OG515-4 Employees as trustees ('unitary boards')

Last reviewed:
5 November 2014
Last updated:
5 November 2014

Policy Statement/Overview

The Commission’s overall policy on payments to charity trustees is set out in Trustee Expenses and Payments (CC11). Case officers need to read CC11, to familiarise themselves with our published policy, before advising trustees on any aspect of trustee payment.

Where a trustee body is made up of trustees who are also paid employees of the charity, or of a subsidiary company of the charity, ('executive trustees') and trustees who are not employees of the charity ('non-­executive trustees') this is often called a unitary board. This differs from the usual arrangement where a charity's paid management team sits below, and reports to, an unpaid trustee body.

A charity can appoint an employee to the trustee body, where this is in the best interests of the charity and where the conflict of interest can be adequately managed.

A charity's trustees must decide what is in the best interests of the charity, having considered the potential advantages, which may be:

  • faster decision making
  • shared responsibility
  • clearer strategic thinking (see section F1 for more information)

and the possible disadvantages, which might include:

  • an imbalance of power and influence
  • an inability to take all decisions jointly
  • possible threats to funding
  • confusion regarding which role the employee is fulfilling at any one time; employee or trustee 
  • difficulties in managing conflicts of interests (see section F2 for more information).

We expect that a charity would only appoint an employee to a trustee body where the trustees are satisfied that this is in the best interests of the charity and where the advantages in doing this clearly outweigh the disadvantages.

When an employee becomes a trustee there is no immediate issue of trustee benefit. This is because the employment precedes trusteeship so no benefit is gained as a result of the employee being a trustee. However, where:

  • the benefits package of the employee trustee is expected to increase (eg by a pay rise) during the period of trusteeship

and

  • any pay award, etc is not already set out in an established and transparent employee pay structure,

the ability for the employee­-trustee to retain any future additional benefit negotiated while the employee is trustee might be open to challenge.

In cases like these the trustees might decide that the appointment needs to be authorised. Authority for the arrangement:

  • might be found in the charity's governing document

or

  • can be granted by the Commission or the court.

Where we are asked to give authority, we will do this only where we are satisfied, having considered the case made, that appointing the employee to the trustee body is expedient in the interests of the charity.

When applying for authority, trustees should use the online application form to make a convincing case in support of the application. We will only grant authority where the trustees have satisfactorily covered all the points on the form, or, if they have not, where the reasons they have given for this are convincing. 

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Summary of the guidance

The purpose of this guidance is to help caseworkers:

  • to handle initial queries from charity trustees who are considering appointing an employee to a trustee board

and

  • to make decisions when asked to authorise an appointment.

Within this guidance, where we refer to an employee, this includes directors or employees of any subsidiary company owned by the charity, as well as persons employed directly by the charity.

This guidance covers instances where a current employee of a charity is to be appointed as a trustee and will receive no additional pay or benefits as a direct result of becoming a trustee. If the employee is to receive additional pay or benefits as a direct result of taking up trusteeship, this would be payment for serving as trustee and would need additional express authority (see Payment for serving as trustee - OG515-5).

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Casework Guidance

B1 Key points

keypoints

  • The act of appointing an employee to be a trustee does not, in itself, need express authority. This is because the employment started before trusteeship so there is no question of any additional benefit arising as a result of trusteeship. However, in most cases, any increase in the value of the benefit package (eg, a pay rise) negotiated outside of an established employee pay structure would represent a trustee benefit. The employee-trustee could only retain a pay rise in these circumstances if the appointment of the employee as trustee was authorised in advance. The only time that authority might not be necessary would be where there are no plans to increase the value of the employee's benefits package during the period of trusteeship, or where any planned increases are set in accordance with an established employee pay structure. Even then, the trustees might decide, in order to avoid any risk of challenge, that the appointment should be authorised.  
  • Authority to appoint an employee as trustee might be found in a charity's governing document or this can be granted by the Commission or the court.
  • If a charity's governing document expressly prohibits trustees from receiving benefit ('no trustee shall be paid'), this prohibition will, in all cases, need to be removed or amended to enable the employee-trustee to be paid by the charity. This is because the act of paying the trustee, regardless of any increase in the benefits package, will be a trustee payment, prohibited by the governing document.  
  • Where we are asked to authorise the appointment of an employee we will only do this where it is clear from the case made that this is expedient in the interests of the charity.
  • When an employee is appointed trustee, the terms of appointment should include certain safeguards and conditions to ensure that the charity can still operate properly (see E3).

