The importance of independent trustees in family foundations

This post sets out some points for family foundations to consider when recruiting trustees – specifically in relation to the value of recruiting non-family members as trustees.

You can download a PDF version of this post by clicking here.

It is set out in a Question and Answer format and draws on 3 main sources of good practice:

  • Charity Commission guidance
  • The Charity Governance Code
  • ACF’s Pillars of Stronger Foundation Practice

It considers 10 main questions:

1.   What are the rules or regulations for charities about appointing trustees? 

2.   Are there particular issues for grantmaking foundations when it comes to recruiting trustees?

3.   Are there particular benefits for family foundations in having independent trustees? 

4.   What do other family foundations in the UK do about independent trustees? 

5.   What skills, experience, attributes should boards have? 

6.   How should a foundation work out what skills, experience and attributes it needs? 

7.   What role do advisors have? 

8.   How might appointing independent trustees affect the Board? 

9.   What about future generations? 

10. How should new trustees be recruited?

Throughout the post there are hyperlinks so that you can view or download copies of the reports.

1.    What are the rules or regulations for charities about appointing trustees?

Charities have to follow the rules set out in their constitution about who can be a trustee and how they are to be appointed.  Charities must also follow any legal requirements set out in charity or company law (eg trustees must be “fit and proper” persons and cannot have been disqualified from being a trustee).

When recruiting trustees, charities should also follow the guidelines published by the Charity Commission – eg:

The essential trustee: what you need to know, what you need to do

3.3       What to consider when recruiting trustees

When charities recruit new trustees, they should think about:

  • the skills and experience the current trustees have, and whether there are any gaps.
  • ensuring new trustees are eligible to act.
  • ensuring new trustees do not have serious conflicts of interest, or getting Commission consent and putting procedures in place to manage the conflicts.
  • how to help new trustees to understand their responsibilities and the charity’s work.

It’s also important for trustees to be interested in the charity’s work and be willing to give their time to help run it.

https://www.gov.uk/government/publications/the-essential-trustee-what-you-need-to-know-cc3/the-essential-trustee-what-you-need-to-know-what-you-need-to-do

For any charity, if its trustees decide to restrict membership of its board to one particular group of people – eg family members – and exclude others, it has to have a clear and valid rationale for doing so.  Otherwise, it risks:

  • Reputational damage (eg by choosing to go against best practice).
  • Contravening Equalities legislation (eg unlawfully discriminating, directly or indirectly, against people with protected characteristics).

In addition, it risks limiting the charity’s ability to achieve its mission by excluding key skills and experience.

In general, trustees cannot benefit from their role as trustees.

2.    Are there particular issues for grantmaking foundations when it comes to recruiting trustees?

The membership body for UK grantmaking foundations, the Association of Charitable Foundations (ACF) has just produced a good practice framework for UK foundations – called Stronger Foundations.  Stronger Foundations contains 6 pillars of good practice – including one on governance:

ACF has also produced two summaries of the Stronger Foundations framework:

In relation to trustee recruitment, key Stronger Foundation elements include:

A stronger foundation:

  • continually strengthens its governance, including its diversity.  It has a diverse trustee board and staff team, both in terms of demographics and experience.
  • informs its strategy with diverse perspectives and a range of evidence.
  • recognises the power it holds, and seeks to “build, share and wield” power to benefit the causes and communities the foundation supports.

Excerpt from the Strategy and Governance report 

Open recruitment is regarded as a cornerstone of good practice by charity governance experts.

Excerpt from Diversity, Equity and Inclusion Pillar

3.    Are there particular benefits for family foundations in having independent trustees? 

The term “independent trustee” generally means a person who has no beneficial interest – present or future, actual or potential, direct or indirect – in the charity.  For a family foundation, this would include having no connection of any kind to the family or any of its members.

In addition to the general benefits that independent trustees might bring (eg particular skills or experience), independent trustees can help to ensure that boards are always focussed on the delivery of the charity’s mission.

