New governance proposals for NHS foundation trusts

The Health and Social Care Bill 2011, introduced into Parliament on 19 January 2011, is a crucial part of the Government’s vision to modernise the NHS making it patient-centric, led by health professionals and focused on delivering world-class healthcare outcomes.
The Bill proposes fundamental changes to the way NHS foundation trusts are governed and managed with a move away from collective responsibility of a trust’s board to individual responsibility for each trust director and a significant increase in the duties and responsibilities of trust governors.
Governors
The Bill makes changes to the powers of foundation trust governors and clarifies their collective duties. It is intended to strengthen the internal governance of foundation trusts to compensate for the proposed removal of the specific oversight by Monitor, with future controls operating through regulatory licensing and clinically-led NHS commissioning on all providers
To avoid any confusion about roles and responsibilities the Bill calls for the “board of governors” to be renamed as the “council of governors” – a term that is already used in practice by some foundation trusts.
With the removal of both the financial safety net for foundation trusts and Monitor’s Compliance Framework, board directors and governors will have to take on much more responsibility for the direction and transactions of their NHS foundation trust.
Governors are to be given significant duties and new approval powers – specifically, the council of governors is to be given express statutory duties to hold the non-executive directors individually and collectively to account for the performance of the board and to represent the interests of the foundation trust’s members as a whole and the interests of the public.
Currently, governors appoint the chair and non-executive directors of a foundation trust. In future they will have a duty to ensure that the non-executives are responsible for the performance of the Board.
There are no express provisions in the Bill as to how governors are going to discharge this new duty nor is there any consideration of the possible conflict of interest for foundation trust chairs who currently chair both the council of governors and the board of directors.
Governors are currently entitled to remove non-executives who are not performing they do not have powers to remove executive directors. They will be able to vote on motions at trust meetings including motions of “no-confidence” and so will be able to exert pressure on an under-performing board.
Governors are to be given additional power to hold directors of the trust to account by enabling them to require directors to attend a meeting for the purposes of obtaining information about the performance of the trust or its directors, and to vote on issues concerning their performance. The trust will also be required to include details of any such meetings in its annual report.
The Bill retains minimum requirements on the composition of the council of governors, including the existing requirement for there to be a majority of elected governors. There will no longer be a requirement for the council of governors to include a member appointed by a Primary Care Trust, reflecting the abolition of Primary Care Trusts elsewhere in the Bill.
A foundation trust will be able to specify in its constitution any other organisation that is entitled to appoint a member or members of the council of governors. This would enable foundation trusts to tailor their governance to local circumstances.
The proposed increase in the duties and responsibilities of a foundation trust governor will mean a significant increase in the amount of initial and on-going training that they will require. Foundation trusts will be required to take steps to ensure that governors are fully equipped with appropriate skills and knowledge.
It is also likely that they will require liability insurance similar to that required by the board directors.
In order to provide advice for foundation trust governors the Bill gives Monitor the power to establish an independent panel to consider questions brought by governors about the appropriateness of actions taken by their foundation trust.
Governors currently receive informal guidance from Monitor, the purpose of the panel would be to help governors to fulfil their role of holding non-executive directors to account for the performance of the board.
Questions could only be referred to the panel if a majority of the council of governors agree. Decisions of the panel would not be binding on the trust, but a court or tribunal could take the panel’s determination into account if considering a question previously considered by the panel.
Directors
Similar to the statutory duties of company directors as set out by the Companies Act, the Bill places a general duty on the directors of foundation trusts to promote the success of the trust. For the first time, trust directors will have an individual rather than collective responsibility to promote the success of the foundation trust so as to maximise the benefits for the members as a whole, and the public.
As with company directors, this individual responsibility will expose trust board members to the risks of personal liability claims for financial losses under insolvency legislation where a non-designated provider continues to trade when likely to become insolvent.
Whilst bringing trust directors into line with company directors in the private sector this increased responsibility may deter people from wanting to take up board positions and may cause trusts to review their remuneration policies particularly for chairs and non-executives.
Directors will be required to send their governors the agendas and minutes of their meetings in order that the governors have the information they require to discharge their duties.
The Bill set out the specific ways in which foundation trust directors have duties to avoid conflicts of interest, to declare any interest in a proposed transaction and not to accept benefits from third parties.
By virtue of their office in public sector organisations, foundation trust directors are subject to certain duties that reflect administrative law principles. These are similar to specific duties on directors of other organisations, such as those on company directors which are set out in the Companies Act 2006.
These general duties include, among others, a duty to act within powers, a duty only to exercise powers for the purposes of which they are conferred, a duty to exercise reasonable care, skill and diligence and a duty to act in accordance with the constitution of the organisation.
