Heritage Railway Governance

Interesting that you quite the example of the National Trust though to be fair it's qualified by "was true". When I last checked its Trustees are now appointed by its Council advised by a Nominations Committee using a matrix of required skills to identify suitable candidates.

I wasn't suggesting the Board didn't have power!
In the situation you describe they do and that's the sort of sometimes very difficult decision they have the sole responsibility for making. There may be many other factors to consider apart from member/volunteer sentiment. Weighing them up and acting in what they judge to be the best interests of the company/charity is what they're in post for.
They aren't there to be popular!

 

Indeed - but when they are also then effectively unchallengeable due to the operation of structures they control, the potential damage spirals.

I agree, those powers are limited and only really operate in extremis. But where a board has de facto sole control over who may sit on that board, the effect is to deprive the wider voting group (shareholders/members as applicable) of any real influence.

But, turning the question round, I would ask why it is necessary to erect hurdles for who may be nominated to a board, rather than that board to operating an effective recruitment and nominations process that would send clear signals to voters (especially "remote" voters) about why candidates were or were not preferred. And why it's worth running the risk that a "rogue" board might abuse its powers in a way that would leave no remedies short of the "nuclear".

 

Should shareholders not have the power in reality, as well as in principle, to appoint or remove directors to ensure that the directors act in their (the shareholders') best interests?
Obviously the Articles of Association have to be consistent with the law, but no-one seems to have suggested that the present ones are not. If the existing Board members believe that person A would be a very useful addition to their number and person B would not, they can say so to the shareholders. The provision for someone proposed by the holders of 5% of the shares to be appointed may make good sense for some companies, but this thread has pointed out that it would be unworkable in the present case*. Thus the proposed change would in practice give absolute power, not only to the present Board members but also to all future Board members, beyond any possibility of the shareholders holding them to account.

As a solution to a supposed problem this is unnecessary, and it is a likely cause of a new major problem sooner or later.

* Or does the membership body hold enough shares to force through an appointment?

 

I'd agree that there is no single solution so any system that results in an effective Board is OK. Perhaps heritage railways are particularly vulnerable to elections based on popularity which is not necessarily a good indicator and could lead to a Board making decisions that are popular rather than right.

Ghost's example is instructive because as 35B will know, as a charity trustee, there are circumstances in which even if the charity's members succeeded in calling an EGM, at which an overwhelming majority vote instructed the board not to proceed with the sale, the Trustees would be duty bound to ignore that instruction if they concluded reasonably that going ahead was in the best interests of the charity. Even the nuclear option can be a damp squib!

 

Nobody has suggested they are.

Do you think that difficult decisions have been avoided in the past because of the manner in which boards can be held to account by interested stakeholders?

Do you think that difficult situations would have been avoided by better board members and that such board members were discouraged from joining because of the way in which appointments were made?

You may be able to answer “yes” to both questions. I can certainly do so.

Do you believe that “old” methods of holding boards to account have succeeded in holding boards to account on occasion?

I most certainly do. I can think of several occasions where the realistic threat of activism has averted disaster.

Do you believe that there are safeguards built into the new arrangements being promoted?

I don’t and therefore I am concerned that these changes are being carried out in haste.

The premise appears to be that we need better boards. (Which may be true in some cases…added for clarity) Therefore the boards are the only people who should appoint. Since people appoint in their own image, I think there may be an approaching issue.

 

Really? What is the evidence for this view, which is so central to the entire discussion?

 

What is interesting is that the fear of popularity seems so strong that every possible measure is being taken to avoid popularity having any relevance. Effectiveness can be achieved in many ways, and removing scrutiny rarely achieves much in any other than the very short term.

The scenario of the extreme option is indeed interesting, because IMHO no competent board would get into a position where it did something so contentious that it had to face an EGM having made such a critical decision against the will of it's supporters. Having sufficient scrutiny by, with associated consequences, is part of the messy business of delivering effective governance, rather than strong governance.

It feels rather akin to how the government, having found that the awkward business of scrutiny was getting in the way of it's preferred policies, chose to prorogue Parliament rather than deal with the underlying issues. It averted one crisis, but created multiple others.

 

The Directors are always obliged legally to act in the shareholders' best interests but in that respect are accountable to a different constituency from the volunteers or members of a supporting Charity unless they are also shareholders.