Some types of grantmaking foundations may carry a real or perceived risk that they may not always be run exclusively in pursuit of their charitable mission – and that other factors may influence their board’s decisions.  This concept is known as ‘self-dealing’.  Examples include:

  • For corporate foundations (foundations with a link to a business – eg Virgin Money Foundation or Lloyds Bank Foundation), the associated company might want the foundation to do something which the foundation feels would be problematic (eg promoting the commercial interests of the company).
  • For family foundations, there may be a perception that the foundation could be used to further the interests of family members or the family as a whole.

Independent trustees can help to manage actual or perceived conflicts of interest – and demonstrate to those outside the foundation that the foundation has checks and balances in place to manage conflicts of interest.

Independent trustees can also help the board to manage behaviours and dynamics which relate more to family relationships and history than to effective governance.  Generally, families behave better in the presence of non-family members.  Independent trustees can help family foundation boards to behave as trustees – ie “Are we behaving like we’re at the dining table, or are we behaving like we’re at the board table?”.

4.    What do other family foundations in the UK do about independent trustees?

There is no definition, in general or in law, of what a family foundation is.  There is a very wide variety of foundations that would describe themselves as family foundations.  Most do not publish details of what proportion of their trustees are independent and there is no recent research on this. 

In 2015, research by the Cass Business School/ACF looked at the top 100 UK family foundations based on the total amount awarded in grants.  It found a wide range of involvement of family members as trustees – from boards with only family members to boards with one family member:

Numbers of family trustees ranged from 1 to 9 with the most common pattern being foundations with 1 or 2 donor and/or family trustees.

Giving Trends: top 100 family foundations (2015)

Whether or not family foundations have independent trustees on their board is, in part, influenced by the age of the foundation.  For example, if a foundation has a living settlor (who may have set up the foundation with a one-off donation and/or may be continuing to donate to the foundation) she or he may decide to restrict the board to immediate family members.  But if a foundation has been in existence for many years, there may no longer be many, or any, family members who are willing to be involved.

Family members may have a variety of motivations to retain control of the foundation, including:

  • Protecting the name – especially if the family trustees still bear the same name.
  • Protecting the intentions of the donor/settlor.  This may be problematic, particularly if those intentions were not clearly specified or the world has changed significantly.
  • Holding on to power. 
  • Staying in their comfort zone.

Retaining power and staying in their comfort zone are not unique to the boards of family foundations.

Some family foundations may decide to have different categories of trusteeship – one for family members and another for non-family members.  This may be specified in the foundation’s constitution, or may simply be a choice of the trustees.  These different categories of trusteeship may give particular preference to “family” trustees (eg no term limits for them but fixed terms for non-family trustees). 

However, there are key points that trustees of family foundations need to bear in mind:

  • The foundation’s assets stopped belonging to the family the moment they were gifted to the foundation.
  • If trustees are choosing to give preferential status to family trustees, this creates a reputational risk for those trustees.
  • In law, all trustees are equally responsible for the charity.

Trustees of family foundations may also set other forms of membership of the charity which they may use to engage with the other members of the family (eg “observer” status – allowing them to attend board meetings).  The trustees may see this as a “pipeline” through which family members, particularly “next generations” may ultimately become trustees.

There are also many other ways in which family members can be involved in the work of the foundation aside from being trustees (“Junior” boards, participating in working groups, etc).

Some examples of family foundations which have recently recruited independent trustees are:

  • Samworth Foundation (formed in 1973):
    • Currently recruiting for several trustees (see advert below).
    • Board of 3, 1 of whom is a family member.  The Chair of the Board is not a family member.
    • £60m endowment: £2.5m income.
  • Sir Halley Stewart Trust (formed in 1924):
    • Currently recruiting for a trustee (see advert below).
    • Board of 14, 4 of whom are family members.
    • £34m endowment: £1.2m income.
  • Noel Buxton Trust (formed in 1919):
    • Currently recruiting for lead trustee on Investments (see advert below).
    • Board of 8, 3 of whom are family members.
    • £3m endowment: £130k income.

