Legal forms – boring but important!

• Lots of legal forms for membership organisations e.g.

Incorporated:– Company limited by guarantee

– Industrial and Provident Society

– Royal Charter Body

– Community Interest Company

Unincorporated:– Unincorporated association

What is a constitution?

Constitution = governing document

Company → Articles of Association

IPS → Rules

Royal Charter → Charter

Unincorporated Association → rules/ constitution/byelaws (lots of names)

NB: may also be: standing orders, byelaws, regulations etc.

Why does the Constitution matter?

• Sets out procedures for meetings, appointments etc.

• Must be followed or decisions can be challenged

Who is the Board? (1)

Board

Members

Who is the Board? (2)

• Directors

• Management committee

• Council

etc etc

Who are the members?

• Members can be:– Democratic (members in a legal sense) with legal

rights to vote at the AGM, elect in whole (or part) the Board and dismiss Trustees (e.g. National Trust); and

– Participative (members in a colloquial sense) these can be termed Friends or Supporters (e.g. Tate Gallery).

Liability to third parties and structure (unincorporated)

• Cannot contract in its own name

• Board members:– contract in their own names

– are responsible for performing contract

– Are personally liable even if the organisation runs out of funds

• Members can be liable

Liability to third parties and structure (incorporated)

• A company can contract in its own name

• Directors have limited liability

• Directors and members are not liable to third parties for breach of contract or tort claims

• Directors not liable even if the company runs out of funds (subject to wrongful and fraudulent trading exception)

Directors Duties (1)

A director’s general duties under the Companies Act 2006 are:

1.1 to act within the company’s powers;

1.2 to promote the success of the company for the benefit of the members as a whole, having regard to:

Directors Duties (2)

(a) the likely consequence of any decision in the long term;

(b) the interests of the company’s employees;

(c) the need to foster business relationships with customers and suppliers;

(d) the impact of the company’s actions on the community and environment;

(e) the desirability of the company maintaining a reputation for high standards of business conduct; and

(f) the need to act fairly as between the members of the company.

Directors Duties (3)

1.3 to exercise independent judgement;

1.4 to exercise reasonable care, skill and diligence;

1.5 to avoid conflicts of interest;

1.6 not to accept benefits from third parties; and

1.7 to declare an interest in proposed transactions or arrangements. This is in addition to the existing duty to declare an interest in existing arrangements.

The governance triangle

• The board is the supreme governing body as set out in the governing document, led by chair/president

• The secretariat are the employed operational staff, led by CEO/director

• The members are the entities which the TA represents and who belong to the TA

Governance process

The Board Governing body on behalf of membershipWithin framework of its own rules & the law of the land

Board meeting

Informs itself via reports from staff, sub-committees, expert adviceTakes decisions

Staff, volunteers

Implement decisionsDeliver strategyReport progress to the Board

Objectives

Chair/CEO relationship

• Key to successful governance

• Chair usually line manages the CEO – supervision meetings, appraisals

• Need a strong professional working relationship –open/hones/mutual respect/understanding

• Regular meetings (but not too regular)

• Board should be supportive and also provide constructive challenge when necessary

What is the right board?

• Identify skills

• Audit skills

• Identify gaps

• Do you want executive members (e.g. staff) on the board?

Democracy and Board Skills – get the balance right

• What is the problem?

• Appointed vs elected

Possible solutions

• Appoint to posts – e.g. “Treasurer”, “Regional representatives”

• Selection Panel, Appointments Committee, Nominations Committee

• Co-option

• Terms in office

• Automatic retirement and sunset provisions

• Staggered retirement to ensure continuity

Lots of variations

• Do co-opted board members have to be reappointed at the AGM or not?

• Selection panel – only those selected put forward for members to elect

– all those nominated put forward with flags on those recommended

– selection panel appoints?

– who appoints selection panel?

Conflicts of Interest

• Register of Interests

• Conflicts policy – follow constitution

• Those conflicted don’t participate?

Bear Traps

• Mutual Trading exemption

• Member buy in – consultation is key!

Discussion session 1

� How is your association constituted?

� Do you have an advisory council that supports

the board?

� What size is the board/council?

� Do you face conflicts of interest?

� What works well and what doesn’t about this

structure?

� How could it be improved?

