Setting a framework for best practice The role of a Trustees’ Job Description Francis Wevers Chief...

Setting a framework for best practice

The role of a Trustees’ Job Description

Francis Wevers

Chief Executive

Risky business

• Gambling industry is a creature of regulation

• Most charitable gaming trusts (except licensing trusts) specifically created to legitimize previous activity

• Role of trusts significantly constrained• Poses significant risks for governance

structures

Public perceptions

• Gambling fosters anti-social behaviours• Gambling attracts criminal elements• Gambling creates opportunities for exploitation • Raffles for schools and sports clubs are not

really gambling and are necessary for survival• Government control of gambling makes it

tolerable/acceptable• Similar to attitudes on alcohol

Social licence to operate

• Since the prohibition movement liquor industry has operated in an environment of strict government control

• Gambling has a social licence to operate – but only under strict government control

• “Gambling is prohibited and illegal unless….” (Sec 9 Gambling Act 2003)

Conditions for a social licence

• An activity which society perceives to have negative consequences, but…

• Social licence is retained for as long as perceived positives outweigh perceived negatives

• Fertile ground for social activists pursuing wider agendas

Perceived positives

• People will gamble anyway (weak positive)

• Better to control it than leave it uncontrolled (positive)

• Control means you can mitigate some anti-social behaviours (strong positive)

• Profits of gambling to social purposes through charities (strong positive)

Strong control v weak control

• Went through a period of relatively weak control

• Now in period of relatively stronger control but still a lot of devolved responsibility to the industry

• If we don’t get it right – you ain’t seen nothing yet

• The outcome is in our hands

Retaining our social licence to operate

• Societal perceptions about the sector as a whole are tainted by the actions of individual people and organizations

• News media look for negative stories – heat not light

• Rip-offs make headlines• Headlines come from the activities of

people and trusts

Requirements to retain social licence

• Demonstrate – commitment to avoid worst effects of anti-

social behaviours from gambling– absence of persistent criminal offending

related to gambling– absence of exploitation

• Transparent, efficient, law abiding

CGA & Code of Practice

• Overriding objective – maximize returns to community

• Promote responsible gambling – balance with harm minimization

• Distribution of funds to community is transparent and efficient

• Players & community are informed

Code

• Sets out framework for best practice• Provides tangible evidence of industry

recognition of social licence to operate• Underlying theme – comply with best practice or

suffer consequences• Best tool we have but not perfect• Cannot succeed without individual commitment

to best practice (all at risk from actions by individuals)

Individual commitment

• Trustees have high degree of personal fiduciary responsibility (Gold Times case)

• Responsibilities under legislation and regulations

• Responsible for actions of managers who operate trust/society activities

• Encapsulate responsibilities in a job description?

What are the responsibilities?

• Take all reasonable steps to ensure– society is managed to comply with

requirements of legislation, regulations, DIA & MOH requirements & Trust Deed

– the Trust Deed is consistent with current legislative requirements

– society is managed effectively to maintain its social licence to operate

– society complies with CGA Code of Practice

Andrew SeckerDeputy Secretary, Regulation and Compliance

26 October 2005

Trusteeship in theCharity Gambling Sector

Charity Gaming Association Forum


General duty of trusteesGeneral duty of trustees

• Trust is a legal relationship between trustees and beneficiaries, based on confidence, under which trustees hold property on behalf of, and for benefit of, beneficiaries

• Trustee has a legal duty to:– preserve safely the trust property, – use utmost diligence in carrying out trust duties, – act honestly, – act as carefully as if if the property were his/her own.


Legal Sources of Trustees’ DutiesLegal Sources of Trustees’ Duties

• The Trustee Act 1956 (e.g. duties to invest prudently, duties of certain persons to exercise special skills, appointment and removal of trustees)

• The Charitable Trusts Act 1957 / The Incorporated Societies Act 1908(e.g. prohibition of pecuniary gain)

• Common Law: General Principles of Trusts Law• Gambling Act 2003 and subordinate legislation (e.g. Net

Proceeds Regulations)


Trustees’ Duties Under General Principles of Trusts LawTrustees’ Duties Under General Principles of Trusts Law

• Knowledge and Control of Trust Affairs and Property:– Acquaintance with the trust and its affairs: trust property,

contents of all deeds, notices, and other relevant documents – Complying with terms of trust – objectives as authorised

purposes.– Taking possession of trust property and preserving it (e.g.

banking - Section 104)– Bringing and defending proceedings to protect trust property

(recovery of grants - Net Proceeds regulation 12, section 112 Gambling Act, recent GoldTimes outcome).

– A trustee must keep an accurate account of the trust property, and must be always ready to hand it up it when required.


Fidelity and PrudenceFidelity and Prudence

• Fidelity (“faithfulness, loyalty”) to the trust• Trustees must not undertake a duty or put themselves in a position

which is inconsistent with their duty as trustees or act in a manner inconsistent with that duty.

