Governance Dilemma Newsletter

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Read the latest May 2025 dilemma here.

For an example of a previous Governance Dilemma, see below:

Governance Dilemma

Mark has just returned from a long holiday during which he deliberately ‘dropped out of contact’ with his work life, which included his board role on a not-for-profit company which is also a registered charity. The board meets every second month and he missed a meeting but wasn’t overly concerned as he had spoken with the chairperson before arranging the holiday and received approval for an absence. Last night he received the notice for the next board meeting and was surprised to see that apart from himself and the chairperson all the other board member names were new. The minutes are short and simply record that the board met and received reports about the company’s performance. There is no record of anyone resigning or of any major change. Mark rang the chairperson and asked what had happened. Apparently, there was a big disagreement at the last board meeting, so the chairperson asked the other directors to leave and replaced them with some ‘trusted friends’. Mark had got on well with his board colleagues and, after his talk with the chairperson, – which left him as ill-informed as he was beforehand – Mark called his closest friend from among his former colleagues. The friend said that he and the other directors had disagreed with a proposal but that they couldn’t discuss it as they were bound by confidentiality. The friend confirmed that the chairperson had asked him to leave and suggested that it would have been untenable to stay after the chairperson requested his resignation; however, he did say that there was nothing for Mark to be concerned about and that it was just a difference of opinion about where the company should be headed.  The papers for the coming meeting are fairly bland and have a lot of operational and background papers that will be helpful for the four new directors. There is no mention of any new initiative. There is nothing that gives Mark a clue about what might have happened or what to do next.  What should he do?

Clodagh O’Reilly’s response: 

I should imagine it was a huge shock for Mark to return from holidays and discover there was an almost entirely new group of directors around the board table!

It is clear that the minutes of the previous board meeting are insufficient and do not contain the key details of discussions and decisions made at the previous board meeting. The minutes of meetings should reflect the discussion and record decisions. Mark, as a director, is entitled, and furthermore, required to know the details of the discussions and what led to the resignation/termination of the directors at the previous meeting. This should be his first step, going back to the chair to request a full disclosure of the new proposal and the discussion that followed at the meeting. Without this information, his capacity to make informed decisions going forward will be hampered. Mark will need to evaluate if the contentious new project deviates from the mission of the organisation. It may push the charity to operate beyond its approved objectives as per the constitution, which would jeopardize its charitable status and indeed, the limited liability of the directors. If Mark is not provided with this information to his satisfaction, which allows him to make a full risk assessment of the new proposal, it is difficult to see how his position on the board could remain tenable. The ‘bland’ papers for the upcoming board meeting will further heighten his concerns as they seemingly, perhaps intentionally, are seeking to sanitize the previous disagreements. If his concerns are not alleviated and the information requested is not satisfactorily provided, he should consider taking independent legal advice and/or making a report to the charity regulator highlighting the governance breaches.

Mark should revert to the constitution and board procedures to review the process for the removal and approval of directors. It seems unlikely this process has been appropriately followed, either for the dismissal of the previous directors, or the appointment of the new directors. Was there a quorum present to elect the new directors, if all other directors had resigned? Furthermore, the fact that the new directors are ‘trusted friends’ of the chair, suggests there may be a conflict of interest and a lack of independence.

Ultimately, Mark, as a charity trustee, on behalf of all the stakeholders, particularly the beneficiaries, has an obligation to ensure good governance practices are in place and must take the necessary steps.

Patrick Downes’ Response: 

Mark has every reason to be concerned. What has happened here is highly unusual and raises serious governance red flags. A Chair does not have the authority to simply dismiss board members and replace them with “trusted friends” without following due process. This situation demands immediate scrutiny.

Mark’s first step should be to establish exactly what happened. The sudden replacement of an entire board, with no formal resignations or recorded discussions, suggests something significant occurred. While Mark’s former colleagues may be bound by confidentiality, the fact that they all resigned after a disagreement indicates the issue was exceptionally serious. Mark needs to probe—was this a strategic dispute, a financial matter, or a governance breach? Understanding the nature of the disagreement will help him decide his next steps.

He should then look at the company’s constitution and governance framework or the Trustees Code of Practice if there is one. The rules on board appointments and removals should be clearly outlined in the governing document. The unilateral removal of so many directors would be rare and I would query if the Charities Regulator had been advised or if there were any implications in that regard. The Charities Governance Code, has clear requirements for transparency and board decision-making. As a sitting board member, Mark has the right to review these documents and should do so without delay and indeed may wish to seek independent legal advice.

Governance best practice requires that all major decisions be documented. Given there is no record of the exit of the Trustee’s, that is a major red flag. Mark should also consider whether there are financial or operational implications. The fact that the upcoming board papers contain no mention of new initiatives suggests the Chair may be keeping information from the remaining Trustee’s. A detailed review of financial statements and audit reports could reveal if there were concerns that led to the Trustee’s departure.

At this point, Mark must decide whether to stay and challenge the Chair’s actions or step away. If he remains, he should demand an emergency board meeting to clarify governance processes. If he resigns, he must document his reasons to protect himself from future liability. He might also want to consider ensuring that the company’s Directors and Officers (D&O) insurance policy is up to date. Either way, he must act decisively and quickly to ensure proper governance is restored and any potential reputational risk is mitigated.

Mark should take a firm but careful approach:

•     Request an emergency board meeting where the chairperson formally explains the changes.

•     Demand full disclosure of board minutes and governance documentation.

•     Engage with the Charities Regulator (if applicable) or legal counsel if irregularities are found.

Aileen Hickey’s Response: 

Mark is correct to be concerned as there is a requirement for charity trustees to adhere to the highest standards of conduct in the performance of their duties as outlined by the Charity Regulator. In this instance, the Chair does not appear to be acting in the best interests of the charity, particularly, as regards to the high standards that must be met and the duty to fairness and independence of charity trustees.

There is a constitutional provision in the governing document for most not for profit organisations in relation to the removal of Board Directors whereby, a director can be removed before the expiration of their term of office but this is usually done where extended notice has been given as required by the Companies Act 2014. This does not appear to have been the case here as the removal of the Directors appears to have been very sudden and without notice.

There is also usually provision for the sudden removal of a director but only in certain specified circumstances such as being adjudged bankrupt or becoming of unsound mind or otherwise incapable of discharging the duties of a director. Other circumstances might include being convicted of an indictable offence or is continuously absent from Board meetings. None of these would seem to apply in these circumstances.

Neither do the minutes of the meeting that Mark was sent, appear record the removal of the Directors and they should have done so as while there was no requirement to record the full discussion, there is a requirement to record decisions and the outcome of any votes taken on issues and a summary of the discussion and action taken. Mark as a trustee and director of the charity should have been provided with the minutes of the meeting and with a recorded change/removal of directors.

It would appear that the new board members were co-opted as there is no mention of an election or an AGM. The co-opted directors should have been appointed by the board rather than just the chairperson and it is unclear if this is the case. There is usually a provision in a not for profit constitution relating to the number of co-opted directors and this is usually a restricted number and a smaller number than the elected directors. In this case, only Mark and the Chair had remained as directors, therefore, the co-opted directors appear to be many more than elected directors.

There appears to be little governance on this board and the Chair seems to have acted unilaterally and not in line with any best practice Board procedures. Mark needs to approach the Chair and discuss what may be a possible breach in the standards outlined by the Board in the Code of Conduct and any perceived or actual breach in the provisions of the charity’s governing document.

If this does not allay his concerns he may raise the concern with the Charities Regulator as a possible breach in duty by the Chair.