Corporate Governance in difficult times – Who can do what?

This article is principally directed at health bodies and, because many Foundation Trusts now have subsidiaries, companies.  However, the principles it contains apply equally to universities, charities and government departments.

Can your Board (or Governing Body) still meet?

Assuming what you are aiming for is a virtual meeting, then the answer depends on your standing orders/constitution/articles and what they say about it.  Even if your governance framework appears to give you the power to meet virtually, you need to consider what it says about voting.  In short, you can only answer this question and the questions below by looking at your own specific rules and the applicable law.  However, as that is not a very helpful answer, here is some specific advice based on the most common provisions we see:

• Clinical Commissioning Groups (CCGs) – The current model constitution for CCGs does not contain any standing orders.  Supporting guidance lists some suggested content, but not in sufficient detail to ensure that a CCG following the guidance would be able to answer this question with confidence.  Meetings of Governing Bodies of CCGs are open to the public by default, which suggests (requires) a physical meeting, so their constitutions often do not make any provision for meetings to be attended by telephone or decisions to be taken in any other way.  Similarly, meetings of the CCG’s members will normally make no provision for virtual meetings, simply because no one will have thought to build that flexibility into meetings of the members when it was not being built into meetings of the Governing Body.  In those circumstances, if a quorum cannot be achieved then either officers will need to rely on existing delegated authority or (if this becomes impractical) the CCG will need to ask NHS England to vary the CCG’s constitution to build in some flexibility to hold meetings in other ways.  Below, we look at other ways that decisions might be taken.
• NHS Trusts – Normally in the same position as CCGs.  Standing Orders most often do not contain provision for virtual meetings because (like CCGs) their meetings are open to the public by default.  However, see below for other workarounds.
• NHS Trust committees – Have their composition and quorum requirements set by the Board of Directors.  Often incorporate the Board of Directors’ standing orders and rarely contemplate virtual meetings. See also the further options, below.
• NHS Foundation Trusts (FTs) – Boards of Directors. The model constitution promulgated by Monitor did not contain model standing orders (for the board of directors or the council of governors), which meant FTs had to come up with their own.  Consequently, whilst many have standing orders that look very like the standing orders they had as an NHS Trust (all FTs were previously NHS Trusts), others have standing orders that look quite different.  Some constitutions will contain wording like this: “The Board of Directors may agree that its members can participate in its meetings by telephone, video or computer link. Participation in a meeting in this manner shall be deemed to constitute presence in person at the meeting.”  The voting provisions will also need to be checked, to ensure that the meeting can take decisions, but it is provisions like this that will make it possible to hold meetings even if a quorum cannot be present “in person”.  Part of the reason FTs have provisions like this is that initially (when FTs were first created) their Boards were not required to meet in public.  We suggest other workarounds below.
• FTs – Councils of Governors. The position is the same as for the Board of Directors, in that no rules were set centrally.  Some FTs will have different provisions for their Directors, which may be more flexible than for the Governors.  However, as Governors’ meetings are required less frequently, this may not be a practical problem for many Trusts.  We have a transaction proceeding, at the moment, which requires Governor approval as a “significant transaction” under the FT’s constitution.  That FT’s constitution allows Governor meetings to be held by telephone, so the meeting was able to proceed.  Other FTs may not have this provision.  Again, see below for other options.
• FTs – Members’ meetings. Members’ meetings happen less frequently than Governors’ meetings.  For that reason, FTs’ adopted standing orders do not normally envisage those meetings happening other than in person.  This is not likely to be important because almost all business can be conducted by the Directors (with the support of the Governors where legislation or the constitution requires it) and the mandatory annual members’ meetings are not held until the accounts are available (normally September).  However, it will not be possible to approve constitutional changes that affect the powers of Governors without holding a members’ meeting, because legislation requires a members’ meeting to endorse any such proposal.  It is unlikely there will be a simple workaround without legislation, so it is good that members’ meetings are infrequent.
• Companies. Companies are governed by their Articles of Association and sometimes also by additional rules or bye-laws made by their Board of Directors.  The Government has published model Articles for companies for many years.  The current model Articles allow Directors to agree between them how they will participate in meetings, provided each is able to communicate to the others any information of opinions they have on any particular item of business.  It is also normal for Articles to allow company Boards to take decisions by written resolution, so that no meeting (real or virtual) is required.  The Articles of the company need to be checked and any quorum requirements still need to be met before a meeting can be held, but normally company Articles are much more flexible than NHS standing orders and (if they are getting in the way) can be amended by the company’s members (shareholders, in the case of a company limited by shares).  This inherent flexibility (or the possibility of creating it by changing the Articles) also flows through to the other approaches suggested below.