B2 Responding to requests for advice regarding an employee becoming a trustee

Where we are approached by trustees who are proposing to appoint an employee to the trustee body we should signpost the trustees to our web guidance and to section G of CC11, which set out our policy regarding trustees who are also employees of a charity. We should explain that any application for authority should be made using the online application form. This will ensure that we are given all of the information we need to consider the case in the first instance and will reduce the likelihood of getting into extended exchanges of correspondence. 

We should also explain that:

  • The fact that the person's employment started before their trusteeship means that there is no question of any benefit arising as a result of trusteeship. Because of this, there is no need for any authority to retain payments made before the start of trusteeship.
  • However, once the employee becomes a trustee, any increase in the benefits package might be a trustee benefit, requiring express authority. Only where:
    • there are no plans to increase the benefits package during trusteeship

or

    • any planned increases are set in accordance with an established employee pay structure

and

    • the trustees are satisfied that there is no benefit that might be liable to legal challenge

could the appointment be made without express authority.

  • If the charity's governing document expressly prohibits trustee benefit, this prohibition will need to be removed or amended before an appointment can take place. This applies even if there are no plans to increase the benefits package during trusteeship because the prohibition applies to any payment to a trustee. Where we are asked to remove or amend, or authorise the removal or amendment of, an express prohibition we will do this as a matter of routine if the trustees confirm that no benefit will accrue to the employee during the period of trusteeship. We will usually authorise the removal of the prohibition by making a short Scheme or by giving s198 or s226 consent. 
  • Where authority is required this might be found in the charity's governing document or it can be provided by the Commission or the court.
  • If there is an existing authority in the charity's governing document that would allow an employee to become a trustee, the trustees must comply with any conditions attached to that authority. They must also consider the factors set out in section B3.1, before deciding that appointing the employee to the trustee board is in the best interests of the charity.
  • Where there is no existing power and the trustees think that our authority is required they should apply to the Commission for authority, using the online form, before the employee is appointed as trustee. (B3.1 sets out the information that we expect trustees to provide when applying for authority.)

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B3 Applications for authority - how we consider them 

We will only authorise the appointment of an employee where, having considered the case made, we are satisfied that doing so is expedient in the interests of the charity.

B3.1 What information should the charity provide in support of an application?

The trustees will need to demonstrate that the appointment of the employee would be in the best interests of the charity. The trustees should do this by completing the online form. The form asks the applicant to:

  • set out the proposed trustee's name and current role in the charity
  • state if the trustees want a power for future holders of the same post to be a trustee and explain why this would be in the charity's best interests 
  • explain why the trustees believe it is in the charity's interests for the employee to be a trustee and retain paid employment
  • give reasons why the employee cannot simply attend trustee meetings as a non-voting advisor
  • explain how the trustees will manage any conflicts of interest caused by the appointment.

The form also asks the applicant to confirm that the trustees are satisfied that:  

  • it is in the best interests of the charity to appoint the employee as a trustee rather than someone else and that the benefits of doing so outweigh any disadvantages
  • the employee will go through an induction process, setting out the roles and responsibilities of a trustee
  • the employee will play no part in any discussion or decision about any aspect of the terms of their employment
  • the proposed appointment, taken together with other payments already being made to trustees will not result in half or more than half of the trustees receiving benefits of any kind from the charity either directly or indirectly
  • the unpaid trustees will be able to form a quorum to carry out the business of the charity without any conflicted trustees
  • there are provisions in place that allow the other trustees to terminate the person's trusteeship should they cease to be employed by the charity
  • the employee is not disqualified from acting as a charity trustee (see section E of CC30)  

Finally, the form asks the applicant to check that we have received the charity's latest accounts. If not, or where the charity falls below the accounts submission threshold, the form asks that these are uploaded with the application. We may need to see the accounts to help with our decision making process.

