Volume 1: Good Governance

Transcription

1 Volume 1: Good Governance Guidance and resources to help boards and management committees understand their statutory obligations and achieve good practice.

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3 Introduction Corporate governance is especially important for community, voluntary and other non-profit organisations. Your governing body whether it is called a management committee or board of directors is responsible for ensuring that your organisation delivers its objectives, is well managed and serves its beneficiaries. It is responsible for ensuring that monies are appropriately spent and accounted for, that staff are properly employed, remunerated and work within the law. This guide aims to help you ensure that you have the structures and basic procedures to meet your legal responsibilities and to be a successful board. The section of the guide starts includes: Introduction to Corporate Governance; Legal Structures and Status; Companies Limited by Guarantee Setting Up; The Board of Directors; Operation of the Board; Legislation regarding Directors. Further guides in this series will help with other aspects of management, including finance, HR and IT. This guide and its associated templates and guidance notes are available to download from our website: or you can use the form at the back of this publication to request printed copies. If you have any feedback or comments please contact us at toolkit@pobal.ie These materials have been prepared for information purposes. The information contained in this guide is for educational purposes only. No warranty is offered on the accuracy of this information at the time of print. This toolkit is not intended or implied to be a substitute for professional advice. 3

4 Contents 1. Introduction to Corporate Governance 1.1. What is Corporate Governance? What does Corporate Governance mean in practice? Why is Corporate Governance necessary? Good Governance Legal Structures and Status 2.1 Limited Companies Other types of legal structures Charitable Status Companies Limited by Guarantee - Setting Up 3.1 Setting up a company limited by guarantee Post Incorporation About the Companies Registration Office (CRO) The Board of Directors 4.1 Boards, Directorships and the Law Role of the Board of Directors Conduct of the Board of Directors Duties of Directors The Company Secretary Other Officers of the Board Size of the Board Board Induction and Training Shadow Directors Succession Planning

5 5. Operation of the Board 5.1 Meetings of the Board of Directors Managing Conflicts of Interest Working through Subcommittees Main areas of Board-level Administration General Meetings The Board and the CEO Legislation 6.1 Overview of Legal Responsibilities Companies Acts Charities Act Other Relevant Legislation 7.1 Legislation affecting all employers Legislation affecting Pobal grant holders Legislation affecting Public and State Bodies Supplementary information for Boards and Board Members 8.1 Insurance Communications and Reputation Management Template Documents 9.1 Code of conduct Standing Orders XXX Board Articles of Association Memorandum of Association References and Links Sources of Support

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7 1. Introduction to Corporate Governance 1.1. What is Corporate Governance? Corporate Governance is the system by which companies, including not-for-profit companies and charities, are directed and controlled. The term refers broadly to the rules, processes and laws by which businesses are operated and regulated. This equally holds true for not-for-profit organisations. However, in the community and voluntary sector corporate governance has a further, important function: to ensure that an organisation ( group ) adheres to its purpose and serves the communities/individuals which it was set up to serve. Corporate governance can be described as the brain as well as the nervous system of an organisation, which, when working well, provides clear direction, anticipation of danger, communication, movement and action, all the while transmitting and receiving information to enable remedial action and changes of course Corporate Governance, Improvement and Trust in Local Public Services, Audit Commission, The governors of an organisation are the Board members of its governing body. Depending on the legal status and custom of the company, they may be called, for example, Management Committee Members, Directors or Trustees. Regardless of their title, the people involved in the organisation must be clear about the duties and liabilities associated with their governance role What does Corporate Governance mean in practice? In the Community and Voluntary Sector, many Boards are essentially Management Committees where decisions are taken about the dayto-day management and operation of the group. Whatever the size of your community/voluntary group or their stage of development, every 7

8 Board and Management Committee needs to be able to step away from the day-to-day operations and to look at the bigger picture. This is set out in more detail in subsequent sections but the main functions of governance include:- Focusing on the organisation s purpose and on the benefit to the communities and people it serves Taking informed, transparent decisions about the organisation for example about financial viability, budget, expenditure and financial control, and employment and remuneration Ensuring that systems, policies and procedures are in place and implemented - and that these are reviewed and updated regularly. These will enable the smooth operation in all aspects of day-to-day operations Monitoring the work of Managers, staff and volunteers and ensuring that the organisation achieves its goals and objectives 1.3 Why is Corporate Governance necessary? Corporate Governance is necessary to ensure:- The long-term relevance and viability of the organisation That the organisation operates legally and effectively and to provide reassurance to funders and statutory authorities that this is the case That resources are managed effectively in meeting the purpose and objectives of the organisation 8

9 1.4 Good Governance In this context, good governance requires a board to:- Ensure members are clear about their role as a Director, what is expected of them and how they collectively conduct their business as a Board Develop the Board by refreshing memberships and accepting training in order to discharge the role Listen to users and funders Promote values for the whole organisation and putting these into practice 9

