How are incorporated organisations governed?

All incorporated organisations consist of three groups of people. Each group has its separate governance role:

  • Members – The founding members (and others who later apply for membership) guarantee to pay a defined sum in cases of financial difficulty. Members can be paid staff, subject to potential conflicts of interest. There is no legal minimum or maximum number of members, although these are likely to be defined in an organisation’s constitution. Members have (by default) voting rights at general meetings (annual and extraordinary) and are involved in the appointment and removal of the organisation’s board. Since they can make changes to the company’s constitution, they have ultimate control of the organisation. Therefore, they form the “top level” of checks and balances for governance purposes.

  • Directors/trustees – The organisation’s board is made up of its trustees (who may for Companies Limited by Guarantee also be known as directors), who are under statutory duties to act in the best interest of the organisation. It is therefore good governance to have people with a mix of skills on the board. The directors/trustees have ultimate responsibility, but may delegate to committees, staff and volunteers. They therefore form a second governance level, reporting at least annually to the members.

  • Staff and volunteers – The final level of the governing structure consists of the senior management team, and any other staff and volunteers who deliver the day to day activities of the organisation. Larger organisations may have management structures that provide additional governance controls. This level reports regularly to the directors/trustees.

Although each governance level is distinct, with its own rights and responsibilities, one person could (if the constitution allows) be a member of more than one level. That said, there may be inherent conflicts of interest if, for example, a paid staff member is also a charity trustee.

A company can opt to have a company secretary, who is also part of the board. A company secretary is responsible for all statutory filing requirements but does not vote on matters considered by the board. One person can fulfil the roles of director and company secretary at the same time but only gets one vote (as director) at board meetings.

Operating under a traditional governance model allows the board to lead the organisation to deliver its objective, set its strategic direction and uphold its ethos or values. Special care should be taken if members of the senior management team are also members of the board, or members of the board are the only members, since in those situations the embedded checks and balances of operating with three distinct levels of governance become blurred.

Similarly, organisations without a membership, or small organisations where the board are expected to fulfil the role of staff and volunteers, should be aware of the lack of structural governance processes, and implement other controls – perhaps by seeking assistance from external advisors or an advisory committee.

As with other aspects of management, a dominant voice can provide strong leadership, but if the board does not provide an effective balance, there is a risk that it no longer audits the organisation’s activities but becomes merely advisory, which may not be strong enough.

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