Ineffective Committees

• All bodies - Where committees are unable to function, either because their terms of reference do not allow them to meet virtually or because they cannot muster the requisite quorum, Boards and Governing Bodies will need to consider whether it is possible to reconstitute the committees to allow them to meet or instead take their authority back to the Board/Governing Body where legally possible.  In some cases, the law is prescriptive about the membership of a committee.  In those circumstances, the best course of action will be to try to find a way that the committee can continue to meet – allowing for telephone conference call or Skype meetings, for example.

Acting up

• CCGs - Sometimes have constitutions that make provision for colleagues to “act up” and take the role of an absent colleague.  In the cases we reviewed, where the constitution referred to acting up it also said that where the person had “formal acting up status” they could also exercise the voting rights of their colleague.  Care will need to be taken that this does not conflict with other provisions of the CCG’s constitution, but it may provide a short-term fix.
• NHS Trusts – Normally provide in their Standing Orders for colleagues to act up for an absent executive director colleague (in NHS Trust parlance, “officer members”) and say that they can exercise the colleague’s votes where they have “formal acting up status”. 
• FTs – FT constitutions set out a maximum number of directors.  FTs will only be able to appoint additional voting directors if either (a) they  have flexibility built into their constitutions to do that or (b) the absent director agrees to stand down (resign as a director) until they are available for work again.
• Companies – Within Companies, the members (shareholders in a company limited by shares) often have the right to appoint additional directors with few formalities.  If this provision is not already in the company’s Articles of Association, this would be a good time to consider inserting it.

Emergency action under your governance structure

• CCGs – Do not always have special provisions (other than shortening of notice periods) to take account of emergencies.  However, some still retain the concept of what used to be called “Chairman’s action”, under which decisions can be taken in emergencies by the Chairman either together with or (alone but) after consulting other Governing Body members.  These provisions need to be read very carefully as this authority only exists if it appears in the standing orders and the procedure is followed to the letter.  Also, the status of such decisions varies from CCG to CCG.  In some cases a decision will be solid and is simply reported to the next meeting, but in others the decision is instead subject to ratification.  Where a decision is subject to ratification, anyone acting in reliance on it does so at their own risk, because the CCG may subsequently refuse to ratify it.
• NHS Trusts – Tend to be in the same position as CCGs.  The standard wording in the DHSC model standing orders was that decisions taken on grounds of urgency were subject to ratification (i.e. would not necessarily stand), so the Standing Orders need to be checked to see whether there is a power to take urgent action, what procedure has to be followed and whether a decision is taken definitively or requires ratification.
• FTs – As FTs were previously NHS Trusts, some still have in their Standing Orders provisions allowing for decisions to be taken by (for example) the Chief Executive and Chair jointly.  That is problematic for an FT, because the legislation places the powers of the FT in the hands of the Board of Directors and only allows delegation to an executive director or to a committee formed entirely of directors of the FT (who could be exec. or non-exec.).  Delegating decision-making in an emergency to the Chief Exec and Chair would be possible but only if either the decision was delegated to the Chief Exec (who just had to consult the Chair) or it was delegated to a committee consisting of the Chief Exec and Chair.  These are important distinctions that go to the heart of whether delegation is lawful (irrespective of what the FT constitution says).  In addition, one of the examples we reviewed also said that the decision had to come back to the Board for ratification (raising the concern that the Board might refuse to ratify what the Chief Exec. and Chair had done).
• Companies – For companies, a third party dealing with the company is entitled to assume that any director has authority to bind the company.  This means that whilst a director might get themselves into trouble by taking a decision they were not allowed to take, anyone dealing with the company would be able to rely on any bargain struck with the director.

Directions (help from head office)

• CCGs can normally only be directed (ordered) to do something by NHS England where they are failing or likely to fail to perform a duty.  However, an inability to function may be grounds for NHSE exercising its power of direction, so may trigger this power even if a CCG is not failing on other grounds.  In addition, the Secretary of State already has sweeping powers to take the health service (including CCGs) under central command by issuing directions under s253 of the National Health Service Act 2006 if “he considers by reason of an emergency that it is appropriate to do so”.
• NHS Trusts can be given directions by the Secretary of State at any time and for any reason.  In addition, the Secretary of State has the emergency power under s253 referred to above.
• FTs are not generally subject to direction (although FTs with public dividend capital can effectively be directed by the imposition of conditions on their PDC) but are also subject to direction under s253 mentioned above.
• Companies are not normally subject to Government direction.  However in relation to companies providing services for the NHS, s253 (referred to above) allows the Secretary of State to issue directions to “any body or person” irrespective of whether the commissioner of their services is a health body or a local authority.  This means for example that a private provider of NHS treatment can be told what to do if the Secretary of State considers that is appropriate “by reason of emergency”.

Don’t panic!

As the sayings go, “necessity is the mother of invention” and “two heads are better than one”.  If you find yourselves stuck after exploring the suggestions outlined in this article, please contact us and we will work with you to see whether a workaround can be found.