Chapter 4: Governance Recommendations
4.1 Chapter 3 set out information about the two options which were considered and discounted. This Chapter will consider the remaining two options – options 2 and 3 in the visual in section 3.1 - which together form the basis of our recommendations, tested against the criteria developed to judge their merits, repeated again here for ease of reference:
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?
4.2 Ending the role of the Health Board as corporate trustee
As set out in Chapter 1, the dual roles of a Health Board are problematic. Such arrangements date from legislation in the 1970s and no longer reflect good governance practice. The limitations on the role of the Health Board as corporate trustee are set out in section 3.11. In order to deliver an outcome which meets criteria 3 - removal of the inherent conflict of interest - we make the following recommendation:
A Health Board should no longer be the corporate trustee of an NHS-linked charity.
4.3 Chair of an NHS charity
An important element within the composition of the new NHS-linked charity board is the selection of the Chair. At the current time, the Chair of the NHS-linked charity may also hold the role of Chair of the Health Board. In the future model recommended in this review, it is anticipated that the NHS-linked charity Chair will be independent and will not hold a role in the relevant Health Board.
Further work will be required after this Review to identify a precise legal mechanism for the appointment of the first independent Chair of an NHS-linked charity. This includes consideration of who holds the power to appoint that first Chair. A number of guiding principles are important in relation to this process. Firstly, transparency, in terms of the open nature of the recruitment process. Secondly, the Health Board should not be involved as the body appointing the first Chair, in order to secure the appropriate degree of independence. It may be that a special panel is required for this one-off exercise, comprising independent individuals with a blend of relevant experience.
In anticipation of the support which may in due course be required by the NHS-linked charities in developing the selection process for future Chairs, the Review Chair had exploratory conversations with ACOSVO (Association of Chief Officers of Scottish Voluntary Organisations) which runs a Chairs' Network. The Chairs' Network comprises chairs of charities across Scotland, and may be able to offer support and assistance in the process which lies ahead, which can be further explored by a national shared forum of the NHS-linked charities.
Further work will be required after this Review to identify a precise legal mechanism for the appointment of the first independent Chair of an NHS-linked charity.
The open recruitment and appointment processes leading to the appointment of the second and subsequent Chair of an NHS-linked charity shall be determined by the trustees of that NHS-linked charity. The non-Health Board appointed trustees shall be in the majority in the process which selects the second and subsequent Chair.
4.4 Trustees of an NHS-linked charity
Looking at the future composition of an NHS-linked charity board, discussions within the Review looked at the benefits of blending a combination of NHS-experienced trustees with members of the public who brought with them a range of other skills and experience to the charity.
Although there was one view which said the entire trustee board should comprise members of the public without NHS Health Board connections, a consensus view emerged around a blended board.
The composition of the board of an NHS-linked charity should comprise the following three elements:
(a) an independent Chair
(b) a majority of non-Health Board appointed trustees
(c) a minority of Health-Board appointed trustees
4.5 Health Board-appointed trustees
In explaining why there is value in retaining some Health Board involvement on an NHS-linked charity board, it is important to appreciate the features of these sixteen charities which will continue to be unique, even with the implementation of the recommendations of this Review.
The high number of restricted funds held by NHS-linked charities means that, regardless of who holds the role of trustee, there will be a specific NHS focus on how those particular funds must be used. More detail on restricted funds is provided in section 5.23. Sitting alongside those restricted funds, there is then the more open and flexible question of how unrestricted funds are applied.
4.6 This is where the future strategy of the NHS-linked charity comes into play, and the range of external factors they take into account in shaping their plans. Clearly, there will be the opportunity to amplify the impact of certain NHS-funded work. It is anticipated that the Charity Liaison Group will be the discussion forum for exploring practical aspects to larger funding opportunities, as set out in section 4.24. At a more strategic level, it could also be useful to have a charity trustee who has an understanding of the strategy of the relevant Health Board, as insight to support strategic planning. The presence of at least one Health Board-appointed trustee is intended to support the basis for positive future collaboration between the Health Board and the charity.
