Providers need to be alive to the risk of contractors becoming insolvent and how to limit the resulting inevitable disruption.
Two governance codes were launched during Trustee Week last year – the Voluntary Sector Governance Code and the Code for Sports Governance. Both codes suggest using a senior independent director (SID), or senior independent trustee (SIT), but the role is unfamiliar to many charity trustees. So what is it and how useful is it?
The concept of the SIT is not new. It has appeared in a number of editions of the UK Corporate Governance Code published by the Financial Reporting Council.
The latest version provides:
"The board should appoint one of the independent non-executive directors to be the senior independent director to provide a sounding board for the Chairman and to serve as an intermediary for the other directors when necessary. The senior independent director should be available to shareholders if they have concerns which contact through the normal channels of chairman, chief executive or other executive directors has failed to resolve or for which such contact is inappropriate."
Later in the UK Corporate Governance Code, the role of the SID/SIT is described as leading the non-executive directors to appraise the chairman’s performance annually, and on such other occasions as are deemed appropriate. It also states that the SID/SIT should attend sufficient meetings with a range of major shareholders to listen to their views to help develop a balanced understanding of the issues and concerns.
According to the Financial Reporting Council’s Guidance on Board Effectiveness, in “normal times” the SID/SIT should:
- Act as a sounding board for the chair;
- Provide support for the chair in the delivery of his or her objectives;
- Lead the evaluation of the chair on behalf of the other directors; and
- Take responsibility for a succession process for the chair.
In times “when the board is undergoing a period of stress” the SID/SIT’s role “becomes critically important”. He or she is expected to work with the chair and the rest of the board and/or shareholders to resolve issues which are deemed significant.
The following examples are given as to when a SID/SIT may intervene:
- There is a dispute between the chair and the CEO;
- Shareholders or non-executive directors have expressed concerns that are not being addressed by the chair or CEO;
- The strategy being followed by the chair and CEO is not supported by the entire board;
- The relationship between the chair and CEO is particularly close, and decisions are being made without the approval of the full board; or
- Succession planning is being ignored.
With this level of responsibility and the potential to need to manage conflicts relatively for free, it may be surprisingly difficult to recruit anyone to the post. However, SIDs seem to be fairly commonplace in the context of NHS Trusts or Housing Associations (as recognised in the NHS Foundation Trust Code of Governance and National Housing Federation Code of Governance).
Extract from NHS Foundation Trust Code of Governance:
"In consultation with the council of governors, the board should appoint one of the independent non-executive directors to be the senior independent director to provide a sounding board for the chairperson and to serve as an intermediary for the other directors when necessary. The senior independent director should be available to governors if they have concerns that contact through the normal channels of chairperson, chief executive, finance director or trust secretary has failed to resolve, or for which such contact is inappropriate." The senior independent director could be the deputy chairperson.
There is a recognition that the vice-chair could undertake the role and it may be that some organisations add this to a list of the vice-chair responsibilities.
So what does this mean in the charity sector?
The third edition of the Good Governance Code for the voluntary sector mentions the role of SIT almost in passing and only in relation to ‘larger, more complex charities’ (typically those with audited accounts). This code recommends that is such cases the board has:
"a vice-chair, ‘senior independent trustee; or similar, who provides a sounding board for the chair and serves as an intermediary for the other trustees if needed. This person may be the deputy or vice-chair of the charity."
The Good Governance Code certainly does not dwell upon the importance of such a role. The Report of the ACEVO Governance Commission mentions the SIT, but only in the context of a number of ways in which the chair may be held to account. In a section about ongoing accountability for governance, it is suggested a designated person/persons be asked to oversee governance and report to the board. Although suggestions collected by the Commission while preparing the report included the appointment of a SIT, the report does not linger on this idea but seems to go on to suggest a subcommittee meeting which reports on governance.
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