NHS GOVERNANCE REVIEW 2012Delivering good governancePreparing for turbulent times
WelcomeThe NHS is facing turbulent times. Public demand for its services is increasing,along with raised expectations over...
ContentsExecutive summary	                                          2Introduction	4The annual report	                     ...
Executive summary  Annual reports                                             Boards and committees  • 	 Trust and FT fina...
NEDs and governors                                              Internal controls• 	 NEDs do not comprise the majority of ...
IntroductionThe annual report is the primary window through which any organisation showcases its attitude togovernance. If...
Too much, therefore, of what would be described as ‘goodgovernance’ – for example, detail around the effectiveness of     ...
The annual reportThe annual report                                                                                        ...
The challenge for trusts and FTs is toproduce an annual report that meets             What makes a good annual report?regu...
To what degree does the board demonstrate the steps taken to understand the views of majorstakeholders (patients, staff, g...
Ten key principles and questions for trust and FT boards when reviewingthe 2011/12 annual report     Principles           ...
The annual reportThe business reviewFTs are better at explaining the future development of their business in a way that is...
Going concernThe directors’ assessment of going concern will require greater focus as the impact of the2012/13 operating f...
The annual reportIntegrated reportingThe International Integrated Reporting Committee (IIRC) has launched a two year pilot...
Boards and committees65% of trust and 13% of FT annual reports                        to what extent does the annual repor...
Boards and committeesBoards90% of trusts and 27% of FTs gave no information on board/committee attendance throughout theye...
Average number of                       Board            Audit           Quality   Risk committee         Finance & perfor...
Boards and committeesBoard evaluationTrusts and FTs should improve the effectiveness and transparency of their arrangement...
Gender diversityWith women holding over a third of posts, they have a strongfoothold in NHS boards, showing the way to the...
Boards and committeesNomination committeeThe nomination committee is responsible for board appointments and ensuringthere ...
The Bribery Act 2010                                                                    ConsiderationsOnly 13% of trusts a...
NEDs and governorsNEDsNEDs do not comprise the majority of board                          At least half of the board (excl...
How well do trusts and FTs describe the                                                                      consideration...
NEDs and governorsNEDs need to be well informed about the trust or FT andthe external environment in which it operates, wi...
Is it disclosed that the terms and conditions                   Is it stated that the board (of governors) set theof appoi...
NEDs and governors                                                                     Do the governors (non-executive dir...
The chair is responsible for board effectiveness and their             Of those that do appraise the chief executive’slead...
NEDs and governorsGovernorsHalf of FTs provide only ‘boilerplate’ descriptions of the role of governors, reflecting a resi...
An average FT has 31 governors attending 76% of            If managed well, the council of governors canthe five council o...
Risk and performancePrincipal risksTrusts and FTs need to improve their principal                     the annual report in...
Grant Thornton UK - NHS Governance Review 2012: Delivering Good Governance
Grant Thornton UK - NHS Governance Review 2012: Delivering Good Governance
Grant Thornton UK - NHS Governance Review 2012: Delivering Good Governance
Grant Thornton UK - NHS Governance Review 2012: Delivering Good Governance
Grant Thornton UK - NHS Governance Review 2012: Delivering Good Governance
Grant Thornton UK - NHS Governance Review 2012: Delivering Good Governance
Grant Thornton UK - NHS Governance Review 2012: Delivering Good Governance
Grant Thornton UK - NHS Governance Review 2012: Delivering Good Governance
Grant Thornton UK - NHS Governance Review 2012: Delivering Good Governance
Grant Thornton UK - NHS Governance Review 2012: Delivering Good Governance
Grant Thornton UK - NHS Governance Review 2012: Delivering Good Governance
Grant Thornton UK - NHS Governance Review 2012: Delivering Good Governance
Grant Thornton UK - NHS Governance Review 2012: Delivering Good Governance
Grant Thornton UK - NHS Governance Review 2012: Delivering Good Governance
Grant Thornton UK - NHS Governance Review 2012: Delivering Good Governance
Grant Thornton UK - NHS Governance Review 2012: Delivering Good Governance
Grant Thornton UK - NHS Governance Review 2012: Delivering Good Governance
Grant Thornton UK - NHS Governance Review 2012: Delivering Good Governance
Grant Thornton UK - NHS Governance Review 2012: Delivering Good Governance
Grant Thornton UK - NHS Governance Review 2012: Delivering Good Governance
Grant Thornton UK - NHS Governance Review 2012: Delivering Good Governance
Grant Thornton UK - NHS Governance Review 2012: Delivering Good Governance
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Grant Thornton UK - NHS Governance Review 2012: Delivering Good Governance

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This review, based on research of over 100 NHS trust and FT annual reports, assesses NHS governance and how these arrangements are communicated. It highlights areas for improvement and provides practical advice for achieving best practice.

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Grant Thornton UK - NHS Governance Review 2012: Delivering Good Governance

  1. 1. NHS GOVERNANCE REVIEW 2012Delivering good governancePreparing for turbulent times
  2. 2. WelcomeThe NHS is facing turbulent times. Public demand for its services is increasing,along with raised expectations over the quality of care. At the same time, the serviceis having to cope with financial pressures and a need to demonstrate long-termsustainability while coping with major systemic changes. In this context, NHSbodies need to have robust governance arrangements to help manage their waythrough the myriad of complex, and sometimes competing, challenges facing them. We have produced this report to support NHS bodies in improving theirgovernance arrangements. This year we are reporting a baseline position and over thecoming years we will be tracking and reporting on trends, contributing to the goodgovernance debate and encouraging the sharing of best practice from within andoutside of the sector. NHS governance is a wide agenda and much has been written before. Ourapproach is to come at it through the annual report, as we see this as the primarywindow through which NHS bodies demonstrate their attitude to governance tothe tax-paying public. Our findings are drawn from our review of over 100 trustand foundation trust 2010/11 annual reports (referred to as ‘trusts’ and ‘FTs’ in thisreport). However, our findings are applicable to other existing and emerging bodiescommissioning or providing publicly funded healthcare services. In many NHS bodies there are well developed governance arrangements thatsupport strong performance. Over the last few years, financial governance hasadvanced more than clinical governance and this imbalance needs to be addressed,particularly in response to the Francis report. We found that many trusts and FTs areunder-representing the totality of their governance arrangements in the annual report. Our key messages are: that there needs to be an improvement in the compliance,clarity, quality and accessibility of annual reports; and that underlying financialand clinical governance arrangements need to be strengthened in some areas. In themain, FTs are doing better than trusts and it is important that trusts raise the bar inpreparation for an all-FT NHS provider landscape. We are now in the 10th year of our equivalent report in the large corporate (FTSE350) sector. Over this period, we have positively influenced the development of annualreporting and have seen a steady improvement from non-compliance to, in somecases, standard-setting public reporting. The banking crisis shows there is still muchto do, but at the same time, we have observed real improvements in the underlyinggovernance processes, for example the increasing non-executive influence on boards.Our ambition is to help facilitate a similar trend of improvement in the NHS.Paul HughesDirectorGrant Thornton Governance Institute
