Governance
Contents
Introduction
Articles define how the company is run and the decision-making rights of shareholders, directors and the Chief Executive Officer or Executive Team. There is a distinction between:
- Founder Shareholders: who act in a Trustee capacity, nurturing the business and blocking proposals that would undermine the founders’ or members’ social goals.
- Labour Shareholders: who control the operations of the company.
- User Shareholders: who buy or use the goods and services of the company.
- Investor Shareholders: who own the company (i.e. have rights to residual assets).
- Directors: who are legally responsible for the impact of company policies, and who evaluate and make recommendations on business objectives and their implementation.
- Executive Officers: who decide how best to coordinate policy and business objectives, and report progress to the General Meeting and Board of Directors.
Board of Directors / Management Committee
Directors (minimum one, maximum seven, nine or 13 depending on variant) are elected by members when a FairShares Enterprise exceeds a member threshold set in its Articles of Association. In a FairShares Company they are elected to a Board of Directors. In a FairShares Co-operative they are elected to a Management Committee. The member threshold for initiating elections to the board is set in the rules and is designed to ensure that democratic accountability is sustained as the enterprise scales up without overburdening a young enterprise in need of a stable governing body during its start-up period. Directors / Management Committee members are responsible for facilitating the implementation of social enterprise plans, and have a legal responsibility to ensure the enterprise operates lawfully. The Board / Management Committee will be referred to as a the ‘’Governing Body’’ in the rest of this article. The Governing Body controls the appointment of the Chief Executive Officer and/or Executive Team (see below). The minimum number of members varies with legal form and funding:
Governing Body – Minimum Requirements for UK Law
- one (1) director (while funded entirely from private sources)
- three (3) directors (while in receipt of public or charitable funding)
FairShares Company with either Labour Shareholders or User Shareholders
- three (3) directors once the member threshold set in the Articles is reached (default = 50).
FairShares Company with both User and Labour Shareholders
- five (5) directors once the member threshold set in the Articles is reached (default = 50).
- three (3) Management Committee (MC) members (minimum legal requirement)
- as per FairShares Company once member threshold set in the Articles is reached.
Governing Body – Minimum Requirements for [Country Name]
(Please edit this section / create new sections for each country in which the FairShares Model has been implemented)
Operational Responsibilities
The company's Governing Body do not manage the company's producers, workers or employees directly – this is formally delegated to a Chief Executive Officer (CEO) or Executive Team. Moreover, a FairShares Enterprise is structured to encourage self-management through institutions that support participatory democracy. The Governing Body may decide that operational decisions cannot be taken by a single individual by stipulating they must be approved by an Executive Team. Alternatively, they may stipulate that a CEO can make executive decisions in the event that all members of the Executive Team cannot agree.
The CEO and/or Executive Team is responsible for the organisation and management of the company and fulfilling the company's social and business objectives. The CEO / Executive Team can be removed only by the Governing Body, not shareholders. However, as members of the Governing Body can be removed by the shareholder class that elected them (or all members in General Meeting), shareholders exercise influence over the appointment (and removal) of the CEO / Executive Team.
When the company is in its early growth phase (by default, smaller than 50 members), the founders and existing directors can nominate and approve new board members. Contracts above a value (25% of turnover in Year 1, thereafter 12.5% of turnover) must be agreed in General Meeting as well as the Board.
When the company grows (by default, over 50 members), Governing Body members are elected by their shareholder groups and serve with up to three founder shareholders. Members of the company also elect a company President from amongst the Governing Body members. The president has a non-executive role, acts as the Chair of the Governing Body with a specific remit to promote effective communication throughout the enterprise.
Internal Rules v Articles of Association
During the start-up phase of a new FairShares Enterprise decisions will need to be taken on whether particular provisions are 'hard wired' into the Articles or 'soft wired' into a rule book. For example, the Capital Gain Fraction in a FairShares Company has a significant impact on the amount of wealth that is transferred to Labour and User Shareholders over time. By default it is set at 0.5 (i.e. half the added value is distributed in the form of Investor Shares to User and Labour Shareholders). Should this fraction be ‘entrenched’ using the provisions of Company Law, be subject to Special Resolution or be part of an internal rule book that does not require a (special) resolution to be passed in General Meeting? If not set in the Articles, an executive group could change the fraction at will, denying one or more shareholder classes their fair share of wealth (and power).
Where values are set in FairShares Articles of Association, decision-making power remains with members (and can be very hard to change). Where the Articles allow variation of operational values through changes to internal rules, decision-making power is removed from activists and passed to those with executive responsibility. Therefore, decisions at start-up on how key values can be changed define the power of the wider membership, its (elected) representatives and operational managers.
For a further discussion, see Internal Rules.
Proxy Voting
The arrangements for proxy voting limit the number of people for which a person can act as a proxy. No person may vote or act for more than one other member at a General Meeting. This provision prevents a single person casting many votes on behalf of other members, but allows those who are sick or on holiday to express their view on specific resolutions.
Return to the FairShares Articles of Association
Return to the FairShares Glossary
