Forming and sustaining an effective trustee board
All charities are required to have a board of trustees. Even if those members aren’t named specifically as such - instead going by titles such as director, governor, or committee member - anyone with responsibility for the direction and actions of the charity will legally be considered a trustee.
A trustee board is 100% non-executive and ultimately charged with general control, management and administration to make sure the charity is fulfilling what it was set up to do. This contrasts with the common belief that trustees should also be concerned with operations, which instead are more appropriately led by a chief executive and management team. The main duty is therefore to ensure the charity’s assets and profit/surplus are applied in line with its "charitable objects" for the benefit of the public.
Act prudently
A trustee must always act prudently as an individual to make an informed decision. This must follow the charity’s constitution as per its governing document. I often see this being overlooked, but the constitution must always be adhered to and in this case, can have an impact on decisions that can be formally approved each year.
It can also have an effect on how these decisions are made, as well as the respective powers, duties and liabilities of the board itself. Fortunately, if provisions within the governing document are found to be unworkable or impractical, they can be amended.
When looking to establish or add to a trustee board, it is important that expectations around responsibilities are made clear. It is common to hear from trustees who assume their role will simply require attending a few meetings throughout the year.
It is essential all trustees assume a high degree of responsibility, especially now public perception of the role is under greater scrutiny due to high profile cases such as Kids Company which attracted much media attention in 2015.
Designated powers
Trustees are responsible for making decisions that could have an impact on people’s lives, a community or society as a whole. With charities relying on positive public perceptions for fundraising efforts, it is vital trustees take their roles seriously and consider the implications of all their decisions.
Setting out clear expectations from the beginning will certainly help to avoid problems, but there are other ways to avoid potential issues.
Trustees are required to act within their designated powers and charity law while demonstrating they acted properly and reasonably when required. Courts associate the term "reasonable" with how a prudent business person would be expected to act in such a case.
The most common problems we see arise from conflicts of interest. Trustees have a general duty to disclose and properly manage any conflicts without putting themselves in a position where personal interests may influence or affect decision making.
It is good practice at the beginning of a meeting for every trustee to declare any private interest and certainly before any debate of a specific item. Examples of when this might arise include a trustee owning a building firm being considered for construction work, or a trustee being an employee while remuneration is being discussed.
Failure to follow good practice can mean a trustee or the charity is held responsible for financial loss or reputational damage, while decisions could be invalid or have to be reversed. This could result in the charity being at risk of legal action and the trustees becoming personally liable.
Of course, taking the time to consider and select the best possible candidate in the first place can go a long way to ensuring a smooth operation. So what needs to be considered?
A trustee must be at least 16 years old if the charity is a company or charitable incorporated organisation (CIO), otherwise the minimum age is 18 years. Other legal stipulations also need to be considered, for example if someone has been convicted of fraud, having been bankrupt previously or removed from a director or trustee position.
Social passion
Ideally, a trustee should have a genuine social passion for the charity and, preferably, experience in a sector relating to the cause in question. These elements are more likely to indicate a level of commitment and their potential contribution to creating a well rounded board than other markers, such as a senior corporate role or status in the community.
Plus, it is worth considering whether the candidate with an outspoken and forthright character may lead to further debate or obstacles in the future.
A varied skill set is crucial. The trustee board's true decisions are made by committee and you may want people with specific strengths in certain areas, such as accounting, but overall a breadth of experience and knowledge will ensure a rounded perspective. There are no statutory rules, but broadly speaking there is an expectation of an "unconnected and unrelated mix".
For this reason, it is advisable that a board consists of between 3 -12 trustees, unless the governing document specifically states otherwise. Keeping within this range should provide a diverse selection of skills while still being small enough to easily arrange meetings and effectively come to conclusions
So, once the board is established, how can you assess how effectively it is running?
The board, or in some situations the chair of trustees, should always be monitoring or taking responsibility for how the board is running and the effectiveness of trustee contributions. This should include how well the board’s outcomes relate to the governing document through regular meetings and clear communication.
Governance elements
There are no legal rules about when or how meetings take place but again, there may be elements of governance to adhere to, for example the Charity Commission recommends at least one meeting per year with all trustees in attendance. Otherwise, business can be conducted by telephone, internet or through the circulation of papers.
To get the most from these meetings, it is recommended to create a use of notice and agenda consisting of indicative timings with an agreement "by consent" for routine items. It is also advised that a minimum of one third of the total board members are present.
Ideally, minutes should be drafted by a secretary or someone who is not a trustee, although this is not legally essential. Trustees have the right to question minutes if they feel they are not an accurate record of the previous meeting. If this disagreement continues, the trustee should dissent and note as a postscript before signing. Finally, these draft minutes and actions should be made available to all trustees, stored and retained for as long as the charity exists.
Following these guidelines should make it simple for a charity to monitor whether the board is acting as effectively as possible, or whether members need to be replaced or new appointments made.
If a charity needs further guidance about its trustees, or any other legal matter, specialist law firms are on hand to help. As well as advice on issues such as a conflict of interest, they can support where there are specific transactions and regulatory enquiries.
Regular reviews
Charities must regularly review the board, refresh the mix of skills and experience they already have in place as necessary, or if they are just forming, recruit to create a proper functioning board.
Whatever the situation or requirement, a charity must see changes to trustee boards as a fantastic opportunity to welcome new ideas, reach different people, and potentially discover and attract fresh sources of funding. With a consistent approach and clear structure around responsibilities, this can be a simple and effective process.