  3. 3. ContentsExecutive summary 2Introduction 4The annual report 6- The annual report- The business review- Going concern- Integrated reportingBoards and committees 13- Boards- Board evaluation- Gender diversity- Nomination committee- The Bribery Act 2010NEDs and governors 20- NEDs- The chair- GovernorsRisk and performance 28- Principal risks- Key performance indicators- Better and prompt paymentsInternal controls 34- Review of effectiveness- The annual governance statementAudit and assurance 38- Audit committees- Clinical audit- Internal audit- External auditAppendix A: The corporate influence 46Appendix B: Further developments in narrative reporting 48About us 49 NHS GOVERNANCE REVIEW 2012 1
  4. 4. Executive summary Annual reports Boards and committees • Trust and FT financial statements and quality • 65% of trust and 13% of FT annual reports fail to reports contain large volumes of information adequately explain their model of board operation. designed to meet regulatory standards that can be There is a lack of transparency on the overall board difficult to interpret for non-specialist readers. governance arrangements that leaves readers of the • Annual reports are often compiled to ‘tick the annual report uninformed and therefore uncertain as box’ of regulatory requirements, rather than tell a to whether these arrangements really are effective. complete story ‘through the eyes of management’. • 90% of trusts and 27% of FTs gave no information • FTs are better at explaining the future development on board/committee attendance throughout the year. of their business and their performance is closer to We are therefore left unsure whether a sufficient the quality displayed in annual reports by the FTSE breadth of committee members were given the 350. opportunity to contribute or challenge board reports. • The directors’ assessment of going concern will • Trusts and FTs should improve the effectiveness require greater focus as the impact of the 2012/13 and transparency of their arrangements for board operating framework comes into play. evaluation. 79% of trusts and 34% of FTs gave no information about how they review their own effectiveness, let alone obtain an independent view of their performance. • With women holding over a third of posts, they have a strong foothold in NHS boards, showing the way to their corporate cousins and contributing to a more diverse and balanced board than seen in the large corporate sector. • Only 13% of trusts and 2% of FTs make gifts, hospitality and entertainment disclosures in their annual reports. Trusts and FTs should be demonstrating more publicly their adherence to ethical standards and the requirements of the Bribery Act.2 NHS GOVERNANCE REVIEW 2012
  5. 5. NEDs and governors Internal controls• NEDs do not comprise the majority of board • A better description of the internal control members for 41% of FT boards and 33% of trust system and the annual review of its effectiveness boards. is required in FT and, particularly, trust annual• Trusts and FTs need to describe better who sits on key reports. Currently 77% of FTs and only 58% of committees and how they review the effectiveness of trusts do this. individual board members.• Half of FTs provide only ‘boilerplate’ descriptions of the role of governors, reflecting a residual lack Audit and assurance of clarity from FTs around how to maximise the effectiveness of their governor input. • Annual reports for 95% of FTs and 99% of FTSE 350 companies include a good discription of the work of the audit committe. Only 37% of trusts, however, provide this level of coverage.Risk and performance • The latest revision of the NHS Audit Committee• Trusts and FTs need to improve their principal risk Handbook encourages audit committees to get involved reporting in the annual report. 23% of trusts and 10% of in driving the more effective use of clinical audit in FTs fail to describe the risk management process, while improving governance. 45% of trusts and 13% of FTs make no mention of the • An effective internal audit function serves as the eyes principal risks. and ears of the audit committee, providing an objective• The use of key performance indicators (KPIs), to help assurance programme that gives the audit committee the reader understand how a trust or FT manages and comfort that good governance is in place. However, measures the relative success of its strategy, is missing with only 43% of trusts and 71% of FTs referring to an from 39% of FT and 55% of trust annual reports. effectiveness review, there is room for improvement.• 57% of trusts and only 15% of FTs confirm that they • A substantial number of trusts (89%) and FTs (74%) have signed up to the prompt payments code. fail to confirm that the external auditor’s objectivity and independence is maintained when, on average, the value of non-audit fees is equivalent to 13% of a trust’s, and 51% of a FT’s, audit fee. NHS GOVERNANCE REVIEW 2012 3
  6. 6. IntroductionThe annual report is the primary window through which any organisation showcases its attitude togovernance. If a trust or FT fails to take this opportunity in such a public document, it is reasonablefor stakeholders to conclude that this reflects the underlying culture of governance within theorganisation.The need for good governance Against this backdrop, it is important that trusts and FTs have:The pace of structural change and underlying financial • the cultural behaviour to deliver strong governancepressures facing the NHS, along with increased public • processes in place to support governance – the assurancescrutiny and the ‘patient choice’ agenda, mean that strong framework, board structures, NEDs and governorsgovernance arrangements are essential. As trusts movetowards an all FT market, whose governance requirements • arrangements for actively engaging with a wide group ofclosely mirror the private sector, the importance of corporate stakeholders to engender their trust and respect.governance will grow. In the private sector, since Sir Adrian Cadbury first put Governance information flowsgovernance in the spotlight in the early 1990s, an evolving Trusts and FTs already have frequent communications withstream of guidance has kept governance centre stage (see regulators and public groups of stakeholders. In the main,Appendix A). The regulatory response to the banking crisis communications with regulators provide comprehensiveincorporated higher regulatory controls set by the Financial information on finance, governance and clinical quality asReporting Council. Similarly, the widely reported failings in required, but this information does not readily flow to publicquality and patient safety at some FTs and trusts have raised stakeholders. Meanwhile, we found that trusts and FTs arethe importance of governance in the NHS. highly effective at communicating with smaller groups of public stakeholders, actively engaging with patients, the public, members/governors, staff and commissioners on specific chosen issues. Outcomes of effective governance Albeit frequent, the nature of these information flows means that a comprehensive view of governance and accountability is not • Ensuring: seen until the trust produces its annual report. - the strategic plan is achieved - that financial health is achieved The results of our review indicate that many trusts and FTs - accountability and regulatory compliance do not meet the minimum reporting standards expected in an - quality in service provision. annual report. • Effectively assessing risk/supporting innovation. Some reports appear to have been compiled to ‘tick the box’ of • Enhancing organisation reputation/competitiveness. regulatory requirements, with segments written by different • Providing confidence in organisational governance. departments, rather than telling a single and cohesive story. • Constructively supporting/challenging the boards.4 NHS GOVERNANCE REVIEW 2012
