The NHS Foundation Trust Code of Governance
Comments from ACCA
February 2006
1. Monitor intends to issue this as a voluntary, best practice code. Do you think this is the right approach for Monitor to adopt?
ACCA believes corporate governance to be of critical importance and so was surprised to learn that Monitor intended to issue the code on a voluntary basis.
We would, however, support a voluntary approach if governors and members were actively encouraged to monitor compliance and to challenge those organisations that do not comply. We consider, though, that many governors and members would need further training before they were able to confidently undertake this role.
We agree with Monitor’s statement that ‘foundation trusts, … should embody the best in corporate governance’; we were, therefore, surprised that ‘Monitor does not propose, at this time, to intervene in the event of non-compliance and compliance with this code will not affect the governance risk rating of foundation trusts’. If good practice dictates that foundation trusts should comply with the code then why does non-compliance not affect the governance rating?
2. Monitor intends to issue the code on a comply or explain basis. Do you think this is the right approach for NHS foundation trusts?
ACCA agrees that The NHS Foundation Trust Code of Governance should be issued on a comply or explain basis.
However, as set out in our response to question 1, we believe that governors and members must be actively encouraged to monitor compliance.
3. We recognise that moving towards full compliance is a developmental process. Is summer 2007 a realistic time period for this?
ACCA believes that summer 2007 is a realistic time period for existing NHS foundation trusts to achieve full compliance.
We consider, however, that the guidance should also include a compliance time table for organisations that will achieve foundation trust status in the future. Will these organisations be expected to be fully compliant from the day that they achieve foundation trust status or will they initially be allowed a period of development?
4. We propose that the chair should appoint the senior independent director. In developing our proposals we heard on several occasions the suggestion that this function should be performed by the board of governors. Do you agree that it should be the chair who appoints the senior independent director?
We do not agree that the chair should appoint the senior independent director; good governance dictates that there should be more than one appointing officer.
Neither do we agree that the board of governors should appoint the senior independent director. The board of governors may only meet the non-executive directors three times a year so they are likely to struggle to identify the most appropriate person.
We consider, therefore, that the appointment of the senior independent director should be made by the board of directors.
5. Are there any specific provisions in Sections A to G and in Schedule A which would not be practical for NHS foundation trusts? What alternatives would you suggest?
Section A – Directors
We agree with the code provisions listed in section A.
Section B – Governors
We consider that this section will be strengthened by the addition of guidance, when developed, which clarifies the roles and responsibilities of governors.
Section C - Appointments and terms of office
We are concerned that, as some governors may have limited contact with the board, then they will struggle with the appointment process. We consider, therefore, that it is important the nomination committee provides sufficient support and information to the board of governors throughout the appointment process.
We believe that the code should also state whether an individual’s term of office commences from appointment or from when the NHS organisation achieves foundation trust status.
The document does not mention the appraisal process for chairs. Should that be included in this section?
We question whether the three year appointment cycle is appropriate for appointment of NEDs in the NHS. For many NHS NEDs, there will be a large learning curve and so it may be more appropriate for NEDs to undertake a maximum of three terms of four years rather than three terms of three years. A four year term of office would also reduce the administrative burden to NHS organisations.
If applicable, this period of office should be extended to include Executive Directors in accordance with the current provisions of the model articles for companies made under the Companies Act 1985.
Section D - Information, development and evaluation
ACCA supports the concept of whole board development as described in section D.
Section E - Director remuneration
We wonder whether NHS foundation trusts would find it beneficial if independent guidance were to be produced each year setting out remuneration package details of directors in similar sized private and public sector companies. This would support the decision making process and help avoid an ‘upward ratchet of remuneration’.
Section F - Accountability and audit
We consider this section to be overly focussed on finance. We believe that the section would be improved if it incorporated the best practice guidelines given in The NHS Audit Committee Handbook.
We also think it would be useful if this section were to clarify the respective ‘governance’ roles of governors and NEDS.
Section G - Relations with stakeholders
We agree with the code provisions listed in section G.
Schedule A: Disclosure of corporate governance arrangements
We consider that, in addition to the specific requirements set out in Schedule A, organisations should also be required to state how the principles of the code have been applied. This is in accordance with the Review of the Combined Code, Financial Reporting Council, January 2006 and will help readers of the annual report gain a better understanding of the quality of governance information being provided.