Is organisational altruism possible for foundation trusts?

John Coutts profile picture

27 August 2019

John Coutts
Policy Advisor - Governance
NHS Providers


 

There is a commonly held view that organisational altruism isn’t possible for NHS foundation trusts and that they have a legal obligation to put the organisation first. This perception is based on Paragraph 18A of the Schedule 7 of the National Health Service Act 2006 as amended by the Health and Social Care Act 2012 (the amended Act) which reads: "The general duty of the board of directors, and of each director individually, is to act with a view to promoting the success of the corporation so as to maximise the benefits for the members of the corporation as a whole and for the public."

 

This paragraph is itself a derivation of Section 172 of the Companies Act 2006. Until recently companies have taken a narrow interpretation of Section 172 to mean that maintaining or increasing share value, even in the shorter term is paramount. This has led to an equally narrow view of Paragraph 18A: that foundation trusts need to maximise the healthcare benefits for the public in their immediate locale: that there is a legal obligation for the local to take precedence over broader regional and system needs. However there appears to be a change in the way company law is being interpreted, with a broader view about what maximising shareholder benefit actually means. Perhaps it is timely therefore to consider whether we have been wrong about the emphasis we place on supposed legal constraints on foundation trusts.

Doesn't success depend on relationships outside the organisation as well as inside, relationships that can only be fostered by positive interaction? Doesn't the success of the corporation also mean playing a major role with positive outcomes in the region and system so that services to a broader public are improved or sustained?

John Coutts    Policy Advisor - Governance

 

First we have to ask ourselves what "promoting the success of the corporation" actually means. Just as a broader view of company law has led to factors other than share value being taken into account in assessment of whether directors are fulfilling their roles, for foundation trusts we need to move beyond just considering local issues in isolation from relationships across a wider geography. Doesn't success depend on relationships outside the organisation as well as inside, relationships that can only be fostered by positive interaction? Doesn't the success of the corporation also mean playing a major role with positive outcomes in the region and system so that services to a broader public are improved or sustained? Doesn’t success mean working effectively with the centre and with regulators so that the NHS can share what is good and deal with what is not? Doesn’t it mean managing risk that is common to the trust and its neighbours and can only be dealt with in collaboration? If these things are true, and we think they are, then "promoting the success of the corporation" should be no barrier to system working because constructive interaction with the NHS is part and parcel of what success means.

 

What about "maximising the benefits for members and the public?" First we need to ask: who are members and what is our public? Many, if not all foundation trusts have a 'rest of England' constituency for their memberships. This is quite legitimate: trusts in Cornwall, Cumbria or Cheshire may be used by holidaymakers; any trust near a motorway or in a city might be serving patients from anywhere at all; many trusts offer specialised services drawing on a patient base beyond their local area. A case can be made for every foundation trust to have a rest of England membership, so anyone could be a member. It follows that the 'public' is anyone the trust might serve – in other words everyone. This leads to the inevitable conclusion that foundation trusts would be remiss in their duties if they did not take a broader view of delivering patient benefits across their region, system and further afield.

 

In cases where a foundation trust is proposing organisational altruism for the benefit of the broader public, but the decision is potentially controversial, boards will also want to ensure that any decision is as airtight as possible.

John Coutts    Policy Advisor - Governance

None of this has been tested in the courts, so it remains a matter of opinion until such time as there is a legal challenge. Unfortunately a legal challenge is most likely to come when controversial decisions are being made: the closure of an accident and emergency department or the centralisation of a particular service in another part of the region for example. When participating with system partners in making such decisions boards will clearly want to ensure effective public engagement. In cases where a foundation trust is proposing organisational altruism for the benefit of the broader public, but the decision is potentially controversial, boards will also want to ensure that any decision is as airtight as possible. The starting point is that the process for making the decision itself needs to be rigorous. This implies a decision taken by each board involved rather than under delegation. In deciding whether to proceed with a proposal the questions that each director may wish to ask themselves include:

 

  • Is what is proposed lawful? Boards may wish to make a policy decision on their interpretation of Section 18A well in advance of any difficult decisions, but each case still needs to be considered on its merits in terms of public benefit. We believe it is reasonable for boards to draw the conclusion that organisational altruism is permissible, but there are divergent legal opinions on this. Clearly if a board decides to take a legal opinion it will be constrained to follow it.
  • Does the proposal have a sound evidence base that we have tested through robust challenge?
  • Have we as a board taken account of all the information relevant to the issue and discounted that which is not relevant?
  • Have we exercised our skills diligently and used our independent judgment in reaching the decision?
  • Have we assured ourselves that the risks entailed in the decision will be properly and effectively managed?
  • Do we have adequate, continuing sources of assurance and are we satisfied that we will be able to take decisive action in the event that gaps in assurance arise?
  • Have we ensured that we have avoided conflicts in reaching the decision?
  • Have we satisfied ourselves that all of the above is the case and do we have evidence to substantiate it?

If the above is the case there is no reason to believe that even controversial decisions cannot be made for the benefit of the broader public rather than just the immediate catchment area. So in conclusion we take the view that the legal duties and liabilities of foundation trust directors are not an insurmountable barrier to effective system working within Integrated Care Systems, or to organisational altruism.

This blog was first placed in HSJ.

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John Coutts
Policy Advisor - Governance

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