  7. 7. Too much, therefore, of what would be described as ‘goodgovernance’ – for example, detail around the effectiveness of Methodologythe internal control system and KPIs – is not in the publicdomain, or is not being brought together in a convenient This report is based on a review of the publicly availablelocation, to give a full and balanced view of a trust’s or FT’s 2010/11 annual reports of over 100 trusts and FTs. Ourmanagement and performance over the year. As the need for sample is geographically dispersed and includes acute,governance increases, it is essential that the annual report specialist and mental health trusts.becomes a clear window into the governance of the trust or FT. Where we have carried out analysis of the quality of the disclosures, these have been graded as follows: ‘none’The annual report = data is missing; ‘some’ = a minimum requirement hasTrusts and FTs communicate directly and frequently with been met; ‘more’ = above adequate disclosure.stakeholders, but the commercial sector’s approach to Where the requirements are comparable, trust andthe annual report provides a useful benchmark for the FT performance has been compared to that of the UK’sNHS, particularly with the transition to an all FT market. FTSE 350, as published in Grant Thornton’s ‘CorporateOur findings show that FTSE 350 companies are better Governance Review: A changing climate’ reportat communicating their governance and accountability (November 2011).arrangements to a wide group of stakeholders in the single We have taken account of the requirements for NHSdocument of the annual report. annual reports, as set out in either the Department of If trusts and FTs were to improve the quality of the Health’s Manual for Accounts (for trusts) or Monitor’sannual report, it would demonstrate adherence to the spirit Annual Reporting Manual (for FTs). However, theseof good governance to a much wider set of stakeholders than requirements form only a part of wider governanceat present. This would both improve accountability to the requirements and we have used both NHS specific andwider tax-paying public, as well as demonstrate robustness acknowledged best practice guidance from other sectorsof management arrangements to regulators, banks and other to formulate our views.institutions.Purpose of this reviewLooking through the window of the annual report, ourreview is intended to identify both good practice and areasfor improvement in NHS governance. However, while the drivers of good governance comefrom internal arrangements, not the annual report itself, westrongly contend that, as governance rises on the agenda,creating a comprehensive, uncluttered and readable documentwill enhance transparency and accountability. Next year, we will be able to track performance trendsand comment on the NHS’s direction of travel. Our hope isthat over time, trusts and FTs can better demonstrate theirexisting commitment to public accountability. NHS GOVERNANCE REVIEW 2012 5
  8. 8. The annual reportThe annual report TrustsTrust and FT financial statements and quality reports contain large NHS bodies are required to publish, asvolumes of information designed to meet regulatory standards that a single document, an annual report andcan be difficult to interpret for non-specialist readers. accounts. The minimum requirements of this document are to include:Quality not quantity is the key to Writing the annual report should • the annual reporta good annual report. It should be not be seen as a segmented exercise, • a statement of the accountingfree from ‘boilerplate’ text and over- yet too often this is the case and many officer’s responsibilitiesuse of regulatory disclosures that simply tack the financial statementsare of interest only to a small set of and quality report on to the annual • a Statement on Internal Controlstakeholders. report, rather than integrate them into • the primary financial statements Trust and FT financial statements and the description of the trust’s activities and notesquality reports contain large volumes of during the year. • the audit opinion.information designed to meet regulatorystandards that can be difficult to interpretfor non-specialist readers. The annual report should draw out the Trusts are not required to include key messages from the quality report FTsthe full quality report or full financial and financial statements, properly crossstatements, and many do not; an average referenced, in the main body of the The annual report of FTs must, as aannual report consists of 59 pages report. minimum, include:compared to 151 for a FT. • a directors’ report including a management commentary FTs Trusts • a remuneration report Average number of pages 151 59 • the disclosures set out in the Longest 240 123 NHS Foundation Trust Code of Shortest 60 21 Governance Annual reports that include the full accounts 92% 14% • a quality report Annual reports that include summary accounts 8% 86% • results of a staff survey Annual reports that include the Quality Report 88% 24% • regulatory ratings • other disclosures in the public interestChapter 7 of Monitor’s NHS Foundation Trust Annual Reporting Manual, requires trusts toinclude the full financial statements and quality report in their annual report. • a statement of the accounting officer’s responsibilities • a Statement on Internal Control/an Annual Governance Statement. Both trusts and FTs are also required to follow specific provisions of the 2006 Companies Act.6 NHS GOVERNANCE REVIEW 2012
  9. 9. The challenge for trusts and FTs is toproduce an annual report that meets What makes a good annual report?regulatory requirements, but providesa concise description of the business A good annual report is cohesive and through the eyes of management. Itmodel, strategic direction and risks. should avoid jargon, use plain English and avoid ‘boilerplate’ text. It shouldTrusts and FTs need to produce an tell a consistent and balanced story of performance that highlights the itemsannual report that clearly shows they that really matter, cutting out clutter and unnecessary information.understand the key drivers of their A good annual report reflects on the significant changes since thebusiness and the information that is of previous period, then focuses on the current year, before turning the reader’smost use to stakeholders. attention to the next year. It should be clear on the risks that keep the board Are trust annual reports better awake at night, using consistent, clear and understandable risk reporting andbecause they are shorter? This key performance indicators.depends on the definition of ‘better’.If this is measured by completeness ofmandated disclosures or best practice Throughout this report, comparison There are positive attributes in trustin governance, the answer, based on the is made to the large corporate sector, and FT reports. However, we look forfindings of our research, is ‘no’. where annual reporting has been subject trusts and FTs to raise the bar on annual To maximise its value to users, the to greater external scrutiny in past reports, starting earlier and investingreporting framework needs to identify years, accounting for generally better sufficient time to not only meet allways to avoid ‘boilerplate’ disclosures scoring than trusts and FTs. However, it regulatory requirements but also toand to encourage trusts and FTs to should be noted that: produce a good quality, user-friendlymake more meaningful disclosures • the average length of a large corporate’s document. It should be possible to doabout their businesses, while removing annual report is 135 pages, which is this without increasing the size of theunnecessary and immaterial disclosures still too long annual report.from annual reports. This is the challenge that we are • large corporates took, on average, five In order to reduce ‘clutter’ in annual laying down for trusts and FTs for to six years from where the NHS isreports it is imperative to change the 2011/12 and beyond and we will review now to reach their current levels ofbehaviour of all those involved in the progress in our subsequent annual compliance.process. This includes auditors and reviews.regulators. Trusts and FTs shouldconduct their work in the spirit of clearercommunication. NHS GOVERNANCE REVIEW 2012 7
  10. 10. To what degree does the board demonstrate the steps taken to understand the views of majorstakeholders (patients, staff, governors, commissioners, regulators) in the nhs? none SOME more FTSE 350 FTSE 350 FTSE 350 0% 38% 62% FTs FTs FTs 7% 53% 41% Trusts Trusts Trusts 7% 71% 22% The effectiveness of governance communicationsThe board should state in the annual report the steps they havetaken to ensure that members of the board, and in particular the H Frequency of communication Lnon-executive directors develop an understanding of the views ofmajor shareholders about their company. Direct The annual The annualCombined Code, D.1.2 communication general meeting reportA statement should also be included which sets out the steps thatthe members of the board, in particular the non-executive directors,have taken to understand the views of governors and members.NHS Foundation Trust Annual Reporting Manual, Paragraph 7.56 FTSE 350The OFR [Operating and Financial Review] shall include information aboutsignificant relationships with stakeholders which are likely, directly or Trustsindirectly, to influence the performance of the NHS body. For example, and FTsrelationships with patients, suppliers, employees and contractors.Department of Health Manual for Accounts 2010/11 Chapter 2,Paragraph 2.21 L Number of recipients H8 NHS GOVERNANCE REVIEW 20112
