Joint Memorandum by Peter Hunt, Director,
Mutuo and Cliff Mills, Partner, Cobbetts Solicitors. (FT7)
This note concentrates on Governance and
Accountability issues related to Foundation Trusts.
EXECUTIVE SUMMARY
1. The authors of this memorandum support
the proposals to establish Foundation Hospitals as mutual organisations.
Their experience in the established mutual sector has led them
to conclude that such structures will benefit patients, staff
and other interest groups alike.
1.1 A key challenge for the provision of
public services is to connect them with the people—the users,
employees, patients and the wider community. Mutual ownership
structures can help to deliver this.
1.2 Mutual organisations have a wealth of
experience in managing complex interest groups.
1.3 Mutual Foundation Trusts will build
in a constitutional role for local communities and employees.
This is to be welcomed.
1.4 There are many advantages in establishing
mutual structures, such as the promotion of a citizenship culture
and the encouragement of long term thinking in the community.
1.5 Mutual structures work. They enable
appropriate levels of involvement to be enjoyed by all stakeholders
and allow managers to manage.
2. It is vital that the appropriate corporate
form is adopted for the new Foundation Hospital Trusts. To gain
the full benefits of mutual ownership, tried and tested mutual
governance structures should be adopted.
2.1 Community ownership could make a real
and positive difference to delivering the aims of the National
Health Service.
2.2 Mutual governance structures will provide
a means for the local community to hold professional management
to account and to play a partnership role in setting strategies
to drive the organisation in serving the community.
2.3 The basic structure of community ownership
already exists in Community Benefit Society (Industrial and Provident
Society) models.
2.4 The Cabinet Office Strategy Unit has
recommended that this corporate form may be adapted to run public
services.
2.5 Company structures are not the most
appropriate because the Company Limited by Guarantee is based
on the underlying assumption of a financial interest in the company,
unlike the community owned alternative.
3. In establishing successful and vibrant
Foundation Hospitals, the experience of the best of the mutual
sector should be drawn upon. New governance procedures will be
adopted, requiring new skills and methods of working.
3.1 New mutuals need special skills, backed
up by experienced advice from established mutual societies.
3.2 This will include advice on governance
structures, governance development, running elections, elected
member training and elected member mentoring.
3.3 Some of this advice will be generic
and applicable to all trusts, and some of it will require specific
help to individual hospital trusts.
INTRODUCTION
A key challenge for the provision of public
services is to connect them with the people—the users, employees,
patients and the wider community. In a modern society, it is essential
to foster a kind of ownership that enables stakeholders to feel
that these services are run on their behalf, and not for someone
else's vested interest.
For over 150 years, mutual societies have delivered
a wide range of services to the public: some are commercial, such
as financial services and retail products and others are related
to satisfying social needs. These societies have sought to balance
the interests of different groups in the provision of these services.
This effort has built up a wide range of practical experience
in dealing with governance and accountability issues in such organisations.
The founders of these societies (they are not
companies) invented mutual structures—membership organisations
that were committed to the members they served, often very large
sections of the population. Many of these mutuals continue to
thrive today, playing a distinct role in the market place.
In a modern context, this very structure is
ideally suited for the provision of many public services. Modern
community mutuals can include all stakeholders, including Government,
by making management accountable to a board comprising employee,
customer and Government representatives, along with other stakeholders.
Of course managers must have the freedom to make tough decisions,
but this structure of accountability ensures that these decisions
are made with the right interests in mind.
As well as addressing the weakness of the decision-making
process in the traditional company or publicly administered structures,
these models also provide many benefits in their own right, such
as local community control, a constitutional role for employees,
the promotion of a citizenship culture and the encouragement of
long-term thinking in the interests of the community. They achieve
the basic objectives of efficiency and flexibility but they also
connect with their stakeholders far more effectively than many
proprietary businesses or state providers.
There are a host of examples of mutual enterprises
in Britain (not to mention Europe and North America) taking on
some of the old functions of the State far more efficiently and
cost-effectively than the private sector ever could. A fine example
of this is Greenwich Leisure, a communally-owned sports and recreation
facility. It was converted from a local authority department into
a mutual in 1993 to help Greenwich Council escape from the tight
financial constraints they were under at that time. The result
has been a highly-successful enterprise which has trebled its
income in the last six years to over £9 million, increased
the number of leisure facilities in Greenwich from seven to eleven
and more than halved the cost to the local authority for the service.
