Living In The Shadows

Are shadow directors an issue for schools? The governors of an independent school are normally the only people responsible for the management of the school, but how does the position change if the governors habitually make their decisions on the basis of inputs from a third party?

When an independent school is a registered charity, where the school is in the form of a company its governors are both company directors and charity trustees. Charity trustees have special duties and responsibilities which oblige them to take ultimate responsibility for directing the affairs of the school. Among other things, the governors must ensure that the school is solvent, well-run, and delivering the charitable outcomes for which it was set up. Their duties as company directors are similar but include potential personal liability in the event of the school's insolvency. Even if a person has not been appointed as a company director, he or she may still be treated as a director by the courts if he or she is a shadow director.

A shadow director is a concept of company law. It refers to someone who is not formally appointed as company director but in accordance with whose instructions the board of governors is accustomed to act. If an individual is proven to be acting as a shadow director, they will incur the legal duties of the formally appointed governors. In the context of a school the main risk is that a strong willed bursar or headmaster may get into that position.

The main concern is that in the event of insolvency, directors/governors and shadow directors/governors can all be made liable for some or all of the deficit in certain circumstances if they failed to discharge their duties adequately.

1. The governors and paid staff should be clear about their distinct roles, and the governors should be fully engaged in holding senior staff to account for the day to day running of the school
2. There should be procedures in place for the appointment, supervision and appraisal of all senior school staff.
3. The governors should understand that they have overall responsibility for the school and should ensure that school furthers its charitable purposes, is solvent and well-run.
4. Meetings of governors should be minuted and key decisions duly recorded. It should be clear from the minutes who is present (the governors) and who is merely in attendance (anyone else).
5. Where there is any question of voting only the governors should vote on decisions.
6. The headmaster, bursar and others might be asked to leave the meeting for certain items.

Generally the conduct of the board is under the leadership of the chairman who should encourage an open and general discussion of all the business before the governors. Committee arrangements should be treated with caution as this can be a way of taking decisions away from the board: the terms of reference of committees need careful attention to ensure the presence of employed staff does not lead them into a position of directing committee decisions that are not further considered by the full board. Shadow directorship is a concern but with proper governance arrangements it is a problem that can easily be avoided.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.