  11. 11. Ten key principles and questions for trust and FT boards when reviewingthe 2011/12 annual report Principles Questions1 The annual report and accounts need to comply with • Do the annual report and accounts comply with relevant law relevant law and accounting standards and give complete and accounting standards? and accurate accounting information. • Is the information complete and accurate? • Are the accounting policies clear, relevant and complete?2 The front-end narrative should be consistent with the • Do the annual report and accounts present a consistent accounts. That narrative should explain significant points message? in the accounts and there should be no surprises hidden • Is the description of the trust’s business and how it is in the accounts. managed in the narrative reporting consistent with segment disclosures in the financial statements?3 The business review should give a clear and balanced account • Does the business review reflect a balance of both the including explaining the trust’s business model and the salient good and not so good? features of the trust’s financial position and performance, good and bad.4 The business review should describe the principal risks • Does the business review explain the principle risks and and uncertainties faced by the trust. The risks and how they are managed? uncertainties described should genuinely be the principal • Are the narrative disclosures consistent with the accounting ones that concern the board. The reader should be able risks and uncertainties, where appropriate? to understand why they are important and the links to accounting judgements and estimates should be clear.5 If the trust has referred to key performance indicators in • Do key performance indicators reconcile to the financial the business review, these need to be reconciled clearly to statements? main heading figures in the accounts and any adjustments need to be explained clearly, together with the reasons why they have been made. 6 Important messages need to be highlighted and supported • Is the reporting of material transactions in the period clear with relevant context and not be obscured by immaterial and transparent and have appropriate accounting policies detail. Effective cross-referencing needs to be provided and been developed? repetition avoided. • Have accounting policies for irrelevant and immaterial items been removed? • Have we cut the clutter?7 The language used needs to be precise and explain • Is the language clear? complex issues clearly. Jargon and ‘boilerplate’ should be • Are disclosures specific to the business’ operations and avoided. risks?8 Items in the annual report and accounts should be reported • Have we summarised appropriately? at an appropriate level of aggregation to convey the essential messages and avoid unnecessary detail. Tables of reconciliations need to be supported by, and consistent with, the accompanying narrative.9 Significant changes from the prior period in policy or • Have we explained the changes and, where appropriate, presentation need to be explained properly. are the revised accounting policies clear?10 The spirit as well as the letter of accounting standards • Are the accounts true and fair? needs to be followed and appropriate disclosures provided to give a true and fair view. NHS GOVERNANCE REVIEW 2012 9
  12. 12. The annual reportThe business reviewFTs are better at explaining the future development of their business in a way that is closer to thequality displayed in annual reports by the FTSE 350.The business review sets the tone of the clearly explain the complexities and performance for the year and futureannual report and should be the source breadth of services they provide. projections.of the readers’ main understanding of FTs are better at explaining the The business review should addresswhat the trust or FT does, how it does future development of their business only those risks and uncertainties thatit and the key factors that could impact in a way that is closer to the quality are key to the trust or FT. It shouldthe achievement of its operational and displayed in annual reports by the explain why the risks and uncertaintiesstrategic goals. FTSE 350. are key, the current circumstances that Trusts and FTs set out in their Trusts and FTs often exclude give rise to the threat and the stepsannual report a reasonable description information on the wider NHS, taken to mitigate their impact.of their business model and the external the organisation and its principalenvironment in which they operate. activities, perhaps because these areHowever, they could provide a more assumed to be obvious. This, however,complete picture to ‘set the scene’ and creates contextual gaps in explainingTo what extent do organisations describe their To what extent do organisations describe thebusiness and the external environment in which likely future development of their business?they operate? FTSE 350 FTs Trusts FTSE 350 FTs TrustsNone 0% None 0% 14% 2% 15% 17%Some 12% Some 57% 33% 50% 70% 54%More 88% More 43% 53% 48% 15% 29%The business review must contain: The business review must … include the main trends and factors(a) a fair review of the company’s business, and likely to affect the future development, performance and position of the company’s business.(b) a description of the principal risks and uncertainties facing the company. Companies Act 2006, s417; 5aCompanies Act 2006, S417;310 NHS GOVERNANCE REVIEW 2012
  13. 13. Going concernThe directors’ assessment of going concern will require greater focus as the impact of the2012/13 operating framework comes into play.International Financial Reporting of IAS 1: “for non-trading entities, already taking a robust approach toStandards require directors to assess the anticipated continuation of the going concern by assessing the positionand satisfy themselves that it is provision of a service in the future, more formally than merely relyingappropriate to prepare the financial as evidenced by inclusion of financial on the above presumption. In doingstatements on a going concern basis. provision for that service in published so, these trusts are demonstrating There can be no automatic documents, is normally sufficient responsiveness to the challenging andpresumption that a FT is a going concern evidence of going concern”. Therefore, uncertain financial outlook and are(see our FT 2011 briefing paper). FTs trusts are, to a greater degree, relieved already adopting the good practicemust undertake a robust review to of the going concern reporting principles that will be required whensatisfy the board on the appropriateness requirements. they achieve FT status.of the going concern assertion. The financial pressures facing trusts The Department of Health’s Manual should still be described in the accountsfor Accounts adapts the requirements and annual report. 21% of trusts areto what extent does the trust describe itsassertion as a going concern? The directors’ assessment of FTs Trusts going concernNone 12% 79% Directors should plan their assessment of goingSome 76% concern as early as practicable including deciding on 18% the processes, procedures, information, analyses and board papers that will be needed. These plans shouldMore 12% 3% also address the evidence to be obtained, including identifying any potential remedial actions that may need to be addressed, to support their conclusion prior to theirThe NHS foundation trust should include a statement on whether approval of financial statements.or not the financial statements have been prepared on a going The board should request that the going concernconcern basis and the reasons for this decision, with supporting assessment is documented in sufficient detail to explainassumptions or qualifications as necessary. the basis of management’s conclusion with respectNHS Foundation Trust Annual Reporting Manual, Chapter 7, to going concern. In addition, the directors shouldParagraph 7.21 be invited to review and approve the documented assessment at the board meeting at which it is expected to approve the financial statements. NHS GOVERNANCE REVIEW 2012 11