It is noted that, in England and Wales, their model for independent NHS charities still involves a recommendation of at least one trustee to be appointed by, or from, the NHS Health Board (page 7).
4.7 In reviewing the scope for who might be appointed by the Health Board to the NHS-linked charity, it is anticipated that the non-executive directors of the Health Board would be among the suitable candidates for such a nomination. In not holding an executive role on the Health Board, they bring with them a particular perspective which minimises the risk of Health Board control re-emerging.
It is worth emphasising that the Health Board-appointed trustees are acting in a personal capacity, and are not collectively acting on behalf of the Health Board.
4.8 The number of Health Board-appointed trustees is variable, within certain parameters. The starting point is the interaction between recommendations 2.4 and 2.10. Health Board-appointed trustees must always be in the minority.
|Size of board||Health Board appointed trustees (max.)|
4.9 It will be a decision for a Health Board as to whether to choose to nominate the 'maximum minority' number of charity trustees. There may be both practical and accounting reasons for choosing not to do so. In terms of practical matters, there may be a limited number of interested persons happy to agree to take on the role of Health Board-appointed trustee.
4.10 A second factor a Health Board may wish to consider relates to the accounting matters set out in section 5.5. If fewer than 20% of the charity trustees are Health Board-appointed trustees, this may result in certain accounting requirements not coming into play, with the result that group accounting rules may not apply. For a combination of reasons, therefore, it is possible that practice may evolve such that only one or two trustee roles are nominated by a Health Board. The decision, however, is one for the Health Board to make.
4.11 Further to the size of board selected, certain quorum arrangements are then intended to apply. Provision has been made for this to be included in the governing document contained in legislation, intended to ensure that decisions are not controlled by the Health Board-appointed trustees (see Appendix 3).
Health Boards should develop guidance on charity trustee nominations for Health Board-appointed trustees, which should be progressed via a suitable national shared forum involving all Health Boards.
4.12 Trustee recruitment
The Scottish Governance Code for the Third Sector includes certain effectiveness principles. These include: "having a transparent and timely trustee recruitment and induction process" (page 11).
4.13 Looking at this in the context of NHS-linked charities, it points to the value in open advertising of trustee vacancies for the majority non-Health Board appointed trustees. The Governance Code also mentions "regularly reviewing…… the composition and skills of the board" (page 11). This could be done by means of a skills matrix, noting the desired range of skills sought by the board, mapping the skills of current trustees to that matrix and identifying gaps or areas of weakness to be addressed through the recruitment process.
4.14 In order to preserve the outcome that a Health Board no longer controls an NHS-linked charity, it is considered sensible for non-Health Board appointed trustees to be in the majority in the selection process for appointing other non-Health Board appointed trustees. It is anticipated that detailed guidance on non-Health Board appointed trustee recruitment matters would be covered in a future Trustee Recruitment Guide, which could be developed via a national shared forum involving all NHS-linked charities.
4.15 Separately, a one-off process will be required to support the selection and appointment of the first non-Health Board appointed trustees for each NHS-linked charity. A number of guiding principles are important in relation to this process. Firstly, transparency, in terms of the open nature of the recruitment process. Secondly, the Health Board should not be involved as the body appointing the first non-Health Board appointed trustees, in order to secure the appropriate degree of independence. It may be that a special panel is required for this one-off exercise, comprising independent individuals with a blend of relevant experience. Further work will be required after this Review to identify the precise legal mechanism which will deliver these initial appointments.
Further work will be required after this Review to identify a precise legal mechanism for the appointment of the first non-Health Board appointed trustees of each NHS-linked charity.
After the tenure of a first non-Health Board appointed trustee comes to an end, the open recruitment and appointment processes leading to the appointment of a non-Health Board appointed trustee shall be determined by the NHS-linked charity. The non-Health Board appointed trustees shall be in the majority in the recruitment process which selects future non-Health Board appointed trustees.
A Trustee Recruitment Guide should be developed to reflect best practice in open recruitment, to support the NHS-linked charities in successfully recruiting non-Health Board appointed trustees. In this context, the Trustee Recruitment Guide should consider a range of matters including digital as well as non-digital means of advertising trustee vacancies, a trustee role description, and the use of a skills matrix.
