The phrase, ‘May you live in interesting times’ has never felt as true as it does at the moment. We are living in an ever-changing environment which has the means to change our lives significantly – and not just in the short term.
The value of governance is only ever really appreciated in times of challenge and when it is missing, and this is certainly a time when good governance practice is worth its weight in gold: enabling trustees to focus on what is important in a measured and effective manner.
There are a few practical and technical issues boards are trying their best to resolve or workaround in order to support their staff, volunteers and clients. This is the second of a short series of updates which aim to provide a few practical suggestions to resolve immediate issues. Future updates will cover other topics that arise as the pandemic continues.
There have been lots of questions relating to the ability to cancel or postpone AGMs, across all sectors. As with companies, charities effectively have five options:
The Charity Commission has provided guidance on COVID-19, which was updated most recently on 31 March. It includes the following advice on AGMs:
Coronavirus is having a major impact on charity events and the government’s health advice may lead to some charities having no choice but to decide to cancel or postpone their AGMs and other critical meetings.
If as trustees, you decide it is necessary to do so, you should record this decision to demonstrate good governance of your charity. This is particularly important if it is not possible to hold your AGM which may make it difficult for you to finalise your annual reports and accounts.
Wherever possible, we would ask you to try to get your annual reports to us on time. However, where the situation impacts on the completion of annual returns and accounts, charities with an imminent filing date can call us.
For some charities it might be possible to hold the AGM electronically or by post or proxy voting, depending on the specific requirements of the governing document of the charity. A few have adopted hybrid AGMs (simultaneously both physical and remote) that might now be useful examples for those charities which have AGMs later in the year and can plan more carefully.
The Institute has published guidance on AGMs which can be found here. While the guidance is aimed specifically at listed companies, many of the principles can be adapted to the charity sector. A webinar is also taking place on 8 April and places are still available.
Two further issues related to AGMs which have been generating some concern are trustee elections and appointments, and these will be covered in further briefings.
As the country is in lockdown it is not possible for traditional physical board meetings to take place. Charities therefore need to invoke technological developments to operate remote or virtual meetings.
There are some technical issues regarding the validity of such meetings, dependent upon the structure of the charity and its governing document. The Charity Commission’s CC48 guidance provides detailed information about trustee meetings. It states
“Charity trustees may choose to conduct some trustee meetings by electronic means, unless the governing document specifically prohibits it, and provided that the means used allows them to both see and hear each other, for example, by using video conferencing or internet video facilities.”
The legal definition of a ‘meeting’ is generally viewed as being valid if people ‘can both see and hear each other’ (Byng v London Life Association (1989) 1 All ER 560). This definition will apply where a charity’s governing document gives no other definition of a meeting. Videoconferencing will therefore be the only option available for remote meetings, unless the governing document provides otherwise.
The usual governance arrangements for the process of meetings should be observed, although the chair may wish to introduce new measures to ensure everyone contributes and the meeting is conducted in an orderly manner.
Where a charity moves to remote or virtual meetings, it is the expectation of the Charity Commission for a trustee board to meet physically at least once a year. Hopefully, for those charity boards that have yet to meet, a physical meeting will be possible before the end of the year.
A separate note will deal with online meetings in more detail, but the following bullets should help boards in developing their approach to remote or virtual meetings.
1. Focus on what’s urgent
Good governance often comes down to common sense and now is the time to apply what you have available.
The Institute urges trustee boards to be pragmatic in what they cover in board meetings in this time of lockdown. Boards should prioritise the key decisions that support their charity and its leaders, and be proportionate in the decisions that they are planning on taking.
Deferring some decisions may be a reasonable approach for trustees to take, focusing board meetings on those issues that are urgent and business critical. Trustees are still accountable for the charity and the oversight of the management team, so producing a lean agenda which concentrates on those items that require the board to make a decision or approve an action should maximise use of limited time and resources. A lean agenda is likely to include issues regarding the safety and wellbeing of individuals who depend on the charity (clients, staff and volunteers), financial considerations (including fundraising activities, grant/contract conditions, and cash flow) and urgent governance considerations.
Take the opportunity to review your approach to board packs and remove any extraneous ‘for information’ or ‘to note’ items, which could be circulated by email at a more appropriate time. This frees up time to concentrate on what matters.
As the situation and information continues to be fluid, trustees may decide to meet more frequently to focus on a smaller number of urgent issues. Proper records of all meetings should be maintained.
