Are we prepared for the implications of the Health and Social Care Act 2012 for governors?
After considerable debate, media, political and public interest, the Health and Social Care Act 2012 received Royal Assent on 27 March. It has been, and continues to be, one of the most hotly debated acts that has ever been passed in the history of the NHS.
However, one subsection of the act has received relatively little public attention thus far, but it will be important for all foundation trusts, authorised and prospective, to take note of its potential ramifications and begin to prepare for it.
Section 151(4) inserts a new paragraph into Schedule 7 of the NHS Act 2006, to impose two new general duties on governors of foundation trusts to:
(a) Hold the non-executive directors individually and collectively to account for the performance of the board of directors; and
(b) To represent the interests of the members of the corporation as a whole and the interests of the public.
On one level, the new statutory duties make perfect sense as they reflect the special relationship between the governors of the foundation trust who appoint and remove NEDs on the one hand, and the fact that they are elected by members of the trust or appointed by local organisations on the other. The essence of these duties were already described as good practice within Monitor’s code of governance in principles B.1 and G.1 respectively.
However, the new duties are not without their potential legal and governance pitfalls:
- How will the governors’ duties to hold the NEDs, both individually and collectively as a group, to account for the performance of the board as a whole, sit with the long-established concept of a unitary board on which each and every director (executive or not) is an equal member?
- If NEDs are accountable for the overall performance of the board, that potentially clashes with the provision that a council of governors may decide to propose a vote on the trust’s or directors’ performance (in accordance with another amendment proposed to the NHS Act 2006 by section 151), which seems to imply that both NEDs and executive directors’ performance could be considered.
- How will this potential duty relate to the role of the chair in leading both the council of governors and the board of directors whilst ensuring that each is effective in their role in accordance with Monitor’s current Code of Governance (principle A.2)?
It is apparent from studies of governors of foundation trusts to date, that some have struggled with the concept and especially the practice of “holding their boards to account.” How will they fare with these new legal duties?
Andy Chittenden is company secretary at the University Hospital of South Manchester Foundation Trust and the chair of the informal North West Foundation Trust Secretaries Forum hosted by Hill Dickinson LLP. He believes that the question needs to be answered sooner rather than later.
With his chair, Felicity Goodey, Andy has developed a stewardship standard which has been discussed with the forum, iterated and shared with other key stakeholders. It seeks to support governors in interpreting and discharging these new duties appropriately. Its application may help FTs to demonstrate that they have fulfilled their legal responsibility to secure that their governors are equipped with the skills they require (a further change brought in by the 2012 act), as well as helping to ensure that governors do not take on the role of shadow directors.
Some governors have struggled with the concept and especially the practice of “holding their boards to account”
The stewardship standard is based on seven key principles which cover matters such as how governors should:
- Be open and transparent about the discharge of their responsibilities
- Monitor the trust of which they are governors
- Escalate their concerns whilst respecting that, as stated by Monitor’s code of governance, the board has overall responsibility for running the trust and that they should not use their powers as a veto for board decisions or to obstruct agreed board actions and strategies.
- Engage and communicate with their members, appointing organisations and wider public.
Each succinct principle is followed by guidance notes to explain how it can be achieved in practice.
The stewardship standard draws on established practice within the private sector and the Financial Reporting Council’s UK Stewardship Code (2010), as well as seeking to complement Monitor’s existing code of governance.
Its principles and guidance are conducive to a healthy relationship between governors and the chair and other NEDs and aims to avoid the potential legal and governance pitfalls of over-interpreting the new statutory duties on governors outlined above.
The standard will be updated to reflect and support any changes in the code of governance as and when it is updated by Monitor.
However, that does not mean to say that trusts, both aspirant and authorised FTs, cannot begin to prepare now for these duties. Whereas they were undertaken in the past as a matter of best practice, they will shortly become statutory requirements. So, unless you have already done so, we would urge all foundation trusts and applicant foundation trusts to consider the implications of the 2012 Act with your council of governors and consider whether you are ready for implementation of their new statutory duties.
Andy Chittenden is foundation trust secretary at the University Hospital of South Manchester. Jenna Tsai is a solicitor at Hill Dickinson LLP.