Opinion

Unitary or two-tier?

Governance | Paul Gibson | 1 Sep 2009

Paul Gibson ponders the best governance model for charity boards.

Throughout his career, Sir Richard Greenbury championed non-executive directors as the best defence against executive excess. Now, he has changed his mind.

In her editorial in the May 2009 edition of governance Dorothy Dalton questioned the independence of paid non-executive directors at companies like the Royal Bank of Scotland and Northern Rock. Can these ‘independent’ non-executive directors really challenge the executive directors?

She’s in good company. In 1995, Sir Richard headed up the Greenbury Committee to set out best governance practice at a time of growing concern over soaring top pay and rewards for failure. His report, the Greenbury Report, recommended a single unitary board consisting of a non-executive chair, non-executive directors’ and executive directors. The non-executive directors role is to supervise and challenge the executive. This model became the norm for our very largest companies, including those on the Stock Exchange.

In The Times March 2009 interview, Sir Richard said that there was ‘a good chance’ that a two- tier board (a supervisory board of non-executive directors to which a board of executive directors report) would have prevented the collapse of RBS by challenging and curbing the actions of Sir Fred Goodwin. Sir Richard has spent 11 years on the supervisory board at Phillips and is a convert to the two-tier model.

What has been the experience of two-tier boards in the charity sector? Many charities are structured as companies limited by guarantee. In this structure, the trustees are non-executive and supervise the activities of the executive staff team.

Charity boards can vary as to how well they perform. Some boards rubberstamp, others micromanage. Neither of these styles is ideal. Somewhere in the middle is the effective, high-performing board, the board which leads.

In most cases, the charity board takes responsibility for vision, values, mission and strategy. The board reserves to itself the approval of the business plan and annual budget and the appointment and supervision of the CEO. The board then delegates to the CEO the responsibility for delivering the business plan and budget and keeping the board informed on the delegation of its responsibilities.

In the Carver Model, the board is responsible for ‘ends’, the difference the charity is seeking to make, for whom and at what cost. The CEO and the staff team are responsible for ‘means’, the actions which are taken to deliver the ‘ends’. John Carver talks about governance as ‘moral ownership’ one step down rather than one step up from management. He sees board leadership as meeting the wishes of the moral owners in compliance with laws and regulations. The role of the paid staff is to make the wishes of trustees’ happen.

Of course no model of governance can, of itself, guarantee that a board will be effective and deliver the results which it aspires to. At its best, the two-tier board in the charity sector avoids the two risks of the unitary board as noted by Sir Richard: ‘the non-executives and executives get too close to each other and it’s probably easier for a very strong chief executive to run the board.

’Sir Richard suggests two-tier boards ‘for the 20 or 30 largest and most complex companies in Britain’. Is this enough? Is there a place for two-tier boards for all those public and private companies which wish to engage more widely in the community, rather than simply with their shareholders? Sir Richard and Dorothy have begun the debate, what do others think?

Paul Gibson

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