• Administration of the trust• Trustees must keep full records of the reasons for decisions.

• Diligence (“persistent work”) and prudence (“carefulness”)• Trustees must execute the trust with reasonable diligence and

conduct its affairs in the same manner as an ordinary prudent person of business would conduct his or her own affairs; A higher duty of care is due from experts and professionals.


Gambling ActGambling Act

• Purpose of Act includes (s. 3):– Limiting opportunities for crime or dishonesty associated

with gambling– Ensuring money from gambling benefits the community

• Class 4 gambling is where (s. 30):– Net gambling proceeds are applied to or distributed for

authorised purpose– No commission is paid to, or received by, a person for

conducting the gambling


Gambling ActGambling Act

• Secretary must not grant/renew class 4 operator’s licence unless satisfied that (ss. 52, 56):– Purpose is to raise money for authorised purposes– Net gambling proceeds will be maximised and operating costs

minimised– Net gambling proceeds will go to authorised purposes– There are no factors likely to detract from purpose of Act– No key person is also a key person under a class 4 venue

licence

• Trustees expected to ensure these criteria are met


Trustee summaryTrustee summary

• Very high legal duty of care• Class 4 gambling licenses corporate societies as operators

– However, where it is a trust, DIA looks for evidence that trustees take a close, personal interest in all aspects of its operations to comply with Gambling Act

– “Nelson defence” not acceptable– Where breach of this duty shown, DIA will look at allowable

courses under Act (refuse / suspend / cancel licence or key person suitability; s.112 orders for recovery of funds)

– May also look at wider criminal action if dishonesty or fraud• Ultimate aim is to ensure compliance with Act


GoldTimes resultGoldTimes result

• Defendants acquitted of conspiracy to commit fraud under Crimes Act

• Distinguish from gambling regulatory scheme:– Courts had separately upheld DIA’s cancellation of pub site

approvals under old Lottery & Gaming Act because of subsidies to pubs

– Gambling Act prohibition on conflicts of interest now stronger than then

• If we take Gambling Act action, we separately decide whether also to take criminal proceedings


Other issues (requested by CGA)Other issues (requested by CGA)

• Return of funds to community from which they came– No requirement under the Act, so DIA doesn’t enforce– A society may do this as long as:

• It is still for “authorised purpose” and meets 37.12% criterion• It is within society's objects

– Society may set up two or more net proceeds committees, including based on region or district


Other issues (requested by CGA)Other issues (requested by CGA)

• Centralised grant making– Assume this means grants by some means other than the

societies themselves– Speculative and hypothetical, no DIA view– To become plausible, would need dissatisfaction with

current system and / or attractive alternative– “Dissatisfaction” could occur where societies don’t

minimise operating costs or maximise net proceeds, or where trustees seen not to carry out their duties, or dishonesty / commercialism occur

Charity Gaming Association

Trustee Forum October 2005

“Applying the CGA Code of Practice to Manage Governance Risks”

Mendhurst

“Making Strategic Change Successful”

This Session Agenda

Background to the Code and the review processWhat emerged from the reviews…

Key points to talk on nowComprehensive slides to take away

Learning from experienceCGA Individual entititesManaging governance risks

Questions and discussion Sources

Development of the Code and the review process 8 reviews of individual CGA members over two years Input into current development proposals Broader experience across a wide range of situations

What’s the Challenge? As a trustee, you are directing a business organisation and

you have all the responsibilities that a company director has Not to mention…

Regulatory requirementsFiduciary rolesAn inherently “messy” business

Cash-based agency operationsSmall and untidy grant transactions

High public visibility! Governance is an evolving and often misunderstood

concept Governing a smaller organisation is not easier……..

Background to the Code

PurposePublic declaration of principles and practicesCommitment to best practiceEnsure public confidence in CGA member trusts “Raise the bar” for the charity gaming sectorEstablish a “quality mark”…

OriginExtensive study and consultationExhaustive discussionAdaptation of NZ Institute of Directors material

Key Features of the 2002 Code

Self-regulation that complies with, but also goes well beyond, government regulation

Intended to be feasible for any trust large or small Focus on the unchanging concepts (the “what”)

not detail or prescription (the “how”) Comprehensive in nature but with a particular

focus on governance practices Includes a specimen charter (for guidance) Not just lip service

Binding on membersCompliance independently and confidentially assessed

How Did Reviews Proceed? Initiate the review Study documents (including financial/DIA audit) Individually interview all key persons Observe a trustee meeting Walk-through office processes Visit an operating venue Prepare review report

Assess compliance (for CGA and the trust) Identify issues and opportunities (for the trust only)

Present and (if necessary) follow up review report Emphasise substance over form, judgment over

prescription, diversity over one-size-fits-all

What Emerged from Reviews Overall?