Session 2 – The framework for

good governance

What we will cover

� What should the board be doing

� How should the board act

� The board’s role in decision making

� Strategy and planning

� Appraising effectiveness - of the entity and of

the board

The board and decision making

Signs of Signs of Signs of Signs of a poor board a poor board a poor board a poor board

� Board members declining in number / quality

/ attendance

� Ineffective meetings – prevent issues being

resolved speedily

� Board / staff / members have little

confidence in each other

� Dominance at meetings by a few individuals

The board and decision making

What should the board do?

� Leadership

� Control

� Compliance

� Protection

� Monitoring

� Reviewing

How should the board act

LeadLeadLeadLead HonestHonestHonestHonest OpenOpenOpenOpen

AdvocateAdvocateAdvocateAdvocate

IntegrityIntegrityIntegrityIntegrity

ObjectiveObjectiveObjectiveObjective

AccountableAccountableAccountableAccountable

CommittedCommittedCommittedCommitted

SelflessSelflessSelflessSelfless

Making the right decisions

A strong board A strong board A strong board A strong board

� Makes strategic decisions as opposed to operational and management decisions

� Works with the Executive and staff to ensure the decisions of the Board are acted upon

� Delegates to sub committees, but doesn’t abdicate

Making better decisions

Mission

Vision for risk management

Protect /create value Support good governance

Risk as a ‘critical friend’Vision for risk function

Strategic goals for risk management

Risk aware culture and integrated use of risk management in strategic decisions

Clear risk governance and quality assurance to keep risk under control

Risk functionchallenges and supports operations

Objects and objectives

Situation analysis

Options analysis

Feasibility study

Business plan

Strategy and planning

Strategy and planning

� Where are we now?

� Where do we want to be?

� How are we going to get

there?

� How will we measure success?

Where are we now?

� Are we doing what we were set up to do? How

well?

� What are we measuring - numbers / income ?

What does that tell us?

� What difference are we making? How do we

know?

� What is the competition?

� What do our stakeholders think of us?

Where do we want to be?

� Vision

� Drivers for change

� Why – change? Us? Now?

� What do our stakeholders need?

� What are the benefits and how can we

measure them?

� Who else is there?

How will we get there?

� Do we have strong enough leadership?

� Do we have the right staff?

� Do we have the right buildings?

� Do we have the right message?

� What will it cost and how can we afford it?

� Who can help us and how?

How will we measure success?

� Stakeholder consultation

� SWOT

� PESTLE

� Board effectiveness review

PESTLE & SWOT

Economic Economic Economic Economic

Social Social Social Social

TechnologicalTechnologicalTechnologicalTechnological

Political Political Political Political

Legal Legal Legal Legal

EnvironmentalEnvironmentalEnvironmentalEnvironmental

Strengths Strengths Strengths Strengths

WeaknessesWeaknessesWeaknessesWeaknesses

Opportunities Opportunities Opportunities Opportunities

Threats Threats Threats Threats

Board effectiveness appraisal

Ask yourself how well you do the following:

� Understand and promote mission and values

� Enhance the organisations image

� Understand the objects of the organisations/ main

operational strands of activity/ how they contribute to

financial wellbeing and mission

� Represent the views of your membership

� Participate in effective decision making

� Set clear targets and monitor outcomes

Board effectiveness appraisal

� Can board members meet the time commitment

required?

� Are board meetings conducted effectively?

� Are decisions made in a timely way?

� Are agendas and minutes adequate?

� Are conflicts of interest properly dealt with?

� Is confidentiality maintained?

Discussion session 2

� Does your board have clear objectives, strategy

and timeframe?

� Do you clearly identify and track KPIs?

� How do you measure and benchmark success/

failure?

� Do you manage risk adequately?

� Have you undertaken board effectiveness

appraisal? Was it successful? Did you have to

overcome resistance ?

Any questions?

� Sandra Sandra Sandra Sandra De De De De Lord, Lord, Lord, Lord, Partner, Kingston Smith LLP

T 020 7566 3764

sdelord@kingstonsmith.co.uk

� TheaTheaTheaThea Longley, Longley, Longley, Longley, LLP Partner, Bates Wells & Braithwaite London LLP

T 020 7551 7831

t.longley@bwbllp.com