Residential care and childcare are two other
sectors that are increasingly embracing this mutual option, and
there is certainly scope to apply similar models to utilities
such as water—privatised in England and Wales but still
publicly owned in Scotland and Northern Ireland. The mutual sector
has the potential to offer the Government a way out of the impasse
presented by the sterile public/private debate.
COMMUNITY OWNERSHIP
FOR THE
NHS?
Community ownership could make a real difference
to delivering the aims of the NHS. It could be a powerful vehicle
for Primary Care Trusts, delivering real engagement between communities/customers
and the providers of health services. It could also be a powerful
vehicle for Foundation Hospitals, which in one sense are federal
or secondary organisations providing services and responding to
the needs at primary level, but which also have their own local
community membership which could have appropriate representation
through a stakeholder council.
Community ownership provides a mechanism for
the various interest groups within each community (patients, their
families, associated agencies including voluntary and charitable
bodies, and workers in the health service itself) to have appropriate
representation at board level through democratic elections. This
provides the means for the local community to hold professional
management to account for their performance, to play a part in
setting strategies and policy and to drive the success of the
organisation in serving the community. Direct responsibility for
day-to-day management would remain with chief executives, along
with finance and other appropriate executives, whom the board
would appoint and oversee in the performance of their duties.
GOVERNANCE STRUCTURES
The basic structure of community ownership,
along the lines set out above, already exists in Industrial and
Provident Society models. These could be developed and extended
for use in the provision of healthcare.
In theory it would be possible to replicate
most of the features of community ownership in a company vehicle,
such as a Company Limited by Guarantee. Lawyers could re-engineer
the CLG legal form to do this, but there would be some serious
drawbacks and disadvantages in going down this route.
The first and most obvious point is that the
Company Limited by Guarantee is not designed to achieve a social
purpose. It would be necessary to provide the same protection
for the social purpose (and other features such as democratic
accountability) that the FSA currently provides for Industrial
and Provident Societies. At present the Registrar of Companies
(who is responsible for the registration of companies) is not
equipped or authorised to carry out such a function, and it would
be a duplication to provide a service which already exists elsewhere.
Secondly, as the Cabinet Office Strategy Unit
report, "Private Action, Public Benefit" (2002) points
out, the Company Limited by Guarantee is based on the underlying
assumption of a financial interest in the company, which is not
the case in community ownership. Moreover, as the same report
also points out (and of perhaps greater significance) the company
"brand" is almost exclusively associated with profit-making,
which undermines any attempt to create a different culture.
It may well be sensible to explore different
types of corporate vehicle, particularly for the rapidly increasing
social enterprise sector. The Strategy Unit recommends that a
Community Interest Company be established, and this is certainly
something that should be pursued further. But for the reasons
set out in this note, it would not be an appropriate vehicle for
community ownership. Community ownership needs a different and
distinctive legal form, which is appropriate for its objectives
and leaves behind the baggage carried by the company background.
ESTABLISHING SUCCESSFUL
FOUNDATION TRUSTS
Fulfilling the aim of improving the health and
well-being of people in England requires more than a financial
commitment, more than just the provision of modern services. It
requires an engagement with people, and with communities; it involves
helping individuals to understand how to maintain and improve
their own health, and to support each other as citizens; it requires
a healthcare service which serves people, and which meets their
local needs; it requires a service where health workers and other
support services have a proper place in the framework, not just
as functionaries but as participants with a real sense of ownership
in delivering care.
WORKING WITH
THE ESTABLISHED
MUTUAL SECTOR
Such a vision will not be realised unless we
are prepared to break away from the entrenched thinking about
business forms. Remote or unaccountable ownership will fail to
deliver the results we need. Democratic community ownership can
provide the platform needed to realise the vision, and the legal
model is available now to provide the framework.
In establishing successful and vibrant Foundation
Hospitals, the experience of the best of the mutual sector should
be drawn upon. New governance procedures will be adopted, requiring
new skills and methods of working.
New mutuals need special skills, backed up by
experienced advice from established mutual societies. This will
include advice on governance structures, governance development,
running elections, elected member training and elected member
mentoring. Some of this advice will be generic and applicable
to all trusts, and some of it will require specific help to individual
hospital trusts.
January 2003
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