B3.2 When might we authorise a proposal?

We will only authorise a proposal where it is clear from the case made that appointing the employee to the trustee board is expedient in the interests of the charity. In making this decision we will consider each of the criteria set out on the form. If the form does not contain all of the information we need to make our decision, we will reject the application as incomplete.

While we will consider each case on its merits, in the context of our Risk Framework and taking into account all relevant information, the type of case we might find convincing is set out below.

  • Explain why the trustees believe it is in the charity's interests for the employee to be a trustee and retain paid employment. The trustees may say that having a unitary board will improve the performance of the charity by having the people responsible for strategic and operational decisions working together with equal accountability and responsibility. This will speed up the decision making process. It will also increase transparency because the board will have early involvement in the development work of the charity leading up to board decisions. 
  • (Where the trustees want an ongoing power for future post holders to be trustees) why is this in the charity's best interests? The trustees may say that it is important for future holders of the same post to be trustees because it is the person's role that enhances the trustee body and not necessarily their individual personal qualities. Having, say, the Chief Executive as trustee in the future will demonstrate the charity's commitment to modern governance including equal responsibility and shared accountability.
  • Why can't the employee attend trustee meetings in an advisory capacity only? We may be told that it is important that the employee trustee has the same responsibilities and authority as the board members so that they can be fully accountable for their actions both strategically and operationally. It will also help to recruit senior staff of the highest calibre if they can be directly involved in top level decision making in the charity.
  • How will any potential conflict of interest be managed?  We would usually expect a charity to have in place a formal conflict of interest policy setting out various scenarios and how they might be dealt with. Trustees should read our guidance - Conflicts of interest: a guide for charity trustees to help with this. As a minimum, we would expect the policy to include provisions requiring that:
    • the trustees declare any personal interest associated with an agenda item at the start of a trustee meeting
    • the employee trustee is excluded from any discussions that might affect their employment, whether directly or indirectly
    • the trustees record that a conflict has been recognised, and how this was managed, in the minutes of the meeting.  

Having considered the case as a whole, if we are satisfied that the proposal is expedient in the interests of the charity, we can authorise this.

B3.3 How do we grant authority?

How we grant authority depends on the legal status of the charity and will be different if we are authorising a one off appointment of a named individual or giving an ongoing power to appoint other employees in the future (possibly future holders of the same post). For example:

  • there may be an existing power in the GD that simply requires our written consent
  • we could authorise the amendment of the GD (in writing or, if the charity is a company or CIO, by giving s198 or s226 consent) to give a power to appoint an employee. This power should include certain safeguards and conditions (see E3)
  • we might make an Order authorising the arrangement
  • we may need to make a Scheme (or give s198 or s226 consent) where there is an express prohibition against trustee payment in the charity's GD.

B3.4 When might we refuse to grant authority?

Where:

  • the case made by the trustees has not satisfactorily dealt with the points set out on the form (and where the reasons for this are not convincing)

and/or

  • where the conditions and safeguards attached to the proposed arrangement appear insufficient (see E3)

we can refuse to grant authority. When making the decision to refuse to grant authority we should consider any impact this decision may have on the employee's rights under human rights and equalities legislation and record that we have done this.  

Where we refuse to authorise a proposal we should record this as a decision of the Commission. This decision can be appealed to the Charity Tribunal. Caseworkers must ensure that the decision is taken fairly and proportionately and that the reasons for refusal are clearly recorded. The reasons for refusal may be set out in the refusal letter or recorded as a case note. We should place a copy of the letter or case note on the charity's Key Documents file.

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B4 How do we deal with charities with employees as trustees at registration stage?

Where a new charity applies for registration, and its governing document includes a power for employees to act as trustees, we treat this differently to cases where we are asked to authorise the appointment of an employee of an existing charity. We do this because our role at registration stage is to determine charitable status.