  14. 14. The annual reportIntegrated reportingThe International Integrated Reporting Committee (IIRC) has launched a two year pilotprogramme with the objective of developing a new approach to reporting. It will build onthe foundations of financial, management commentary, governance and remuneration, andsustainability reporting in a way that reflects their interdependence.The IIRC defines integrated reporting The IIRC’s proposed internationalas a way to bring together “material integrated reporting framework may The benefits ofinformation about an organisation’s well have been written with large organisationsstrategy, governance, performance and corporates in mind, but the guidingprospects in a way that reflects the principles and required content are adopting integratedcommercial, social and environmental equally applicable to the public sector reporting are real andcontext within which it operates. It and may well form the basis of future measurableprovides a clear and concise guidance.representation of how an organisation • Greater clarity aboutdemonstrates stewardship and how it Our research shows there is scope to relationships andcreates and sustains value”. An improve the annual report as a whole, commitments: a sustainableintegrated report includes: specifically the business review, to strategy with multi-• an organisational overview and satisfy the diverse group of NHS stakeholder perspective business model stakeholders. There is a clear argument demonstrates thoughtful,• the operating context, including risks that the structural changes and financial conscientious leadership. and opportunities uncertainty facing the NHS require trusts and FTs to retain and improve • Better decisions: developing• strategic objectives and strategies to clarity about, and basing stakeholder confidence, and integrated achieve those objectives decisions upon, the reporting could form a key part of the• an outline of governance and solution. relationships between remuneration arrangements financial and non-financial information, together driving• performance measures and outcomes sustainability into the business• future outlook. strategy and creating valueThe content required above promotes for the organisation and itsconsistency and comparability. stakeholders.However, it is the guiding principles • Higher level of engagementthat generate the value in an integrated with all stakeholders:report, including: integrated reporting and• strategic focus engaging stakeholders through• connectivity of information internet communications challenges all participants• future orientation to listen to and consider all• responsiveness and stakeholder perspectives. inclusiveness • Lower reputational risk:• conciseness, reliability and assessing reputation and materiality. reality across stakeholder groups helps the organisation identify areas that are at risk.12 NHS GOVERNANCE REVIEW 2012
  15. 15. Boards and committees65% of trust and 13% of FT annual reports to what extent does the annual report describefail to adequately explain their model of board how the board operates and how its duties are discharged effectively?operation. There is a lack of transparency onthe overall board governance arrangements 65 % FTSE 350 FTs Truststhat leaves readers of the annual report None 0%uninformed and therefore uncertain whether 13% 65%these arrangements really are effective. Some 47% 51%The annual reports reviewed could more effectively describe 30%the role of the trust or FT and the overarching governance More 53%structures that help deliver its strategy. Of those that 36%did make a disclosure, there was a focus on the financial 5%and ‘business’ aspects. This means that some of the coreprinciples of clinical governance are left out. Few woulddispute that treating patients is the main business driver of The annual report should include the composition of thea trust and therefore deserves some focus of attention for management board (including advisory and non-executiveeffective governance arrangements. members) having authority or responsibility for directing or FTs compare reasonably well against the FTSE 350, controlling the major activities of the entity during the year.driven by the similar reporting standards adopted by Department of Health Manual for Accounts 2010/11, Paragraph 2.9Monitor. The annual reporting requirements for trusts areless aligned to the corporate sector, but there is no reason The annual report should include the number of meetings ofwhy certain elements should not be adopted and used as the board of directors and those committees and individualgood practice. For example, board and committee structures attendance by directors.and attendance records could be used to provide some NHS Foundation Trust Annual Reporting Manual, Paragraph 7.57confidence in a trust’s overall governance arrangements. All FTs and trusts need to be careful, however, thatthe annual report does not become a tick-box exercise to The annual report should include a statement of how the board of directors and the board of governors operate, including a high-satisfy the regulatory requirements. They should ensure the level statement of which types of decisions are to be taken bypurpose of the annual report remains true to its principles as each of the boards and which decisions are to be delegated toan outward facing document that explains the performance the executive management by the board of directors.for the year and that the regulatory requirements fit around The NHS Foundation Trust Code of Governancethose needs. NHS GOVERNANCE REVIEW 2012 13
  16. 16. Boards and committeesBoards90% of trusts and 27% of FTs gave no information on board/committee attendance throughout theyear. We are therefore left unsure whether a sufficient breadth of committee members were giventhe opportunity to contribute or challenge board reports.Among those who do disclose attendance levels, the number in what proportion of reports Is the numberof meetings of board sub-committees covering quality, risk of meetings of the board and committees andand, to a lesser degree, finance and performance is fairly overall attendance disclosed?consistent at both trusts and FTs. 100% In 2011, the Institute of Chartered Secretaries andAdministrators (ICSA) produced a research report on boardpapers and agendas, which commented on a gap between the FTSE 350theory and reality of governance in the NHS. This report wascritical of the lack of board time spent on strategy and a focus onmatters ‘to note’ rather than ‘for decision’. Where boards are meeting eleven times a year, for half a dayor more, ICSA raised the question as to whether boards aretruly focusing on strategic or operational issues. Trusts and FTsneed to consider whether delegated authority limits have beenset correctly and whether the board needs to meet more often toensure appropriate decisions are made. 73% Regardless of the number of meetings, trusts and FTs needto articulate better how existing board structures provide thebreadth of consideration needed to support the achievementof strategy. FTs 10% Trusts14 NHS GOVERNANCE REVIEW 2012
  17. 17. Average number of Board Audit Quality Risk committee Finance & performance meetings meetings committee committee (or equivalent) committee (or equivalent) (or equivalent) FTs 11.5 5.4 5.8 6.1 6.1 Trusts 10.4 5.2 4.0 6.5 10.0 FTSE 350 8.7 4.4 FTs and trusts that failed to Board Audit Quality Risk committee Finance & performance provide any disclosure on key meetings committee committee (or equivalent) committee meetings (or equivalent) (or equivalent) FTs 0% 5% 65% 68% 57% Trusts 61% 78% 100% 93% 98% The effective board • Clear strategy aligned to capabilities. • Vigorous implementation of strategy. • Key performance drivers monitored. • Effective risk management. • Sharp focus on views of key stakeholders. • Diverse in make-up. • Healthy, constructive tension. • Regular evaluation of board performance.“Public board meetings alone are not a guarantee oftransparency and boards need to ensure that thereis a wide range of ways for the public to accessinformation about the way in which public resourcesare deployed. These include clear, informative,jargon-free annual reports.”The Healthy NHS Board, NHS Leadership Council NHS GOVERNANCE REVIEW 2012 15