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11 2. Legal Structures and Status Every organisation needs a legal structure or other form in order to enable it to function effectively. Legal status means the organisation has a separate legal identity which is recognised by the courts. It can act through the courts, and carry out activities such as employing staff and acquiring property. Most, if not all, funding bodies will only grant funds to groups that operate using some set of guiding rules and display a track record commensurate with the level of funding being sought. An organisation s legal structure sets out the objectives of the organisation and the rules as to how it will operate. The different legal structures used by voluntary and community groups include a constitution; a company limited by guarantee; an industrial or provident society; or a trust. The main reasons for opting for legal status are to protect the interests of individual Board members and to obtain recognition for the group in the legal system so as to facilitate the operation of the group. 2.1 Limited Companies Types of companies include: A Company Limited by Guarantee has no shares and is suitable for voluntary and community organisations. The disadvantage of this structure is that a solicitor or an accountant is needed for the process of incorporation and the costs of setting up a company limited by guarantee could be significant. If the group already has a written constitution it can be used when drawing up the Memorandum and Articles of Association. Once incorporated, the company must report regularly to the Companies Registration Office ( CRO ). Incorporation as a company gives the organisation a legal identity, recognised by the courts, that is separate from that of the individual members. Providing a separate legal identity as distinct from that 11

12 12 of its Board members means that the company can: Buy and own property in its own name Enter into contracts in its own name Employ staff in its own name May take, or defend legal proceedings in its own name (an organisation without legal status is not recognised by the courts) Protect members of the Management Committee/ Board from personal liability for any debts or claims against the organisation that cannot be met out of the organisation s own resources - N.B. this limited liability does not protect a Management Committee that acts improperly or fraudulently Borrow money in its own name Company Limited by Shares The members liability, if the company is wound up, is limited to the amount, if any, unpaid on the shares they hold. The maximum number of members is 99. Company Limited by Guarantee not having a Share Capital These companies are required to have a minimum of seven members. The members liability is limited to the amount they have undertaken to contribute to the assets of the company, in the event it is wound up, not exceeding a specified amount and subject to a minimum of 1. If a guarantee company does not have a share capital, the members are not required to buy any shares in the company. As stated above, many charitable and professional bodies find this form of company to be a suitable vehicle as they wish to secure the benefits of separate legal personality and of limited liability but do not require to raise funds from the members. A Company Limited by Guarantee having a Share Capital The maximum number of members is 99. The members have liability under two headings; firstly, the amount, if any, that is unpaid on the shares they hold, and secondly, the amount they have undertaken to contribute to the assets of the company, in the event that it is wound up, being not less than 1.

13 2.2 Other types of legal structures We have outlined below some other forms of legal stuctures. Whatever the structure of your group, company or co-op, the sections in this guide on the role and operations of a Board still apply. Constitution It is the simplest form of legal structure for a voluntary organisation and is also sometimes referred to as an unincorporated association It refers to a group which is governed by a document which sets out the rules of operation for that group The constitution includes the name of the group, the area where the group operates, the activities of the group, the membership, committee, officers, and details about finance, meetings and alteration of the constitution A sample constitution is available from the Revenue Commissioners and this can generally be adapted to suit the needs of most voluntary or community groups - forms/stancons.pdf This structure is informal and it is suitable for small action groups. However such a group remains an unincorporated body and has no legal status. This structure is therefore not suitable for an organisation which is acquiring property or employing staff as all members of the group are personally liable and responsible for the group s activities. Industrial and Provident Society Co-operatives Co-operative societies of all types are incorporated by being registered under the Industrial and Provident Societies Acts The Registrar of Friendly Societies administers these Acts. The main characteristics of a co-operative are:- The organisation which becomes an Industrial and Provident Society must carry on a trade, industry or business A minimum of seven persons is required to incorporate a cooperative society under the legislation Registered co-operatives are incorporated legal entities and the co-operative is a legal 13

14 14 person separate from the members who set it up The governing document of the co-operative is a set of Rules Like a company, a co-operative enjoys limited liability The word Limited should always appear after the name of the cooperative Under current legislation no individual member can hold an interest of more than 150,000 or 1% of the total asset value of the co-operative, whichever is the greater in any co-operative society Each society must keep appropriate accounts, books and records and the members in general meeting must appoint an external auditor annually The audited accounts must be submitted with a properly completed Annual Return to the Registrar of Friendly Societies by the 31st of March each year Trust This is a structure where some people are appointed under a deed of trust to hold funds or property on behalf of a group of beneficiaries which is an unincorporated body It does not give legal status to the Group and the Group does not directly control the property 2.3 Charitable Status A charity is an organisation whose aims are exclusively charitable, i.e., they come under one of the following definitions of charity: The relief of poverty The advancement of education The advancement of religion Other purposes of a charitable nature beneficial to the community For an organisation to be a charity it must be set up for public benefit (or a significant portion of the public), and it must have purposes that the law regards as exclusively charitable. As stated, for most voluntary and community organisations it is important to have a structure which gives the organisation a separate legal identity.

15 It is also recommended that it should have charitable status. Charitable status is often a requirement when requesting funding. To be recognised as charitable the organisation s structure must have been set up for charitable purposes only. In Ireland when an organisation has charitable status this means that it is recognised as charitable by the Revenue Commissioners for tax purposes. Registered charities are organisations (either limited companies or other constituted groups) allocated a CHY Number by the Revenue Commissioners, however, there is no official Register of Charities in Ireland. The registered charity is exempt from some taxes (DIRT, income tax, and corporation tax, if a company) and can apply to the Valuation Office for exemption from rates on buildings. However, this is essentially a tax status and registration as a charity does not give legal status to an organisation: - it must have some other form of legal structure underpinning it, for example to be a company limited by guarantee or a group governed by a constitution. The following characteristics apply to the registration of charities:- The constitution or Memorandum & Articles (see Section 3) must include a clause stating that the organisation will use its money for charitable purposes only No Director of the company may be paid by the company except for out-of-pocket expenses If the company is dissolved all assets should be distributed to an organisation with similar charitable purposes When applying to be recognised as a charity for tax purposes the organisation must send in a completed application form (in CHY1 leaflet), its governing instrument (a constitution, deed of trust or Memorandum and Articles of Association) together with a statement of activities, the latest financial accounts, the names and addresses of its officers to the following address: Office of the Revenue Commissioners, Charities Section, Government Offices, Nenagh, Co. Tipperary A Tax Clearance Certificate (TCC) is written confirmation from the Revenue Commissioners that a company s or person s tax affairs are in order at the date of issue 15