 

On the WSR a few years ago it appeared that those individuals who were in control would brook no disagreements with their ideas of how the railway should be run, to the extent of using some apparently dirty tricks to evict anyone who tried to change things. Somehow the railway has survived and presumably still has enough volunteers, though the long term adequacy of its finances remains as clear as mud. So it may be that the GWSR Board can become a closed shop, do as it sees fit and ignore what anyone else thinks without losing so many volunteers that the line can no longer run. And if a mass exodus were to loom, in response to some especially unpopular decisions, presumably the Board's responsibility to pursue the company's best interests might prompt some change of direction.

The question remains, however, just why the Board believes its ability, under the present rules, to recommend for or against candidates is so inadequate as to require so drastic a change to the rules, giving it absolute power to preserve its position.

 

That is perfectly true, but disguises the fact that the shareholders' interests are in the continuing operation of the Railway, which depends absolutely on the support of the volunteers and the Charity.

 

This is an interesting discussion. Just off the top of my head I can think of about seven heritage railways that are struggling with governance issues at the moment or have done so in the recent past, or where there is noticeable discontent between boards and members / volunteers; and no doubt there are others where the issues are below the surface.

I am sure that @Lineisclear knows his company law, and I am not going to argue directly on that narrow legalistic definition. However, I think taking his arguments on their own terms, he is paying insufficient weight to the fact that volunteers (via their zero wage labour) and members (via their role in fundraising) are of existential importance to the ongoing viability of heritage railways. So even in the terms of Director's responsibility outlined, any Director who proposes a course of action which does not have majority backing from the volunteers and membership is, I would suggest, risking causing a significant problem to the organisation that could be far greater than by not doing the "unpopular" decision they wish to take.

For example, to take @ghost's example: a board proposing to sell a key piece of rolling stock against the wishes of the members may find that the snapping shut of wallets has rather more of an existential impact than not raising the few tens of thousands of pounds in sale money. In that case, a Director considering their legal responsibility to act in the best long-term interest of the company may - should - have pause for thought.

For my money, volunteers are not stupid. The vast majority are aware of the financial and regulatory pressures that railways are under, and most I'd say are on board with the basic premise that if you run out of cash, it is game over. So I don't see volunteers as being so inherently resistant to change that a board should feel the need that it has no option but to ride roughshod over their concerns. But what Boards need to understand is that they need to take the members and volunteers with them: that typically means getting much better at communication and engagement; making that engagement real (rather than just lip service "we've decided to do this"); and also understanding the pace at which change can be delivered, which is typically slower than in a paid environment.

Tom

 

Agreed. However there are circumstances where the continuing operation of a heritage railway could depend on ability to make decisions that are deeply unpopular with the volunteers and members of a supporting charity. Sadly in present circumstances that's a far from fanciful scenario.
The core issue then is whether a cohesive board would have the guts to stick to its guns or be riven by factional disputes.

 

Large heritage railways need paid staff, there is no doubt about that, but they also need their volunteers and every volunteer lost without being replaced contributes to increasing the requirement for further paid staff. To stay viable, a balance has to be struck between the two and they also have to work in harmony. Viable railways that don't have volunteers do exist but they can be counted on the fingers of one hand. It would be good to think that their business models would work at other railways but, somehow, I doubt it.

 

From the outside it appears the GWR is currently a happy railway volunteer wise ..
Compare that to noises coming out of SVR,NYMR,WSR in recent times from volunteers about how their railways are being managed .
This appears to be one man’s personal opinion ,who has had directly or indirectly involvement with several of those lines mentioned above .

 

The core issue is whether the board has the skill and will to communicate effectively and therefore avoid the factional dispute through explaining why the decision is needed. A board sticking to its guns and making the right decision is probably not at risk. A board sticking to its guns and not communicating is simply driving the factional dispute underground with all that implies for the future of the organisation.

The issue is becoming boards which make the wrong decisions (popular or not) which are increasingly difficult to hold to account.

 

Very valid points but is it always easy to tell the difference between “majority backing” and a noisy, activist minority?

 

Absolutely - that's a point that needs to be emphasised over and over again
The shareholders are all (or at least 99% of them!) railway enthusiasts, so the 'shareholders interests' will naturally align with the members/volunteers interests.

 

No. But putting artificially high hurdles in place will just make it harder to tell that difference rather than bring the issue to a head.

 

A good start point for any board, and consideration of its structure and recruitment/election procedures, would be the "Tablets of Governance" set out as an Appendix to the ORR's Rm3 management maturity model. When taken together with an honest appraisal of their performance under its SP 3 module I suspect quite a few heritage railways would find the results uncomfortable.