Unduly low awareness of what the Code actually says and requires….

…but genuine commitment to the Code’s concept, in principle and to gain benefits of joining CGA

Extensive regulatory change (now dying away?) (Often) process problems from regulator’s activity Specific other issues, with some common themes Size is not the crucial factor Some trusts made changes to reach compliance The Code has attained its initial objectives Sector reality is much better than its image!

What Emerged from Reviews 1?

Constitutional mattersMostly fine (despite much diversity)Entity-specific issues of

HistoryStructureRoles


GovernanceGood people who are in it for the right reasons, are keen

to do the job well, and (collectively) have the skillsAdequate Board mechanics: meetings, papers, commsGood Chairmanship and professional adviceGood awareness of conflicts of interest, but variable

management of them that sometimes fell shortDiffering views on the range and roles of stakeholdersDiverse approaches to “govern not manage” relatively

small organisations, with varying successSupporting framework of role description, succession

planning, selection criteria, trustee evaluation, Board work plan etc relatively weak (in most cases)


ManagementDiverse overall approaches: in-house, contracted or

mixed. Most could improve, some more than othersStrategic planning variable and under strainAdequate or better management reportingOffices competently run Staff management relatively (too?) informalWork process documentation often weakEmployees typically fine but “employer risk” often not

well managed (and it needs to be!) Information systems need more sustained thought…

What Emerged from Reviews 4? Financial accounting and audit

Financial risks understood and managed operationally, but not always strategically

Needed accounting skills/qualifications thereFinancial reporting generally soundDiversity in return to AP, between entities and over timeCost drivers not always well understood or applied in contractsLack of industry benchmarks (benefit, cost, balance sheet

structure)Some audits could deliver greater benefits


OperationsNo one “best practice”. Instead a wide range of

practices, each one thought to fit that entity bestVenue/supplier contracts (mostly) current and

appropriately constructed Machine operation, gaming environment, reporting and

cash management appear to go well (cannot be 100%)Asset management by trust not always impressive…Are venue operators “members”? Customers?

Suppliers? Franchisees? “Black boxes”? Partners?Regulatory change has simplified that question Venue operator/staff management of problem gambling

was a gap already. Onerous new responsibilities!


GrantsAn inherently “inefficient” process that needs to

combine “high tech” (slick information systems) with “high touch” (personalised liaison with applicants)

The mechanical part is becoming more standardisedClear and documented processes needed for “helping

applicants”, checking probity, making decisions, etcRequirement to monitor community needs and

document granting policy is a muddy area… How to maintain full “memory” for decision purposes?Audit processes still catching up with needsGranting priorities (= “authorised purposes”?) can be a

point of difference, for CGA and for individual entities


Miscellaneous Code provisions Information confidentiality is practiced reasonably well but

needs higher visibilityPublic relations – Code was clear in intent but unduly

prescriptive in applicationComplaints procedures at all levels need better

documentation to manage perceptions, but they are a real problem and opportunity too

“Compete but also collaborate” - still evolving…

What Emerged from Reviews 8? Regulatory matters

Low mutual confidence, sometimes almost hostility

Untimely and incomplete information base available for CGA review (mostly)

“Audits” confused with “inspections”Lack of quality and consistency in

regulatory rulings and personnelOften-weak professional skill baseDanger of conflicting CGA-DIA

conclusions despite subservience to the regulatory framework

It can and should be done far better (cf. MAF). And it will be?

Learning from Experience…

Francis has my thoughts on the Code and compliance in general (not individual reviews)

The proposed changes make strategic sense Higher requirement for Board makes good

sense, at this time at least Compliance can only be a snapshot at a point

in time. It then requires upkeep. Verification is a judgment based largely on

assessing people. Any verification process can be undermined.

Adapt, not reinvent, good practice (e.g. IoD)


The Code of Practice is an important tool for charity gaming and for CGA. To be effective, it must be visibly enforced….

Learning from Experience… Themes for trustees to work on

“Future focus” for Board activity/developmentEliminating unhelpful history (some cases)Focus on the forest not the treesGovernance and management processes that are

sustainable over time and volumesManaging applicant expectations over timeBenchmarking within the sector (and beyond)Make “director only” time part of governanceRole of technology, especially ICTEmbed Code compliance in contracts, processes etc Compete on worthwhile points of difference while

collaborating within CGA where that is beneficial


Managing governance risks has two limbsActual governance of your organisationHow others could perceive that governance

(Including those with an axe to grind!)


Managing governance risks is about thinking ahead about what could come over the horizon

Hindsight comes too late….

Anything Else?

Where from here?

That’s up to you….

Thank you!

Setting a framework for best practice The role of a Trustees’ Job Description Francis Wevers Chief...

Documents

Transcript of Setting a framework for best practice The role of a Trustees’ Job Description Francis Wevers Chief...