  18. 18. Boards and committeesBoard evaluationTrusts and FTs should improve the effectiveness and transparency of their arrangements forboard evaluation. 79% of trusts and 34% of FTs gave no information about how they reviewtheir own effectiveness, let alone obtain an independent view of their performance.The lack of detail on collective and value and even less claimed to have • the role of the remunerationindividual performance evaluation is used an independent facilitator to committee is clearly explainedsurprisingly high. Best practice alone evaluate the board’s effectiveness. • the annual report clearly explainssuggests boards should undertake some Our research shows that trusts how the board measures its ownform of annual evaluation of their and FTs can improve the transparency effectiveness, using an externaleffectiveness. of their arrangements for collective facilitator if necessary. The performance of the collective and individual performance appraisal.board and its constituent parts is a clear We would therefore suggest that: The most enlightened may choose tomeasure of the overall organisation’s share the findings and resulting actions. • the accountability of the board for However, even in the FTSE 350, suchsuccess. Therefore, it is important that success is made clear in the annualtrust and FT boards have the right openness and confidence is now only report just starting to appear.balance and access to skills, to ensureeffective decision making. • the performance evaluation process Of those trusts and FTs that did for individuals is set out clearly anddisclose their arrangements, very few included with, or cross referenceddiscussed how these evaluations added to, the remuneration reportHow much explanation is there of how the board,committees and individual directors are annuallyformally evaluated for their performance? FTSE 350 FTs TrustsNone 2% “The Board as a whole should develop a framework 34% for formally reviewing the effectiveness of 79% its business management and the work of itsSome 61% committees. This will, in part, be through annual 42% reporting mechanisms, but it is often useful for the 21% Board to step back from these mechanisms and takeMore 37% an overview of the added value which it brings to the 24% 0% organisation.” Governing the NHS: a guide for boards, Department of Health and the Appointments CommissionThe report should include a summary of how performanceevaluation of the board of directors, its committees and itsdirectors has been conducted.NHS Foundation Trust Annual Reporting Manual, Chapter 7,Paragraph 7.59Explanation of methods used to assess whether performanceconditions were met and why those methods were chosenDepartment of Health Manual for Accounts 2010/11, Paragraph 2.516 NHS GOVERNANCE REVIEW 2012
  19. 19. Gender diversityWith women holding over a third of posts, they have a strongfoothold in NHS boards, showing the way to their corporatecousins and contributing to a more diverse and balanced board. “An effective board should not necessarily be a comfortable place.The Financial Reporting Council to match the diversity shown in the Challenge, as well as teamwork, is anconsiders that diversity, in all its NHS where women hold over 34% essential feature. Diversity in boardaspects, serves an important purpose of these posts. FTs and trusts also composition is an important driverin connection with board effectiveness. have a much larger number of female of a board’s effectiveness, creatingIts potential benefits lie in widening the chairs. a breadth of perspective amongperspectives on business issues brought The scarcity of women on the UK’s directors, and breaking down ato bear on decision-making, avoiding largest corporate boards has been the tendency towards ‘group think’.”too great a similarity of attitude and focus of considerable debate and thehelping companies understand their target for the FTSE is to reach 25% FRC Guidance on Board Effectivenesscustomers and workforces. by 2015. With women holding only 9.8% We will collect and report on aof posts with voting rights, FTSE 350 broader range of diversity measures incompanies have a long way to go next year’s review.Proportion of female chairs proportion of the voting board that are female 34% 14% 35% 34% FTs Trusts FTs TrustsAverage number of female executives Average number of female non-executives 2.7 1.5 Trusts Trusts 2.5 1.8 FTs FTs NHS GOVERNANCE REVIEW 2012 17
  20. 20. Boards and committeesNomination committeeThe nomination committee is responsible for board appointments and ensuringthere is an appropriate balance of skills, experience, knowledge and independence.There is a fairly broad distribution on the quality of disclosures There should be a formal, rigorous and transparent procedureon nomination committees, although a significant proportion of for the appointment of directors, which is subject to scrutinyFTs (14%) provide no detail at all. by the nomination committee. In considering appointments The National Health Service Act 2006 sets out how to the board, the nomination committee should:appointments to the board of directors are made: • take into account the FT’s recruitment and selection policy• The council of governors appoints or removes the chair • consider the balance of skills, knowledge and experience and non-executive directors. already in place• The non-executive directors appoint or remove the chair. • participate in the recruitment process, including interviews.• A nomination committee consisting of the chair, chief executive and non-executive directors appoints or removes the executive directors.• The appointment of the chief executive requires the approval of the council of governors.Is there a description of the work of the nomination committee, including the process it has usedin relation to board appointments? None 3 % None more 14 % more 37 % 34 % FTSE 350 FTs some 60 % some 52 % • The names of the chair and members of the nominations Questions for the board to consider: committee should be disclosed. • Has the composition of the board been considered • The number of meetings and individual attendance by directors at each should also be disclosed. and are changes necessary to the existing board membership? • A description of the work of the nominations committee, including the process it has used in relation to board • Is a review of executive remuneration policies and appointments. service contracts required? NHS Foundation Trust Annual Reporting Manual, Paragraphs 7.68 – 7.70 Trusts are not required to make this disclosure.18 NHS GOVERNANCE REVIEW 2012
  21. 21. The Bribery Act 2010 ConsiderationsOnly 13% of trusts and 2% of FTs make gifts, • It takes longer than is anticipated to respond to thehospitality and entertainment disclosures in their Bribery Act and organisations should therefore startannual reports. Trusts and FTs should demonstrate to respond now.more publicly their adherence to ethical standards • If the trust has never performed a corruption riskand the requirements of the Bribery Act. assessment it may require external help to understand the unique risks involved.Corruption risk through involvement in large scale • Policies and procedures should be introduced,procurement and tendering needs careful management. With revised or aligned to mitigate the risks identified.the emphasis on localism and out-sourced service provisionnew relationships are continually being forged between • Training of staff most exposed to corruption risk isNHS organisations and a range of third and private sector essential.organisations. • Finally, keep a record of all you do in responding to In our experience, management and oversight of gifts and the Act.hospitality is an area that the NHS could improve upon. Thefirst conviction under the Bribery Act in November 2011,where a public sector employee was jailed for six years afteradmitting he received a £500 bribe, serves as a reminder for Questions for the boardNHS bodies to review their arrangements. While there is no requirement for trusts and FTs to makea disclosure in the annual report, gifts and hospitality for • Has the board prepared a strategy for responding to thepublic officials is a hot topic, particularly in the light of the Bribery Act?Bribery Act. In this context, it was noticeable that no FT or • Is there one individual within the trust responsibleand trust set out in its annual report their policy for gifts and for implementing the requirements of the Act,hospitality and only a very small number declared the value investigating reports of possible corruption?of gifts, hospitality and entertainment received by senior • Have we performed a Corruption Risk Assessmentstaff and clinicians. FTs and trusts could better demonstrate (CRA)?through the annual report their adherence to the strongethical standards expected of public sector employees. • Are policies and procedures for our anti-bribery strategy aligned to the CRA? • Do our policies and procedures fully addressDoes the trust disclose the value of gifts, facilitation payments, gifts, entertainment,hospitality and entertainment received by its corporate hospitality and charitable donationsstaff/senior management? on a global basis? • Do we clearly and regularly communicate the trust’s strategy and policies on anti-bribery and corruption to all staff, including clinicians and contractors? • Is there an anti-corruption training programme for 13% Trusts the board, all managers and staff? • Do we have an effective compliance monitoring programme, which provides the requisite assurance? 2% FTs NHS GOVERNANCE REVIEW 2012 19
