The days are gone that foundations with an important social function could fulfill their duties in isolation and seclusion. On one island in the Dutch Caribbean the largest hospital is currently the focus of attention, on another island it is the largest housing foundation, and on yet another island the only combined school. Apart from the not always very positive public attention, euphemistically speaking, the common denominator of these three institutions is that they have been legally organized as a foundation. Foundations are the most autonomous legal vehicles we know. A foundation does not have shareholders. A foundation does not have members. A foundation has a board. That’s it. In principle, the board determines what happens, albeit within the limits of the law and the bylaws.
Intervention by third parties
How is it possible then that a minister or state secretary can tell the board of a foundation to resign? And why does he say that concerning the board and not concerning the director? First, it is remarkable that the minister intervenes in the board of a foundation, for generally, outsiders do not have this option at all. However, sometimes the bylaws contain the option for an external party such as a subsidy provider or the government to appoint one or more board members. It does not often happen that this external party then also has the authority to remove these board members. Most of the time, this is an authority of the board itself. But there is another way to influence the board of a foundation. Most foundations can only continue to exist if they receive subsidies. It is currently normal to pay subsidy based on a ’care contract’. The care contract contains arrangements concerning the amount of the subsidy and how the foundation will use it. In this contract, conditions can also be set for the foundation’s governance. Part of these arrangements can be that the subsidy provider has the right, subject to suspension or withdrawal of the subsidy, to intervene in the composition of the board. In the case of a school in the Dutch Caribbean, the Secondary Education Act BES applies. Based on this Act, the minister can give certain instructions.
Role of management and board
Why intervene in the board and not in the management of the foundation? The management or director in most (old-fashioned) foundations is an employee of the foundation. The director has no independent role according to the bylaws in that case. Externally, the board members are and remain legally responsible for the day-to-day affairs of the foundation. This is not changed by the fact that they delegate the day-to-day activities to a director. In that case, the director is at best liable in the internal relationship towards the foundation, however, not so easily externally. And if the director has been laid down in the bylaws as a body, these bylaws can also stipulate that (only) the board is authorized to remove the director.
Most large foundations are therefore organized somewhat differently. They have a so-called Supervisory Board model. In that case, the management (confusingly often also called “board” or “management board”) has been laid down in the bylaws as well as the higher supervisory body, the supervisory board. The advantage hereof is that the person or person charged with the day-to-day management has/have the internal and external responsibility for the day-to-day affairs of the foundation. The wrath of the subsidy provider is then (mainly) directed against them if things go wrong. If there is no supervisory board, the (classic) board has to absorb the blows. The good old days of honorable and fun board positions are long gone. Sometimes, this understanding hits you like thunder.
Do you have a question about corporate governance yourself? Please e-mail it to firstname.lastname@example.org and perhaps your question will be discussed in the next blogpost!