Heritage Railway Governance

ll me naive if you will, but I find it difficult to understand why the ORR has any interest whatsoever in the corporate governance of heritage railways, apart from where they impinge on safety issues. Few, if any, provide what might be termed public services in other than the leisure sense, so their financial performance is really of no consequence - who among the general public will be inconvenienced if, say, the GWSR closes down for financial reasons? So the question then becomes, why is it necessary to follow a corporate governance template that is not necessarily appropriate to heritage railways. It seems to me that in all Lineisclear's posts there is an obvious inability or unwillingness to pose or face that question. Until his period of Chairmanship on the NYMR we had a freely elected Trust Board, many of whom were long serving and senior officials on the national railway network. I think that, for the most part they have been replaced by individuals with none of that experience. I have to ask whether that change has really been of benefit to the running of the NYMR!

 

Perhaps if you went to one of their popular Rm3 seminars it might open your eyes to the reality that they are very much concerned about heritage railway corporate governance and board competence . Indeed they have gone so far as to develop a variant of Rm3 specifically for heritage railways.It’s not just the recognized link between effective boards and safety performance.

 

I am sure that @Lineisclear is referring to ORR's Topic Set 1 version of RM3, https://www.orr.gov.uk/sites/default/files/2021-04/rm3-for-heritage-sector_3.pdf , which is specific to the heritage sector.

 

I'm inclined to agree that there is a common denominator.

 

Reading those guidelines, and in particular (page 42) the "12 Tablets of Good Governance", I think there is one bit in particular that is problematic.

The four basic tasks of the Board are:

• Establishing and maintaining vision, mission, and values
• Deciding strategy and structure
• Delegating the authority to manage to monitor and evaluate performance
• Communicating with its members and all internal and external stakeholders

(My emphasis)
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Historically, societies have formed, typically with the desire to preserve and operate some section of railway, including buildings and equipment. Subsequently, companies have formed so as to provide a legal entity to carry out the operations on the site. But for many members, the critical relationship is that the membership retains the overarching objective, and the company is there to deliver it - not the other way round.

I think in at least some of the instances where there is a governance tension, that is at the root of it. The membership should set the vision, and the company strive to deliver it within financial and regulatory constraints. As written, the perception is that the tail has started to wag the dog: when you move from "the members have an overarching objective and vision, and the company is there to deliver it" to "the company sets the vision, and the members are there as grunts to assist delivery" then you are going to get complaints about over-mighty companies out of touch with the membership.

It may well be, as has been alluded to, that companies and charities are the wrong legal entities to deliver the above. But hiding behind the existing structures and saying "the law says this" is not a recipe for happy board / member relations.

[Note: I have been somewhat loose in terminology above, deliberately. My point is not about the narrow legal definition of who constitutes the "members" of a company, but the more holistic view of those who have the moral authority to set the direction that the "railway" (again used loosely) should proceed].

Tom

 

The ORR are concerned that the board of a railway are capable of running that railway safely and compliantly, not that they can discharge the requirements of a charity. RM3 for heritage railways SP1 states for excellence "Outstanding leadership is displayed at all levels of the organisation, by directors.... (and) there is consistent evidence of.....good communications...accountability...empathy." SP3 states "There is transparency and clear lines of accountability for the board to the owners and/or members....The board is generally seen by most staff to exhibit fairness and justice, when making sensitive and difficult decisions." Appendix 1 'Tablets of Governance' states that Boards should " Constantly guard against a Board where good people are leaving, power is concentrated and exercised by the chair; and key appointments go to the select few. Be aware of the risk created by telling rather than consulting......"
What is being proposed seems to be a closed shop and goes against much of the above.

 

It's precisely that safety link that I presume causes the ORR interest in the topic, and which I think justify the close interest in governance. Likewise, I can see that those railways that benefit from significant grants (yes, including NYMR) need to demonstrate good governance.

To that extent, I support the focus of @Lineisclear on governance matters.

The difference between us is over the role of stakeholders within the railway in question. The view he represents is very legalistic and focused to a very high degree on concerns over a specific set of extreme circumstances. In doing so, two other views to me to be being overlooked. The first is about the broader role of a board, and need to do more than the legal minimum.

The second is the approach of a board to the organisation it is at the apex of. There are different ways that a board can choose to engage with that organisation, which can be variously inclusive or exclusive. When that focus is explicitly presented as being opposed to being popularity driven, and has the effect of minimising accountability, it is unsurprising that it provokes alarm from those with a more inclusive vision.