4.16 New opportunities for volunteering
Given the combined effect of recommendations 2.4 and 2.10, at a minimum there could be at least 64 new trustee roles created which are open to members of the public (being at least four on each of the sixteen charity boards, including the Chair roles).
4.17 A transparent recruitment process includes the option to use digital means of advertising vacancies. There are a number of websites and social media options available for making the most of reaching a wider (and potentially younger) audience. In the course of one of the Reference Group meetings, the prospect of younger trustees was viewed as a positive prospect in discussions, noting that 2018 was Year of Young People in Scotland. It is also noted that one of the volunteering outcomes of the National Volunteering Framework is: "volunteering and participation is valued, supported and enabled from the earliest possible age and throughout life" (page 30). Age will not be the only aspect to diversity which NHS-linked charities will wish to consider, however.
4.18 We note another of the effectiveness principles of the Governance Code is "developing and improving our [the charity board's] capacity and capability with on-going support and training" (page 11). The need for a good induction process and trustee training came up on several occasions during the Review and forms part of our recommendations. It is noted that various sources of free trustee training exist in Scotland, including workshops delivered each February during The Gathering, and events held during Trustees' Week each November, to mention just two of many sources.
NHS-linked charities should put in place induction training for all charity trustees as well as consider the need for ongoing training and support for all charity trustees.
4.19 Size of board of an NHS-linked charity
At the current time, charity board meetings of NHS-linked charities can involve more than 20 people, given the size of some of the largest Health Boards (who also act as corporate trustee of the NHS-linked charity). Such a large number is not particularly conducive to effective and efficient decision-making, as discussed earlier in section 3.11.
No specific Scottish guidance on board size was identified. It was noted that, in England and Wales, section 5.6.2 of their Charity Governance Code states "A board of at least five but no more than twelve trustees is typically considered good practice."
In considering what size of board is appropriate for an NHS-linked charity in future, the Review was mindful of the varying geography/population across different parts of Scotland. With this in mind, there are benefits in enabling local decisions to be made around the size of a board, within certain parameters. The lower end of this scale was tested with the five smallest NHS charities, and a general consensus emerged around seven being a preferred lower end for smaller boards. The upper end of eleven was chosen, noting that an uneven number was preferred to ensure a majority position for non-Health Board appointed trustees.
On a process point, it is anticipated that the first new Chair would determine the size of the first board. Thereafter, it is anticipated this is a decision for the trustees, from time to time. There is provision for this in Appendix 3, which will need dealt with in the legislative changes.
The size of board of an NHS-linked charity should be no smaller than seven and no larger than eleven. The first Chair shall determine the size of the first board. Thereafter, an NHS-linked charity shall determine what size of board best suits its circumstances within these parameters from time to time, enabling local geographic considerations and other factors to be taken into account.
4.20 A legally binding and transparent governing document
At the current time, NHS-linked charities are trusts without a trust deed. This is an unsatisfactory position for a number of reasons, including lack of transparency, and a legal form which brings with it personal liability for trustees. The current underlying legal form of an NHS-linked charity could therefore present a barrier to future trustee recruitment.
In looking at how to address these weaknesses in the current governance arrangements, a solution was found in the form of a statutory corporation – option 3 as shown in section 3.1. Put simply, a statutory corporation is a means of creating a charity's governing document in legislation. By adding a clause to 'convert' the trust to a statutory corporation, the same OSCR charity number will continue, if our recommendations are implemented as intended. It is vital this technical point is reflected in legislation to successfully implement the conversion, and there is provision for this in Appendix 3. As such, no steps are required to transfer assets to a new charity, since the statutory corporation in effect wraps-around the existing NHS-linked charity, safeguarding the NHS context for the NHS-linked charity.
The benefits delivered by option 3 are therefore viewed as important and valuable additions to option 2. Our recommendations therefore include the elements comprising options 2 and 3 together, rather than option 2 alone.
