Overview of Relevant Governance Codes
NHS Foundation Trusts (FTs) operate within a framework that blends public sector accountability with corporate governance principles, ensuring transparency, risk management, and effective oversight. The primary guidance for their governance is provided by NHS England’s Code of Governance for NHS Provider Trusts (the NHS Code), which applies to all NHS trusts, including FTs. This code, effective from April 1, 2023, draws heavily from best practices in both the NHS and private sectors, explicitly modeling itself on the 2018 version of the UK Corporate Governance Code (UK Code) issued by the Financial Reporting Council (FRC). It operates on a “comply or explain” basis, meaning trusts must adhere to its provisions or provide a clear explanation for any deviations in their annual reports, complementing statutory requirements under the National Health Service Act 2006 and the NHS provider licence.
The UK Corporate Governance Code 2024 (UK Code), updated in January 2024 and applicable primarily to premium-listed companies on a “comply or explain” basis, sets broader standards for corporate governance across the UK. While not directly binding on NHS FTs, it influences the NHS Code, particularly in areas like board independence and audit oversight. The UK Code emphasises board accountability for internal controls, risk management, and financial integrity, with updates in 2024 focusing on enhanced declarations around internal controls (effective from 2026). For NHS FTs, the NHS Code adapts these principles to the public healthcare context, incorporating elements like stakeholder engagement with integrated care systems and patient-focused outcomes.
Both codes underscore the importance of an independent Audit Committee to safeguard financial reporting, internal controls, and external audit processes. Independence ensures objectivity, mitigates conflicts of interest, and enhances trust among stakeholders, including patients, regulators (e.g., Care Quality Commission), and the public. Below, I outline the recommended provisions for the independence of the Audit Committee Chair in an NHS FT, drawing from the NHS Code as the core framework while highlighting alignments and nuances from the UK Code. This includes composition requirements (as the Chair’s role is embedded within them), independence criteria, and implications such as edge cases, enforcement, and broader governance interconnections.
Provisions from NHS England’s Code of Governance for NHS Provider Trusts
The NHS Code provides a tailored framework for FTs, emphasising that effective governance contributes to better organisational performance and patient care. Section B of the code addresses board leadership, including committee structures, while referencing the UK Code’s principles for audit and risk.
Audit Committee Composition
- The Board of Directors must establish an Audit Committee comprising independent non-executive directors (NEDs), with a minimum of three members (or two for smaller trusts to ensure proportionality). This mirrors the UK Code’s Provision 24 but adapts it for NHS scale.
- The committee must include at least one member with recent and relevant financial experience (e.g., accounting or auditing expertise) to scrutinise financial statements effectively.
- The committee as a whole should possess competence relevant to the healthcare sector, such as understanding clinical governance, risk in patient safety, or regulatory compliance with bodies like NHS England or the CQC.
- Key exclusions: The Board Chair must not be a member of the Audit Committee to prevent undue influence over oversight functions. Additionally, the Vice Chair or Senior Independent Director (SID) must not chair the committee, further separating executive leadership from audit scrutiny.
These composition rules ensure a balanced, skilled group capable of monitoring financial integrity, internal controls, risk management, and external auditor independence—core duties outlined in the code. For FTs, the Council of Governors plays a role in appointing NEDs (including potential Audit Committee members), adding a layer of public accountability not present in private sector models.
Independence Requirements for Members and the Chair
- All Audit Committee members, including the Chair, must be independent NEDs. Independence is assessed against specific criteria to avoid conflicts:
- No employment with the trust in the last two years.
- No material business relationships with the trust (directly or indirectly) in the last two years.
- No additional remuneration from the trust beyond standard director fees (e.g., no performance-related pay or pensions).
- No close family ties with the trust’s advisers, directors, or senior employees.
- No cross-directorships or significant links with other directors through external bodies.
- No service on the board exceeding six years (extensions beyond six years require rigorous review and NHS England approval; total tenure capped at nine years to refresh perspectives).
- Not an appointed representative of the trust’s university medical or dental school (relevant for teaching hospitals).
- If any circumstance impairs perceived independence, the board must provide a clear explanation in the annual report justifying why the individual is still deemed independent (comply or explain approach).
