The FCA requires all societies’ rules to state how the board of directors will be appointed and removed, and similarly, how the officers of the board will be appointed and removed, and the arrangements, if any, for paying directors. Under society legislation the minimum age for directors is 16.
The good governance of a society depends on having an active board, elected by the members, to oversee the affairs of the society. In electing a board, members are delegating their sovereign powers to this body. The directors are accountable to the membership, and are responsible for supervising the managers and executive staff who run the business. Societies, except for charitable societies, can choose to have a mix of executive and non-executive directors, or opt for an exclusively non-executive board, serviced by executive staff. The directors of charitable community benefit societies have a duty to act solely in the interest of the charity and must prevent conflicts of interest from affecting their decisions. This means they cannot receive any payment or benefit without authority, so it is unusual for charities to have executive directors on the board (see www.gov.uk/payments-to-charity-trustees-what-the-rules-are ).
Consideration needs to be given to the size of the board, its composition, and the length of service of directors. Usually the size of the board is expressed in terms of a minimum and maximum number of directors, typically between three and 12. Some multi-stakeholder societies have rules that reserve a set number of places on the board for different membership categories. Societies may also have rules that allow the board to co-opt directors with specialist or professional skills. Most societies require directors to either retire or seek re-election after a defined period, typically three years, usually on a rotational basis so that no more than a third of the board are standing for election, thus allowing for some continuity of membership.
As a matter of good practice most societies, including charitable community benefit societies, will pay directors out-of-pocket expenses. Some societies also pay directors a fee commensurate with the services they provide. Charitable community benefit societies should follow the guidance provided by their national charity regulator on this matter, and ensure that their rules are compatible with this guidance.
Societies must have rules to remove directors. Usually this is a power held by a simple majority vote of members at a general meeting. Societies will normally have rules for removing directors who have been declared bankrupt, or are deemed medically incapable of carrying out their duties. Some societies have rules to remove directors if they fail to attend a minimum consecutive number of meetings.
The rules must also address the appointment of officers. All societies are obliged by law to appoint a secretary. Other officer posts, such as treasurer, chair and vice-chair, are at the discretion of the society. Other discretionary rules include provisions for the proceedings at board meetings, focusing mainly on quora and the role of the chair and the use of electronic media to conduct remote meetings.
The directors of a charitable community benefit society are charity trustees by law, and are responsible for fulfilling their personal duties as trustees and ensuring that the society complies with the requirements of charity law. (See Charity Commission CC3: The Essential Trustee.)
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