Are You Sitting Comfortably?
A Code of Practice for Local
Authority Members and Officers Serving on the Boards of Voluntary Organisations
ACKNOWLEDGEMENTS
Drafting and consultation for this Code undertaken for NCVO by John
Plummer, Audax Enterprise Ltd.
NCVO – voice of the voluntary sector
The National Council for
Voluntary Organisations (NCVO) is the umbrella body for the voluntary sector in
The Local Government Association
The Local Government Association is the national voice for local
communities and represents 500 authorities with a population of over 50 million
people throughout
FOREWORD
In late 1996, NCVO consulted across the voluntary sector to canvass
views on the key issues arising from the inquiry of the Committee on Standards
in Public Life, into Standards of Conduct in Local Government (Nolan III). One
of those most frequently raised concerned the role of local authority members
and/or officers who serve on the boards and management committees of voluntary
organisations. Consultations with the LGA revealed the same level of concern
amongst local authorities and a willingness to work with the voluntary sector
to seek to establish greater clarity in such relations.
As a result, NCVO and the LGA have co-operated closely to prepare this
new code. There have also been extensive consultations with individual
organisations, and membership bodies within the voluntary and public sectors.
The code is not prescriptive. It does not set out to describe how every
relationship should be constructed and regulated. Indeed, the complex and
multifaceted pattern of relationships which exist between voluntary
organisations and local authorities would not permit this. But, the code sets
out to describe those steps which should be taken by both parties so that
relationships are appropriate to the particular circumstances, mutually
beneficial and so that any ambiguity is replaced by clarity and transparency.
The code also sets out the elements which should be contained in local
agreements.
Local authorities and voluntary organisations have worked closely for
many years in the best interests of local communities. We wish this to continue
and to develop in the future and to be conducted on a thoroughly sound basis. We
believe that the application of the code will add value to the present
arrangements.
The LGA commends the code to all-its member local authorities. In
addition to being commended by NCVO to all its members we are pleased that the
code has the support of the Charity Commission, and also of Action with
Communities in Rural England (ACRE), Community Matters, the National
Association of Councils for Voluntary Service (NACVS) and Sia.
February 1998
Lady Tumim OBE, Chair, National Council for Voluntary Organisations
Sir Jeremy Beecham, Chair, Local Government Association
Note
This online version was produced in November 2002 and
contains minor changes to contact details
A Code of Practice for Local Authority Members and
Officers Serving on the Boards of Voluntary Organisations'[1]
I. INTRODUCTION
It is beneficial for both the voluntary sector and local government to
have close and properly conducted relationships. Such relationships have often
been built up over many years and involve a high degree of mutual respect and
effective partnership.
Local authority members and officers often serve on or attend the
boards of voluntary organisations This is usually natural and healthy. It
reflects the interests of the local authorities in the work of voluntary
organisations. It also reflects the aim of many voluntary organisations for
their work to relate to the wider responsibilities of local authorities.
Sometimes such involvement also indicates a long standing interest in a
particular issue or cause which may predate the board member becoming a
councillor or an officer of a local authority.
In proposing this code neither NCVO nor the LGA is advocating that
local authority members and/or officers should serve on the boards of voluntary
organisations. Indeed, in some circumstances, particularly where there are
contractual relationships between the parties, this might not be appropriate.
However, in many cases it has become custom and practice often over many years
for members and/or officers to serve on such boards. In these circumstances
NCVO and the LGA recommend that the relationship should be reviewed to
determine the most suitable arrangement. Where membership of the governing body
is judged to be right the recommendations for written agreements between the
parties should be followed.
There are increasing calls for good governance in the public, voluntary
and private sectors. This requires greater clarity about the relationships
between local authorities and voluntary organisations. A written agreement
setting out the roles, relationships and responsibilities of local authority
members and officers who serve on the boards of voluntary organisations would
be a significant step towards good governance. The several different legal
forms which are adopted by voluntary organisations have implications for the
roles, responsibilities and potential liabilities of board members. It is
highly appropriate for relationships to be examined afresh in areas where local
government structures have been re-organised because of the likely changes in
personnel on the local authority side.
