Three weeks ago, on 26th September 2014, Doncaster Childrens Services Trust (“DCST”) filed new Articles of Association – governance documents – with Companies House.
It may be recalled that Michael Gove had said that Childrens Services would be removed from the local authority. There was widespread concern about whether it would be handed to profit-making companies. DCST, however, was set up as a private company limited by guarantee. In February, Colin Hilton was appointed as the first chair of the new Trust, with Michael Gove saying of the Trust that,
It will provide a new model for the delivery of children’s social care services in England, one intended to drive improvement and innovation through strong independent leadership.
With these new Articles of Association, we get some glimpse of the legal mechanism whereby Colin Hilton will deliver strong independent leadership. It is perhaps fair that I point out this blog critiques these governance documents, rather than anything about his personal style or what is happening on the ground.
I want to comment on three things:
- a company limited by guarantee
- the role of membership of the company
- the distinct powers of Colin Hilton personally
A company limited by guarantee?
I think the three points above get more interesting as we work through them, but it makes sense to start at this end. DCST has the word “Trust” in its title, which may conjure up comparisons with, for example, NHS Trusts. The comparison would be wrong. NHS Trusts are creatures of statute, coming into existence by statutory instrument; DCST is a private company.
Private companies may be limited by guarantee, in which case they are owned by their members; or by shares, in which case they are owned by their shareholders. In fairness, it should be acknowledged DCST has gone down the former route: it is a membership body.
Many charities are constituted as companies limited by guarantee. DCST is not, so far as I can see, a charity. That means it will not be subject to charity law nor to the scrutiny of the Charity Commission. Since it is a private company, it is not subject to the scrutiny of a plc either. Since it is not limited by shares, it is not subject to scrutiny by shareholders.
Essentially, its membership must hold it to account.
The role of membership of the company
Within a company, ownership and control are separable. It is fairly common for the first members and the first directors of a company limited by guarantee to be the same people. But for many companies limited by guarantee, it is important to develop and grow the membership, to provide independent scrutiny, legitimacy and democratic accountability to the company. Over time, therefore, a situation develops where a large membership can hold a small board of directors to account.
How does DCST measure against this model? Very badly. The new Articles effectively prohibit divergence of membership from directorship. A member must become a director and a director must become a member (Clauses 12.1(b) and 17.1(b)). So what?
- First, this model excludes from a possible membership base anyone who does not qualify to be a director, or does not have the time or inclination to be a director, but might have wanted to hold the Trust to account. That might exclude a lot of people who use or encounter Doncaster Children’s Services.
- Second, this model ensures there will never be a mass membership base. For example, page 13 of the report that led up to all this, suggested that “The company members would be the Trust staff.” Plainly, that is not going to happen.
- Thirdly, this model ensures the membership will never be independent of the directors so as to hold them to account. So, no chance of you or I turning up at the AGM, waving our membership card and objecting to the director’s remuneration package (or, I guess, turning up at any other meeting and objecting to anything else). Interesting to ask how Doncaster’s social services scrutiny committee will operate…
A lot hinges, therefore, on who these member-directors actually are.
The distinct powers of Colin Hilton personally
The new articles contain some interesting concepts and clauses. In particular, they introduce a “designated member”. The first designated member is Colin Hilton (Clause 18.1).
Among the powers of the designated member are:
- no-one can be a member unless he approves them (Clause 17.1(c))
- he has a veto over any directorship appointment (Clause 12.1(c))
- an existing member or director can be removed if he so directs (Clause 13.1(b) in respect of directors and 19.2(b) in respect of members)
- the minimum number of members is one – himself (Clause 23.1)
- the minimum number of directors is also one – the Chair, logically also himself if he is the sole member (Clause 10.1)
- the members decide from time to time who his replacement is (Clause 18.2)
Ooh, err! Is that a recipe for croneyism? Well, it can at least be observed that since he has exclusive hire-and-fire power over member-directors, it will be important for all the others to remember where they stand in relation to the designated member…
I quoted Michael Gove above, commenting at the time of Colin Hilton’s appointment, noting the potential for the new governance model to offer “strong, independent leadership”. Strong, as we can now see, because within the organisation’s constitution his position is unassailable. Independent, as we can now see, because the organisation has been established in such a way as limits the extent of external scrutiny.