The effect, long term, will be to undermine the future success of railways that operate in that model. Just looking at the debate on here about the L&B following the failure to obtain the S73 order, one of the key dimensions is the apparent disconnect between a leadership team who've been driving the project, and members who aren't clear about the strategy or the next steps. That debate is "warm" enough already, without pressure being further raised by legal blocks to challenges from outside the inner circle.

 

..... and from my reading of it just now it focuses on risk management of health and safety issues. Terms such as "leadership" and "communication" seem to be being used in RM3 in the context of safety matters - these are highly important of course, but there are other matters of concern that would normally use same headings but are of no relevance to the contents of RM3, such as commercial practices and policies, charitable objectives and compliance that require leadership and communication but are not within ORR's remit. Lineisclear's interpretation of RM3 seems to me to be an oversimplistic one, disregarding the fact that heritage railways are complex entities requiring a broader range of inputs than purely safety-focused ones.

At the WSR, the upheaval there was not one that compromised safety, but the fact that a small cabal of self-appointed "leaders" were not prepared to allow anyone else to join their party or express views contrary to their own - yet I don't think ORR expressed particular concerns about what was going on - that says a lot about where their interests lie.

Whether or not the typical heritage railway management structure is fit for purpose for a charitable body that relies largely on commercial activities for its existence is debatable, but it is what we are now saddled with, by and large, but I cannot help feeling that in many cases it is an uneasy existence wand the paid managers are resentful to a certain extent that they are ultimately answerable to the unpaid members and volunteers whose charitable body owns the company that they work for.

 

Tom's analysis of tension resulting from the typical development from preservation society to corporate entity is spot on. However the point was made earlier that the statutory duties of directors are prescribed by law and particularly their management of a company in the interests of its shareholders. That normally means capital growth or dividends but, for typically "not for profit" heritage railways, there's often a wider group of stakeholders who, as Tom points out, see the primary objective as preserving and operating the railway in accordance with their wishes. What raises the tension is the provision in most Articles of Association ( which incidentally are deemed to be a contract between the company and its shareholders/members) is that the Company "shall be managed by its directors". They would be wise to take account of wider stakeholder sentiment but, unlike the committee of a preservation society, the ability of stakeholders to impose their vision, mission and values is very limited.
The position is complicated where a charity is involved because preservation and operation of a railway in accordance with members wishes is not of itself ()a legitimate charitable purpose. Changes have meant that maintenance of heritage is now a recognised charitable purpose so the need to shelter the railway's activities under an education umbrella has reduced (but is still the core legitimising purpose for some.) In any event the Trustees primary duty is to deliver public benefit. The interests of members may fit with that but not necessarily.

 

There was a famous BA AGM back in the Lord King era (when it seemed we could print money we made so much) way before BA became a Spanish subsidiary.
There was due to be a vote on something, forget what but irrelevant really, LK held up a piece of paper and said I have x proxies, so you can vote how you like, but this will pass.

 

I've just done a search with companies house, and to my surprise found that the 'unless recommended by the board' stipulation is already in place.
So it is in fact too late.

 

Whilst technically correct I agree that is poor management. Actually it cuts both ways because, unlike in the USA, proxy garnering is legal i.e shareholders determined to force or resist change actively encouraging others to appoint them as proxies.

I sense an unfortunate tone of personal criticism in some earlier posts implying that my personal opinions have unduly influenced decisions on the NYMR and elsewhere that the posters disapprove of. It's worth putting on record that the recent changes to the NYMR's governance were endorsed by both Boards, put to the whole membership, with extensive explanation, using a one member /one vote system that resulted in substantially over 90% approval without any need to rely on proxies. The implication that changes have been forced on an unwilling membership is totally unjustified in that case and, if a majority of shareholders vote for the proposed change to their GWSR company, in that case also.

 

If I have personalised matters in that way, I apologise. I disagree with you significantly in this area, but would never suggest that you have led this approach anything other than openly and transparently.

Unfortunately, due to the weaknesses of company and charity governance processes, the effect of some of these adoptions has not IMHO had sufficient visibility, and particularly not the consequences thereof. I would wish to distinguish between cause and effect as the failure to do so often causes moral tension where none should exist.


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I think unsuspecting rather than unwilling.