Evidence on these matters was submitted to the Committee on Standards
in Public Life (the Nolan Committee) during its inquiry into aspects of the
conduct of local government. In its report the Committee recommends "a
radical change in the ethical framework within which local government
operates" and proposes "a clear code of conduct for councillors
developed by each individual council within a framework approved by
Parliament". This code is a step towards this objective[2].
Complex Relationships
There is sometimes an assumption that the primary
relationship between local authorities and voluntary organisations is that of
giver and receiver of public funds. The reality is much more diverse. In fact
they have developed a complex and multifaceted pattern of relationships which
depend on different histories and functions. These include strategic partner;
advocate for special needs groups; representative of carer and user groups;
membership of emergency planning committees; grant aid; service provider;
contractor; membership of specialist advisory groups on subcommittees;
colleagues in development and regeneration initiatives; developing and managing
housing; managers of community buildings owned by local authorities. It is not
unusual for a single voluntary organisation to fulfil several of these relationships
with a single local authority. Also, large voluntary organisations often work
with many separate local authorities.
Potential Difficulties for Both Parties
While the relationship between many local authority
members and officers with the other members of voluntary organisations' boards
is generally satisfactory, there can be difficulties for both sides. These
usually stem from a lack of clarity about the role, the possibility of
conflicts of interest, disputes about funding and contractual terms when a
local authority is also purchasing services and tensions when a voluntary
organisation conducts campaigns about a subject with which the local authority
has interests or responsibilities. There are also problems where a local
authority member or officer is formally present as an observer at board
meetings but is thought to exercise considerable influence over policy and
management decisions of the voluntary organisations.
These difficulties are not one sided. Some voluntary
organisations expect a local authority
member or officer to serve the interests of the
organisation above all other interests and assume that this person will act as
an advocate on its behalf at meetings of the Council. Members clearly have an
interest in such a voluntary organisation but this cannot be a pecuniary
interest as board members cannot receive payment. Must this be declared in
meetings of the Council or Committees? Will such interests disqualify the
member from speaking and/or voting on a subject which it is reasonable to
assume they have greater expertise than their peers?
Note: The boxes shown throughout the text are not
intended to form part of the main code but help to illustrate the rationale and
importance of the Code, where this does not involve local authority
representatives serving on the boards of voluntary organisations
2. PURPOSE OF THE CODE
This code does not seek to address a specific mischief or misconduct
but to replace ambiguity about the role of members and officers serving on the
boards of voluntary organisations with clarity. As a general rule there should
be openness and transparency between all the parties both as individuals and
also as organisations. This code does not prescribe the precise roles and
relationships which are appropriate in every circumstance, because these are
many and varied, but it sets out the issues to be addressed and recommends the
items which should be included in local agreements. By clarifying the
relationships between all the parties the code also aims to contribute to the
overall effectiveness of voluntary organisations' boards and local authority
members and officers. A thorough review of the relationship between the parties
might conclude that board membership is not appropriate and that different
arrangements are in the interests of both parties.
3. DIFFERENT ROUTES TO SERVICE WITH THE BOARDS OF
VOLUNTARY ORGANISATIONS
Members and officers of local authorities come to serve or attend the
boards of voluntary organisations from several different routes. It is useful
to identify these because this helps to clarify the relationship.
3.1. Local
authority nomination of a member
This usually occurs when local authority has a
substantial interest in the area of work of the voluntary organisation and
might fund some of its activities and/or purchase services. The Governing
Instrument[3]
of the organisation may stipulate that the local authority is entitled to
nominate a member to serve on the board.
3.2. Local
authority nomination of an officer
As at 3.1, except for the fact that the officer might
be expected to report back to the executive management of the local authority
rather than to a committee.
3.3. Local
authority nomination of a third party
Some local authorities nominate third parties from a
list of people who are considered suitable to serve on the boards of voluntary
organisations. In these circumstances the person might not be held directly
accountable to the local authority.
3.4. Voluntary
organisation invitation to the local authority
Voluntary organisations may invite a local authority
to nominate a member or officer to serve on their boards.
