The new governance code provides the five key ingredients with which foundation trusts can help boards develop effective leadership and cultivate roots in the community. Monitor chair Bill Moyes explains

The new governance code provides the five key ingredients with which foundation trusts can help boards develop effective leadership and cultivate roots in the community. Monitor chair Bill Moyes explains

The NHS Foundation Trust Code of Governance, published earlier this week, is designed to strengthen corporate governance in foundation trusts.

It builds on the principles and provisions of the Combined Code of Corporate Governance, which is well established as the prime standard of corporate governance best practice in the private sector. Consultation on the new code was carried out earlier this year.

Its starting point was a survey of 130 foundation trust board members which Monitor conducted in spring 2005 as part of the series of conferences on building effective foundation trust boards.

This pointed to boards' key strengths in involving non-executive directors and tracking the effectiveness of financial measures.

The results indicated that respondents felt boards were failing to provide adequate organisational leadership or develop strategies that fully exploited the freedoms associated with foundation status. They also felt boards had room for improvement in providing robust challenges to financial decisions.

The survey results prompted Monitor to develop the code of governance, which covers five main areas.

People power - the importance of effective directors

Every foundation trust should be headed by an effective board of directors. The board is collectively responsible for the exercise of foundation-specific powers and performance. The code emphasises the importance of ensuring compliance with terms of authorisation and the quality and safety of services.

For the first time, we are recommending that at least half of board members should be independent NEDs, the focus of many of the developments in corporate governance in recent years. A good NED will raise board conversations to a strategic level. Boards should strive to ensure NEDs bring finance and commerce skills to the board. The new freedoms enjoyed by foundation trust status make it imperative that the board is equipped with the necessary strategic skills.

Only 35 per cent of the foundation board members in our survey believed their board made good use of members' expertise and skills. We encourage boards to undertake a formal and rigorous annual evaluation of their own performance and that of their committees and individual directors; independent assessment is obviously desirable.

The senior independent director (SID) is frequently found in the private sector where their role is to act as a 'point person' for other non-executives.

The code recommends that the board of governors is consulted on the choice of SID. This enables them to raise their concerns - for example, about the performance of the board or the chair - which they have failed to resolve working through the conventional channels of chair or chief executive.

Leading the leaders - effective boards of governors

Boards of governors were a new concept for foundation trusts when they were launched and are now beginning to find their feet. We were keen to describe a role for them that was consistent with legislative requirements, but which still allowed scope for individual foundation trusts to develop their own approach.

Every foundation trust must have a board of governors. Among its main responsibilities is the appointment of auditors, chairs and NEDs. To appoint effective chairs and NEDs, it is important that governors take the lead in defining the process for performance evaluation of the chair and NEDs.

It is also essential that governors are aware of their responsibility for regularly feeding back information about the trust, its vision and performance to the constituencies and stakeholder organisations that elected or appointed the board.

The board of governors should hold the board of directors to account for the performance of the trust. This includes monitoring the directors' role in ensuring the trust does not breach the terms of its authorisation.

Why clarity on appointments and terms of office is key

The need for a nominations committee to carry out regular reviews of the structure, size and composition of the board of directors, consider succession planning and lead the board in identifying what new skills and experiences are required cannot be overstated.

The code formalises the role of the nominations committee in the appointment process. One important change in corporate governance in recent years has been the increasing use of NEDs to chair nominations committees, ensuring the procedure is transparent.

Clear terms of office are crucial to success. The code recommends the reappointment of the executive
directors at intervals of no more than five years. NEDs should be appointed by the board of governors for specified terms, and should be subject to re-appointment at least every three years.

Timely information, development and evaluation

The supply of information to all boards should be timely and in a format and of a quality that is appropriate to enable it to discharge its duties. The chair is responsible for ensuring this happens.

The code does not require all foundation trusts to have a trust secretary, but urges trusts to consider the benefits of the role.

The board of directors as a whole has responsibility for ensuring a satisfactory dialogue with members, patients, clients and the local community.

We recommend that the board of directors clarifies in writing how the interests of these groups will be represented, including their approach for addressing the overlap and interface between governors and any local consultative forums already in place (for example, patient forums, the overview and scrutiny committee, the local league of friends and staff groups).

Ensure adequate dialogue

Boards must ensure effective mechanisms for communication between governors and members from their constituencies, with clearly available contact details. They should monitor how representative the trust's membership is and how effective their engagement.

Comply with best practice - or explain why not

The NHS Foundation Trust Code of Governance is not mandatory, but is issued as best practice advice on a 'comply or explain' basis. In their annual reports for 2006-07, foundation trusts will have to report on their application of the principles of the code.

When they do not comply with the provisions, they will have to give reasons.

We will be particularly interested to monitor take-up of the code among boards of governors, which we expect will need further consideration as they mature and reforms to NHS services become reality for foundation trusts and the people they serve.

Effective corporate governance is a fundamental cornerstone for the success of every foundation trust.

The new autonomy that foundation trusts enjoy, their public service purpose and the fact that they are entrusted with public funds make it essential that directors and governors clearly understand the principles of good governance and how to apply them.

Bill Moyes is executive chair of foundation trust regulator Monitor.

Registered users of the HSJ website can access more information on this subject at www.good management-hsj.co.uk/governance