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Lord Warner: My noble friend is, as ever, perceptive in identifying some of the problems that might arise. My personal view is that it would be unsatisfactory for people to be discriminated against for expressing certain views about a policy. However, I do not believe that we can prescribe these matters in primary legislation. I shall reflect further on the points that my noble friend made to determine whether I can give him further reassurance at a later stage.

Lord Clement-Jones: I thank the Minister for his response. This is only a very small crack in the edifice but nevertheless it shows that the Government are actively thinking about the shape of the governance structure. It was a rococo piece of the architecture which is no longer usefully required. However, I say to the noble Lord, Lord Lipsey, that it certainly is not the make or break of

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this particular set of provisions and I remain just as pessimistic as before. But, in the mean time, I beg leave to withdraw Amendment No. 27.

Amendment, by leave, withdrawn.

[Amendment No. 26 not moved.]

Lord Hunt of Kings Heath moved Amendment No. 28:


    Page 109, line 5, leave out from "may" to second "to" in line 6 and insert "become a member of a public benefit corporation on an application made"

On Question, amendment agreed to.

[Amendments Nos. 29 and 30 not moved.]

Baroness Noakes moved Amendment No. 31:


    Page 109, line 10, at end insert—


"( ) The principal role of the board of governors is to advise the board of directors of the corporation as to its forward plans."

The noble Baroness said: I rise to move Amendment No. 31 which inserts a new sub-paragraph into paragraph 6 of Schedule 1. The effect of the amendment is to define what the principal role of the board of governors is.

On our first Committee day my noble friend Lady Hanham repeatedly asked the Minister to define what the board of governors was supposed to do. The Minister did not answer the question and indeed said:


    "We thought that the role of the boards of governors was clear from the Bill".—[Official Report, 7/10/03; col. 216.]

Let me say to the Minister that the Bill is as clear as mud on the role of the board of governors. Amendment No. 31 seeks to provide that clarity.

The noble Baroness, Lady Barker, pointed out forcefully on the Committee's first day that the Government positively chose to turn their back on the various corporate models that already exist for non-profits. We do not agree with that approach but believe that, if the Government are set on it, it is incumbent on them to be absolutely clear about how the model is supposed to work and, specifically, who does what.

When the Government issued their guide to foundation trusts last December, they said in paragraph 2.33:


    "Legislation will set out the minimum functions that the Board of Governors must be responsible for".

Those functions were described in paragraph 2.32 as,


    "to work with the Management Board to ensure that the NHS Foundation Trust acts in a way that is consistent with its objects and with the conditions under which it is licensed to operate . . . and to help set the strategic direction".

The paragraph went on to state:


    "The Board of Governors will not be involved in . . . day to day management".

I have searched very hard in Schedule 1 to see how those aims have been realised in the draft legislation. Various tasks are identified for the board of governors, including being consulted on forward planning under paragraph 25(2). However, there is no comprehensive statement of its functions, nor is any guiding principle set out, which is what our amendment seeks to do.

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There are very real fears among the NHS trusts thinking of becoming foundation trusts that the board of governors will try to interfere in day-to-day issues. My noble friend Lady Hanham spoke on that from her considerable experience earlier this week. The NHS Confederation, which knows a thing or two about how organisations work in the NHS, supports the amendment and believes that clarity is essential.

The types of people who come forward for election as governors are more likely to have a detailed interest in how a foundation trust will operate than in its strategy. That is the nature of the world; strategic thinkers are few and far between. However, life would rapidly become impossible for a foundation trust if the board of governors, for example, tried to second guess the board of directors. Our amendment defines the governors' role as advisory.

I shall not claim perfection for the wording, but I believe that it is right in principle that the respective roles of the boards of governors and directors are clear from the outset. That is necessary if misunderstandings are to be avoided later. It is all the more important because of the quasi-democracy that drives the composition of the board of governors.

There is reasonable clarity about how the boards of NHS trusts currently operate. It is not perfect, as many with experience in the area will say. For example, new non-executive directors often take a while to learn about their non-executive functions. Now, foundation trusts will have an overlay of a largely untried and untested governing body, with no clear role specified for them. It would be hugely damaging to the NHS if boards of governors were to be created without clarity at the outset for their role. I beg to move.

Baroness Cumberlege: I support the amendment. I seek greater clarity about the boards of governors and directors and their relationship with the strategic health authorities. I understand that those authorities do not have a performance management role in the new set-up for foundation hospitals. We all know that the health service is very intricate. However, increasingly, we have seen clinical networks established that are proving to be a great move forward in improving clinical results.

