Session 6: The effective board and its officers EDs, NEDs and the Co - PowerPoint PPT Presentation

Session 6: The effective board and its officers – EDs, NEDs and the Co Sec Claire Lea, Friday 20 October 2017, 4pm My microphone is currently muted

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Session 6: The effective board and its officers – EDs, NEDs and the Co Sec Claire Lea, Friday 20 October 2017, 4pm

Today’s plan • Introduction • Executive directors • Non-executive directors • The Company Secretary • Concluding remarks

Executive directors responsibilities as board directors. ‘one step down from the stakeholders’ Full-time employees with executive management responsibilities, responsible for running the business operations, accountable to the board of directors and the CEO

FRC Guidance on Board Effectiveness “EDs should see themselves as representatives of the shareholders (for NHS, read stakeholders) rather than as executive managers who are responsible and accountable to the CEO. The chair should encourage this attitude among the EDs, partly through ensuring that they receive appropriate induction and training for their role as a board member .”

ICSA - The Governance Challenge for the NHS Executive Director The ‘governance role’ is different to the ‘management role’. An ED’s governance role along with the other members of the board is to: • ensure that sufficient assets are aligned against the operational objectives being set though also guarding, maintaining and nurturing those same assets; • debate, determine and set the strategy for the organisation; and • monitor progress towards its fulfillment.

NHS Executive Directors – FTN’s view New Voices, New Accountabilities: A guide to wider governance in foundation trusts states: “Executive directors must make the transition from operating as functional heads of service to members of a corporate board, bearing the full weight of the fiduciary responsibility that falls on their shoulders and contributing fully to the strategic decision- making of the trust.”

Executive directors What examples can you think of where executive directors might struggle in balancing this tension?

Executive directors - appointment The key principle about the appointment of EDs is that it is the responsibility of the chair and the NEDs, acting under the remit of the nomination and appointment committees. The exception to the rule is the CEO – what is different about their appointment?

Accountable officer/accounting officer Department of Health accounting officer (AO), as principal AO - overall responsibility for the proper and effective use of resources in the health and care system. NHS England (NHSE) CEO, as AO, is responsible for the effective use of these resources i.e. a robust system that provides assurance about the commissioning of NHS care and the provision and regulation of services. This system entails the appointment of accounting officers for FTs and accountable officers for NHS trusts and CCGs. • FT accounting officers are accountable directly to Parliament. • NHS Trust accountable officers - accountable via the DH AO and the SoS for Health and are appointed by the NHSI AO. • CCG accountable officers are accountable via the NHSE AO and the SoS for Health and are appointed by the NHSE AO.

Remuneration: a governance issue • Excessive remuneration can undermine confidence in the organisation. • Executives should not be rewarded for failure. • If rewards are unfairly distributed potential for industrial unrest within the organisation. • Attract and retain talented professionals to provide them with effective leadership. • Motivate executives to perform better and to achieve better results.

NHS remuneration On 2 June 2015, the Secretary of State wrote to the chairs of all NHS trusts, foundation trusts and Clinical Commissioning Groups (CCGs) urging restraint over VSM pay and announcing a range of initiatives, including: • a requirement for ministers to see all proposals for VSM pay above £142,500 before appointments are confirmed (£142,500 being the salary of the Prime Minister); • the development of a national framework for VSM pay in the NHS; and • the introduction of a limit on the daily rate payable to an off-payroll interim VSM and request for rigorous compliance with Her Majesty’s Treasury guidance on off - payroll engagements There are established pay ranges for all such appointments in the NHS, examples for a CEO and CCG appointments are given in the Handbook

Role of remuneration committee there should be a formal procedure for deciding on remuneration for directors and senior executives, and no individual should be involved in setting his own remuneration.

Remuneration committee The UK Code states that ‘the board should establish a remuneration committee ... [which] should make available its terms of reference, explaining its role and the authority delegated to it by the board’. Responsible for both developing remuneration policy and for negotiating the remuneration of individual directors. According to the UK Code it should consist entirely of at least 3 independent NEDs. The chair may be a member, but not the committee chair, provided that they were independent on appointment as chair.

Remuneration committee The remuneration committee should have delegated responsibility for setting the remuneration for all EDs and the chair (including pension rights and any compensation payments or severance payments). The remuneration committee should also recommend and monitor the level and structure of remuneration for senior management. The definition of ‘senior management’ is a matter for the board to decide, but it will normally include the first level of management below board level.

Remuneration committee • advise on any major changes in employee benefit structures • agree the policy for authorising expense claims from the chairman and CEO. • ensure compliance with the requirements for disclosure of directors ’ remuneration in the annual report and accounts. • responsible for appointing any remuneration consultants • report the frequency of committee meetings and the attendance by members. • make publicly available its terms of reference

Rem Com in practice What examples can you think of where a Rem Com could be put under pressure not to comply with good governance principles?

Remuneration report “ It is an opportunity for the company to demonstrate that remuneration policies and structures have a clear rationale which supports the business strategy and enhances shareholder value. There is significant reputational risk associated with the failure to manage and disclose executive remuneration and the remuneration report is a prominent opportunity to explain the company ’ s position. ” ICSA ’ s Guidance on the Directors ’ Remuneration Report (2008)

Non – executive directors “The dilemma facing NEDs is that they are expected to advise from a strategic vantage point of 30,000 feet, yet ultimately held accountable for discrepancies in the details.” Korn Ferry: Cultivating Greatness in the Boardroom 2012

The NED tension development of strategy monitoring the performance of the executive team

Non – executive directors Key sources UK Code FRC Guidance on board effectiveness (role of NEDs) The Walker Report Higgs Report FT Code E.g. tenure UK Code – nine years but pragmatic FT Code – six years but further annual re-appointment in exceptional circumstances

Appointment of NEDs/Lay members • The role of the NHSI • The role of the Council of Governors • The role of the membership body of a CCG Appointments Committee Independence Induction Training Time commitment Appraisal and evaluation

2 4 Company Secretary Companies Act 2006, UK Code, King IV, All Party Parliamentary Corporate Governance Group - Elevating the Role of the Company Secretary, ICSA - The Company Secretary – building trust through governance, ICSA guidance note - The Corporate Governance Role of the Company Secretary, ICSA guidance note - Reporting Lines for the Company Secretary, ICSA guidance note - Guidance on the Appointment of the Company Secretary Integrated Governance Handbook GGI – The role of the Company Secretary in the NHS

Company Secretary • intermediary and co-ordinator between the committee and the main board. • secretary to the statutory committees, because it is the company secretary ’ s responsibility to ensure that the board and its committees are properly constituted and advised • reporting to the Chair and the CEO for different aspects of the role

GGI – The role of the Company Secretary GGI have launched their latest research into the role in the NHS (July 2016). The research found wide variances in the seniority and scope of the role within the NHS and ultimately concluded that the role of the company secretary in the NHS is under-appreciated and under-utilised, with a need for clearer guidance from the centre to improve awareness of the role and reaffirm its importance to the workings of the board. It summarised the responsibilities of the role as follows: 1. Administrative function 2. Conscience of the organisation 3. Governance 4. Compliance 5. Governors

The conscience of the organisation