16 of the TCC. The requirement to produce a TCC usually arises in the context of a person seeking state money (such as grants) and obtaining licences. A Charity (CHY) Number gives confirmation of the group s tax exemption status. A TCC can still be requested along with the CHY number. 3. Companies Limited by Guarantee - setting up Setting up a company limited by guarantee As explained in Section 2, a company limited by guarantee offers community and voluntary groups a structure which has legal identity and status, which protects its members/directors from incurring personal liability and which is suitable for not-for-profit organisations. In order to set up a company limited by guarantee the organisation must do the following: Check with the Companies Office that the proposed name of the company is acceptable Draw up a constitution for the company in the form of two documents: the Memorandum of Association and the Articles of Association. Their function is outlined below. Links to templates are provided at the end of this publication Obtain the signature of seven subscribers, at least two of whom will be Directors (also see Section 4.7 regarding good practice in the size of a voluntary Board) Constitution of Company The Constitution of a Limited Company consists of two parts: the Memorandum of Association and the Articles of Association. Standard templates, produced by Pobal, are included as part of this toolkit.

17 Memorandum of Association ( Memorandum ) This document sets out conditions upon which the company is granted incorporation. Its provisions include: - Name of Company - Declaration as to liability - e.g., The liability of the members is limited - Objects Clause - states the principal activity of the business and its subsidiary activities, including the company powers (Powers Clause), (see further detail right) - Capital Clause - This will state the nominal capital of the company, i.e., the value in money of the shares which the company is authorised to issue and the number of shares into which it is divided together with the amount of each share, for example: The nominal share capital of the company is 100,000 divided into 100,000 shares of 1 each - Association Clause - The founding members declare that they wish to be formed into a company and agree to take shares. The names and addresses of the founding members are listed in one column and a corresponding column will list the number of shares they each hold. Objects Clause This is the most important aspect of the Memorandum of Association. It defines the purpose for which the company is formed and it further determines and limits or restricts the powers of the company. Typical power clauses include: To invest company money To acquire any other similar business To act as or employ agents To receive money on deposit, lend money, guarantee contracts Articles of Association ( Articles ) The Articles of Association set out rules for the internal management of the company:- Electing the Board of Directors Keeping the books of accounts Roles of officers Running meetings Number of members Who the members are 17

18 18 The Articles of Association can be altered as the need arises by special resolution. Form A1 this is the application form to the CRO used for incorporation of a company. It is available to download from: aspx Requires details of company name; registered office; Secretary and Directors Requires details of consent from Secretary and Directors to act as such Requires details of the subscribers to the company and their shares (in a company limited by guarantee, each Board member is only required to pay 1 should it be dissolved) Includes a statutory declaration that requirements of the Companies Acts have been complied with The Memorandum and Articles of Association together with a completed form A1 should be sent by the organisation, (or its solicitor or accountant) to: Companies Registration Office, Parnell House, 14 Parnell Square, Dublin 1. Tel: (01) Website: Certificate of Incorporation upon receipt of this certificate, a company can commence trading. Further Information about Company set up and regulation is available from: Companies Registration Office Office of the Director of Corporate Enforcement The Financial Regulator Irish Auditing & Accounting Supervisory Authority Post Incorporation See under Section 5 of this guide for details of the annual returns and other information which must be submitted to CRO in order to comply with company law and retain incorporated status. The most commonly filed forms and documents are: Form B1: Annual Return Form B2: Change of registered office Form B10: Change of Directors and Secretary or in their details Form G1/G2/G1Q: Special / Ordinary Resolutions

19 3.3 About the Companies Registration Office ( CRO ) The Companies Registration Office is the central repository of public statutory information on Irish companies. The CRO operates under the aegis of the Department of Enterprise, Trade and Innovation. The CRO houses the Register of Companies, Business Names and Restricted/Disqualified Persons, all of which can be searched via their website. Certain searches will require a fee. Not all documents are scanned. Older documents are stored in the CRO and require the files to be ordered. The CRO has a number of functions: The incorporation of companies and the registration of business names - a business name is a trading name which differs from the names of the persons or the company which owns the business The receipt and registration of post incorporation documents The enforcement of the Companies Acts in relation to the filing obligations of companies Making information available to the public Companies, and to a lesser extent business names, have an obligation under law to file certain documents with the CRO. These documents include details of changes of registered office, changes of company officers (Director or Secretary), or a number of other changes which affect the company. Companies are also required to file annual returns, and in most cases they must also file annual accounts. The CRO also keeps details of mortgages and charges imposed on companies. The enforcement of the Companies Acts in relation to the filing obligations of companies: The CRO can take a number of measures to deal with companies who fail to file their annual returns, including prosecution of the company or Directors, or striking the company off the Register. Companies who fail to file annual returns may be struck off the register of companies. If a company is struck off, the protection of limited liability no longer exists and individuals can be held personally liable for any debts incurred after strike off. Also, the assets of such a 19

