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From the Top

01 October 2019 by John Coutts

From the Top

Boards of directors have been around in the NHS for some time. At NHS Providers we have been a vigorous advocate of board leadership as the best means of delivering strong but responsive and accountable leadership and direction. Among trust chairs, non-executive directors (NEDs), governance professionals and many executive directors, the role of boards of directors is well understood. But outside of this group, awareness of the role of boards, and what makes them distinctive, could be improved. For example, in the context of collaborative working in local systems, the term ‘board’ is used increasingly to describe standing meetings of senior leaders rather than the directors of a body corporate. Unfortunately this use of language can be misleading, but it also serves to undermine widespread understanding of the role, responsibilities and composition of actual boards. So what are boards and why do we have board-led organisations?

The Composition

Boards are quite deliberately made up of a mix of executive directors and NEDs with independent NEDs in the majority and a balance in power between the non-executive chair and the chief executive. This mix brings outside expertise and independence to the boardroom which brings diversity of experience and opinion and helps guard against the dangers of group-think. Boards are constructed in a way that generates a dynamic constructive tension that acts as a bulwark against complacency and promotes robust debate.

In the UK the requirement for boards is derived in two ways – through legislation and through codes of governance based on experience. English company law is based on common law duties. The latest iteration of company law is the Companies Act 2006. One of the less controversial aspects of the Health and Social Care Act 2012 was to codify, for the first time, the role of foundation trust boards of directors by saying: “The general duty of the board of directors, and of each director individually, is to act with a view to promoting the success of the corporation so as to maximise the benefits for the members of the corporation as a whole and for the public”. The way in which NHS provider boards exercise this duty, once again like their private sector counterparts, is through corporate governance: a methodology put into action, not a set of rules, procedures or committee structures.

Corporate Governance

The first iteration of the UK code of governance setting out how boards should approach corporate governance was derived from the Cadbury Report of 1992. The Cadbury Report set out the classic definition of corporate governance that is still quoted in the UK Corporate Governance Code today: “Corporate governance is the system by which companies are directed and controlled. Boards of directors are responsible for the governance of their companies. The shareholders’ role in governance is to appoint the directors and the auditors and to satisfy themselves that an appropriate governance structure is in place. The responsibilities of the board include setting the company’s strategic aims, providing the leadership to put them into effect, supervising the management of the business and reporting to shareholders on their stewardship. The board’s actions are subject to laws, regulations and the shareholders in general meeting”.

The 2018 iteration of the UK Corporate Governance Code came into force at the beginning of 2019.

The Code draws on several reviews and consultations, including an inquiry by the Business, Energy and Industrial Strategy Select Committee which had once again stressed the role of non-executive directors: “We are in no doubt about the vital role that NEDs have in company governance and are concerned about the impact of what we heard were ever increasing burdens on their ability to perform
their role effectively, particularly if they serve on several boards”.

The essence of the latest Code is to reaffirm that organisations need effective well-led unitary boards to succeed, but it also stresses the need to engage with stakeholders (including staff) in a meaningful way and emphasises the need for boards to work to promote a positive organisational culture and to look to maintain the long-term success of the organisation.

The various iterations of the UK code have been based on strong evidence that, non executive challenge is essential to ensure the board continues to work in the best interests of a company’s owners or indeed its customer. This is as true of the NHS as it is of the private sector.

Board Composition

The delivery of high quality healthcare involves uncertainty of outcome – that is, risk. Unitary boards are well placed to deal with risk because they can ensure that risk is properly controlled as part of the decision-making process, they bring together NEDs and executives in a way that maximises the potential for constructive but rigorous challenge, and they facilitate the application of good practice rather than promoting unthinking compliance. Trust boards are not immune from making mistakes nor are they endowed with abilities greater than those of their members. In short, what distinguishes boards from other governance approaches in the NHS and more widely, is their composition and what they do.

The NHS foundation trust code (derived from the UK Code) recognises the singular role of boards of directors in providing coherent leadership and direction. It sets out the same role for boards of NHS organisations as that of their private sector counterparts. It is the job of the board to stand for the owners of an organisation. For the NHS, that means us, the people who use NHS services. It is the job of the NHS board to ensure that the public enjoys the full benefits of NHS services and to ensure that the organisation is focused on delivering those benefits. Crucially, this duty of the board is in no way inconsistent with system and collaborative working because ‘the public’ means all of us, not just those who live in a particular catchment area.

Trust boards do not manage or ‘run’ organisations – that is the job of the executive directors. Rather they are responsible for their leadership, direction and for accountability – in other words, for corporate governance. Boards do this by working together to set an ambitious but achievable strategy to give direction for the future, by setting and modelling the culture of the organisation so that ‘the way we work here’ is clear and new members of staff are socialised into positive work behaviours. Boards work as a team –executives and NEDs together to oversee the work of the executive so that risks to service delivery are managed and strategy is delivered.

This is where the dynamic structure of the board comes into play with the use of constructive challenge to test the information boards receive from the executive directors and use triangulation – obtaining information from more than one source – to verify what they are told.The objective is to obtain assurance – confidence backed by sufficient evidence – that the strategy is being delivered and risk properly managed. Finally, boards are accountable to the people who use their services, to those who pay for them, to regulators and to politicians via the central NHS bodies and in the case of foundation trusts, directly to parliament.

As I mentioned earlier, none of this is foolproof. Boards are made up of people and people fail as well as succeed. When boards do not have the right balance, when NEDs are too compliant or executives overly dominant or over-stretched, trust boards can and do fail. The strength of the board’s composition and the process it uses to control and direct is that potential failure is likely to be identified and dealt with.

System Working

The NHS is in a transition to implement system working via integrated care systems (ICSs), which are partnerships without a statutory footing and derive their legitimacy from their component organisations – trusts, clinical commissioning groups (CCGs) and local authorities. While there is much that can be done via voluntary partnership working within this context, a more radical vision for the health and care sector could see the introduction of a new unitary board structure at the system level. In the short to medium term in the absence of the more radical legislative and structural change this would require, this gap is being filled by committees of executives, committees in common between trusts and CCGs and groups of NEDs, CCG lay members and sometimes councillors brought together, to provide an oversight function.

Rather than undermining the position of local boards, current system leadership structures actually make the role of local boards more important, not least because boards remain accountable in law and in practice for the delivery of services and because even in the best led systems, decisions must continue to be made locally based on local need. In working in partnership within this fast evolving context, trust boards and their system partners will need to redouble their efforts to ensure that risk to service delivery within and between organisations is managed. They will need to work with their partners to ensure that decisions are taken at the appropriate level in line with the principles of subsidiarity rather than being taken at system level by default. They will need to seek assurance on collective as well as local service delivery and to be accountable to their partners and those who rely on their services. But there is also an onus on NHS England and NHS Improvement to familiarise themselves with corporate governance and in particular the role of NEDs, so that they can understand better how boards can contribute in a positive way to system working.

Concluding Thoughts

In our view, unitary boards represent the gold standard in corporate leadership, direction and accountability to stakeholders. Boards therefore have huge potential as a means to support system working by managing risk, and providing local accountability within the current structures of the health and care sector. Longer term, there may be a case to explore the benefits that a unitary board structure could bring, in complement to individual organisational governance, at a system
level. In any event, we still need to think, and talk about boards. 

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