4.21 Recommending options 2 and 3 together is therefore viewed as a more proportionate outcome at the current time than option 4 set out in 3.13. Our recommended approach delivers a new governing document by automatic operation of law, requiring no additional work by an NHS-linked charity, which avoids them spending time and resources in establishing sixteen new core governing documents. This also offers a simpler overall result for the sixteen charities, in that their core governance arrangements remain similar and none is left behind. This offers continuing benefits in terms of how the NHS-linked charities co-ordinate the sharing of best practice into the future.
4.22 To accompany the core provisions in the new governing document, Standing Orders could be developed to cover more detailed aspects. It is noted that Standing Orders form part of the current governance landscape for NHS-linked charities, as mentioned in section 1.15. The process of revising and updating Standing Orders could be taken forward by a shared national forum, to facilitate re-use and sharing of templates.
An NHS-linked charity should have a legally binding governing document of a type which involves limited liability for trustees. A statutory corporation model is recommended as the preferred route for this, with suitable conversion wording to enable continuity of use of the same charity number. Appendix 3 illustrates the potential themes to be covered in this governing document, which would be contained within legislation.
It is anticipated that Standing Orders may supplement the new governing document. The preparation of a template for such Standing Orders, for local adaptation, could be considered further by a shared national forum.
4.23 Code of Conduct
The third principle of the Scottish Governance Code deals with board behaviour. There are various elements to this, and one stands out in particular: "creating a constructive board environment where diverse, and at times conflicting views are respected and welcomed, and decisions are reached collectively" (page 9).
How charity trustees interact with each other matters just as much as how in future they interact with important partners, such as the Health Board, donors and other stakeholders. We believe it will be beneficial to develop a Code of Conduct which covers expectations on board behaviours. Aspects of this work may be usefully taken forward in a national shared forum.
Each NHS-linked charity should put in place a Code of Conduct to provide guidance and set expectations on board behaviours.
4.24 Collaboration between NHS-linked charities and the related Health Board
It might be said that the nature of collaboration between an NHS-linked charity and its related Health Board is an operational matter, dealing with local communications and practicalities. It is however of such importance to how an NHS-linked charity operates in future that the theme of collaboration is dealt with in this chapter on governance.
There will always be a need for effective communication between a Health Board and the related NHS charity, given that the latter holds a significant number of restricted funds which donors have mandated to be spent in certain ways in healthcare settings operated by the former.
The NHS-linked charity can only effectively spend restricted funds by having a thorough understanding of the needs arising in the healthcare settings specified by the donor, generally involving places and people who are within the NHS. Beyond this, in relation to the unrestricted funds of an NHS charity, understanding the public health priorities of the local area and strategic priorities of the Health Board will be relevant factors informing the strategy of the NHS charity.
This kind of 'partnership working' is nothing new in a healthcare setting. One only has to look at Blood Bikes Scotland or Scotland's Charity Air Ambulance to see examples of charitable organisations which are not part of the NHS, but work closely with the NHS. With this in mind, two aspects arise in relation to future collaboration, relating to a Charity Liaison Group (section 4.25) and contractual considerations (section 4.26).
4.25 Charity Liaison Group
It will be helpful to create a structured gathering point for interaction between each NHS-linked charity and the relevant Health Board, where clinical, financial and other Health Board insight can be shared with the NHS-linked charity. In turn, the NHS-linked charity can use this forum as a sounding board for plans involving major expenditure which could, for example, result in new equipment being available to the Health Board. An example which arose on several occasions during the Review was the desire to avoid a scenario where a charity purchased a piece of equipment which could not be accepted and placed into a hospital since the ongoing maintenance costs could not be funded by the Health Board.
Effective communication and collaboration could manage this risk.
4.26 The Charity Liaison Group must not, however, become a decision-making forum by the back door. The trustees of the charity must retain their responsibilities and the Charity Liaison Group would have a focus on communication and insight sharing. Should the Charity Liaison Group, with significant numbers of Health Board attendees, mistakenly become a decision-making forum on NHS-linked charity spending decisions, this would undermine the intent of this Review and could result in the Health Board members being viewed as 'shadow trustees' of the NHS-linked charity, which means they are charity trustees. This might also result in an auditor concluding that, once again, the Health Board is able to control the charity, resulting in the charity's financial statements being fully consolidated with the Health Board – undesired outcomes.