2. Urgent decisions
Given modern communication methods it should be possible for charities to use virtual or remote meetings to take swift action. For charitable companies, a unanimous decision made by email (a written resolution) will be valid, even if the articles don’t explicitly permit it.
Further guidance on the use of electronic communications for charities can be found here.
3. Delegations, including chair’s actions
If the board decides to delegate authority to the senior management team or the chair, it should be aware of those things it simply must not delegate and put in writing and formally agree those that are to be delegated. These should be monitored and reviewed regularly.
It should be noted that chair’s actions can only be taken where there is power to do so in the governing document (or standing orders), this could take the form of power to delegate to an individual (such as the chair or a lead trustee). Guidance on matters reserved to the board can be found here.
Urgent actions not taken by the board collectively are likely to be subject to ratification at the next legally constituted board meeting.
4. Ratify later
Where delegations are made to an individual, in accordance with a formally agreed policy or schedule, it will be essential for trustee boards to ratify decisions at a later date.
Even where a trustee meeting may not technically be valid, the decisions made at it could also be ratified later when the usual meeting format can be re-introduced and the meeting deemed correctly constituted.
5. Change the governing document to permit remote or virtual meetings
Depending on the charity, it might be possible to amend the governing document in order to permit the use of electronic methods for trustee meetings.
As the change should represent an internal administrative amendment there is no need to seek external approval from the regulator. Although amended documents should be registered with the Charity Commission and Companies House (and OSCR and other regulators) where appropriate.
It is for the trustees to decide whether the administrative arrangements present an obstacle that is best removed or worked around for the time being. If action is required, the trustees should follow the process set out in their governing document for making internal administrative changes.
6. Keep records
Any decisions taken in good faith during this crisis are unlikely to be challenged now but may be subject to additional scrutiny in the future.
As such, it is essential that proper records of meetings, decisions made and supporting arguments are kept. Now is not the time to take short cuts to this essential aspect of governance. It will save time and energy later, should anyone question a decision of the board and the subsequent actions.
Covid-19 has not removed the trustees’ responsibilities under the law, although some common sense is advisable when the ‘business as usual’ approach to their work is no longer possible. It is essential that trustees continue to hold meetings and exercise oversight for the activities of the senior management team and the charity, and can evidence as such.
An important aspect of AGMs is the (re)election and (re)appointment of trustees. Delaying an AGM may mean the number of trustees in place does not meet the requirements of the charity’s governing document.
There are several scenarios that come into play depending on the charity. These include membership (large or small) elections; trustee tenures, and/or co-option. Trustees need to be aware of their governing document’s powers in order to navigate trustee appointments as expediently as possible in the current circumstances.
The following questions may help boards navigate the situation and come to a satisfactory outcome:
There are a number of online portals that can help identify potential trustees Interviews with candidates could take place via telephone or video-conferencing, with the board appointment taking place in the usual manner. If this is not possible, it would be advisable to document why this is not an option.
If online recruitment is not viable, the following questions might provide an alternate way forward:
If it is detailed in the governing document, is there any option for waiving its exercise in the instance of emergencies or other unusual circumstances? If yes, it may be possible to re-appoint the trustees for another year (or until new trustees can be appointed, whichever is soonest). If the clause relating to trustee term limits is detailed in a policy approved by the board, the board could vote to overturn that provision (or the entire policy) until more certain times return.
If none of these options are available to your charity, the following questions may generate a solution:
If not, the board can continue to operate with the reduced number of trustees until the point when an AGM can be held and trustee appointments made. If the proposed minimum level is breached, then it will be necessary to appoint a number of trustees immediately.
Where the governing document sets out a minimum number of trustees, that quorum must be met in order to make decisions. Where that minimum level is not met, trustees can only act to appoint/elect new trustees (or re-elect/re-appoint existing ones) or call an AGM to deal with trustee appointments. It is therefore paramount that charities continue to maintain trustee quorum in order to deal with the challenges the charity will be facing at this time.
It is worth remembering that there is an expectation from the Charity Commission for a charity to have at least three trustees.
If so, this would appear to be a sensible approach if there is no other way to recruit trustees in a more formal manner at the current time.
Whatever decision the board takes, it should be done so in good faith and proper records kept, not only of the decision itself but also of the reasoning on which it was made.
Guidance from the Chartered Governance Institute:
Guidance and updates from the Charity Commission:
Other guidance and updates: