Simply GOVERNANCE A comprehensive guide to understanding the systems and processes concerned with the running of a sustainable community enterprise 1st Edition June 2011 Published by: Co-operatives UK Holyoake House Hanover Street Manchester M60 0AS Tel: 0161 246 2900 Fax: 0161 831 7684 email: [email protected] web: www.uk.coop © Copyright: Co-operatives UK 2011 Co-operatives UK is the national trade body that campaigns for co-operation and works to promote, develop and unite co-operative enterprises. Co-operatives UK aims to bring together all those with a passion and interest in co-operative action. Design, artwork and illustration by www.wave.coop Printed on recycled paper. You can get details of other publications from our website. This guide has been produced as part of the Making Local Food Work Project. ISBN: 978-0-9549677-2-7 Foreword Co-operatives UK has come up with a This guide demystifies governance in worthy sister publication to the highly a way that makes it possible for every respected Simply Legal guide. member of any community enterprise to understand how their organisation ticks Good governance is critical to the success and how they can engage positively with of any enterprise and is particularly the rest of the membership to ensure the important in an enterprise which is owned organisation is effective, accountable and by a large number of people. It is vital to sustainable in all senses of the word. balance the needs and aspirations of all members in a way that also allows the David Button membership to participate in the decision- Chair, Co-operatives UK making process. It is also vital that the organisation is legally compliant and financially sound, and that this occurs David Button has over thirty years’ experience by design and not by accident. in the co-operative sector, having held key senior positions in ‘Food from Britain’, both as agricultural co-operative development director Time and again we encounter and as financial controller. organisations which have regarded their structure and governance as bureaucratic David is the past chair of the Plunkett Foundation obstacles to overcome whilst setting up, and to date represents The Food and Farming rather than as living systems and processes Foundation, whose mission is to strengthen the supply chain between agriculture and the market. which will help throughout the lifetime of the organisation if they are allowed to. 3 Contents Foreword 3 1 Introduction 8 1.1 Acknowledgements 8 1.2 What this guide does 8 1.3 Supporting web resources 8 1.4 Who this guide is for 9 1.4.1 Co-operative 9 1.4.2 Social Enterprise 10 1.4.3 Community enterprise 10 1.4.4 Applicability of this guide to different types of organisation 11 1.5 Sister publications 11 2 Governance 12 2.1 What is governance? 12 2.2 Why is governance important? 12 2.3 Governance of co-operative and community enterprises 13 2.4 Governance of community investment organisations 13 3 Legal forms and organisational types in community enterprise 14 3.1 Legal Form 14 3.2 Organisational Type 15 3.2.1 Common organisational types of community enterprises 15 3.3 Typical structures of community enterprises 16 3.4 Charitable status and community enterprise 17 4 Governing documents 18 4.1 What is a governing document? 18 4.2 Purpose of the governing document 18 4.3 Types of governing document 19 4.4 Governing document – Frequently Asked Questions 20 4.5 Typical contents of the governing document 21 4.6 Name of the organisation 22 4.6.1 Sensitive words 22 4.6.2 Use of Ltd and CIC in the name 22 4.6.3 Trading names or business names 22 4.6.4 Display of organisation’s name 23 4.7 Objects 23 4.7.1 Restricted objects 23 4.7.2 Acts outside of objects – ultra vires 24 4.8 Powers 24 4.9 Statement of liability 24 4.10 Membership 26 4.10.1 Who can be a member? 26 4 4.10.2 How members join the organisation 26 4.10.3 How membership ceases 27 4.10.4 Classes of membership and multi-stakeholder governance 27 4.10.5 Legal responsibilities – register of members 28 4.10.6 Single member organisations 29 4.10.7 Membership – Frequently Asked Questions 30 4.11 The governing body 31 4.11.1 Collective or committee management? 