  22. 22. NEDs and governorsNEDsNEDs do not comprise the majority of board At least half of the board (excluding the chair) is comprised of independent non-executive directorsmembers for 41% of FT boards and 33% oftrust boards. 80% 67%The National Health Service and Community Care Act of1990 introduced the requirement for every trust to have non-executive directors. FTSE 350 Trusts Since the Higgs Report in 2003 it has been a requirement,and in practice since 2006, that the number of Non-ExecutiveDirectors (NEDs) in FTSE 350 companies has generallyexceeded the number of Executive Directors (EDs). Currently,the average FTSE 350 board has 5.3 NEDs and three EDs; a 59%clear non-executive majority. The absence of such a NED bias potentially weakens theindependent input and challenge that they bring. In addition, trusts and FTs routinely fail to explain the FTsrespective roles of voting and non-voting directors. On averagethere are between one and two further non-voting EDs on theboard who can still influence debate. The balance of power in many trusts and FTs does not Except for smaller companies at least half of the board,favour NEDs. Trusts and FTs should examine the make-up excluding the chairman, should comprise non-executive directorsof their boards to ensure an appropriate balance and that determined by the board to be independent.the impact and implications are properly reflected in their Combined Code, A.3.2governance arrangements and the annual report. Although the requirement differs slightly for trusts and FTs, At least half the board of directors, excluding the chairman,with at least half the board needing to be comprised of NEDs, should comprise non-executive directors determined by the board41% of FTs and 33% of trusts go no further than half. In some to be independent.trusts and FTs, NEDs are in the minority. The NHS Foundation Trust Code of Governance In most NHS organisations, governance is the responsibility of a unitary board, with at least half the board, excluding the chair, made up of independent NEDs. The Healthy NHS BoardBoard Average numbers Average NEDs Average voting Average non-voting Chaircomposition on the board executive directors executive directorsFTs 13.0 5.5 5.3 1.2 1.0Trusts 13.2 5.1 5.3 1.8 1.020 NHS GOVERNANCE REVIEW 2012
  23. 23. How well do trusts and FTs describe the consideration of independence of its NEDs?“A non-executive director is expected to bring hisor her experience and an external viewpoint in order more Noneto assist and, where necessary, challenge the board 27 % 30 %of a company, making sure that board decisions arebalanced and not dominated by a single, or smallgroup of, executive directors. The non-executive FTsdirector is expected to be independent of mind andrigorous in his or her analysis.”The Institute of Chartered Accountants of ScotlandWhile the importance of NED independence is understood someas a concept, too many trusts (55%) and FTs (30%) fail to 43 %state that NEDs (remunerated by the trust) are independent.This, combined with, in many cases, the NEDs not being inthe majority may result in them not being effective in their moreindependent challenge role. It is essential, therefore, that trusts and FTs clearly explain 12 %the independence of NEDs, the balance and composition of theboard, and how they can continue to operate effectively. Trusts some None 33 % 55 % The board should identify in the annual report each non-executive director it considers to be independent. Combined Code, A.3.1 and NHS Foundation Trust Annual Reporting Manual, Paragraph 7.57 NHS GOVERNANCE REVIEW 2012 21
  24. 24. NEDs and governorsNEDs need to be well informed about the trust or FT andthe external environment in which it operates, with a strong The effective NED:command of relevant issues. A NED should insist on acomprehensive, formal and tailored induction. An effective • upholds the highest ethical standards of integrityinduction need not be restricted to the boardroom and and probityshould include visiting wards and meeting clinicians and • supports executives in their leadership of themanagers. Once in a post, effective NEDs should continually business while monitoring their conductseek to develop and refresh their knowledge and skills toensure that their contribution to the board remains informed • questions intelligently, debates constructively,and relevant. challenges rigorously and decides dispassionately An element of the role of the NED is to understand the • listens sensitively to the views of others, inside andviews of major stakeholders both directly and through the outside the boardchair and the senior independent director. • gains the trust and respect of other board members • promotes the highest standards of corporate The role of the NED governance. Strategy • Constructively challenging and helping develop proposals on strategy. Performance • Scrutinising management performance in meeting agreed goals and objectives. • Monitoring the reporting of performance. “Non-executive directors are appointed by the NHS Appointments Commission on behalf of the local Risk community. They therefore have a responsibility • Satisfying themselves on the integrity of financial to ensure the Board acts in the best interests of the information and that financial controls and systems of public and is fully accountable to the public for the risk management are robust and defensible. services provided by the organisation and the public People funds it uses.” • Responsibility for determining appropriate levels of remuneration of executive directors. Governing the NHS: a guide for NHS trusts – Department of Health and the Appointments Commission • Appointing, and where necessary removing, executive directors and succession planning.22 NHS GOVERNANCE REVIEW 20112
  25. 25. Is it disclosed that the terms and conditions Is it stated that the board (of governors) set theof appointment of non-executive directors are remuneration for the non-executive directors?available for inspection? 64 % 36 % 94% 77% FTs FTSE 350 FTs FTSE 350 14% TrustsThe terms and conditions of appointment of non-executivedirectors should be made available for inspection.Combined Code, A.4.4 and The NHS Foundation Trust Code of The council of governors is responsible for setting theGovernance remuneration of non-executive directors and the chairman. NHS Foundation Trust Code of GovernanceGreater accountability around terms and conditions is Stakeholders, whether they are the council of governors,required, with only 36% of FTs and 14% of trusts making commissioners or taxpayers, should be assured that a FT’ssuch information readily available. remuneration policy is linked to public accountability and Given the challenges facing the NHS, FTs and trusts need sustainability. Of our sample, 77% of FTs state that the boardto demonstrate, and stakeholders need to know, that NEDs confirmed the remuneration of their non-executives. (Theare playing a strong role in holding the board to account and Secretary of State for Health is responsible for setting theensuring that the best use is being made of taxpayers’ money. levels payable to chairs and NEDs of trusts.) The remuneration committee is responsible for setting executive pay. It should protect the public interest when Good practice points setting remuneration and have due regard to performance metrics that are fair, transparent and linked to the overall performance and strategy of the trust. • Explain the value your NEDs bring, don’t just list their experience. Average annual salary Trust FT • Clearly describe how NEDs maintain their Non-executive director £7,120 £11,803 independence. Chair £22,935 £40,324 • If less than half the board comprise NEDs, acknowledge this as a risk and explain how this will There is a clear increase in remuneration for NEDs and be managed. chairs on conversion to FT status, reflective of the increased • Explain how NEDs hold the board to account, responsibilities for, and expectations of, the postholders. what committees they attend and how often. However, NHS NED remuneration is still significantly • Explain the relationship between NEDs and the below that of the FTSE 350 equivalents. council of governors. • Clearly show how executives’ performance is appraised. NHS GOVERNANCE REVIEW 2012 23
