Corporate Governance - Hints and Tips

What is Governance?

Corporate Governance involves a set of relationships between a company’s management, its board, its shareholders and other stakeholders.  It also provides the structure through which the objectives of the company are set and the means of attaining those objectives and monitoring performance are determined.     It is vital to analyse, plan, prioritise and monitor and review governance arrangements regularly.

Risk

Risk management is an important element in demonstrating good governance and can help trustees to demonstrate that they have acted responsibly if things go wrong.  It is not possible to eliminate risk completely, but steps can be taken to identify risks and to look at how they can be minimised.

Types of risk in voluntary organisations

  • Work outside the organisation’s objects
  • Misapplication of restricted funds
  • Loss of funding
  • Failure to maintain proper accounting records
  • Serious negligence
  • Fraud
  • Failure to deduct PAYE
  • Failure to comply with Health & Safety
  • Failure to comply with employment law

Reducing risk

  • Understand your constitution.
  • Ensure that you are doing the work you are funded to do.
  • Have plans in place for the work and monitor progress.
  • Have clear roles and responsibilities.
  • Think about the skills your organisation needs.
  • Hold an induction for new people.
  • Make sure that the information you are given is clear – if it is not, ask.
  • Make sure that decisions are properly minuted.
  • Make sure your organisation has adequate insurance cover.
  • Make sure that you have written work plans for your staff and that the board gets regular updates on progress.
  • Think about what other information your board needs in relation to overall management.
  • Be clear about who will report, when and how often.
  • Make sure that you understand how your organisation is funded – are funds restricted to a particular purpose?
  • What information do your funders need, when do they need it and who will provide it?
  • Make sure that you have written policies and procedures in place – review them regularly.
  • If there are gaps, plan what needs to be done and write it down.
  • Prioritise – highest risk first.
  • Think about how procedures will be implemented.

 

Roles and Duties of Company Officers

The main responsibility lies with the Board of Directors who are charged with the
management of the company.  It is incumbent upon the Directors to take an interest in the affairs of the company and therefore attend and participate in board meetings.  Directors have the duty to act in good faith in the interests of the company and act within powers conferred by Memorandum and Articles of Association and for a proper purpose.  An improper purpose includes purposes outside their Authority.

It is no defence to state that the Director acted in good faith in what he/she believed to be in the best interests of the company.    Directors are required not to act negligently when managing the company’s affairs and exercise skill relative to their qualifications.  They must carry out functions with due diligence.  Directors have a duty to avoid conflicting interests and conflicting duties and have a duty to disclose his/her own misconduct.

Reporting to the Board of Directors

  • Consider a set agenda for Board meetings.
  • Meetings should meet at the most monthly, at the least, quarterly.
  • Format of information on performance needs to be fixed and consistent from period to period. This aids comparison and enables Board members to review the reports quickly.
  • Should report on income and expenditure for relevant period and current financial position. A short-term/medium-term cash forecast should also be included.
  • Consider summary reporting of activity.

 

What can be done to help avoid liability?

  • Appropriate corporate governance structures.
  • Memorandum and Articles of Association.
  • Directors’ indemnity insurance.
  • Proper minutes of meetings detailing reasons for decisions.
  • Timely filings at Companies Registry.
  • Board papers should be read and Board meetings attended.
  • Systematically analyse the risks facing the organisation and seek advice, where appropriate.

 

Scope and Application of the Duties

  • Duty to act within powers.
  • Duty to promote the success of the Company for the benefit of its members.
  • Duty to exercise Independent Judgement.
  • Duty to exercise reasonable care, skill and diligence.
  • Duty to avoid conflicts of interest.
  • Duty not to accept benefits from third parties.
  • Duty to declare interests in proposed transactions.

 

Conflicts of interest

  • The avoidance of conflicts of interest are paramount…even when good results are being achieved
  • Public accountability requirements go beyond what is required by company law.
  • Unmanageable conflicts of interest can only be dealt with by being avoided altogether.
  • Code of Conduct and Register of Interests should contain clear guidance.

 

Simple actions

  • Induction for Board Members
  • Attend Board meetings
  • Agree strategy and challenge management on delivery
  • Provision of relevant and timely information to Board
  • Include Conflicts of Interest as a standing item on the Agenda of Board Meetings
  • Implement a Code of Conduct for Directors
  • Guidance on conflicts of interest
  • Maintain a Register of Directors’ interests
  • Consider establishing an Audit Committee
  • Implement a Risk Management process

 

Seven Principles of Public Life

  • Selflessness
  • Integrity
  • Objectivity
  • Accountability
  • Openness
  • Honesty
  • Leadership

 

For further information on any aspect of governance, contact Jan Keenan, Finance and Human Resources Manager on info@ruralcommunitynetwork.org