3.5. Members' or officers' personal interest in the subject area of
a voluntary organisation
Local authority members and officers are often
personally interested in the work of a particular voluntary organisation. In
some instances they may have served on the board before being elected to or
employed by the local authority.
3.6. A single local authority member or officer on the board of a
voluntary organisation covering several or many areas
Some major voluntary organisations may invite one or
two people with experience of local government to join the main board. The same
concerns arise in respect of any business transacted between the voluntary
organisation and the particular local authority of which the person is a member
or officer. There is also the separate issue of the person being perceived to
advise the voluntary organisation about local authorities more widely.
3.7. LGA
nominations to the boards of major voluntary organisations
There is an established custom for local authority
associations to be invited to nominate a member or officer to serve on the
board of voluntary organisations at national level.
3.8. The
local authority member or officer as observer
The risks of full membership of the boards of voluntary organisations
causes some local authorities to insist that members or officers should act as
observers rather than members of boards with the full duties of trustees and
directors. In other instances, members and/or officers are invited with the
clear expectation that they will act as observers.
Observer Status
The risks of personal liability are sometimes thought
to be avoided if the authority member or officer acts as an observer at
meetings of voluntary organisations rather than as a full board member. Also
the member or officer is not bound by the legal duty to act in the best
interests of the voluntary organisation. However, the member and/or officer may
inadvertently influence policy and management decisions while not appearing to
bear full responsibility for them. There are risks of acting as "shadow
directors" and thus being treated as directors in terms of personal
liability.
The voluntary organisation might have difficulty in
discussing controversial issues in the presence of an observer who may also
represent a major purchaser, funder or contractor.
4. DIFFERENT FORMS OF VOLUNTARY ORGANISATIONS
Voluntary organisations do not fit into a single legal form and the
nature of the organisation has a bearing on the responsibilities and
liabilities of board members.
4.1. Charities
In which members of the board of registered, excepted
and exempt charities will also be trustees of the charity and the former two
categories are subject to regulation by the Charity Commission.
4.2. Companies
limited by guarantee
In which members of the board will also be directors
of the company and subject to Companies Act requirements.
4.3. Housing
associations
In which members of the board are likely to be the
management committee of an Industrial and Provident Society regulated by the
Housing Corporation and the Registrar of Friendly Societies.
4.4. Trading
subsidiaries of charities
In which members of the board might, in addition to
Companies Act requirements, be subject to controls exercised by the parent
charity.
4.5. Unincorporated
societies and associations not registered as charities
In which conduct is largely self-regulated but subject
to the common law.
4.6. Local
branches of national or major charities
In which members of the board are akin to the boards
of wholly owned subsidiary undertakings of commercial companies.
4.7. Legally
separate bodies which are affiliated to major charities
In which members of the board have a degree of
autonomy determined largely by the relationship with the major charity and the
status of the separate body.
It is not uncommon for a single voluntary organisation to comprise
several of these legal forms. Thus many registered charities are also limited
liability companies and might also have a trading subsidiary. Many housing
associations are industrial and provident societies but also include a registered
charity and a limited liability company.
If a voluntary organisation decides to have a local authority
representative on its board (by anyone of the routes set out in 3 above) it is
good practice to inform the local authority of the precise nature of that
voluntary organisation's legal form. This will be done by providing copies of
the Constitution, Memorandum and Articles or Association and any other
governing instruments which are relevant to the voluntary organisation on whose
board the member or officer is to serve. The local authority has a reciprocal
duty to satisfy itself that it has received and comprehended the relevant
information about the voluntary organisation, considered the issue of indemnity
and communicated this to the individual member or officer concerned.
5. WRITTEN AGREEMENTS
The parties should agree clear written statements which are then
recorded in the minutes of the board of the voluntary organisation and formally
reported to the local authority. The precise format of the statements will
depend on the process by which the member and/or officer becomes engaged with
the voluntary organisation but such statements should address the following
topics.