Examples of other family foundations who state they have independent trustees are:

  • Rayne Foundation (formed in 1965):
    • Board of 8, 4 of whom are family members.
    • £112.4m endowment: £2m income.
  • The Ashley Foundation (formed in 1983):
    • Board of 8, 3 of whom are family members.
    • £13.7m endowment: £505k income.

The Wolfson Foundation (£689m endowment, £21m income) is one of the most transparent about the split between family trustees and independent trustees – with 7 of its 11 trustees being independent:

5.    What skills, experience, attributes should boards have?

There is no definitive list of what attributes a board should have – partly because charities vary significantly in type, size, purpose, etc.

The Charity Commission’s guidance says that there are key factors a charity needs to consider:

  • what new skills, knowledge or experience does the board need?
  • are there specific interest groups that a new trustee could represent?
  • should the trustee board be more diverse than it is at present? For example, to include people from different social or ethnic backgrounds or to include people with disabilities.

Finding New Trustees

According to the National Council for Voluntary Organisations (NCVO), charity boards should have the following skills and qualities:

An effective board of trustees should be able to draw on a diverse range of skills, knowledge, qualities and experience to help it fulfill its roles. These might include:

  • ‘hard’ skills such as legal or financial knowledge.
  • ‘soft’ skills such as team working or negotiation.
  • knowledge of the community or services the organisation provides.

Trustees act collectively to fulfil their duties. All trustees should be able to demonstrate they meet certain key qualities, including to:

  • Be committed to the purpose, objects and values of the organisation.
  • Be constructive about other trustees’ opinions in discussions, and in response to staff members’ contributions at meetings.
  • Be able to act reasonably and responsibly when undertaking such duties and performing tasks.
  • Be able to maintain confidentiality on sensitive and confidential information.
  • Be supportive of the values (and ethics) of the organisation.
  • Understand the importance and purpose of meetings, and be committed to preparing for them adequately and attending them regularly.
  • Be able to analyse information and, when necessary, challenge constructively.
  • Be able to make collective decisions and stand by them.
  • Be able to respect boundaries between executive (staff and the day-to-day work of the organisation) and governance functions.

https://knowhow.ncvo.org.uk/governance/improving-your-governance-practice/development-and-training-of-trustees

As well as specific skills, current good practice stresses the value of thinking about what broader characteristics could add value to the board:

Diversity, in the widest sense, is essential for boards to stay informed and responsive and

to navigate the fast-paced and complex changes facing the voluntary sector.  Boards whose trustees have different backgrounds and experience are more likely to encourage debate and to make better decisions.  The term ‘diversity’ includes the nine protected characteristics of the Equality Act 2010 as well as different backgrounds, life experiences, career paths and diversity of thought.  Boards should try to recruit people who think in different ways, as well as those who have different backgrounds.

Excerpt from the Stronger Foundations: Diversity, Equity and Inclusion report 

According to the Charity Governance Code, the key thing is that boards should regularly assess what skills, experience and other attributes they need to achieve their mission:

5.6     Reviewing the board’s composition:

5.6.1  The board has, and regularly considers, the skills, knowledge and experience it needs to govern, lead and deliver the charity’s purposes effectively. It reflects this mix in its trustee appointments, balancing the need for continuity with the need to refresh the board.

https://www.charitygovernancecode.org/en/front-page

The Charity Commission’s Finding New Trustees guidance says:

Should a charity aim to have a diverse trustee board?

Yes. A diverse board is more likely to contain a broader range of skills, knowledge and experience than one which is more narrowly based.  When preparing to recruit new trustees, a charity should, in general, seek to increase or at least maintain the diversity of its trustee board.

Having a diverse trustee board can also help to ensure that the charity is fair and open in all its dealings, for example, in its grant giving or delivery of services.

