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UK Government
Investments
This Guidance Note is for the information of UKGI staff. It is not to be circulated outside of UKGI.
Guidance Note 13 The Role of the UKGI NED November 2021
This Guidance Note is intended as a guide to the role of the UKGI NED. For UKGI’s portfolio of Assets,
having a UKGI employee on the Asset Board is a core part of our shareholder model.
Further reading is in the links below and in particular in the UKGI Portfolio Operating Principles (POPs)
where it is discussed under Principle F. Please get in touch with Adam Moore, Helen Lambert or Tim
Martin if you have any questions or relevant material to add to this guidance note.
Becoming a UKGI NED
UKGI NEDs are typically Directors or Executive Directors. UKGI NEDs should, as with all Board members,
possess the skills, background and expertise relevant to the requirements and operations of the Asset
and UKGI endeavours to ensure appointments are appropriate across its portfolio. Typically, the UKGI
NED will also lead the UKGI shareholder team for the Asset. However, in limited circumstances UKGI
also performs NED-only roles. Currently, we have only one such role - for Network Rail.
The principle of there being a UKGI NED on the Board of an Asset should be set out in the Framework
Document for the Asset and shareholder teams should ensure that they include specific language
agreed with UKGI Legal. Where appointments to the Asset Board are Ministerial appointments, such
as may be set out in legislation, UKGI should request Ministerial permission for the appointment. Upon
appointment, the UKGI NED should be issued with an appointment letter from the Asset in the same
manner as the Asset’s other NEDs. This appointment letter should be based on the Asset’s standard
form, with the addition of certain bespoke information sharing and conflicts provisions, drafted by UKGI
Legal. Further information and guidance regarding these procedural matters can be found below and
in the POPs under Activity 39.
The role of the UKGI NED
Unless stated otherwise in constitutional documentation, the duties of the UKGI NED on an Asset’s
Board must be the same as those of all the other Directors, including any other Directors appointed by
Ministers. These include a duty to act in a way they consider, in good faith, most likely to promote the
success of the Asset for the benefit of its shareholders. These responsibilities have different
parameters to those of UKGI performing the shareholder role and the UKGI NED should therefore be
conscious that they will need to wear two ‘hats’ (as described in more detail below). The personal
responsibilities of Directors of companies incorporated under the Companies Act 2006 (or predecessor
legislation) are set out in section 171 to 177 of the Companies Act 2006'. The responsibilities of the
Board cannot be delegated and include (but are not restricted to) the following:
. Duty to promote the success of the company
. Duty to exercise reasonable care, skill and diligence
. Duty to exercise independent judgment
. Duty to act within powers
1 UKGI acknowledges that some of its Assets are not constituted as “companies” and are therefore not legally
subject to the Companies Act 2006. Nevertheless, in terms of a Director’s responsibilities, UKGI applies the
principles of the Companies Act as far as possible, as these substantially act to codify the fiduciary and
common law duties applicable to all Directors (including those of non-Companies Act entities).
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° Duty to avoid conflicts of interest
. Duty to declare interests in proposed transactions
. Duty to declare interests in existing transactions
. Duty not to accept benefits from third parties.
How the role of the UKGI NED differs from other NEDs
The role of the UKGI Shareholder NED is to:
i. fulfil the relevant statutory and/or fiduciary duties of a Director under the Companies Act,
acting in a way which is most likely to promote the success of the Asset for the benefit of its
shareholder whilst having appropriate regard to other stakeholder interests;
ii. contribute to the overall strength of the Board by bringing appropriate skills and expertise;
iii. contribute expertise in best practice corporate and government governance;
iv. by virtue of their unique position, facilitate the relationship and understanding between the
Department and the Asset, including:
© conveying the context of the Department’s objectives and perspective (established through
regular meetings with Departmental officials and, when appropriate, Ministers to discuss
Asset developments and relevant Departmental / Ministerial interests) to the Board to aid its
decision-making;
© whilst fulfilling their duties of confidentiality as a member of the Board, providing a direct line
of sight to the Department on developments at the Asset and the quality of the Board and
management in the performance of their functions; and
© supporting wider relevant government stakeholder relationships.
The wording in this section (How the role of the UKGI NED differs from other NEDs) can be used for
outward facing communications, with Departments and Assets.
UKGI NEDs and Shareholder Teams
From the UKGI NEDs’ perspective they will seek support in carrying out their responsibilities from their
shareholder teams and UKGI encourages this insofar as UKGI team members can provide expertise and
insight. However, the UKGI NED’s responsibilities as a Director cannot be borne by anybody other than
the UKGI NED.
