AFH 2017 was published in July 2017 and is effective for all trusts from 1 September 2017.
The guidance has been re-issued annually since 2012, with changes made by the ESFA in response to sector developments and trusts’ experiences. In recent years the level of substantial changes have reduced with more of an emphasis on clarification.
Trusts should consider changes within the AFH guidance at the start of each academic year to ensure new or revised requirements are identified and changes made to processes/evidence as required.
AFH 2017 focuses more on good governance and financial stewardship so that ‘every pound is used efficiently for maximum impact on young people’s education’.
This echoes the House of Commons Education Committee’s report on multi-academy trusts (published 28 February 2017) that set out two of its ‘key characteristics of high performing multi-academy trusts’ as:
These findings are also reflected within recent charity sector guidance, ‘Charity Governance Code’ issued in 2017 that includes more detailed suggestions as to how best to implement good governance across the sector.
Key changes outlined in AFH 2017 include; detailed narrative around the roles of members and trustees and increased guidance for identifying and addressing skills gaps on trustee boards.
It also places greater emphasis on the need for executive pay to be determined via robust and evidence-based processes. This follows increased public and media interest in the figures published within financial statements.
Additionally AFH 2017 includes reference to the new ESFA mechanism for responding to financial health concerns. It includes additional guidance for trusts for whom the ESFA has concerns over financial health and efficiency but for whom they have not yet issued a financial notice to improve (an “FNtI”). The Handbook states that the ESFA may ‘prescribe working with an expert in school financial health and efficiency’ and stipulates that the academy should make every attempt to implement recommendations arising from a result of this working relationship.
Some of the changes to consider
Clarification of the roles of members vs. trustees
As charitable companies limited by guarantee, academy trusts are required to have both members (equivalent to shareholders of a limited company), and trustees (who are in effect the trust’s directors).
AFH 2017 emphases the differences between the two roles, outlining the ESFA’s view that the most robust governance structures will have a significant degree of separation between their members and trustees.
Members should avoid compromising the board’s discretion in exercising its responsibilities. However, if the governance of the trust by the board of trustees becomes dysfunctional, the members should have a strong interest in ensuring that the board has sufficient plans to address relevant issues.
Trustees are responsible for overseeing the core business of the academy trust including determining strategic direction, monitoring financial performance and holding executive leaders to account.
Employees of the academy trust should not be members, and the only employee permitted to be a trustee should be the senior executive leader, unless otherwise permitted by the trust’s articles of association.
Trusts should periodically review how members are carrying out their roles in order to make sure that it is in line with best practice.
Skills reviews for trustee boards
AFH 2017 expands previous guidance around the importance of a retaining a board of trustees who have a diverse range of skills and experiences. It continues to stress the need for boards of trustees to identify the skills they need and address any gaps through recruitment or training.
Specific reviews are recommended during key transition points, such as on the original conversion of a maintained school to academy status, or during periods of significant growth of a multi-academy trust.
Trusts are also directed to the DfE Governance Handbook’s ‘six key features of effective governance’ when conducting such reviews.
Trusts should consider completing a skills review alongside its annual assessment on governance that supports the statement included within its financial statements.
As you may expect given the increased public focus in this area, there is far more explicit guidance with regards to pay of senior executive leaders and senior management. This is likely to cause repercussions across the sector, especially in the case of larger multi-academy trusts where the senior executive leader’s remuneration is less defined by established norms.
AFH 2017 for the first time emphasises that boards of trustees must ensure that decisions about levels of executive pay follow a robust evidence-based process and are reflective of the individual’s role and responsibilities.
Trusts may wish to review their own procedures in light of this to ensure that there is adequate evidence that such a process is being followed. This should include sufficient meeting minutes supporting the level of debate generated and challenges made.