The trustees consider the best methods of attracting a diverse range of candidates with the skills the charity needs. This may include advertising in the local and/or specialist press and using trustee brokerage services.

https://www.gov.uk/government/publications/finding-new-trustees-cc30/finding-new-trustees

A foundation’s constitution may contain specific requirements that must be used when recruiting trustees.  For example, a standard clause in constitutions of Charitable Incorporated Organisations is:

Appointment of charity trustees:

In selecting individuals for appointment as charity trustees, the charity trustees must have regard to the skills, knowledge and experience needed for the effective administration of the CIO.

A key element in seeking new trustees is that they should be committed to the mission and values of the organisation.

6.    How should a foundation work out what skills, experience and attributes it needs?

The Charity Commission states:

Finding New Trustees:

An assessment or appraisal of the skills of the current trustees is a good way to identify any gaps which need to be filled. The extent of the assessment will vary depending on the size and nature of the charity. For smaller and less complex charities the assessment can be quite simple, but for larger and more complex charities a more formal and structured approach may be needed.

This assessment, as well as identifying any skills gaps on the trustee board, can help form the basis of a ‘job description’ for new trustees. This can be a useful way of describing the role to new or prospective trustees, including how much time they will need to commit to fulfilling their new duties.  The Commission recommends that job descriptions are prepared for each trustee.  A charity will often benefit from trustees who reflect, and have a knowledge of the communities and the areas that the charity exists to serve.

According to NCVO, the best way for charities to identify the attributes they need within their board is to carry out a skills audit:

Identifying skills:

  • A trustee board can identify the skills, knowledge, qualities and experience each trustee brings by carrying out a ‘skills audit’.
  • A skills audit is a systematic way of collecting information about the attributes of each trustee and avoids making assumptions about why a trustee has joined the board and what they can offer.
  • This can help identify gaps for future trustee board recruitment.
  • Skills audits can also help trustees identify gaps in their own knowledge and can help the board plan future learning and training opportunities for trustees and identify when professional advice is going to be needed.

https://knowhow.ncvo.org.uk/governance/improving-your-governance-practice/development-and-training-of-trustees

Various skills audit templates are available for use by charity boards, including:

7.    What role do advisors have?

Trustees have the responsibility to set the strategic direction for the charity and to ensure the charity is applying all its resources exclusively in pursuit of its mission. 

Advisors can have an important role in supplementing the skills and experience around the Board table – particularly when:

  • the board has not been able to find a new trustee with a specific technical or specialist skill or knowledge or other attribute, or
  • where a particular skill or knowledge is only needed temporarily.

Family foundation trustees may decide to use advisors instead of recruiting trustees with key skills, experience and other attributes.  However, advisors have no power.  So, boards could choose to use advisors to inform their decision making, but then ignore that advice.  This is a potential risk for the good governance of the charity.  Ensuring that key skills and experience are represented around the board table amongst trustees makes it more likely that the board will act on that expertise.

8.    How might appointing independent trustees affect the Board?

In addition to enhancing the Board’s skills mix, and helping to manage conflicts of interest, there may be other ways in which bringing new people on board will affect the Board.   This will partly depend on the number of existing trustees, the number of independent trustees appointed and whether the board already has any independent trustees. 

If the Board currently has no independent trustees, appointing a minimum of two people will help to ensure that there will always be at least one independent trustee at each meeting. 

If the board has an even number of trustees, and no trustee has a casting vote, appointing three independent trustees would give the additional benefit of resulting in an uneven number of trustees.  It would also increase the range of skills and experience that could be added to the Board.

Adding trustees to a board may affect the foundation’s quorum. For example, the foundation’s constitution may specify that the quorum is “two charity trustees, or the number nearest to one third of the total number of charity trustees, whichever is greater, or such larger number as the charity trustees may decide from time to time”.  So, if the foundation had 6 trustees, the quorum would be 2 trustees.  This is not ideal, as it means a relatively small number of people can control the charity.  If the board increased in size to 8 or 9, the quorum would be 3, meaning a larger group of people would always have to be involved in making decisions – which is a good thing for the foundation’s governance.