5.1. Relationship
statement
The formal purpose status of the voluntary organisation
(company, charity, unincorporated society etc. or a combination of these). The
relationship between the local authority and the voluntary organisation
(funder, partner, purchaser etc.).
5.2. Job
descriptions and reciprocation
The formal role and responsibilities of the local
authority member or officer (director, trustee, observer etc.).
The frequency of board meetings and minimum attendance
requirements.
The period of service and procedure for re-election or
reappointment.
A general statement about what is expected of the
local authority member or officer, including that the person is chosen for
specific skills and experience and is not disqualified by law from acting as a
charity trustee.
The voluntary organisation should undertake to provide
proper induction training for the local authority member or officer and to
inform the local authority promptly if it is decided to change the governing
instrument or wind up the organisation.
5.3. Reporting
arrangements
The nature and frequency of any formal reports which
are required by the local authority and whether these are addressed to a
committee or to the executive management (accounts, activities, outputs etc.).
Monitoring arrangements between a local authority and
a voluntary organisation which receives grant aid and/or is a party to
contracts or service agreements should be described in separate documents but
may be referred to under this heading.
It is not always necessary for a local authority to
lay down extra reporting arrangements given what is already required of
charities by statute and regulated by the Charity Commission. I
The nature and frequency of any reports or information
which the voluntary organisation can expect to receive from the local
authority.
A statement setting out any requirements for local
authority members and officers to report back to the local authority on the
conduct and performance of the voluntary organisation.
A statement indicating whether a local authority
member has speaking and/or voting rights at Council committee meetings which
touch on the affairs of the voluntary organisation.
5.4. Liability
and responsibility statement
The responsibilities and liabilities of the members of
the board in terms of charitable and public legislation, regulation and
accounting standards.
Where the voluntary organisation is a charity the
agreement must state that where the local authority member or officer is a
trustee there is a duty to act in the interests of the charity rather than the
local authority when serving on the board.
The role of observers including the receipt or
withholding of confidential papers, attendance or exclusion from meetings, and
speaking and voting rights.
Arrangements made by the voluntary organisation to
indemnify board members against risks of personal liability.
Arrangements made by the local authority, if
appropriate, to indemnify its members and/or officers who serve on the boards
of voluntary organisations against risks of personal liability.
The LGA may issue separate advice, after discussion
with the Audit Commission and others, on the wider issue of local authorities'
capacity to indemnify members and officers who serve on external bodies. This
should be communicated to voluntary organisations.
FURTHER INFORMATION
NCVO’s trustee
and governance team is dedicated to improving the effectiveness of voluntary
sector organisations by strengthening their governing boards and enhancing the
skills of trustees who sit on them:
·
developing
practical tools to enhance board performance, targeted at both the individual
and the collective role of board members and boards
·
promoting
innovation and change to strengthen governance and leadership - board reviews,
audits and change management
·
cascading leading
edge good practice in governance to national, regional and local partners to
enhance the support available for trustees and boards
·
advocating the
benefits and value of trusteeship
·
ensuring trustees
and boards focus on the ‘bigger picture’, in order that the effectiveness of a
trustee board in turn enhances the effectiveness of the organisation’s work
Services
include
·
Masterclasses
and workshops including the NCVO
Trustee Annual Conference
·
Publications
and information on trusteeship and
governance
·
Online access at www.ncvo-vol.org.uk/tgt to find out about latest news,
forthcoming events and to download briefings, factsheets and reports.
·
Information
and signposting by telephone or email
on all aspects of trusteeship and governance via the NCVO helpdesk: 0800 2 798
798
· Advice sessions, training and consultancy available at competitive rates tailored to your
organisation’s needs (subject to availability)
·
Shaping policy
and research into board governance
and leadership
·
Support for
consultants, trainers and advisers via
a consultants network
Trustee
and Governance Team
National
Council for Voluntary Organisations (NCVO)
Regent’s
Wharf
8
All Saint’s Street
Email: trustee.enquiries@ncvo-vol.org.uk
Website: www.ncvo-vol.org.uk/tgt
NCVO
Helpdesk telephone:
0800 2 798 798
Switchboard
telephone:
020 7713 6161