The Lifeline Project was a well-regarded charity. Failure to carry out the targets within the contracts led the charity into insolvency and resulted in a personal, 7-year disqualification order.
Take Mr M, for example – Mr M was a tenant board member of his local housing association. Mr M, being a community minded man, got involved in supporting the vulnerable elderly couple down the road. He would take them shopping and sort out their Sky subscription. However, with the couple concerned being barely literate, he was also taking a “percentage” on top of the subscription, without, of course, their knowing…
Or take Ms O – a well-known activist who ended up on the board of a charitable company leading a community regeneration project on her “patch”. Ms O was a vocal, strong minded person, who made her views clear, but had a reputation for being fair and robust – until one day in a board meeting she overstepped the mark and used clearly racist language.
The conduct of people involved in any organisation, even at senior board member level, can fall short in a wide variety of ways, often not as obvious as those set out above. Over the years, we have assisted in dealing with board member issues for housing associations, consumer co-operatives, social enterprises and charities, and there are a few (perhaps obvious) useful truths which apply in any such situation.
First, and at some point when you are not in the midst of a dispute, review your constitution to make sure there is clear provision for the removal of board members for misconduct. Not all consitutions contain such provisions, and not all such provisions are clear. Ideally, make sure that if the allegations are serious, there is the ability to suspend the board member (or members) concerned – there is some doubt, certainly for limited companies, about whether a board member can be legitimately suspended unless there is a clear power in the constitution to do it.
Secondly (and again not in the heat of the moment) put in place a procedure for dealing with complaints about the conduct of board members. This could look something like the following:
- notify (and, if necessary, suspend) the board member concerned – unless matters are so serious that you need to involve the police;
- investigate any allegations – with independent support if needed;
- give the board member concerned the opportunity to put their side of the story as part of that process;
- present the findings to a decision maker (the Chair, a standards committee, or even the full board) who has not been involved in the process up to that point; again, give the board member concerned the right to put their case;
- have a range of sanctions, from a simple warning up to permanent removal from the board;
- give a right of appeal to the full board (or the membership, depending on your constitution).
Think about having a board code of conduct if you don’t have one already – the National Housing Federation has produced a model code of conduct, but it is worth noting that this doesn’t incorporate a procedure for dealing with breaches. Educate your board as to what they should expect of each other. Talk about how people behave in meetings, what they disclose outside and how they talk to staff. Help board members be clear about their role.
Thirdly, if and when an issue about board member conduct arises, use the procedure. If you have an agreed process and you don’t keep to it - there are court cases which say any decision your organisation purports to make could be invalid, not because the decision was wrong (necessarily), but because you didn’t comply with a specified procedure.
Finally, be aware of when issues may need to be reported to the Regulator and/or the Charity Commission. The Charity Commission’s guidance on How to report a serious incident in a charity can be helpful in this regard, and specifies that incidents should be reported where they result in or risk significant:
- loss of money or assets
- damage to property; or
- harm to a charity's work, beneficiaries or reputation.
The Regulator’s approach is currently less clear; however, the proposed new code of practice on the Governance and Financial Viability Standard states that “transparency is a fundamental pillar of the co-regulatory approach” and that the Regulator should be informed “at the earliest opportunity about any material issues that indicate there has been or may be a breach of the standards.” This should be considered in conjunction with the Regulator’s usual approach to regulating the consumer standards i.e. the serious detriment test.
Above all, don’t:
- panic (it’s all happened before, somewhere);
- insist on sacking a board member immediately, before any investigation;
- get drawn into a slanging match; or
- cut corners during the process.
Dealing with board member misconduct can be a drain on time, funds, and energy, but it needn’t be the end of the world if it is handled properly, and it can even be a learning experience for those involved.
For more information
On 23 July, trainees from Anthony Collins Solicitors will host an ‘experience day’, which will involve various activities and presentations, with lawyers and non-lawyers from across the firm.
The Office of the Immigration Services Commissioner (OISC) has launched a new scheme specifically for charities and not-for-profit organisations who want to advise EU citizens on UK settlement.
In the second part of our series on contract management pitfalls, we look at the risks and opportunities presented by payment mechanisms in construction contracts.
Under most construction contracts, the contractor takes on the ground conditions risk. However, a recent case has demonstrated that the risk can fall on the employer.
The UK Government has been consulting on how it should promote social value in its procurements. Here is our response that we submitted to the consultation...
The Tenant Fees Act 2019 came into force on 1 June 2019.
A recent case in the Court of Appeal will no doubt bring a sigh of relief for employers, but a corresponding sigh of disappointment may be uttered for equality and gender balance in the workplace.
This briefing assists response to the consultation paper by outlining the consultation questions, providing some background information and prompting some thoughts and potential answers.
A report published on 29 May by the Institute for Fiscal Studies (IFS) has found that since 2009-10, local government spending on services has fallen on average by 21% in real terms.
To receive invitations to our events, as well as information and articles on legal issues and sector developments that are of interest to you, please sign up to Newsroom.