Chapter 3: Options Considered and Discounted
3.1 In generating the options for consideration during the Review, four options were identified by the Legal Sub-group and submitted to the Project Group to form the basis of review and discussion. The options represent a spectrum from less to more change, and were discussed at a variety of meetings with different stakeholders, to describe the choices ahead and to invite views. A visual of these options is shown below.
Less Change → More Change
Minor changes to the status quo
- Retain Health Board as corporate trustee
- Add two or three non-Health Board Trustees
- End the role of the Health Board as corporate trustee
- Chair to be independent of the Health Board
- Board size between 7 and 11 trustees
- Majority of trustees to be non-Health Board appointed trustees
- Minority of trustees to be Health Board appointed trustees
- Implement the changes in Option 2 by way of a statutory corporation
- Transparent new governing document is created
- Introduction of limited liability for trustees is a positive outcome
- Retains NHS context through link with NHS legislation.
- Statutory conversion route intended to mean no new charity number is required
- Create entirely new charity which sits outside NHS legislation
- New charity registration and number required
- Assets to be transferred from old charity to new charity (where/ if possible)
3.2 The merits of two of the four options across this spectrum were considered and ultimately discounted. During the Review, these discounted options were known as 'option 1' and 'option 4.'
3.3 In order to support consistent analysis of all four options, criteria were developed to judge their merits:
1 Does this option introduce some element of external input to trustee decision-making?
2 Does this option mean charity trustees have a clear line of accountability?
3 Does this option remove the inherent conflict of interest resulting from the Health Board also being the charity trustee of the NHS-linked charity?
4 Is this option proportionate in resolving the issues we are being asked to address?
5 Are any significant new problems created by this option?
Option 1 - Minor changes to the status quo
3.4 Option 1 was based on the status quo with one additional new feature: the addition of two or three non-Health Board trustees. This would mean the NHS-linked charity retained the Health Board as a corporate trustee, although the Health Board would no longer be the sole trustee, given the presence of two or three new non-Health Board trustees.
3.5 Option 1 would introduce some element of external input to NHS-linked charity trustee decision-making, addressing criteria 1. However, there are important weaknesses with option 1 in relation to criteria 2 and 3.
3.6 The continuing presence of the Health Board as a trustee is the fundamental weakness of option 1, failing the test in criteria 3. Further, as the Health Board acts as a body corporate in relation to its charity trustee role, this makes it difficult for others to look through and see and understand how the individual board members of that corporate trustee are accountable for their actions. An approach was favoured which resulted in a charity board composed of individual charity trustees, providing clear lines of accountability as set out in criteria 2.
3.7 A further weakness with option 1 was the reality of boardroom dynamics given the numbers of people involved. Although the Health Board is a single corporate trustee with 'one vote' on a matter, as compared to the two or three potential new non-Health Board charity trustees who in theory are in the majority, the reality could feel different. Keeping in mind that some of the largest Health Boards in Scotland have over 20 board members, each of those members would still be present alongside the two or three new non-Health Board trustees. It would require a particular degree of confidence and even bravery to disagree with a view being vocally supported by more than 20 others around a board table, even if together they hold just one vote. That is not a recipe for success.
3.8 In addition, a sizeable charity board with over 20 board members is neither necessary nor practical for NHS-linked charities. Option 1 would therefore have the opposite impact to that desired, by increasing the numbers of individuals involved.
3.9 A further difficulty with option 1 relates to the manner in which charity trustees are appointed. Health board members become part of the corporate trustee of the NHS-linked charity by default. This means that automatic trusteeship of the NHS-linked charity risks being an after-thought, of secondary importance to the primary focus of the role held by an individual in relation to the Health Board. This may be particularly true for those who hold a senior executive role within the NHS which comes with its own pressures and priorities. In this context, the following commentary in the Grant Thornton 2018 Review is noted:
"In most cases the meeting of the Endowment Fund Committee preceded a meeting of the NHS Board. Whilst we recognise this was a practical arrangement taking into account Non-Executives time it did contribute to the differing lines of responsibility and governance being blurred. In addition, a time constraint on the meeting of the Endowment Fund at times was noted as another session was planned in, so in one case the meeting of the Endowment Fund was restricted to 45 minutes for what looked a sizeable agenda and may be an example of the NHS Board reducing time to consider endowment decisions." (Page 20)
3.10 A final difficulty with option 1 relates to the limitations which the NHS-linked charity would still face, in terms of not being able to recruit trustees for the full range of knowledge, skills and experience needed by the charity. The many Health Board members involved would primarily have been recruited for the knowledge, skills and experience which made them well suited to sitting on the NHS Health Board, as compared to sitting on the board of a charity. Option 1 would not fully address that issue as it enables the corporate trustee role of the Health Board to continue.