However, in relation to conflicts of interest and accepting benefits, the Bill specifies the ways in which these duties apply to foundation trust directors, creating certain exceptions to administrative law principles, for example by permitting a conflict of interest if sanctioned in accordance with the trust’s constitution.
Significant changes to competition law and NHS services are proposed in the Bill which adds Monitor to the list of regulators in the Company Directors Disqualification Act 1986 with powers to apply to a court to make a company director disqualification order, when the director’s organisation has committed a breach of Part 1 of the Competition Act 1998.
The Company Directors Disqualification Act 1986 specifies the issues courts should consider when assessing whether to issue a disqualification order against a director following a breach of competition law. These include whether the person’s conduct contributed to the breach, and whether he or she had reasonable grounds to suspect the breach and took no steps to prevent it.
The Office of Fair Trading (OFT) already has the power to apply to a court to disqualify directors in healthcare and other industries following a breach of the Competition Act 1998. The sectoral regulators with concurrent powers (including the Office of Communications, the Office of Gas and Electricity Markets and the Office of Water Services) also have this power. This power enables Monitor to apply competition law and appropriate sanctions in health care alongside the OFT.
Constitution and members
Foundation trusts are to be given powers to amend their constitutions without seeking external permission. The Bill retains the existing requirement on foundation trusts to have a constitution and continues to require trusts’ constitutions to include certain information. However, as Monitor in its proposed new role as economic regulator would no longer give additional supervision to foundation trusts, the responsibility for approving changes to a foundation trust’s constitution will be transferred from Monitor to the council of governors and board of directors of the foundation trust.
Foundation trusts will have to inform Monitor of any amendments they decide to make to their constitutions, since Monitor will continue to act as the registrar of foundation trusts, so would be responsible for maintaining the constitutions of such organisations on the foundation trust register.
Monitor will neither check whether a constitution complies with statutory requirements nor need to approve changes. This means that a foundation trust, just like any private sector provider, will need to make sure that its constitution is and remains legally compliant.
The council of governors and the board of directors must approve any proposed changes to the trust’s constitution with a simple majority of each forum being required to implement a change. In addition, if a change to a constitution affects the powers and duties of governors, more than half of the members of a foundation trust must approve the change at the next meeting. If they don’t approve the change, the change will be ineffective and must be reversed.
Transactions
Since Monitor will no longer review significant or material transactions the Bill proposes that a foundation trust may designate in its constitution certain transactions as “significant transactions” which cannot proceed unless a majority of governors agree to them. Foundation trusts would be able to decide which transactions they want to designate as significant, strategically or financially: for example, they could provide that this included any contract valued over a certain amount or over a particular percentage of the trust’s turnover. As the definition of a “significant transaction” would need to be specified in the constitution of the trust, it would have to be agreed by a majority of the council of governors and of the board of directors. Trusts could choose not to specify any transactions as “significant transactions”, but this would need to be stated in the constitution, ensuring the agreement of the governors.
The consent of more than half of the governors will always be required for any merger, acquisition or separation of the NHS foundation trust. Unlike “significant transactions”, this is not an optional requirement. This means that, in practice, responsibility for signing off any merger or acquisition moves to the directors and governors.
Meetings
Foundation trusts will be required to hold annual meetings of the trust’s membership, similar to the existing requirements on other types of organisations and on foundation trusts to hold, in public, general meetings of the council of governors.
The Bill gives the membership of a foundation trust a role in relation to considering the organisation’s annual report and accounts. This is intended to increase the accountability of governors and directors to the members and to promote transparency about the trust’s performance.
The membership of the trust, at the annual meeting, must be able to vote on constitutional amendments affecting the role of governors, similar to the scrutiny of other changes by governors.
The Bill also makes it clear clarifies that the existing requirement on the council of governors to hold a general meeting to consider the trust’s annual accounts and report in no way prevents the governors holding a general meeting more than once a year if they wish to do so. The trust, if it wishes, can combine the annual meeting of the membership with a general meeting of the council of governors.
Conclusion
Greater autonomy for foundation trusts brought about by the removal of the central checks and balances for transactions, historically provided by Monitor, together with the loss of the financial safety net for foundation trusts that run into financial difficulties will mean a significant increase in the responsibilities of governors and directors.
Governors, in particular, will find the new governance arrangements a significant departure from their current roles and their selection, induction and training will be increasingly important.
The Bill also presents a shift in the power balance between Monitor and the Department of Health. In future a foundation trust’s forward plans and accounts must be sent to the Secretary of State and fall outside Monitor’s new remit.
In addition, the Secretary of State may make orders about the content of the annual reports of foundation trusts.
This new reporting requirement is coupled with the right of the Secretary of State to make changes (by statutory order) to the voting rights of directors, members and governors. This means the Department of Health retains the power to change all of these new governance arrangements at any time.

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