The terms of reference of the Charity Liaison Group would need to be carefully written to set out the intent and scope of the group, which might be chaired by the NHS-linked charity Chair. As set out in the Leadership principle of the Scottish Governance Code, it is important to recognise that; "responsibility and accountability is always retained by the [charity] board."
Each NHS-linked charity shall establish a Charity Liaison Group to support ongoing communications between it and the relevant Health Board.
4.27 Contractual considerations
A new framework of contractual relationships lies ahead to formally underpin all aspects of future co-operation between an NHS-linked charity and the relevant Health Board. The precise nature and range of these contracts will be a matter for each NHS-linked charity to decide, although it is anticipated that a national shared forum could assist in co-ordinating how templates may be created for shared use and local adaptation. The following is a guide but is not exhaustive:
- A Memorandum of Understanding to govern the relationship between the NHS-linked charity and the relevant Health Board, accompanied by separate contracts to deal with specific subjects e.g.
- A Service Level Agreement for provision of services (see section 5.6)
- A Brand licensing agreement (see section 5.17)
- A Data Sharing contract for sharing of personal data (see section 5.38)
Each NHS-linked charity shall establish a new framework of contractual relationships between it and the relevant Health Board, to underpin a range of operational and governance arrangements.
4.28 Minutes and communications
In the OSCR Inquiry Report into Tayside NHS Endowment Funds, one aspect to emerge was the lack of clarity in Minutes around the basis on which certain decisions were made. In the 2018 Grant Thornton Report, it is noted that "Within NHS Board meeting minutes there is no declaration of interests from Non-Executives in respect of outlining their role and responsibility as Trustees of the Endowment Fund, so it is unclear how potential conflicts of interest are managed" (page 27).
Although the above quote relates to Minutes of the Health Board, as compared to the NHS-linked charity, it does raise the point about the role of Minutes in relation to transparency. Some NHS-linked charities in Scotland currently publish their Minutes on a website.
4.29 The key mandatory mechanism for accountability and financial transparency for all charities in Scotland is the publication of the charity's annual report and accounts, filed each year with OSCR within 9 months of the end of the charity's accounting period. Across the sixteen NHS-linked charities, a variety of styles of annual report and accounts are adopted, reflecting different decisions on the balance of communication about numbers on the one hand, and the narrative around projects funded and beneficiary impact on the other. In this regard, we note OSCR's guidance on annual reports and accounts, and the emphasis on telling the story beyond just the numbers.
While we believe that it is going too far to mandate the publication of Minutes of trustee meetings, we believe there are benefits in NHS-linked charities carefully considering how they can communicate openly with their various stakeholders, including donors.
4.30 We note that practice varies across the sixteen charities, around communication methods and styles.
- Some of the NHS-linked charities have developed their own more detailed websites.
- Some make use of social media to highlight their activities and how funds have been spent.
- Some issue an online newsletter with updates.
- Just Giving webpages or other online donation mechanisms are in place for many of the NHS-linked charities.
- Some use their annual report and accounts in a more visual way, to clearly communicate the charity's strategy and achievements
- It is noted that the 2013 template for 'Generic Operating Instructions' (see section 1.15) makes reference to NHS-linked charities affixing a plaque in areas which have been improved/refurbished further to charity funds being used.
- Some NHS-linked charities have their own dedicated brand/logo which appears online and on printed materials, which is a visual indicator of its distinct charity status.
For an NHS-linked charity looking to enhance its communications, there are examples of good practice to be found among the points above.
An NHS–linked charity should review the content of its annual report and accounts, to reflect the latest best practice guidelines issued by OSCR, to ensure an appropriate balance between narrative and numbers. It is noted that each NHS-linked charity will make its own decisions about what form of other communications best meets local needs, when sharing news of projects being funded.