20 company will become the property of the State. While it is usually possible to reinstate companies which have been struck off, this can be an expensive process. Companies wishing to avoid such a fate should ensure that their annual returns are filed on time. Making information available to the public: Almost all of the information filed with the CRO is available for public inspection, usually for a small fee. Certain vital information, such as company name and registered office address, may be checked free of charge on the web search facility. A more detailed synopsis of a company is available by ordering a company printout or a copy of any document filed. This again can be obtained using the web search facility on the CRO website and a charge applies. The Registrar of Companies is also the Registrar of Friendly Societies which is responsible for the registration and general regulation of Industrial and Provident Societies, Friendly Societies and Trade Unions. 20

21 4. The Board of Directors 4.1 Boards, Directorships and the Law In general the Board is: Responsible for ensuring that the organisation keeps to the rules of the limited company as described in the Memorandum and Articles of Association Normally elected by the members of the company at the AGM Legally required to act in the best interests of the company, its members and its employees Companies and/or directors are liable to be prosecuted or struck off the Companies Register by the Companies Registration Office if they do not fulfil all their legal obligations as a company limited by guarantee Other areas for which individual directors remain personally liable, despite being a limited company are: Fraudulent business conduct Breaches of Health, Safety & Welfare at Work Employment rights 4.2 Role of the Board of Directors In smaller voluntary organisations, the Directors may be preoccupied in their role as a Management Committee and in the day-to-day operations of the group. However even in these circumstances the Board has a governance or stewardship role which all Boards of Directors are required to undertake and the scope of which is covered by:- The Board of Directors must clearly direct the organisation ensuring that it has proper plans, procedures, policies, structure and resources in place to achieve its objectives The Directors are entirely accountable for the organisation which they govern and must ensure the organisation s 21

22 22 procedures are reviewed, manage risk and account accurately to funders, members and other stakeholders for both its activities and financial affairs. Attending to these areas entails the following responsibilities:- Complying with all statutory obligations Regularly reviewing and confirming annually the adequacy of internal financial controls Overseeing items of expenditure Establish and monitor procedures for the retirement and reappointment of Board members and the CEO Employment of Directors and employees Establishing and monitoring procedures for managing potential conflicts of interest Publishing annual report and financial statements Maintaining appropriate relationship with the external auditor Establishing a procedure for confidential reporting and meaningful follow-up of matters raised Preparing a strategic plan within the requirements set down by the CEO and Board members Reviewing the Board s operation and effectiveness 4.3 Conduct of the Board of Directors The governing body only has authority when it acts as a whole for decisions to be binding on the organisation they must be agreed at formal Board meetings There is therefore a requirement for meetings to be held regularly and for decisions to be reached collectively When members of the Board act alone or in small groups, such as a sub-committee, they do so in an advisory capacity The Board as a group is equally liable for any legal or financial repercussion from decisions made by them collectively or individually

23 Absence from a Board meeting does not absolve one from their responsibility or liability The behaviour of one member of the Board is the concern of all other members The Board must declare conflicts of interest and abide by its common law and fiduciary duties 4.4 Duties of Directors Directors have to carry out certain common law duties of care and skill and certain fiduciary duties: Common Law Duties A Director need only show the degree of skill that is reasonably to be expected of a person of his knowledge and experience A Director cannot be held responsible for errors of judgement as such A Director need not give continuous attention to the affairs of the company (i.e., need not attend every Board meeting) A Director may delegate duties where it is proper to do so Fiduciary Duties The Director must always act in good faith in the interest of the company as a whole and not in the interest of a section of members If a Director is knowingly involved in fraudulent or reckless trading by a company then the Director becomes personally liable for any damages. Reckless trading is defined as a Director knowingly participating in decisions which would cause a loss to the creditors of the company, i.e., operating in a quasi-fraudulent way The Director may not enter into a contract which fetters his discretion in any way e.g., he could not agree always to vote in a particular manner The Director is liable to account to the company for benefits which they receive as a result of their office A Director may not enter into a contract with the company without disclosure to the Board A Director may not take unfair advantage of his/her position as Director for personal gain 23

24 The Company Secretary The role of the Company Secretary is to make sure that the company keeps to the rules set out in the Articles of Association, which includes the requirements of the Companies Office as well as the rules of the organisation. It is a legal requirement for limited companies to appoint a Company Secretary. The Company Secretary is appointed by the Board of Directors and may be a Director or member of staff. The main responsibilities of the Company Secretary include:- To ensure that the company makes all of the necessary annual returns and submitting of the company accounts to the Companies Office on time To keep minutes and records of all Board decisions and procedures To keep a register of Directors and their interests, including their other Directorships To induct a new Director upon their appointment to the Board ensuring they understand the duties and activities required from them including their legal obligations To notify the CRO of any changes to the Board of Directors by submitting a B10 form when necessary 4.6 Other Officers of the Board Officers of the Board The Articles of Association sets out the officers of the company. This will always include a company secretary and may, in a not-for-profit company, include the Chairperson and other officers. Even if not specified in the Articles, the Board may choose to create an office and appoint an individual to it. These could include: chairperson, vicechair, honorary treasurer or finance Director, committee chairs. These may vary widely across companies in the community and voluntary sector but two roles stand out in all circumstances: Chairperson: The chairperson provides leadership, has a particular support role to plan in the management of a CEO or Manager and is often a main link person with the Board between meetings. It is