Nevertheless, I am very anxious. There is a great danger that the progress already made will be lost without an overview from someone similar to a strategic health authority, and I want to know who undertakes that role and what the relationship is if we are to ensure that national standards are maintained. I appreciate that the Committee will later debate the role of the regulator and the Commission for Healthcare Audit and Inspection, which have a part in monitoring success or failure, but they will come in a retrospective sense. They will see when something has gone wrong. Surely we need to ensure the prevention of things going wrong. I would welcome the Minister's views on that.

Lord Hunt of Kings Heath: I do not agree with the terms of the amendment, but the noble Baroness, Lady Noakes, has started an important debate that

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will permeate much of our discussion of Schedule 1. I am sorry that the noble Baroness, Lady Hanham, is not in her place, because she reflected the views of almost all the chairs of the first-wave applicant foundation trusts in expressing concern about some aspects of the governance structure. The problem is that, in drafting the Bill, a new governing body has been placed alongside the current governance structure for NHS trusts. That does not quite work.

I disagree with the noble Baroness, Lady Noakes, in thinking that sovereignty should reside in the board of governors, whereas clearly she thinks that it should reside in the board of directors. I suspect that her view is shared by rather more foundation trust applicants than mine; indeed, I do not think that I have come across one foundation trust applicant that shares my view, which is why I have not tabled any amendment on it. I think it important that the governing body be seen as the sovereign body because the provisions are about transferring accountability of Ministers to Parliament for the running of health services to the local community. Unless the local community has a way to exercise that accountability, the provisions will not work. That is why I think it important that the governing body—the body that will have a majority of elected members—should be seen as the prime decision-making body in a foundation trust.

The Explanatory Notes describe the board of directors as being responsible for day-to-day management, but the Bill does not produce that. The Bill makes it clear that the corporate responsibility for foundation trusts resides in the board of directors. So far as I can see, the only power that the board of governors has is the nuclear option of being able to appoint and replace the non-execs, and to approve or not approve recommendations made by the chief executive in relation to the appointment of executive directors.

People will put their names forward for election to the governing body, and will presumably have to write, argue their case in a manifesto and go on the hustings. I assume that public meetings will be organised. When they get to their first meeting of the governing body, they will expect to govern—that is what governing bodies do. However, they will find that there is nothing to govern because they have no power whatever, except the power to deal with the appointment of non-execs and with the approval or not of recommendations made by the chief executive in relation to executive directors. That is a recipe for trouble, because there is a real risk that the good people elected to the governing body will walk away after a few weeks when they realise that there is no role for them to undertake. People who want to make trouble will make trouble.

We have gone too far down the line to change the architecture of the Bill as I suggest. For me, it is quite clear that we should have a governing body and a management board, and that the management board should comprise solely executive directors and should work under a scheme of delegation. That would be a very straightforward governance arrangement. However, I suspect that it is too difficult to make that change at present. We will have to depend on the skill

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of the chairs of the new foundation trusts to ensure that the governing bodies, notwithstanding that they have hardly any power, are given useful work to do so that their members feel that they are worth while.

It is significant that a large number of foundation trust applicants, in their consultation documents, do not describe the governing body as a governing body. They refer to it as a members' council. I am sure that statutorily that is just about all right, but it is a curious way of going about things when the Bill before us refers to a governing body.

In the course of this Committee stage we need to be absolutely clear about the role of the governing body and its relationship to the board of directors. I disagree with the noble Baroness because I believe she is wrong in trying to constrain power within the board of directors. That would be a recipe for great trouble ahead.

Noon

Lord Clement-Jones: It is a pleasure to agree with the noble Lord, Lord Hunt. I have similar concerns with regard to the amendment, and whatever the rights or wrongs of it, it is vital to define the powers of the individual bodies. While accepting that it is the role of the board of governors to set strategic direction, it is also its role to act in a representative capacity, to undertake overall governance of the trust and so forth. However, I doubt whether use of the word "sovereignty" is correct. There is a division of powers between the two bodies involved.

We have little experience of two-tier boards in this country, but here we have the Government picking random things off the shelf and not even defining what the two bodies are meant to do. It is a complex matter. Our company law on the matter runs to many pages—and that deals merely with a single board.

As regards company law, I am in favour of one of the European models of two-tier boards and can well envisage how they could operate successfully in NHS hospital trusts. But a lack of definition and power for the top tier will not work to the benefit of foundation hospitals.

I do not know where the "nuclear" option comes from. I agree with the noble Lord, Lord Hunt, that the only real option for the board of governors seems to be whether to sack the non-executives. Strangely enough, the nearest model I can think of is the European Parliament, which has the power to sack Commissioners if it does not like them. I do not believe that that has been a beneficial way of operating and it has had to change its constitution to give itself more power, as have successive IGCs.

Although not agreeing precisely with the terms of the amendment, I believe that the Minister needs to take back the whole of Schedule 1 and look again at the definition of powers. Of course there is plenty of time to do this.


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