The document provides an overview of shadow trustees and directors, when advising charity leadership becomes undue influence. It defines shadow directors and de facto directors under company law. It notes that shadow and de facto trustees relate primarily to charitable companies but the Charities Act brought new powers for the Charity Commission. The risks include disqualification and personal liability. It discusses a recent case involving Keeping Kids Company to illustrate these issues. The panel then provides perspectives on defining and identifying signs of a CEO acting as a shadow trustee, the importance of appropriate use of power and trustees understanding and fulfilling their role.

1. THE SHADOW TRUSTEE: WHEN
DOES ADVISING BECOME
UNDUE INFLUENCE?
DAN FRANCIS - NCVO
STEPHANIE BIDEN - BWB
SRABANI SEN OBE -
FULLCOLOUR
LOUISE THOMSON - ICSA Dinner
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2. The shadow trustee: when
does advising become
undue influence?
Stephanie Biden
Partner, Bates Wells Braithwaite

3. Terminology - “shadow director” vs. “de facto director”
Shadow directors
Defined in the Companies Act 2006:
“a person in accordance with whose directions or instructions the
directors of the company are accustomed to act. A person is not to be
regarded as a shadow director by reason only that the directors act on
advice given by him in a professional capacity”
De facto directors
People who act like trustees, i.e. who take or authorise action and who
are held out as being trustees.
Historically meant individuals who purported to have been appointed as
trustees but by some defect had not been. However the law has
developed somewhat, moving away from a narrowly technical definition
of de facto directors to a definition relating to individuals ‘holding
themselves out’ as being directors.

4. Companies and other types of charity
The terms shadow and de facto trustees relate to company law regarding
directors.
So…
The shadow and de factor trustee are characters of concern primarily for
charitable companies limited by guarantee.
But…
The Charities (Protection and Social Investment) Act 2016 brought in
new powers for the Charity Commission to disqualify charity trustees and
senior managers of charities.
Therefore…
Senior managers of charitable companies, CIOs and charitable
unincorporated associations and trusts should all understand the nature
of their role and recognise the possible risk.

5. What is the risk?
• Disqualification as a company director (charitable companies)
• Disqualification as a charity trustee (any legal structure)
• Potential personal financial liability (charitable companies, CIOs,
charitable trusts “trustee de son tort”)

6. Why are we talking about this?
Action taken by the Official Receiver
against the former trustees of Keeping
Kids Company and the charity's CEO in
post at the time of its insolvency, Camila
Batmanghelidjh.
The OR is seeking Ms Batmanghelidjh’s
disqualification as a company director
on the basis that she was a de facto
director of Keeping Kids Company.

7. How can senior managers manage?
• Clear scheme of delegation to senior staff and list of matters reserved
to the board.
• Receiving a senior management team report at board meetings.
• Use available guidance such as the Charity Governance Code,
Charity Commission guidance and NCVO resources.
• Section of each trustees’ meeting at which no staff are present.

8. What should trustees manage?
• High level of responsibility and accountability among the individual
members of the trustee board (no sleepy trustees).
• Managing the public face and influence of the charity through the
trustee board, rather than one charismatic leader.
• Trustee authority on payments of a certain size.
• If the trustees want to invite in other expertise/points of view consider
formally appointing a new trustee following a skills audit or create a
working party/subcommittee (if empowered by governing document)
chaired by a trustee and answerable to the board.

9. CEO as Shadow Trustee: What’s the
issue and why is it important?
Srabani Sen OBE, CEO, Full Colour

10. What I’ll cover…
• Perspectives
• Definition
• Issues
• Why it matters
• Conclusions

11. Perspectives
Chair/Trustee Chief Exec
Consultant

12. Definitions
“Someone who acts as a director but doesn’t sit on the board”
ICSA, the Governance Institute
“A shadow director is someone who is not appointed as a director but who
gives directions or instructions that the directors of the company are
accustomed to act upon”
ICAEW
“They are someone (director) whose involvement is not publicly known”
Someone quoted in an article whose name I can’t remember…

13. The issues that people talk about
• Transparency
• Accountability
• Checks and balances
• Legal stuff

14. The real issues
• People don’t know what “CEO as
shadow trustee” looks like in
practice
• People don’t consciously consider in
“live” situations
• Power
• Trustees failing to stepping up
Definition
“A shadow director is
someone who is not
appointed as a director
but who gives directions
or instructions that the
directors of the company
are accustomed to act
upon”
ICAEW

15. Markers for what “CEO stepping into ST” can look like
Trustees Chief Exec Other
• Not reading papers
• Taking papers at face value
• Not getting to know org
• Over-reliance/trust in execs
• Presenteeism
• Chairs that don’t know how to
chair
• Fear of asking the “idiot”
question
• Not understanding job of a
trustee
• Domineering CEOs
• Blindspots
• Crafting papers to get preferred
decision
• Inability to write effective board
papers
• Lining up friendly trustees to
achieve preferred decision
• Not understanding job of
trustee
• Collusion between CEO and
Chair
• Insufficient time at meetings for
proper discussions
• Bad agenda planning
• Poor framing of decisions