25 essential therefore that this office is vested in an individual. Honorary Treasurer: In small community and voluntary organisations, the honorary treasurer (or finance Director) has a critical role to play in ensuring that the finances of the company are well administered and that the finance and related systems are fit for purpose and develop as the company grows. To be effective in discharging this oversight role objectively, the treasurer should not be directly involved in keeping books and records, making payments or in the other day-to-day financial administration. It is strongly recommended that the honorary treasurer has a professional background in accounting and financial management. 4.7 Size of the Board While the statutory minimum number of Board members in a company is two Directors, in the Community and Voluntary sector it is standard practice to have five or more Directors. Indeed, Boards of seven or nine are common to ensure that there is a range of skills and knowledge necessary for effective governance, to promote community ownership of the project and to include one or more Directors who bring a client/user perspective. Some Board members are recruited because of their links with other agencies and groups (see also the conflict of interest section in this guide). 4.8 Board Induction and Training A checklist for inducting new Board members is appended to this document. While you will certainly be explaining your company, its activities and services to new Board members, the checklist aims to ensure that you cover their governance role as well. The induction pack should include: This toolkit Memorandum and Articles of Association Most recent set of audited financial statements Standing Orders of Board meetings Agenda and minutes of the last Board meeting 25

26 26 Most recent set of management accounts List of Board members A copy of their own B10 A number of support agencies provided formal training, usually short one-day courses, for Board members in the community and voluntary sector. There are also other ways to help keep Board members informed and skilled: Specify in your auditors engagement letter that they attend a Board meeting to explain a set of audited accounts and the CRO s function with new Board members Board members or invited guests with specialist knowledge (for instance on health and safety, working with young people, personnel management) could give a 30 minute briefing before or after Board meetings Circulate publications from the Community & Voluntary support agencies and from other relevant bodies e.g., CRO, the Health & Safety Authority 4.9 Shadow Directors Anyone who takes part in decisionmaking about the management of the company may be deemed to be a shadow Director or a defacto Director and as such, would share in the legal responsibilities of the named Board of Directors. Where a person who is not a Director exerts such an influence over the company s Directors that those Directors are accustomed to acting in accordance with that person s instructions, that person is a shadow Director. The significance of being a shadow Director is that a shadow Director has many of the legal responsibilities of a Director. Situations have arisen in the community sector where a voluntary group has incorporated as a company limited by guarantee and where only two or three management committee members have registered as Directors but where the full former voluntary committee still operates as a management committee. In this instance the management committee members who are not Directors may be considered shadow Directors.

27 4.10 Succession Planning The organisation s Memorandum and Articles of Association will detail the rules regarding Directors retirement and re-election. In planning for the appointment of new members to the Board, the organisation must consider the Board members skills, knowledge and experience necessary to allow it to meet the strategic vision for the Group. that a three-year term works well for Board members; the secondmost common length is two-year terms. Rotation allows people with fresh ideas, abilities, or networks to provide their support for the organisation. Recruiting new Board members involves reviewing the skills and knowledge of the current members who will be retiring, then seeking people who will contribute in the same area. Planning for succession provides a way to maintain the balance of wisdom and work. Many organisations have found 27

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29 5. Operation of the Board 5.1 Meetings of the Board of Directors A set of written standing orders ensures that Board meetings run smoothly. A template set of standing orders is included in this toolkit that covers the following points of business: - Frequency of meetings - Quorum and voting rights - Attendance at Board meetings - Disclosure of interests (see below) - Agenda - Board Papers - Minutes of Board meetings - Establishment of committees 5.2 Managing Conflicts of Interest Directors of the company are legally obliged to act in the best interests of the company. A conflict of interest may arise where an individual Director has multiple competing interests which may take precedence over or influence the decisions he or she takes in relation to the company. A conflict of interest may arise in many different situations, including the following examples:- Directorships of other companies Family relationships between Board members and/or staff members Personal ownership of assets e.g., property which may be rented to or otherwise used by the company External representatives, e.g., from an external agency, community organisation, local authority or other or public body Employment as a member of staff of the company or otherwise receiving remuneration from the company, e.g., as a consultant Different approaches may be taken to avoiding conflicts of interest and to maintain the integrity of the company, according to the individual circumstances:- Standing orders for Board meetings can require a 29

30 30 declaration of interests as a standard item on the agenda It is not considered good practice to have paid members of staff of the organisation on its Board of Directors If external representatives or staff attend the Board meeting, it should be clear from the outset that they sit in as observers, maintaining their independence and acting in the best interest of the company 5.3 Working through Subcommittees A Board can set up committees with particular terms of reference when it needs assistance or when an issue requires more resources and attention. They can be established on a short-term or temporary basis, or they can be formed as a permanent body for ongoing work. A Board can either delegate some of its powers to the committee, enabling it to act directly, or can require the recommendations of the committee to be approved by the Board. The Board will normally depend heavily on the findings and recommendations of its committees, although final decisions to accept or reject these recommendations will be made by the Board. Committees should have representation from staff and volunteers to maintain links to the organisation s base support and to provide a reality check as to what is likely to be supported by the general members - or what is feasible in terms of time, money and resources. Committees are also a good way to train potential Board members and future community leaders. Important subcommittees to establish are: Finance subcommittee - to ensure that the organisation efficiently conducts and manages, within its identified resources, its services. In particular, this Subcommittee oversees the organisation s performance to ensure that it maximises its financial and other resources and uses these resources efficiently and effectively in support of the achievement of the organisation s strategic goals and corporate objectives; has adequate financial management systems and

