A guide to third sector trading - WCVA

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It’s an idea, but is it business? A guide to third sector trading 1: Getting started 2: First steps 3: Business planning 4: Legal and governance 5: Funding and resourcing 6: Financial controls 7: Managing growth 8: Management and governance 9: Social enterprise 10: Sources of support 8.4 The roles of the directors This section considers the roles and responsibilities of directors which are special to commercial activity in a third sector environment. The composition of boards of directors Parent company boards: Existing charities will have their own structures. But the following good practice considerations apply when creating balanced boards for parent charities and holding companies which will be in charge of trading subsidiaries. In the case of charities, the advice must be considered in conjunction with Charity Commission guidance on the roles and responsibilities of trustees. • The optimum number of trustees/directors is 8 to 12. This may not appeal to your organisation individually. But these are the numbers which work best in most cases. • Members should as far as possible be drawn from a range of different backgrounds • It is not necessary or desirable to include every councillor in every ward covered by the operation, but an interested supportive local member can be an asset. • The position is different when significant council support is involved, but it is still worth having an open and realistic discussion about the potential role of council-appointed directors, and whether they might be more useful as advisors. • Although the parent board will not be immediately responsible for the business, it is important that it includes some individuals with knowledge of trading and/or with financial experience to help exercise the board’s oversight role. • One or two of the directors with business/financial expertise should also be directors the subsidiary trading companies. • At least one member of the parent board should not be a director of any trading subsidiary. • The parent board should where possible include people and representatives of key organisations who have an interest in the community or client groups which benefits. 222
It’s an idea, but is it business? A guide to third sector trading 1: Getting started 2: First steps 3: Business planning 4: Legal and governance 5: Funding and resourcing 6: Financial controls 7: Managing growth 8: Management and governance 9: Social enterprise 10: Sources of support Trading company boards: Trading companies vary quite widely, and there is a range of opinions of what constitutes an ideal set up. Here are some suggestions. • The optimum number of directors is usually 6. This should ideally include: − a treasurer with finance experience − a chair with business management experience − directors with knowledge of the field of activity of the company − at least one person who is a member of the board of the parent company or charity, who can represent its interests when necessary and help two-way communication − at least one person who is not a director of the parent company to provide an ‘outsider’s’ view. • In some social enterprises the directors comprise a small management team of 2, 3 or perhaps 4 directors, including the paid manager. This makes for effective day-to-day business decision making. But it requires that the individuals involved are experienced and skilled, and willing to take what amounts in practice to personal responsibility for the trading venture. • It will be helpful if the chair of the parent company is a director of at least one of the trading subsidiaries. Single function boards: When the company is directly responsible for grant-funded social or community activities and trading their boards should blend the qualities listed above. • The optimum size of 8 to 12 directors applies here. • Board membership should include a balance of individuals with skills and interests related either to the business or the organisation’s social community benefit objectives, and ideally both. • Directors should be careful to treat social and trading objectives differently, and not to apply the same judgements and criteria to them both. • It is particularly important that there is an understanding among directors that they are governors of a dual-purpose organisation, whose ethos will be driven by social considerations but whose survival may depend on business success. This is not necessarily an easy balance to achieve. 223
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