I think few members / shareholders are engaged enough to fully recognise the implications of many things boards present to them. By and large they take a great deal on trust and are right to do so as boards generally work in the best interests of the railway and should be allowed to get on with the job as much as possible. It is therefore bordering on disingenuous to claim that changes to governance structure are being voted for by memberships. All to often it is the case that the arcane nature of discussion (and the lack of discussion) means that people simply don’t vote against.

Having been a director myself I know well the legal position and duties as I am sure others here do as well. What I believe is being expressed is the view that the focus on perceived good governance is being pursued without sufficient balance. The changes may be required, but they are being pursued without enough attention to the other matters eloquently expressed by @Jamessquared and @35B and less well put by me. Without, to be blunt, the needs of volunteers and members being at the forefront of the the thinking in terms of impacts and mitigation.

Your (@Lineisclear) views are quite correct legally. However, there is nothing that I know of in law that prevents boards having good structures and practices in place for managing people and indeed I would suggest the opposite is actually the case. But we are seeing too little of this from a variety of boards and the lack of leadership starts with poor communication.

In all your comments on the several threads where similar conversations have been had, I feel that you have always been more focused on the board’s point of view (the hypothetical board that is rather than the specific board of the railway in which thread the debate is being held at the time). This is only one dimension in this issue. Good boards will put in place structures that remove the tension that the appearance (if not actuality) of a closed shop creates. Poor boards will not. They will probably doom their railways to at best a lot of infighting and at worst collapse given all the other existential threats.

My view is that boards must work with volunteers who are the greatest potential source of good of a heritage railway. Your view comes across as volunteers are a necessary, but often inconvenient encumbrance. That may not be what you intended to convey, and is only my personal impression, but the reiteration of the legal position (which isn’t challenged) without any apparent empathy for the need to address leadership and communication is unfortunate. It also seems to be similar to views I have seen too often of late in a number of places. Though to be clear I am not suggesting that you (@Lineisclear ) are responsible for these instances.

Like others I am not against change nor many of the reforms you espouse. I am against the way they are being pursued quite often and the lack of mitigation of their effect. I can see no legal barrier to dealing with these issues, and every reason (including RM3) to do so.

 

Happy to subscribe to that view. After all I'm a regular working volunteer myself on two heritage railways and, if you can remember a post which seems like an age ago, the instigator of the initiative for all NYMR Board members to go walk about and listen to volunteers in particular. Yes you need to take people with you on what can be a difficult journey so, for instance, the recent structural changes referred for member decision included extensive explanation and a likely questions and answers feature to help members understand them.

 

Who, other than the members, has the right to determine "the best interests of the charity" or "reasonably" ? Some government beaurocrat ? If the members don't want the item sold then the Trustees have no authority to sell it and the members will have to bear the consequences if it is the wrong move. What justification is there for government to interfere in the process?

 

The votes will tell, provided that the members have been fully informed of the issue.

 

As with so many things in life, good management is about carrying supporters along with decisions. The sad truth is that many members of membership societies are perfectly happy to go along with what they are offered by the incumbent management, but on the whole the membership group that should command the most attention are the volunteers, for they are the ones who make things happen and keep the show running. The "Professional management", on the other hand, seem to tend to regard them as "unhelpful" as being sometimes independent in their thinking. It's when there is such a situation that good management is crucial - the ability to listen and consider - and even accept - alternate views and opinions really is fundamental to success in a well run management structure, but equally it will only work if there is a pool of views to choose from. My fear is that the the "closed shop" being advocated by Lineisclear is detrimental to the "gene pool" of the railways concerned - not a good analogy, perhaps, because a widening of the gene pool is always beneficial to evolution, but there is less benefit in adding an irrelevant gene pool. I keep coming back to a theme - compromise is an important art to learn!

 

In general, none. In the scenarios painted by @Lineisclear, which are extreme, those in charge may have legal duties that outweigh the wishes and desires of members, shareholders and supporters - duties that may require them to take pre-emptive action. We have seen this at Llangollen, and possibly on the WSR.

Likewise, there is no dispute that boards need a level of diversity and breadth of skills, and that these may need recruitment from outside of the “usual suspects”.

So far, so much agreement from me.

At the risk of repetition, the issue is then one of approach and mentality. There appears no willingness to consider routes other than mandation, and no recognition of the risks associated with defining ascent to board membership as a closed process, under the control of the existing board. In normal circumstances this shouldn’t be an issue, but if the organisation is under stress, it makes the governance more brittle.


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