31 internal control structures to discharge their corporate governance and financial management responsibilities; undertakes effective and efficient planning, monitoring, reporting and controlling of finances and other resources; complies with accounting policies and standards, applicable laws and regulations and policies and procedures Audit Subcommittee - to oversee and advise the Board and CEO (where applicable) on matters relating to the operations and development of the internal audit function; the financial accounting and annual reporting processes; the effectiveness of and the relationship with External Audit and Corporate Governance issues. HR Subcommittee - to periodically review terms, conditions, policies and practices relating to the employment of staff within the organisation and to recommend to the Board any substantive amendments required Other committees are formed for a range of reasons, including: Selection committees - to select Board members, to select a CEO Fundraising committees - to decide on and implement fundraising strategies Organisational review committees - to review the functioning of the organisation Committees of enquiry - to enquire into particular questions (disciplinary, technical, etc.) General administration committees (made up of, for instance, the treasurer, the secretary, and perhaps senior staff) - to manage the business of the organisation between Board meetings Special event committees - to be responsible for coordinating a particular event Marketing and public relations committees - to identify new markets, build relationship with media and public, etc. 31

32 32 Committees need clear goals, objectives, and terms of reference in order to function efficiently, and Boards should ensure that these are developed BEFORE establishing the committee. If you can t develop these goals and objectives up front you should not create any committees. Many committees have been known to work outside their intended purpose due to a lack of precise objectives. 5.4 Main areas of Board-level Administration Minutes of Meetings - Minutes must be kept of all: General meetings Board meetings Subcommittee meetings Annual Returns Must be made to the Companies Office after the first AGM and in each calendar year after that using Form B1 Must be completed within 28 days of the company s Annual Returns Date (ARD will have been set when company was registered) A copy of the annual return, signed by a Director and the company secretary, must be sent to the Registrar in the Companies Office A missed deadline will result in a late filing penalty and the loss of audit exemption availability and may ultimately result in prosecution of company Directors and strike off of the Limited Company A company may be struck off the register and dissolved for failure to file an annual return If a company is struck off, the assets of the company become vested in the Minister for Finance, and if the business continues to trade, the owners will no longer enjoy the benefit of limited liability and so are personally responsible for any debts incurred so long as the company remains dissolved Any person, who was a Director of a company at the date of sending to that company of a strike off notice due to the non-filing of annual returns, may be disqualified from acting as Director by the High Court, where the company is struck off leaving

33 outstanding liabilities Such order may be made by the Court on the application of the Office of the Director of Corporate Enforcement Accounts The annual return to CRO must be accompanied by the company s audited accounts, auditor s report and Directors report (where the company is not exempt from audit) Proper books of account with records of all income and expenditure must be kept Companies are required to keep proper books of account which give a true and fair view of the company s financial affairs Companies are also required to disclose details of their accounts at the Annual General Meeting (AGM), which have been approved and adopted by the Board at a previous meeting In addition, they are required to observe certain standards in the preparation of accounts, following specific formats and disclosing certain information by way of notes to the accounts Mortgages & Charges Details of certain mortgages or charges created by a company must be delivered to the CRO and registered within 21 days of creation of the charge Failure to register the charge within 21 days of its creation has the effect of making the charge void against a liquidator of the company and any creditor of the company Stationery Company Stationery must show: The full registered name of the company The names of its Directors The country of registration and address of registered office The registered number of the company 33

34 34 Company Seal A company seal is required by law and is used on any legal documents such as leases, contracts, indentures, etc. A seal can be obtained via most stationery shops. 5.6 General meetings (AGMs and EGMs) All members are entitled to attend general meetings of the company The company must call general meetings at the request of Directors and/or members, according to the rules in the Articles of Association The company must give due notice of all general and Board meetings Annual General Meeting ( AGM ) An AGM must be held within 18 months of becoming a company and at least every 15 months from then on The company must give notice in writing of the AGM as set out in the Articles of Association (a minimum of 21 days) Extraordinary General Meeting ( EGM ) An EGM is a meeting other than the annual general meeting An EGM is usually called on short notice and deals with an urgent matter Notice for the EGM is usually dealt with in the management company s Articles of Association but those articles must be consistent with minimum limits set out in the Companes Acts. Those minimum limits are 21 days notice in the case of an EGM convened to pass a special resolution, and for other EGMs, 14 days notice where the company is limited by guarantee and does not have a share capital, and 7 days where the company is a private company limited by shares. Governance & Board Level Administration The following is a list of duties of the Board that frequently come up as issues in the audits of Groups: Adherence to the quorum for voting, as stipulated in the company rules

35 Keeping minutes of all Board meetings which are signed and dated by the Chairperson following their review and approval Articles of Association stating that the Directors are prohibited from holding a position of profit within the organisation a Director cannot at the same time be an employee of the Group Recording key decisions in the minutes such as opening of a bank account, appointing of specifically funded employees, approval of cheque signatories Keeping CRO updated of changes of Directors Presenting of management accounts, financial information to Board and filing same with minutes of the meeting as evidence that they were discussed The formal adoption of the annual financial statements not being recorded in the AGM minutes The formal appointment of the group s external auditor not being recorded in the AGM minute 5.7 The Board and the CEO The CEO s role The senior employee in a not-forprofit agency is generally referred to as a Chief Executive Officer or CEO. In smaller community and voluntary organisations, the equivalent post may be characterised as Manager. Although there is no textbook definition of a CEO or manager s role, there is clear understanding that the role is critical in developing and maintaining the sustainability and effectiveness of an organisation. In a larger organisation the CEO will have oversight and responsibility for the areas of management listed below. In a smaller community organisation, some management functions may be undertaken in conjunction with or by Board members. In drafting a manager s job description, we recommend that the Board considers these functions and ensures that responsibility for each area is clearly assigned and documented. (The same list may provide a checklist when considering Board development). 35