  26. 26. NEDs and governors Do the governors (non-executive directorsThe chair in a company) meet without the chair at least annually to appraise the chair’s performance?Trusts and FTs need to describe better who sits 80% 43%on key committees and perform an effectivenessreview of their arrangements for the appraisal ofindividual board members. FTSE 350 FTsTrusts and FTs usually set out in their annual reports detailsabout their chair, chief executive and directors. However, thisis often little more than an ‘identity parade’, and 25% of FTs * Not applicable to trustsand 34% of trusts failed to clarify the members and chairs ofthe nomination and remuneration committees.Does the report identify the chair, the deputychair (where there is one), chief executive, seniorindependent director, members and chairs of thenomination, audit and remuneration committees? Led by the senior independent director, the non-executive directors should meet without the chairman present at least FTSE 350 FTs Trusts annually to appraise the chairman’s performance. 98% Combined Code, A.1.3 and the NHS Foundation Trust Code of 75% Governance 66% * A trust chair is appraised by the SHA chair. See page 25. Of those FTs that do appraise the chair’s• The names of the Chairman and Chief Executive. performance, how much detail is provided on the• The composition of the management board (including advisory process? and non-executive members) having authority or responsibility for directing or controlling the major activities of the entity during the year. moreDepartment of Health Manual for Accounts 2010/11 Chapter 2,Paragraph 2.9 10 %• The name(s) of the person(s) occupying the position of chair, deputy chair (where there is one) and senior independent some director during the year, the date of their appointment and how long the appointment is for. 30 % FTs• The name(s) of the person(s) occupying the position of chief executive and the composition of the board of directors during None the year.• The names of the non-executive directors which the board 60 % considers to be independent, with reasons where necessary.NHS Foundation Trust Annual Reporting Manual, Chapter 7,Paragraph 7.57 An explanation of methods used to assess whether performance conditions were met and why those methods were chosen. NHS Foundation Trust Annual Reporting Manual, Paragraph 7.2924 NHS GOVERNANCE REVIEW 2012
  27. 27. The chair is responsible for board effectiveness and their Of those that do appraise the chief executive’sleadership is a key indicator of good governance. In some performance, how much detail is provided in thetrusts and FTs the chair appraises all board directors, which annual report on the process?is good practice. However, the role of the chair, and theirrelationship with the board and non-executives, is often poorly FTs Trustsdescribed in annual reports. None 69% 85% This role influences strategy and management andtherefore its performance, and how this is measured, is an Some 21%indicator of a FT or trust’s success. A trust chair is appraised 11%by the SHA’s chair, although 2% of trusts performed their More 10%own internal appraisal. We would like to see this extended 4%further, with trusts taking greater accountability over theirfuture and individual performance, particularly in preparation Usually, the chair appraises the chief executive’sfor the abolition of SHAs from 2013. performance. However, given the proximity of their working relationship, the involvement of NEDs would bring a wider perspective to the review, avoiding a The chair’s statement should: perception of an internally focused and narrowly based perspective. • state the governance objectives and focus of the board for the coming year • emphasise the importance of governance to the health sector and state their personal responsibility for the smooth running of the board • discuss board evaluation outcomes and resultant actions, such as long-term succession planning or increased training • set out what they see as the key features of governance.non-executive directors (or Governors) meetwithout the chief executive at least annually toappraise the chief executive’s performance 22% 2% FTs TrustsThe board should state in the annual report how performanceevaluation of the board, its committees and its individual directorshas been conducted.Combined Code, A.6.1 NHS GOVERNANCE REVIEW 2012 25
  28. 28. NEDs and governorsGovernorsHalf of FTs provide only ‘boilerplate’ descriptions of the role of governors, reflecting a residuallack of clarity from FTs around how to maximise the effectiveness of their governor input.Monitor is placing increasing importance on the role, and its Does the ft describe the role of governors?expectation, of governors to hold FTs to account. It thereforebecomes increasingly important for FTs to demonstratehow governors have fulfilled their role during the year.Unfortunately, many (46%) use ‘boilerplate’ descriptions of NONEthe role of governors. Broadly, the governor role involves representing the local 2%areas served by the FT, appointment of the chair and holdingthe board to account through the chair. Monitor’s ‘Survey of NHS Foundation Trust Governors2010/11’ shows a significant expectations gap between whatgovernors see as their role compared to the views of chairsand chief executives. MORE FTs SOME The actual role of the council of governors is still notclearly defined or understood in some FTs. There are pockets 52% 46%of good practice, but, based on our own experience andthat presented in Monitor’s 2010/11 survey of governors,how this group holds a board to account is sometimesunclear. We discussed these difficulties in our handbook‘Finding your bearings: A governor’s guide to Monitor’saudit code for NHS foundation trusts’ where we providedquestion prompts to help governors better understand theiraccountability role. The annual report should include a statement of how the board Average number of governors Average of directors and the board of governors operate, including a FTs 31 high-level statement of which types of decision are to be taken by each of the boards. Meetings of the council Average Highest Lowest NHS Foundation Trust Annual Reporting Manual, Paragraph 7.52 of governors FTs 5.0 9.0 3.0 The report should include a statement about the number of meetings of the board of governors and individual attendance by governors and directors. NHS Foundation Trust Annual Reporting Manual, Paragraph 7.5426 NHS GOVERNANCE REVIEW 2012
  29. 29. An average FT has 31 governors attending 76% of If managed well, the council of governors canthe five council of governor meetings each year. be a valuable tool, to enhance governance andThis is a large number of people and managing accountability to the local population.the council of governors, including elections andmeetings, is costly, in terms of both time and FTs should invest more time in ensuring thatmoney. To engage with governors, FTs sometimes they are maximising the effectiveness of theirinvite them to attend board committees. However, governor input.these can turn into debate on the topic matterrather than helping the governors to dischargetheir responsibilities for assessing the performanceof the board. We therefore suggest FTs, and aspiring FTs, askthemselves:• is the cost of servicing our existing council of governors, including any subcommittees, commensurate with the contribution they currently make?• are we clear about the role of governors and does this match governors’ perception of their role?• are we doing enough to attract and retain those governors that would add real value to the trust?• what can we do with the existing council to bring quality and expertise to the fore? NHS GOVERNANCE REVIEW 2012 27
  30. 30. Risk and performancePrincipal risksTrusts and FTs need to improve their principal the annual report includes a statement thatrisk reporting in the annual report. 23% of there is an on-going process for identifying, evaluating and managing the significant riskstrusts and 10% of FTs fail to describe the risk faced by the organisationmanagement process, while 45% of trusts and13% of FTs make no mention of the principalrisks. 99%In the fallout of the initial financial crisis in the banking FTSE 350sector, private companies were heavily criticised for the poorinformation on risk, and sensitivity to risk, included in theirannual reports. We are in the midst of substantial change inthe NHS and it is essential that trusts and FTs take on boardthe lessons learnt from the corporate sector and ensure thatsufficient disclosure is made on the process they have used toidentify, evaluate and manage significant risks. While the best trusts and FTs provide a joined-up picture, 90% 77%linking strategy to risk and response, our findings indicatethat trusts and FTs need to better describe how they aremanaging risks with more detail on those that are moresignificant. FTs TrustsTrusts need to agree their risk appetite, explain their exposureto risk and how this may change as a result of changes tostrategy and the operating environment. The board should, as a minimum, disclose that there is an on- going process for identifying, evaluating and managing the significant risks faced by the company, [and] that it has been in place for the year under review. Turnbull Report, 1999, paragraph 3428 NHS GOVERNANCE REVIEW 2012

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