While governance issues may impact on charitable status, the prime consideration is whether or not the organisation has charitable purposes for the benefit of the public. If the promoters of the charity think that it is in the best interests of the charity to have employees as trustees, and there is no question of unacceptable levels of private benefit, this would usually not be a bar to registering the charity.

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B5 Giving tailored advice to certain organisations 

B5.1 Universities

Many universities have an existing provision that requires certain employees to be trustees. Where there is no such power, but the trustees would like to appoint an employee to the trustee board, this will require an amendment to the charity's governing document. All but a very small number of universities are governed by Royal Charter, this means that any amendment must be authorised by the Privy Council, having consulted various bodies (including the Commission). We have no direct jurisdiction regarding amendments, our role is simply to advise the Privy Council.

We have agreed a model trustee benefit clause that can be adopted by a university. (A copy of the model clause can be found in the Schools/Education Group area in CeRIS.) However, this does not mean that the clause can be adopted without proper consideration of the implications of moving away from the voluntary principle. Any cases regarding the amendment of a university's governing document should be referred to the team responsible for education charities, or, if it is a Welsh university, to Wales Operations.

B5.2 Academy schools

The model governing document for Academy schools contains a power to appoint employees to the board of directors (the trustees). The model states that employee-trustees must not exceed one-third of the total number of directors. If we are asked to advise an Academy school about appointing employees we should refer the enquirer to the powers available in the Academy's governing document. Any cases regarding Academy schools should be referred to the team responsible for education charities.

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Case studies

D1 Where we authorised an employee to become a trustee

The charity

Income - £40 million pa

Object - To advance the dramatic arts in the UK and overseas

Activities - The charity presents plays, manages theatres and provides educational activities for the community

Number of trustees - 16

The initial approach

The trustees contacted the Commission to ask for authority to appoint two senior staff members to the trustee board. This was intended to remove the perceived division between the senior management team and the trustee board. The charity was aware of the need to manage the conflicts this would create and proposed to do this in accordance with the charity's published conflict of interest policy.     

Our response

We replied to the trustees, explaining the legal principles, and our policy surrounding employees as trustees, and signposting to section G4 of CC11, to our web guidance and to the online application form.

The case in support of the application

The charity submitted a completed online application form which dealt with each of the criteria as follows:

What is the proposed trustee's current role within the charity?

The proposed trustees were the people occupying the post of CEO and Head of HR.

Why do the trustees think the proposal is in the charity's best interests?

Because:

  • it would improve the administration of the charity by having a direct link to the operational side of the charity, resulting in quicker implementation of decisions
  • having a unitary board would create a more dynamic mix of expertise and experience, resulting in improvements in the performance of the charity
  • in order to recruit and retain senior executives of a sufficiently high calibre the executives should be able to have a say at the highest level in the running of the charity.

Do the trustees want an ongoing power for future post holders to be trustees and why is this in the charity's best interests?

The trustees did want an ongoing power for future post holders to become trustees. This would be in the best interests of the charity because it would mean that any future post holders would automatically become trustees, bringing the knowledge and experience, that resulted in them being recruited to post, directly to the trustee body. There would be no delays in seeking further authority for the appointment meaning there could be an effective handover, of both operational tasks and trusteeship, from a retiring Chief Executive/Head of HR to a replacement. 

Why can't the employee attend trustee meetings in an advisory capacity only?

it wasn't appropriate for the employees to simply advise the trustees because having the same responsibilities and authority as the other board members would mean that the employees would be fully accountable for their actions, both strategically and operationally.

How would the potential conflict of interest be managed? 

Any potential conflict would be handled in accordance with the charity's published conflict of interest policy which was available on the charity's website.

By submitting the form, the applicant confirmed that the proposed appointment would meet the conditions attached to the submission, as set out in the form, and that the charity was up to date with its filing obligations. 

Our decision

After considering the case made, we agreed to authorise the proposal and did this by giving formal consent to the amendment of the charity's governing document.