3.11 Summary of the problems associated with the Health Board as a corporate trustee
(a) Overlap of personnel - there is an overlap of personnel involved in making decisions for both the NHS Health Board, and also the NHS-linked charity. This leads to a conflict of interest which is a key issue this Review seeks to address.
(b) Busy NHS senior executives - many Health Board members are also executives with senior and busy roles within the NHS, potentially limiting the time which can be devoted to NHS-linked charity matters. There may be benefits to the NHS in freeing-up the time of these senior executives, such that they are no longer obliged to take on additional charity trustee responsibilities which come with charity law duties.
(c) Lack of clear individual accountability - as a corporate trustee operates as if it were a single person, this makes it difficult for others to see and understand how the individual members that make up that corporate trustee are accountable for their actions.
(d) Large boards - the number of individuals involved in a board meeting of an NHS-linked charity is driven by the size of the related Health Board. This means upwards of 20 people may be involved. Ending the role of the corporate trustee and enabling a smaller board size for an NHS-linked charity therefore offers an opportunity to streamline meetings and proceedings for an NHS-linked charity.
(e) Trustees not recruited with a primary focus on what the charity needs - the corporate trustee comprises members of an NHS Health Board who are not primarily recruited for the knowledge, skills and experience chosen by a charity. They are recruited primarily for their suitability to take on responsibilities for a public body (the NHS Health Board). As a consequence, the range of charity trustee knowledge, skills and experience available to the NHS-linked charity is necessarily limited by the corporate trustee.
3.12 In conclusion, option 1 does not go far enough to deliver effective change to strengthen the governance of NHS-linked charities.
Option 4 - Creating sixteen entirely new charities
3.13 The option known as 'option 4' was also considered and ultimately discounted. This option would involve the creation of sixteen new charities, with new charity numbers registered with OSCR. The assets of the old NHS-linked charity would be transferred to the new charity and the old charity wound-up (where possible). The changes to the composition of the board (as set out in recommendation 2.4) formed part of option 4, but crucially, this would be in the context of a newly formed charity with a free-standing governing document, such as a Scottish Charitable Incorporated Organisation (SCIO) or a company limited by a guarantee. This would take the NHS-linked charity outside the context of the National Health Service (Scotland) Act 1978. It could also give the trustees considerable discretion as to future changes to the charity's structure and governance arrangements.
3.14 Option 4 would have met the first three tests in our assessment criteria. In relation to criteria 4 – proportionality – it was however felt to be disproportionate and went beyond the level of change required today to address the key issues, for reasons set out below.
3.15 In relation to criteria 5, additional new complexity could be involved in relation to the arrangements regarding the transfer of assets. In the current context, option 4 did not offer as readily actionable a solution as other options under consideration. The mechanics involved in the transfer of restricted funds would require to be looked at in detail. Option 4 would require significant additional work to clarify the detailed steps involved in a formal transfer of assets (including ensuring the security of future donations and legacies) from sixteen old charities to sixteen new ones, with no clear benefit at the current time in adopting this route.
3.16 A further aspect which counted against option 4 was that importance was placed in retaining some form of legal link and reassurance around the NHS context for the charities, albeit that in future they would be operating with a greater degree of independence. As such, there were attractions in achieving a governance outcome which meant the governing document was linked to NHS legislation. This would mean that any future changes to it would require a particular level of public scrutiny, which was felt to offer positive reassurance given the nature of public interest in donations to NHS-linked charities. Option 4 did not offer this ongoing link.
3.17 In relation to option 4, we also had regard to the position in England and Wales. Changes have been made in that jurisdiction to create a choice for NHS-linked charities on whether or not to convert to independent status, involving a new and separate governing document and various transfer arrangements. In other words, NHS-linked charities in England and Wales now have the choice to move to independent status (option 4 in our terms). As at March 2017, seventeen NHS-linked charities of the 250 or so of that type in England and Wales had made the change to independent status. The corporate trustee model still remains the default position in England and Wales.
In our recommendations, all sixteen of the NHS-linked charities in Scotland are intended to benefit simultaneously from the implementation of steps to strengthen their governance through changes to the composition of their boards. This removes the element of choice for the charity on enacting trustee changes, which could otherwise be driven by whether the particular NHS-linked charity has the time and resources to take legal advice on the creation of a new governing document, for example. Instead, a new governing document is intended to be automatically implemented for all NHS-linked charities within legislation, to take effect on a future implementation date. Crucially, this means no NHS-linked charity in Scotland is left behind.
3.18 In conclusion, at the current time, option 4 goes beyond the level of change required to strengthen the governance of NHS-linked charities, as assessed according to the five criteria.