Scottish National Investment Bank: consultation paper

6. Governance arrangements

"Operating on a commercial basis, to the highest investment management standards and operationally independent of SG, the Bank will be in a position to make robust investment decisions without undue influence or control from SG"

6.1 The Bank's governance will ensure it is operationally and administratively independent from Ministers. Ministers will not have a role in the Bank's internal governance or the operational decisions made by the Board in order to respond to the missions set by Ministers. The Chair and non-executive members of the Board would be appointed by Scottish Ministers, and there should be two Executive Directors (the Chief Executive and the Finance Director). Further development of the Bank's governance will be consistent with the guidance contained in "On Board" which applies to Scottish public bodies, and with the principles set out in the Financial Reporting Council's UK Corporate Governance Code. Appointment of the Chair and non-executive directors will also comply with the Code of Practice for Ministerial Appointments to Public Bodies in Scotland (2013) which is based on the principles of merit, integrity and diversity and equality.

6.2 Further proposals for governance and the Board are as follows:

• The number of board members should be between 8 and 12;
• At least two thirds of Board members to be non-executive members – the Board can decide to appoint up to 2 further executive directors to the Board in addition to the Chief Executive and the Finance Director;
• The Chair and Non-Executive Directors should be appointed by Ministers under the regulated public appointments process (a separate arrangement will be needed for initial appointments, as the Bank will not be formally established at that stage);
• In addition to having an Audit and Risk Committee (to be chaired by a non-executive director) the Board will determine which sub-committees are required and which Board members and others are invited to sit on them;
• The Board's responsibilities will include:
  • determining how to respond to the missions set for the Bank by Ministers
  • signing off the Investment Strategy, business plan, Risk Statement and Statement of Ethics (see following sections) and a Strategic Framework agreed with Ministers
  • ensuring that the Bank's capitalisation requirements and risk profile is acceptable and sustainable
  • ensuring that the Bank's performance – including against missions and the target rate of financial return - is effectively reported to all stakeholders
  • ensuring the culture of the Bank reflects and promotes the objectives of equality, diversity, transparency and accountability

6.3 Since the Bank should be commercially minded as well as publicly accountable, it should follow the requirements of the Scottish Public Finance Manual, Freedom of Information (Scotland) Act 2002 and all other statutory duties and requirements of public bodies. In order for the Bank to have the level of autonomy and authority that it requires to operate effectively and in the manner envisaged in the Implementation Plan, it will need some latitude in terms of the delegated authorities which are usually given to Scottish public bodies. For example, the Bank should be able to offer loans and make investments, and enter into joint ventures or set up subsidiaries within the limits of its Investment Strategy and Risk Strategy without further authority from Scottish Ministers. This will require detailed arrangements for both reporting and controlling such delegated powers to be set out in the Bill, the Bank's Articles and in a Strategic Framework.

6.4 Governance of the Bank and its relationship with Ministers will be supported by close communication between the Bank and its sponsor team within the Scottish Government, and regular meetings between the Chair and Chief Executive of the Bank and Ministers.

Taking account of wider stakeholder interests

6.5 The Implementation Plan recommended that there be an Advisory Group established for the Bank and that the Scottish Government should consult further with stakeholders about their role going forward. There are several options for realising wider engagement with civic society.

6.6 A Stakeholder Working Group will be created for the implementation phase to conduct wider engagement on the legislation, the development of a Strategic Framework for the Bank and to advise Ministers on the implementation of the governance and operation of the Bank.

6.7 Once the Bank is operational, the Implementation Plan proposed a formal Advisory Group as part of the Bank's governance arrangements. There are various ways in which an Advisory Group for the Bank might be constructed, and a number of existing models to draw on. The following structure develops the approach suggested in the Implementation Plan as a basis for further discussion:

• the Advisory Group should be established by Scottish Ministers and resourced by the Scottish Government;
• the Advisory Group's membership should number up to 20, drawn from across a range of interests including those who benefit from the Bank's investment activities, and those who have an interest or stake in the missions set for the Bank by Ministers and delivery of Scotland's economic strategy;
• the Group will have a formal remit which will include how it operates, how members are appointed and retire and how the group's meetings are conducted;
• the Group can advise Ministers on:
  • The Bank's Strategic Framework and Performance Framework;
  • the Bank's reported performance;
  • the Bank's Investment Strategy; and
  • Any changes or revisions to missions.
• the Advisory Group Chair, who should also be a non-executive director of the Bank, should meet with Ministers periodically;
• the Group will meet every 6 to 12 months, reporting to Ministers after each meeting. Ministers should outline how they have taken the views of the Advisory Board into account in the subsequent Strategic Framework; and
• The Bank's Board is not accountable to the Advisory Group, but should consider the Group's views and take them into account in its operations.

Question 11:

Do you agree with the proposed approach to the Bank's governance and Board arrangements which will inform the Bill, the Articles of Association and a Strategic Framework document?

Question 12:

Do you have any comments on the need for the Bank to have Delegated Powers, in order to achieve the aim of it being operational and administratively independent?

Question 13:

Do you have views on whether and how an Advisory Group could provide advice to Ministers on issues relating to the Bank?