The structure of German company boards offers many lessons for the role of foundation trust governors and should be introduced here, say Naomi Chambers and Bill Gregory
The Health and Social Care Act and more recently the Francis report have done much to clarify the role of foundation trust governors. This now appears to consist of three primary elements:
- The fiduciary role, which covers all the procedural duties of governors, eg: appointing auditors and directors.
- The supervisory role, where governors hold the board of directors to account.
- The representation role, with a particular focus on engagement with members and the wider public served by the FT.
Given the practical set of tasks and activities that fall within the fiduciary role, it is no surprise this is where most foundation trusts and their governors have focused their efforts so far. However, other sectors have experience that trusts can draw on in the development of the supervisory and representation roles.
Setting up the board
A corporate accountability structure that operates using two boards, one of which involves users and staff, is not unique. Many European countries operate systems of corporate governance that have two boards. The system developed in post-war Germany has allowed many businesses to flourish while protecting public and social interests.
Similarly, organisations established for public benefit are far from unique. Many mutual companies and cooperative organisations have a membership base developed from the concept of social collectivity in the 19th century. These organisations have years of experience actively engaging members and users of their services.
‘Larger boards have the potential to hamper cohesion and limit the contribution that individual members make’
Essentially the German system of corporate governance consists of two corporate boards, following the principle of “co-determination”. There is the management board, which has the responsibility and decision-making power to run the organisation, similar to a board of directors in an FT. The second is the supervisory board that is responsible for monitoring the activities of the management board, which is similar to an FT’s council of governors. The similarities do not stop there.
The supervisory board members are appointed to represent stakeholder interests, including the organisation’s staff. It has powers to dismiss and appoint members of the management board, a responsibility to hold the management board to account and is required to engage with the stakeholders it represents.
So what insights can we gain from the way this system operates that might be useful in developing the supervisory role of governors in foundation trusts?
Counterweight. The German code of corporate governance specifies that the supervisory board exists to act as a “counterweight” to the management board. This should be achieved by providing advice and feedback to the management board from the stakeholders that the supervisory board represents. Counterweight implies balance and a stabilisation, and while the supervisory board has reserved powers much like an FT’s council of governors, it is not superior to the management board. Can this “counterweight” concept offer FTs an opportunity to more clearly articulate how their council of governors can influence strategic development with the interests and priorities of those they represent in mind?
Size matters. Most supervisory boards are similar in size to a board of directors in the UK, ie: 10-15 members. In Europe governing bodies larger than this are generally regarded as less effective. In particular larger boards have the potential to hamper cohesion and limit the contribution that individual members make. Most councils of governors at FTs exceeds this number, many have more than 30 governors. Is there a case for trading off some of this extensive representation for a more effective governing body?
Staff involvement. Staff involvement in the supervisory board is regarded as an important part of the German system, where the alignment of staff and organisation objectives appear to result in much lower incidence of industrial action compared with most other developed economies. Staff involvement is thought to provide a useful barometer on morale, and also a well informed monitoring capability that supervisory boards should draw on. Given the perceived benefits of staff involvement in the German system, are FTs and their council of governors maximising the opportunity presented by their staff governors?
Skills and experience. The German system requires the supervisory board to formally assess the skills and expertise that they need to carry out their duties. This assessment is used as a basis for making appropriate appointments to the supervisory board as vacancies arise. While FT governors are largely elected rather than appointed, this process of specifying the ideal make up of the council of governors offers some attractions. A “person specification” may increase the likelihood of FTs electing governors with the skills needed for the job.
Information is king. With the right skills in place, the German system also recognises that access to information is important for the supervisory board to function effectively. Companies are encouraged to share information with their supervisory board and train them on how to use it. Specialist subcommittees are used to enable members to develop a more detailed understanding of specific areas of the business. This leaves the question: do FTs have appropriate mechanisms in place for governors to access the information they need to exercise their duties?
Mutuals and cooperatives. In the UK we have consumer mutuals such as the Co-op, worker mutuals such as John Lewis and membership-based mutual organisations such as the National Trust. So what insights can we gain from the way mutuals have developed and engaged with their memberships?
Democratic legitimacy. In membership-based organisations, the active participation of the membership gives legitimacy to those they elect to govern. Studies have found such legitimacy is strongly correlated with visible examples that the organisation’s membership has real influence. As well as formal elections, visible examples include the governing body mirroring the diversity of the population it represents and engaging in direct two-way communication between constituents and their elected representatives. Trusts and their governors should ask how they can create more visible evidence of membership influence.
Meaningful engagement. Mutuals have found that the most enthusiastic members derive satisfaction simply from being associated with an organisation’s goals and aspirations that they believe in. Many mutuals have deployed marketing techniques to understand their membership more deeply and target engagement and involvement activities at segments of the membership that are likely to be most receptive. Given the early success in most FTs of membership recruitment, there would appear to be a significant body of support for local healthcare providers, which is motivated by feelings of association. However, have they really taken the time to understand their membership and its motivations, so a strategy can be developed for meaningful engagement with the most receptive members?
Developing the role of governors
The requirements of the Health and Social Care Act and Robert Francis’ recommendations about the role of governors will mean most FT chairs will be looking afresh at how their governors operate and how their role can be further developed.
‘There is an argument for a progressive development framework for FT governors that is adaptable to local situations’
However, no two trusts are the same. In some circumstances, for example in order to minimise risk during clinical or financial turnaround situations, the monitoring and control role of the board of governors will need to come to the fore. In other cases, such as where the need to refresh the mission and focus of the trust may be the top priority, it will be important to draw on the engagement role of the governors.
The extent to which foundation trusts have already developed the role of their governors will also differ. The NHS is no stranger to situational differences like this, indeed the NHS Leadership Academy’s leadership framework and its many spin-offs recognise differences in individual’s experience, behaviours and attitudes as being important factors in identifying development needs. The same is inevitably true of organisations and their governance structures.
This adds up to an argument for a progressive development framework for FT governors that is adaptable to local situations.
Professor Naomi Chambers is head of health policy and management at Manchester Business School, University of Manchester. Bill Gregory is finance director at Stockport Foundation Trust