36 36 Articulating the vision Planning, monitoring and improving Financial and physical resources (e.g., premises) management Income generation and fundraising Risk management, including health and safety, reputational risk There are some matters which apply to CEO and manager regardless of the size of the company:- Providing a link between the staff and the Board It is the CEO/manager s role to manage the staff this is not the Board s role. The Board should never undermine the authority of the CEO by instructing a staff member. For example, the Board members can give an order to the CEO, but not the receptionist. Representing the organisation and setting standards The Board and the CEO have a dual role in representing the organisation to the outside world and setting the standards for the organisation. This includes setting a good example when it comes to ethical behaviour, loyalty, commitment and efficiency. The Board s role in overseeing the CEO One of the most important roles of a not-for-profit Board is the selection and monitoring of the CEO. The CEO s job description should set out who the CEO reports to on a day-today basis, typically the Chairperson of the Board. Setting the CEO s pay An important part of the recruitment process involves setting the CEO s pay the package the Board offers must be capable of attracting a suitable candidate but must not demand so large a proportion of the organisation s resources that it compromises its ability to realise its plans and programmes. Setting the pay must be a matter for the Board; you cannot allow the CEO to set their own salary or give the job to any of his or her subordinates.

37 Monitoring & Reviewing the CEO The Board, in partnership with the CEO, should decide the process, time and form of the CEO s performance reviews. Reviews must be based on the CEO s job description and the objectives that should have been included in with it. The CEO s salary package will also need to be reviewed on a regular basis. 37

38 6. Legislation Overview of Legal Responsibilities Directors of companies have a range of legal responsibilities. This note does not offer legal advice, but aims to indicate some of the key areas of law of relevance to a Board of Directors, and to suggest where further information can be obtained. 6.2 Companies Acts Companies Act The Board of Directors is responsible for ensuring the organisation carries out its objects and operates within its powers according to its constitution, as specified in the company s Memorandum and Articles of Association. Directors have a wide range of legal responsibilities, including: Acting in good faith in the interests of the company as a whole Carrying out their functions with due care, skill and diligence Maintaining proper books of account Preparing annual accounts Having the accounts audited annually (where applicable) Maintaining certain registers, e.g., of Directors interests Disclosure of certain information about the company and of relevant interests Filing relevant documents with the Companies Registration Office Convening General Meetings of the company, etc. Many of the duties are specified in the Companies Acts. A useful summary of Directors responsibilities is available from the Office of the Director of Corporate Enforcement, including an information booklet available at: companies_responsibilities.aspx The Companies Acts also specify a number of legal responsibilities

39 that relate to the role of Company Secretary, whose role it is to oversee the company s day-to-day administration and to ensure that the company complies with the law and observes its own regulations. Specific legal requirements on the Secretary include providing relevant information on time on the company and its Directors to the Companies Registration Office, keeping minutes of Board meetings, notifying members of AGMs, and providing the Directors with legal and administrative support. Further information is available from the Companies Registration Office, where you can download an information leaflet on the role of the Company Secretary (leaflet no. 16 at: Careful adherence to Company Law is important for good governance and also to avoid the imposition of penalties. The Companies Registration Office can impose a range of penalties for late submission of relevant returns, and the Office of the Director of Corporate Enforcement has a range of legal powers to enforce company law. 6.3 Charities Act 2009 Introduction & Background: Until now, no charity legislation has been enacted for over forty years. The Charities Bill 2007 was first published on 16th April The Charities Act was enacted on 28th February The Act will come into effect in stages. Key aspects of the Act will provide for: A definition of charitable purposes The creation of a new Charities Regulatory Authority to secure compliance by charities with their legal obligations and also to encourage better administration of charities A Register of Charities in which all charities operating in the state must register The submission of annual activity reports by charities to the new Authority Updating the law relating to fundraising, particularly in relation to collections by way of direct debits and non-cash methods 39

40 The creation of a Charity Appeals Tribunal The provision of consultative panels to assist the Authority in its work and to ensure effective consultation with stakeholders This will provide for reliable information on: The number of active charities What their financial worth is How they spend their funds The Act can be downloaded at: 40

41 7. Other Relevant Legislation 7.1 Legislation affecting all employers Employment law Employment equality law The Employment Equality Acts 1998 and 2004 prohibit discrimination within employment on nine grounds (gender, marital status, family status, sexual orientation, religion, age, disability, race, and membership of the Traveller community). Aspects of employment that are covered by the legislation include advertising, equal pay, access to employment, work experience, terms and conditions of employment, promotion, classification of posts, and dismissal. The legislation covers full-time, part-time and temporary employees. It also prohibits sexual harassment and harassment that occurs in the workplace related to any of the nine grounds. In addition, the Employment Equality Acts oblige employers to take appropriate measures to enable people with disabilities to have access to employment, to participate or advance in employment, and to undertake training, provided the measures do not impose a disproportionate burden on the employer. Appropriate measures may include the adaptation of premises or equipment, patterns of working time, distribution of tasks, etc. Further information on the Employment Equality Acts is available from the Equality Authority, at asp?locid=106&docid=52 All claims of discrimination (except for gender discrimination claims) must be referred in the first instance to the Equality Tribunal. (Gender discrimination claims have the option of going to the Circuit Court.) The Equality Tribunal is the quasi-judicial body established to investigate, hear and decide on claims for discrimination. More information is available at Data protection legislation Data protection legislation applies to any organisation that keeps personal information about 41

