How to avoid the governance pitfalls that can trip up new federations

As GP practices federate, often forming small companies, they will need a high performing board to provide leadership and direction to the new organisation.

GPs can find themselves becoming novice directors but nothing in their medical training will have taught them anything about the implications of a being a company director or the principles of good governance.

There are many pitfalls that can trip up the unwary, Justin Cumberlege, a partner and head of the healthcare team at Carter Lemon Camerons, will tell Best Practice delegates.

Pitfalls can include:

  • The statutory stumbling blocks include things like making sure you file any changes to the company at Companies House. For example failing to notify changes to your articles or the share structure could subject you to fines and at the worst end of the spectrum failing to keep adequate accounting records is a criminal offence. So keeping good records might be boring but it is essential, especially those that the accountants will need.
  • Fraud and misconduct are the biggies that can land you in prison
  • In setting up a company you need to understand who the owners are, what their interests are (i.e. the GP practices) and whether and to what extent you have got to refer back to them to make decisions. Quite commonly in federations restrictions are imposed, for example that directors can’t enter into a contract worth over a certain amount of money – otherwise they will be acting outside their powers. Those things are decided when companies set up but can be quickly forgotten so it is important to play by the rules
  • Right at the beginning set up the sort of company you need and make sure you can do what you want with it. Sometimes directors may find the articles of the company are restrictive – for example you might have a social enterprise which is asset locked and this will mean that profits can’t be shared out.
  • Pay attention to the ownership of the company and to what extent the owners can control the company and what restrictions are placed on the board.
  • Make sure your board has got the right people on it with the right skills and the time to run the company properly.

Mr Cumberlege says: ‘The main point of my talk is not to scare potential company directors but to take them through how to run a company properly, what sort of records to keep and how to have clear guidelines so that you have a point of reference as to who is doing what and when without gaps as people have their own areas of responsibility. Setting up a federation is not scary if it is done properly.

‘The thing with federations is that they are receiving public money so they are likely to come under much more scrutiny than the average small company. Before CCGs hand out multi million pound contracts, as well as assuring themselves a federation is capable of delivering the contract, they will want to check that it has got some proper governance structures in place.’