Bringing new people into a group will always affect the group – both in relation to practical matters (eg possibly reviewing when meetings take place) and in relation to group dynamics.   ACF’s Stronger Foundations stresses the need to plan to fully include new trustees so that the foundation can benefit from their skills and they feel able to contribute fully:

“Inclusion” refers to the degree to which diverse individuals are able to participate fully in all aspects of activity, including decision-making.  While a truly ‘inclusive’ group is necessarily diverse, a ‘diverse’ group may or may not be ‘inclusive’.

Excerpt from the Diversity, Equity and Inclusion report 

The Charity Governance Code and the Charity Commission’s guidance stress the need to plan for how new trustees will be able to contribute fully:

5.8    Developing the board

5.8.1 Trustees receive an appropriately resourced induction when they join the board that includes meetings with other members and staff and covers all areas of the charity’s work.

The Charity Commission’s Finding New Trustees guidance states:

In an effectively-run charity the induction process marks the beginning of an on-going process of trustee training and development, to ensure that trustees can continue to make an effective contribution to the charity.  The level of training and support which trustees need will vary depending on the size and nature of the charity, but trustees may wish to consider some of the following:

  • individual training courses.
  • away days for the whole trustee board, with or without staff.
  • briefings or workshops as part of trustee meetings.
  • visiting other charities which carry out similar work.

The Charity Governance Code also stresses the importance of the board considering how it operates to ensure that it adapts to, and fully benefits from, the participation and contribution of new trustees:

6.6.2   The board creates and maintains inclusive cultures, practices and behaviours in all its decision making.  

9.    What about future generations?

Unless it is specified in the foundation’s constitution, future generations of the family do not have a right or entitlement to become trustees.  In addition, they may or may not wish to become involved in the foundation, now or ever.

For the foundation to comply with and demonstrate good governance, any family member who becomes a trustee should be appointed in the same way as any other trustee.  They must also be able to demonstrate that they fulfill the attributes needed to be an effective trustee.

10. How should new trustees be recruited?

The Charity Commission’s Finding New Trustees guidance says:

Finding potential trustees

(4)  The trustees consider the best methods of attracting a diverse range of candidates with the skills the charity needs. This may include advertising in the local and/or specialist press and using trustee brokerage services.

(5)  Short-listing and interviews take place against agreed criteria. Interviews are carried out by a small panel of trustees, and each candidate is asked similar questions to ensure a fair and objective approach. Notes are kept of each interview.

(6)  Preferred candidates are identified and invited to join the trustees, subject to references, formal vetting and approval by the full trustee board. Unsuccessful candidates are notified and thanked for their interest.

According to Stronger Foundations:

Open recruitment is regarded as a cornerstone of good practice by charity governance experts.

Excerpt from Diversity, Equity and Inclusion Pillar

The Charity Governance Code says:

5.7     Overseeing appointments

5.7.1  There is a formal, rigorous and transparent procedure to appoint new trustees to the board, which includes advertising vacancies widely.

5.7.2  The search for new trustees is carried out, and appointments or nominations for election are made, on merit, against objective criteria and considering the benefits of diversity.  The board regularly looks at what skills it has and needs, and this affects how new trustees are found.

Various guides to trustee recruitment are available for use by charity boards, including:

The key steps in recruiting trustees are:

  • Confirm the skills, experience and attributes needed;
  • Set a timetable for the recruitment;
  • Appoint a recruitment panel;
  • Advertise the vacancy;
  • Shortlist;
  • Interview a selection of candidates;
  • Select new trustees and take up references;
  • Board confirms appointments;
  • New trustees start and receive an induction.

There are several standard ways for foundations to advertise for new trustees:

In addition, there are several organisations that specialise in helping charities to find trustees with particular attributes.  For example:

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