42 42 individuals on computer or in a filing system. According to the legislation, an individual has a number of rights, including the right to: Be informed about the purpose for which the data about them is kept Obtain a copy of all personal data about them by making a written access request Have incorrect information rectified and, in some cases, erased Prevent data being used for some purposes Make complaints to the Data Protection Commissioner, who will investigate and has legal powers to ensure that rights are upheld Further details on the legislation and its implications can be obtained from the Data Protection Commissioner, ie, LoCall: Health and safety legislation Health and safety legislation requires the employer to ensure, so far as is reasonably practicable, the safety, health and welfare of employees at work. If the employer neglects to fulfil its legal responsibilities, it runs the risk of being found liable for offences under the legislation. The main legislation of relevance is the Safety, Health and Welfare at Work Act Some of the specific requirements that are imposed on employers include: Ensuring that the place of work and any equipment are safe and do not pose health risks Identifying hazards in the place of work, and maintaining an upto-date, written risk assessment and a safety statement based on the risk assessment Providing the training and supervision needed to ensure the health, safety and welfare of employees Having adequate plans and procedures in the case of emergencies

43 Reporting accidents or dangerous occurrences Ensuring that employees are adequately informed regarding their health, safety and welfare at work Consulting with employees in relation to issues that relate to health, safety and welfare at work Most of the specific health and safety regulations which apply to workplaces are contained in the Safety, Health and Welfare at Work (General Application) Regulations 2007, which came into effect on 1 November Further information can be obtained from the Health and Safety Authority, The HSE s publications include a Short Guide to the Safety, Health and Welfare at Work Act 2005, available at: asp?locid=18&docid= Legislation affecting Pobal grant holders If your organisation holds a contract for Pobal funding, then the following are relevant to you. If you are in receipt of public funding from other sources then you should check with your funder if these are also relevant to you. Public Procurement and EU public procurement directives Freedom of Information Employment Legislation Legislation affecting Public and State Bodies Ethics in Public Office Some companies are designated public bodies under the Ethics in Public Office Acts 1995 and Details are available in the Guidelines on Compliance with the Provisions of the Ethics in Public Office Acts 1995 and 2001: Public Servants (Fifth edition, July 2007), available on the SIPO website at: ie/en/guidelines/ethicsacts/ publicservants/ If you are in doubt as to whether an interest should be disclosed, the Ethics Acts provide for the giving of advice by the Standards in Public 43

44 Office Commission to persons who have obligations under the legislation. Such advice, where given, is binding on the person. Contact details are given at: ContactUs/ Codes of Conduct The Department of Finance requires that all State bodies should have a written Code of Conduct for Directors and employees. A framework code from the Dept of Finance is available in Appendix B of the Code of Practice for the Governance of State Bodies, available at: documents/publications/other/codeofpractice.pdf In developing their own codes of conduct, companies may find it useful to read the Code of Conduct for Directors of Pobal, which is available on Pobal s website at: Official Languages Act Certain companies are specified as public bodies in relation to the Official Languages Act This has a number of implications for the specified companies. Details are available from An Coimisinéir Teanga, including a section on their website: FAQ001GeneralQuestionsAboutTheOfficialLanguagesAct.pdf 44

45 8. Supplementary information for Boards and Board members 8.1 Insurance In its role of protecting the interests of the company, the Board of Directors may choose to obtain insurance cover for a range of eventualities, including the specific case of legal action being taken against members of Boards of Directors. In addition to general office contents insurance, relevant types of insurance cover include: Employer liability and public liability insurance, to cover accident and/or injuries to employees and to members of the public 45

46 46 Professional indemnity insurance, to cover the organisation against legal claims made in relation to advice or information provided by the organisation to clients Directors and officers liability insurance, to cover the organisation against legal claims made against individual Directors, officers or committee members of the organisation. (In a company limited by guarantee, the personal assets of Directors are not liable where a legal claim is made against the organisation as a whole, but they are liable where a claim is made against an individual Director) If your company is in receipt of funding through Pobal then it is a condition of this funding that your insurance indemnifies both Pobal and the sponsoring Department. This should not increase the cost of your insurance. The indemnification must be kept up-to-date and will be checked by Pobal auditors/ verification officers when they visit. You should also check the requirements of any other funders. See also a special issue of the Wheel s newsletter focusing on insurance for community and voluntary organisations, available at: lecheile_specialissue.pdf 8.2 Communications and Reputation Management While good communications is not a legal responsibility for Boards of Directors, protecting and enhancing the reputation of an organisation is an important element of the Board s responsibility for the interests of the company as a whole. Risks can arise including legal risks if a company does not pay sufficient attention to its communications. Elements of a communications strategy which may encompass not just external communications but also internal communications within the company may include: Identification of relevant audiences Specifying objectives for communications with different audiences Key messages to be communicated

47 In addition, it may be beneficial for a company to specify procedures in relation to communications, in order to safeguard the organisation s reputation and to ensure that its communications are consistent and in line with its ethos and strategy. For example, it may be specified that all external communications and all formal internal communications between the Board and staff should be channelled through the Chairperson and the Manager. 47