This document discusses ensuring effective partnerships between boards of trustees/directors and organizational managers. It provides an overview of governance structures and then summarizes the approach at Wales Millennium Centre, which is seen as exemplary. At WMC, the board of trustees sets overall strategic direction while committees oversee specific areas like audit/risk and finances. Management implements operations while being accountable to the board. Regular reporting and open communication helps maintain a productive balance between governance and management.
2. CONTENTS
1. INTRODUCTION 1
2. DIFFERENT TYPES OF ORGANISATIONS 1
3. CORPORATE GOVERNANCE: THE BACKGROUND 2
4. RELATIONSHIP BETWEEN TRUSTEES/DIRECTORS AND MANAGERS 3
5. HOW IT WORKS AT WALES MILLENNIUM CENTRE AND SOME CONTEXT 4
6. OVERALL GOVERNANCE STRUCTURE AT WMC 4
7. AUDIT & RISK COMMITTEE 5
8. FINANCE & RESOURCE COMMITTEE 6
9. POLICY AND PROCEDURES 6
10. GENERAL OBSERVATIONS ON WMC APPROACH AND STRUCTURE 6
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3. ENSURING EFFECTIVE PARTNERSHIPS
1. INTRODUCTION
1.1 There have been several high-profile failures in the sector in Wales in recent years. The
reasons for such failures vary, but typically include some or all of the following hallmarks:
• (at the top of the scale) fraud or dishonesty of some kind on the part of employees
bringing down the organisation
• Lack of rigour/management controls leading to “honest” misapplication of grant or
other charitable funds
• Lack of contingency planning
1.2 The consequences of failure can be extremely serious:
• End of organisation
• Services disappearing
• Job losses
• Personal liability for trustees
• Reputational damage to trustees, employees and stakeholders
1.3 Why does this occur, and why is the third sector especially vulnerable?
The reasons are complex and will vary from case to case, but the legal structures imposed on
charities play a part. These structures are often replicated for practical reasons even in
organisations which are not charitable and therefore not strictly required to implement
them.
2. DIFFERENT TYPES OF ORGANISATIONS
2.1 Third sector organisations include both charities and non-charitable bodies.
2.2 Charities include:
• Companies limited by guarantee and registered as charities
• Charitable incorporated organisations (CIOs)
• Charitable trusts
• Charitable unincorporated associations
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4. • Possibly Royal Charter bodies registered as charities (e.g., ACW, Universities,
National Library, National Museum. These bodies are subject to the same basic rules
but are likely to have greater resources).
2.3 Non-charitable third sector bodies include:
• Community interest companies (CICs)
• Non-charitable companies limited by guarantee
• Non-charitable unincorporated associations
• Others
3. CORPORATE GOVERNANCE: THE BACKGROUND
3.1 Overall strategic management of charities is the role of the charity trustees. Depending on
the nature of the organisation, they may be directors of the charitable company, members of
the committee of an unincorporated associations etc., but as a matter of charity law they are
all charity trustees.
3.2 Similarly, overall strategic management of non-charitable organisations such as CICs, non-
charitable companies and similar bodies is the role of the directors/management committee
or other equivalent body.
3.3 With limited exceptions, charity law does not permit charities to make payments to their
trustees. There are important policy reasons for this prohibition.
3.4 There is no equivalent blanket legal restriction on payments to directors of CICs and non-
charitable companies limited by guarantee or members of the management committee of
other non-charitable bodies. There may, however, be restrictions on such payments in grant
or other agreements.
3.5 However, in practical terms, many if not most such directors and committee members will be
unpaid volunteers because of financial and other constraints.
3.6 Most organisations of any size will be run and managed to some degree by paid employees.
3.7 In the case of larger organisations such as Wales Millennium Centre, day-to-day management
and operations are completely in the hands of professional staff who are specialists in the
arts, venue operations, finance and so on.
3.8 In mid-sized organisations, there is likely to be a smaller professional management structure,
but there will still be some separation between the board of trustees/directors/management
committee and the day-to-day management.
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5. 3.9 The consequence – in all but very small and 100% volunteer organisations – is a separation
between those who have overall management of the organisation (the trustees or directors –
referred to below as the “Board”)) and those working in the organisation.
4. RELATIONSHIP BETWEEN TRUSTEES/DIRECTORS AND MANAGERS
4.1 An effective relationship between the two “teams” is therefore essential for good
governance.
4.2 A proper balance needs to be struck between:
• The Board’s duty to set the strategic direction of the organisation and responsibility
for overall supervision of the management and employees (and consequent need for
information); and
• The management team and employees being able to get on with their jobs without
interference in day-to-day operations.
4.3 To put it another way, it’s important to observe the distinction between governance and
management.