31 4.11.2 Governing body name 31 4.11.3 Who is eligible to serve on the governing body? 32 4.11.4 Joining the governing body 32 4.11.5 Leaving the governing body 33 4.11.6 Powers of the governing body 34 4.11.7 Duties of company directors 34 4.11.8 Duties of the committee members of a society 35 4.11.9 Duties of the committee members of an unincorporated association 36 4.11.10 Officers 36 4.11.11 Company secretary 36 4.11.12 Governing Body – Frequently Asked Questions 37 4.12 Meetings 38 4.12.1 General meetings (including annual general meetings) 38 4.12.2 Meetings of the governing body 39 4.12.3 Notice of meetings 39 4.12.4 Quorum 40 4.12.5 Voting 40 4.12.6 Proxy votes and proxies 41 4.12.7 Frequency of meetings 42 4.12.8 Meetings – Frequently Asked Questions 43 4.13 Application of surplus or profit 44 4.13.1 Application of surplus – Frequently Asked Questions 45 4.14 Changing the governing document 46 4.14.1 General Meetings – proposals 46 4.14.2 Filing requirements for changes in governance 47 4.14.3 Limits on changes to the governing document 48 4.14.4 Entrenchment of provisions in companies 48 4.14.5 Changing governing document – Frequently Asked Questions 49 4.15 Dissolution 50 4.15.1 Typical common ownership dissolution clause 51 4.15.2 Typical co-ownership dissolution clause 51 4.15.3 Typical community interest company dissolution clause 51 4.15.4 Typical society common ownership dissolution clause 51 4.15.5 Dissolution – Frequently Asked Questions 52 4.16 Other information contained in the governing document 53 5 5 Additional governance related documents 54 5.1 Secondary rules 55 5.2 Membership descriptions and agreements 55 5.3 Standing orders 55 5.4 Policies 56 5.4.1 Job descriptions 56 5.4.2 Recruitment policy 57 5.4.3 Volunteer agreements 57 5.4.4 Health and Safety policy 58 5.4.5 Environmental and/or Ethical policy 58 5.4.6 Child protection (and vulnerable adults) 58 5.4.7 Equality of opportunity and diversity policy 59 5.5 Procedures 59 5.5.1 Grievance and disciplinary procedures 59 5.5.2 Risk management/disaster recovery plans 60 5.5.3 Frequently Asked Questions relating to additional governance related documents 61 6 Ownership and assets 62 6.1 Common ownership 62 6.2 Co-ownership or joint ownership 63 6.3 Asset lock 64 6.3.1 Statutory asset lock 64 6.3.2 Elective asset lock 64 6.4 Frequently Asked Questions relating to ownership 65 7 Decision making 66 7.1 Traditional meeting styles 66 7.1.1 Advantages of a traditional meeting style 66 7.1.2 Disadvantages of a traditional meeting style 67 7.2 Alternative decision-making and meeting strategies 67 7.2.1 Open Space 67 7.2.2 World Café 68 7.2.3 Talking stick 68 7.3 Consensus decision-making 68 7.4 Decision-making – the legal position 69 8 Start-up governance 70 8.1 Types of start-up 70 8.2 Entrepreneurial start-up 70 8.3 Community as entrepreneur 71 8.4 Participatory planning 71 8.5 Stakeholder Analysis 72 8.6 Steering group 72 8.7 Transition to trading 72 8.8 Expert advice and outside help 73 6 9 Common governance problems of community enterprises 74 9.1 Mistakes at start-up 75 9.1.1 Suggested strategies 75 9.1.2 Case Study – community-owned shop 77 9.2 Inflexible structures and systems 78 9.2.1 Case Study – Community Supported Agriculture 79 9.3 Poor clarity of roles within the organisation 80 9.3.1 Case Study – Market Traders’ Co-operative 81 9.4 Difficulty recruiting to the governing body 82 9.5 Poor accountability to stakeholders 82 9.6 Poorly performing governing body 83 9.6.1 Case Study – urban allotment project 85 9.7 Poor membership participation 86 9.7.1 Case Study – Producer co-operative 87 9.8 Ineffective meetings 88 9.9 Mission drift 88 9.9.1 Case Study – “Worker co-operative” agriculture project 90 9.10 Founder syndrome 91 9.11 Poorly handled conflict within the organisation 91 10 Codes of governance 93 10.1 Worker co-operative code 93 10.2 Code of best practice for consumer co-operative societies 93 10.3 Governance Standards for co-ops and farmer controlled businesses 93 10.4 Good Governance: a code for the voluntary and community sector 93 10.5 Community enterprise code 93 11 Appendix A – Governance audit 94 11.1 Structure and organisation 95 11.2 Policies and procedures 96 11.3 Accountability to stakeholders 97 11.4 Membership participation and general meetings 98 11.5 Clarity of roles 99 11.6 Composition and recruitment of the governing body 100 11.7 Performance of the governing body 101 11.8 Meetings of the governing body 102 11.9 Strategic planning and risk management 103 11.10 Radar chart representation 104 12 Glossary of common terms 105 13 Additional resources 110 7 Introduction In this section we define the purpose and scope of this guide and 1 define some of the types of organisation that the guide is aimed at.