The main reasons for our agreeing to the proposal were that:

  • the case made that the proposal would improve the administration of the charity by sharing the overall responsibility with the executive trustees was convincing. In a fast moving diverse sector, it is important to have a mix of trustees who have experience of the sector, both operationally and strategically. It is also important that decisions can be taken as quickly and easily as possible.
  • if having senior employees as board members, rather than simply advisors to the trustees, would mean that the charity was able to recruit the best people in the field, this would improve the performance of the charity, helping it to achieve its charitable aims effectively and efficiently.
  • the conflict of interest policy appeared sufficiently robust to minimise the effect of any conflict, primarily because this was based closely on the model policy produced by the Institute of Chartered Secretaries and Administrators.

This decision to approve the proposal was taken in accordance with our Authorised Officer policy and formally recorded as a reviewable decision.

D2 Where we refused to authorise an employee to become a trustee

The charity

Income - £11 million pa

Objects - To promote the education and development of people with disabilities

Activities - The charity provides training and accommodation for beneficiaries

Number of trustees - 7

The initial approach

The trustees contacted the Commission seeking consent to a proposal to appoint one or more of the charity's senior management team as trustees of the charity. The unpaid trustees would decide whether or not and on what terms to promote an employee to the trustee board.

Our response

We replied to the charity, outlining the legal position and our policy regarding employees as trustees and signposting the trustees to section G4 of CC11, to our web guidance and to the online application form. We pointed out that there was an express prohibition on trustee benefit in the governing document and that this could not be removed without our authority. We asked that the trustees make a case for authority by submitting a completed application form.

The case in support of the application

The trustees submitted a completed online application form which dealt with each of the criteria as follows:

What is the proposed trustee's current role within the charity?

The trustees had not yet decided which employees would become trustees, they would make this decision once the proposal was authorised.

Why do the trustees think the proposal is in the charity's best interests?

The trustees felt that the proposal would be in the best interests of the charity because:

    • the experience and knowledge of the senior managers is an asset that should be utilised
    • the senior management team members were concerned that they might be held liable should the trustees default on their responsibilities
    • the senior management team currently dealt with operational matters but would like to have more input into the strategic direction of the charity.

Do the trustees want an ongoing power for future post holders to be trustees and why is this in the charity's best interests?

Because the trustees had not yet decided which employees might become trustees they had not given any thought to whether or not having an ongoing power would be useful.

Why can't the employee attend trustee meetings in an advisory capacity only?

It would not be appropriate for the employees simply to attend trustee meetings to advise because this would not make full use of their skills and expertise

How would the potential conflict of interest be managed?

The trustees were aware that there may be a conflict of interest and they were considering adopting a conflict of interest policy.

Our decision

Having considered the case made, we decided not to authorise the proposal as we were not convinced that this was expedient in the interests of the charity. We wrote to the charity with our decision and set out the reasons for refusal, specifically:

  • we were not convinced that the charity had demonstrated that having employees as trustees would bring anything extra to the trustee decision making process. There was nothing about the case in support of the application that suggested that the charity would be more effective as a result of the appointment.
  • the decision to appoint the employees appeared to have been taken without proper consideration. The trustees had not decided which employees might become trustees, were unclear as to what benefits having employees as trustees may bring and had not agreed how any conflicts of interest might be managed.
  • the proposal appeared to have been driven more by the senior management team rather than by the trustees themselves.
  • the trustees had not made a strong enough case as to what it was about the environment in which the charity operated that meant it was necessary to have employees as trustees.

This decision to refuse the application was taken in accordance with our Authorised Officer policy and formally recorded as a reviewable decision

Legal/Policy/Accountancy Framework

E1 Legal key points

keypoints

  • A charity employee can be appointed to the charity's trustee board without express authority. This is because the person's employment precedes the trusteeship. However, where there are plans to increase the benefits package during trusteeship, and this increase is not part of an established employee pay structure, the ability of the employee to retain any increases in their benefits package might be challenged, unless express authority is in place.
  • Charities that are required to report under the Statement of Recommended Practice on accounting and reporting by charities (SORP) must report trustee payments in the charity's accounts. For other charities this is a matter of good practice (see F5).