The UKGI NED role is also an important lever in helping UKGI deliver its shareholder role as a whole.
The UKGI NED often also serves as head of the shareholder team, and in this role leads UKGI’s
execution of shareholder activities, including overseeing performance of the Asset through regular
shareholder meetings, as well as often representing UKGI in any recruitment process to the Asset
Board where UKGI has a role. The Department, especially senior Departmental officials, will regard the
UKGI NED as both a point of contact, day-to-day, with the Asset’s Board and a facilitator of information
flow in both directions, as well as an important evaluator of the performance of the Asset’s Board and
management. The UKGI NED should make sure that the Department receives regular and timely
performance information regarding the Asset, in a UKGI shareholder capacity, and should also provide
a qualitative and candid assessment of Board and Executive performance, morale, and relationship
with Government as necessary. In order to do so, it is imperative that the UKGI NED maintains an
effective relationship with the Board and senior management of the company (in particular its Chair),
the relevant senior officials within the Department, and other stakeholder groups.
UKGI NEDs hold their posts as ex officio members of UKGI. Therefore, it is usual practice for the UKGI
NED to cease their directorship at the Asset if they leave UKGI (permanently or for any extended
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period). The UKGI NED should also not be additionally remunerated for their NED role in addition to
their UKGI salary.
Often, Assets provide their Directors with directors and officers insurance and / or indemnification as
protection in respect of personal liability. All UKGI NEDs should also receive indemnities from the
relevant Department but note that we understand that in future these may have to be approved by
HMT as they are unlimited and thus could exceed £10million. UKG/ Legal can provide further advice
and the form of indemnity appropriate for the relevant Asset / Department.
Potential problem areas for the UKGI NED
We recognise that the functional relationship of the Shareholder NED will differ from independent
NEDs as set out above and there may be circumstances, albeit relatively rare, where there might be an
actual rather than perceived conflict between the position of the UKGI NED as the shareholder
representative and the interests of the company.
It is usually possible to find a solution to reconcile the conflict of interest, following a consultation at a
high level within the Department, UKGI, and importantly with in- house legal advisers — not least
because there are well established procedures set out in the Companies Acts for dealing with possible
conflicts for ex officio Directors. In certain circumstances it might be necessary for the UKGI NED to
recuse themselves from certain Board decisions where there is an actual conflict. However, if this
becomes necessary outside of extraordinary, irregular circumstances, it may be necessary to
reconsider the relationship between the Department and Asset, and the appropriateness of the role
of the UKGI NED as shareholder representative. Further guidance dealing with these situations may be
found in UKGI Legal’s document on Assets with a Public Purpose.
Why a policy director should not be a NED
UKGI is often asked why a policy director from a sponsor Department should not be a NED either
instead of, or in addition to, the UKGI NED. UKGI does not believe a policy director from the
Department should act as a NED on an Asset Board because:
e Actual or perceived conflicts may be created, if an individual who makes policy decisions in
relation to the Asset also sits on the board of that Asset
e Lines of accountability can be confused, which in turn:
© detracts from the effectiveness and empowerment of the Board, and ultimately
undermines the purpose of the Asset in operating at arm’s length to government; and
© compromises the separation between the policy and shareholder functions, which UKGI
best practice indicates promotes effective oversight and good governance.
The NED-only role
As noted above UKGI can have a shareholder role which is limited to that of a NED only. UKGI does not
perform the typical shareholder activities for such Assets, but rather acts as an interlocutor between
HMG and the Asset. With the UKGI role being established within an individual, rather than a
shareholder team, the NED-only role is concerned more with relationship handling between key
individuals, officials and Asset personnel, than performing shareholder activities. It is important to
note, however, that as with all UKGI NED roles, insofar as the Board is concerned, the duties of the
UKGI NED must be the same as those of all other Directors.
Though no two NED-only roles are the same, the typical responsibilities of a UKGI NED on these Assets
include:
. Regularly meeting with Departmental officials (expected to include the relevant Asset
shareholder team, and Policy and Client teams where applicable), and Departmental Ministers
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when appropriate, to discuss relevant Departmental/Ministerial interests so that the NED will
have an up to date understanding of these
Participating in other discussions with Departmental officials as required on matters of interest
relating to the Asset
Providing insights into the views of the Department with respect to the Asset at the relevant
board meetings to the extent required to aid the Asset’s decision making; and
. Where appropriate, helping to resolve any issues as “honest broker” between the
relevant Departmental team and the Asset.