16. People don’t consider it as a live/real time issue
Lack of:
• Recognising the symptoms
• Time
• Forum in which to raise it
• Confidence
• Anxiety about annoying the CEO
• Belief that it really matters…

17. Appropriate execution of power
• Is it clear who has power and when?
• Formal schedule of delegation
• Knowledge/ information/ expertise – who has it and how is it used
• How do CEOs give up the power that comes with knowledge?
• When is knowledge a cover for “paradigm”?
• How much do trustees need to know to do their job?
• What skills do trustees need – beyond “Lawyer/ accountant”?
• Emotional/ personality dynamics
• Levels of emotional intelligence/ influence
• Emotion as excuse – “it’s all about the kids/ DV survivors/ disabled people”
• Willingness on part of board to exercise power

18. Trustees knowing/ fulfilling role
Not thought about it/ wrong reasons
Right reasons/ poor knowledge of role
Right Reasons/ good knowledge/ insufficient time
Right reasons/ good knowledge/ enough time/ unhappy to challenge
Right reasons/ good knowledge/ enough time/ happy challenge

19. Trustees can force CEOs into shadow trustee role
Trustee Chief Exec Consultant
• Not reading papers
• Taking papers at face value
• Not getting to know org
• Over-reliance/trust in exec team
• Presenteeism
• Chairs that don’t know how to
chair
• Fear of asking the “idiot”
question
• Not understanding job of a
trustee
• Domineering CEOs
• Blindspots
• Crafting papers to get
preferred decision
• Inability to write effective
board papers
• Lining up friendly trustees to
achieve preferred decision
• Not understanding job of
trustee
• Collusion between CEO
and Chair
• Insufficient time/ bad
agenda planning
• Poor framing of
decisions

20. Conclusions (Why these issues matter)
• Reputation/ scrutiny/ trust
• Context – we need to up our game in governance as a sector
• How we deliver matters as much as what we deliver –
• We know this at a theoretical level but don’t think about it enough in
practice
• Values…The clue’s in the name “shadow” trustee

22. Thank you
srabani.sen1@gmail.com
07802 790634

23. Shadow directors and group structures
Louise Thomson FCIS, Head of Policy (Not for Profit), ICSA:
The Governance Institute
NCVO, 16 April 2018

24. Charities and subsidiary companies
 A charity may set up a non-charitable company to carry out various activities
 A wholly owned subsidiary’s member/shareholder will be the parent
organisation. The parent’s undertakings likely to include:
 Holding 100% of voting rights at AGMs
 Having the majority of voting rights at general meeting
 Right to appoint/remove majority of subsidiary board
 A contractual agreement between the parent and subsidiary
 Power to exercise dominant control over subsidiary due to provisions in the
governing document.

25. Directors duties – Companies Act 2006
S 171 - duty to act within powers
S 172 - duty to promote the success of the company
S 173 - duty to exercise independent judgement
S 174 - duty to exercise reasonable care, skill and diligence
S 175 - duty to avoid conflicts of interest
S 176 - duty not to accept benefits from third parties
S 171 - duty to declare interest in proposed transaction or agreement.

26. Subsidiary arrangements
 Overlap in personnel – trustees, directors, staff
 Separate identity
 Financial independence
 Lack of control
 Shadow directors

27. Shadow directors and subsidiaries
Defined as:
A person in accordance with whose directions or instructions the directors of a
company are accustomed to act is described as a 'shadow director' and thus
treated as a director for the purposes of certain provisions.
In groups of companies there is often a concern that the parent company may be
regarded as a shadow director of a subsidiary. In this event the parent might find
itself liable for the debts of the subsidiary should it become insolvent and be
liquidated. Shadow directors are, of course, subject to the 'wrongful trading‘.

28. Impact
If found to be acting as a shadow director an individual risks:
 a liability to contribute to the company’s assets following the company’s
insolvency
 being disqualified from being a director following the company’s insolvency
 criminal sanctions for breaches of directors’ duties
 personal liability for breaches of directors’ duties.

29. Avoiding claims of shadow director in subsidiaries
 Asserting control over all or part of the affairs of a subsidiary or being concerned
in its day-to-day management should be avoided
 All or substantially all of the directors of the subsidiary should be persons who
are not employees or officers of the parent
 An agreement between the parent and subsidiary providing for the subsidiary to
have autonomy (and perhaps limiting the flow of information from subsidiary to
parent) may be helpful
 Individual members of the parent company board should avoid becoming
personally involved in giving directions regarding the management of the
subsidiary.

30. Thank you
lthomson@icsa.org.uk @louiseicsa1

31. QUESTIONS FOR OUR
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