4.4 Potential pitfalls include:
• Absence of shared vision or mission for the organisation – people pulling in different
directions
• Management team not reporting fully or in a timely fashion to the board
• Management team actually withholding information from the board (hopefully a rare
event)
• Boards not having the expertise to understand the business and interrogate
management – maybe:
• board has been picked for connections and not skills
• may have best of intentions but not enough understanding
• Boards stopping management from implementing change where needed
• Boards trying to micro-manage
• Boards forgetting that they have two complementary roles:
• supporting management
• holding management to account
• Board and management just not knowing each other well enough
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6. • Lack of fresh blood and diversity both on the board and within management –
possible stagnation or lack of challenge
• Too many or too few board meetings
5. HOW IT WORKS AT WALES MILLENNIUM CENTRE AND SOME CONTEXT
5.1 The observations below will of course apply most directly to large organisations with
complex businesses. However, the same principles will apply equally to smaller
organisations with more limited resources, and are regarded as an exemplar for the sector.
5.2 WMC is a company limited by guarantee and a registered charity. Its overall strategic
management is in the hands of its board of trustees, who are the directors in company law
terms as well as the charity trustees of WMC.
5.3 Some key statistics:
• 9 resident organisations
• 8 acre site
• Employs circa 450 direct and 1,000 on the whole site
• Turnover of circa £22m
• Generates around £50 million to the local economy
• a wide range of business areas – from venue operations, corporate services to
catering and security.
5.4 See https://www.youtube.com/watch?v=-kbOYZx6Xk8 for an interesting introduction.
6. OVERALL GOVERNANCE STRUCTURE AT WMC
6.1 The Board of trustees:
• Currently 12 trustees
• Balance of skills range from finance and legal to Welsh language and cultural
• Rotation of trustees, with a maximum of 2 x 3 year terms, which makes it important
to ensure that too many trustees don’t leave at the same time
• Regular meetings covering strategy and business progress
• At least one annual away day to discuss future direction and strategy
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7. • The Board’s function is to set clear direction and management need to be aligned to
this.
6.2 Because the range of WMC’s activities is too wide to enable detailed oversight by the whole
Board, WMC has a number of Board committees.
6.3 Each Board committee:
• is chaired by a member of the Board
• has defined responsibilities, and is required to report formally to the main Board on
a regular basis
6.4 The two most important committees in terms of governance are:
• Audit & Risk Committee
• Finance & Resource Committee
6.5 There are formal corporate policies and procedures for matters such as:
• Procurement
• Segregation of duties
• Signature Limits (Board have to sign above certain amounts)
7. AUDIT & RISK COMMITTEE
7.1 The Audit & Risk Committee is responsible for:
• external (statutory)audit
• internal audit and risk
7.2 It meets regularly – at least three times per year
7.3 It is currently made up of four members, including:
• two trustees (including the chairman of the committee, who is a lawyer)
• two other members, co-opted from outside the organisation (in this case one
accountant and a Welsh Government official)
7.4 The internal audit function covering all business areas – finance to operations
7.5 An annual risk workshop is facilitated by the internal auditors, who are separate from the
external (statutory auditors).
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8. 7.6 There is a regular process of reviewing and updating the risk register (with mitigation and
control environment)
8. FINANCE & RESOURCE COMMITTEE
8.1 The Finance & Resources Committee is needed because of the scale of WMC’s operations.
8.2 Its primary responsibilities are:
• the review and approval of financial performance (via quarterly management
accounts and year-end reforecasts) and financial controls (policies and procedures)
• advising the Board on legal and accounting matters
• fund raising responsibilities
• estates matters
8.3 It meets at least four times per year
8.4 There are currently five members, including:
• its chairman, who is an experienced qualified accountant and a trustee
• the Chairman of the WMC Board
9. POLICY AND PROCEDURES
9.1 WMC Corporate Governance document (which drives and gives general principles which
should be adopted within all policy and procedures)
9.2 All policy and procedures are approved by Finance & Resource Committee and
recommended to the Board for final agreement
9.3 Creates a strong control environment.
9.4 An example is the Capital50 document providing for the long-term care and maintenance
plan for the WMC building
10. GENERAL OBSERVATIONS ON WMC APPROACH AND STRUCTURE
10.1 Aim to achieve a balance of good quality information to the Board and Board committees in
a timely manner, looking at future and not just past
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9. 10.2 Good healthy personal relationships between the Board/Board committees and
management, with open debate and challenge to management from the trustees
10.3 More detailed supervision and oversight is delegated by the Board on clear terms to the
Committees, which they have the specialist skill set to interrogate the management and the
management information. The committee then reports back to the board. The small group
size of the committees is helpful
10.4 The strong control environment (audit regime) gives the Trustees comfort
10.5 WMC maintains good external relationships with partner organisations, with a view to
fostering long term relationships with like-minded organsiations
10.6 Overriding objective is to demonstrate to the Board that management is in control of the
Company
This briefing note is intended solely as an overview of the law. It was last updated on 17 April 2015. No responsibility can be accepted for
the completeness or accuracy of this briefing note and professional advice should be taken in relation to any specific problems.
For further information please contact either Geraint Tilsley (Geldards LLP) or Mark Heycock (Wales Millennium Centre).
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