E2 Policy key points

keypoints

 

 

  • Where we are asked to authorise the appointment of an employee as trustee we will consider each case on its merits. We will only authorise the arrangement where we are satisfied that this is expedient in the interests of the charity, that the conflicts of interest can be adequately managed and that the advantages to the charity clearly outweigh the disadvantages.  
  • Where a charity’s governing document contains an express prohibition on trustee benefit, this must be removed before any appointment can take place. Our policy is that we will authorise the removal of this prohibition as a matter of course if the trustees are satisfied that there is no trustee benefit requiring express authority. Where the trustees decide that express authority is required, we will consider the case in the usual way before removing the prohibition and authorising the appointment, if appropriate.

E3 What conditions and safeguards should be attached to an arrangement?

Where a charity is proposing to appoint an employee as trustee we would expect the charity to have in place various conditions and safeguards. In most cases, we would expect the trustees to:

  • have a robust and effective conflict of interest policy
  • ensure that only a minority of the members of the trustee body receive any benefit from the charity, directly or indirectly
  • ensure that unpaid trustees are able to constitute a quorum
  • ensure that the proposed trustee goes through an induction process, setting out the roles and responsibilities of trustee
  • ensure that executive trustees play no part in setting levels of their own pay and performance objectives, nor be involved in the scrutiny and supervision of their performance
  • have in place provisions that allow the other trustees to terminate the employee's trusteeship should the employment come to an end.Top of page

Q&A

F1 What advantages might appointing an employee as a trustee bring to a charity?

A charity's trustees might think it would be in the best interests of the charity to have paid employees as trustees for a number of reasons. Some of the reasons given in support of applications we have handled are:

  • it would emphasise that the executive and the non-executive share responsibility for the direction, control and performance of the charity and owe it the same duty of care
  • it would reflect the highest standards of modern corporate governance bringing faster decision making and clearer strategic thinking
  • it would create a more dynamic mix of expertise and experience ensuring better performance by the trustees in managing the charity
  • it would fully engage the executive in the strategic direction of the charity
  • having employees as trustees would promote closer links between the other trustees and the executive, resulting in stronger governance. 

F2 What possible disadvantages might there be?

When deciding whether or not to appoint an employee as trustee there are a number of potential disadvantages that the trustees must consider, for example:       

  • because the employee-trustee will be conflicted at certain times this will mean that the whole of the trustee body cannot always make joint decisions about the charity and might not be able to be held jointly responsible for their actions
  • the disparity of operational knowledge between the executive and non-executive trustees might negatively impact on governance and decision making
  • the dual role may mean that the executive trustees have undue power and influence over the administration and strategic direction of the charity
  • some funders or donors may be less willing to support the charity because it has paid trustees (even though the payment relates to their employment, not their trusteeship)
  • having employees as trustees might result in lower turnover of trustees resulting in a less diverse and dynamic body of trustees. 

F3 What conditions should be attached to a proposal?

Where a charity appoints an employee to be a trustee we would expect conditions and safeguards to be attached to the arrangement. These are primarily about ensuring that any conflicts of interests are properly managed (see E3).

F4 Can an employee trustee be Chair of the trustee body?

An employee trustee can also be Chair of the trustee body. However, there are additional issues that this raises that the other trustees must consider before agreeing that the employee can become Chair:

  • the employee as Chair might have too much control over the charity's affairs, particularly as the Chair might have a casting vote if a vote is tied
  • having an employee as Chair might mean the conflict is particularly hard to manage. For example, the Chair will often carry out appraisals for senior staff members
  • this may cause difficulties if the Chair is not available to discuss issues surrounding the executive trustees' pay, conditions and performance

If, having considered these additional risks, and having put in place safeguards as necessary, the trustees are satisfied that having the employee as Chair is in the charity's best interests, the Chair can be appointed in the usual way.

F5 How should payments to trustees be handled in a charity's accounts?

Section 230 of the Statement of Recommended Practice on Accounting and Reporting by charities (SORP) sets out how trustee payments should be reported in a charity's accounts. In addition to this, the trustees might think it appropriate, for transparency, to use the trustees' annual report to provide further background information about the charity's remuneration policies.

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