- Broader board context: At least half the board (excluding the Chair) must consist of independent NEDs to maintain overall balance.
Specific Provisions for the Independence of the Audit Committee Chair
- The Chair must be an independent NED, meeting all the above criteria.
- Explicit restrictions: The Chair cannot be the Vice Chair, Deputy Chair, or SID of the board, ensuring separation from other leadership roles that might compromise objectivity (e.g., the SID often handles Chair performance reviews or conflicts).
- The Board Chair is barred from Audit Committee membership entirely, indirectly reinforcing the Audit Chair’s independence by preventing hierarchical influence.
- The code recommends that the Audit Committee Chair have sufficient skills and experience to lead effectively, though not mandating specific financial expertise for the Chair (this can be held by another member).
These provisions align with the UK Code’s emphasis on independence but are more stringent in some areas (e.g., two-year look-back for employment vs. five years in the UK Code) to suit the public accountability of FTs.
Nuances include flexibility for smaller trusts (e.g., two-member committees) and the need for annual reviews of independence, especially in integrated care systems where trusts collaborate with other entities, potentially creating indirect links.
Provisions from the UK Corporate Governance Code 2024
The UK Code serves as a benchmark for the NHS Code, particularly in audit provisions (Section 4: Audit, Risk, and Internal Control). While not mandatory for FTs, it informs “best practice” and is referenced in the NHS Code.
Audit Committee Composition
- Similar to the NHS Code: Composed of independent NEDs, minimum three members (two for smaller companies), with the Board Chair excluded.
- At least one member with recent financial experience; committee competence in the sector.
- Duties include financial statement oversight, internal controls review, and external auditor monitoring, plus adherence to the FRC’s Audit Committees and the External Audit: Minimum Standard.
Independence Requirements for Members and the Chair
- Members and Chair must be independent NEDs, assessed via Provision 10 criteria:
- No employment with the company/group in the last five years.
- No material business relationships in the last three years.
- No additional remuneration beyond fees.
- No close family ties or cross-directorships.
- Not representing a significant shareholder.
- No board service over nine years.
- Explanations required for any deviations.
- Board-wide: At least half independent NEDs (excluding Chair); Chair independent on appointment.
Specific to the Audit Committee Chair
- No additional requirements beyond general independence, but implicit emphasis on leadership to ensure effective challenge of management. Principle M stresses policies for audit independence.
The UK Code’s longer tenure cap (nine years) offers more flexibility than the NHS Code’s six-year review point, reflecting private sector norms. For FTs, this could inform explanations for extensions in healthcare-specific contexts, like retaining expertise during crises (e.g., post-pandemic recovery).
Comparison, Nuances, and Implications for NHS Foundation Trusts
The NHS Code closely aligns with the UK Code but customises for public health: shorter look-back periods reduce conflict risks in a sector with frequent staff mobility, while the cap on tenure (six years for rigorous review) promotes diversity and fresh oversight in patient-centric environments. Edge cases include FTs with university affiliations, where the NHS Code explicitly bars representatives to avoid academic biases in audit decisions.
Implications:
- Enforcement and Reporting
- FTs must disclose Audit Committee arrangements in annual reports, including independence assessments. Non-compliance explanations must be robust, as monitored by NHS England. This fosters transparency but allows flexibility (e.g., during workforce shortages).
- Stakeholder Impact
- Independent Audit Chairs enhance credibility with regulators, patients, and partners in integrated care systems, potentially improving funding access or merger approvals.
- Related Considerations
- Independence ties into broader governance, like clinical quality reviews (NHS Code Section A) and remuneration committees, where similar NED rules apply to avoid groupthink.
- Potential Challenges
- In rural or specialised FTs, recruiting independent NEDs with sector competence can be difficult; the codes encourage succession planning (UK Code Principle J).
- Future Evolution
- With the UK Code’s 2024 updates on internal controls, FTs might anticipate NHS Code revisions by 2026 to align, emphasising outcomes over processes.
In summary, for an NHS FT, the recommended provisions prioritise an Audit Committee Chair who is a fully independent NED, free from recent ties to the trust, with no overlapping leadership roles, ensuring unbiased oversight of financial and risk matters. This framework balances rigor with adaptability, drawing from UK best practices to support high-quality patient care.
