The gap between good intentions and good governance in Not-for-profits

For those of us who feel passionate about charitable or Not-for-profit causes and are looking for an opportunity to have a social or environmental impact outside of our regular for-profit executive roles, joining an NFP organisation’s board can be a rewarding way to build capability and expertise in the sector.

Chris Southcote-Want speaks to Jo Kearney GAID, Chair and Non-Executive Director of Instil, Non-Executive Director of RSPCA and Committee Member of the Royal Brisbane Women’s Hospital Foundation.

The Not for Profit industry is currently under intense scrutiny by The Australian Charities and Not-for-profits Commission (ACNC) for the compliance of registered charities operating below or outside of minimum standards of regulatory governance.

In considering embarking on a NFP board position, Jo Kearney offers this advice:

“You need to balance the heart and the head. Passion for and commitment to the NFP’s purpose is incredibly important.  The mission or cause needs to resonate with your values as most NFP board roles are unpaid, therefore emotional connection is key to being (and continuing to be) motivated to invest the hours and do the work.

But don’t let the heart take over completely, you need to balance it with rational and intelligent reasoning. This is about due diligence, but the due diligence is two-fold: firstly, you need to check that the organisation is financially sustainable and will be strategically relevant in the future; secondly, and just as importantly, you need to think about the organisation’s needs and how your skills will help them. This due diligence consideration is about you being able to add value to the organisation and ensuring your skills and capabilities are what the organisation needs.”

The need for best-practice governance

Relevant experience and due diligence of board members within the NFP industry has come under increased focus and review after more than 1,700 concerns about Australian charities were reported according to the ACNC’s 2017 Charity Compliance Report.

Jo discusses the importance of ACNC compliance and how it makes a difference for great operators within the NFP sector:

“Competition for the next donation dollar is becoming more and more fierce as we see new charities and NFP organisations emerging daily. Survival in this increasingly competitive world is as much about the NFP being able to create a connection between a donator and their cause (i.e. their value proposition), as it is about demonstrating that they can be trusted to do the right thing with donator’s money.  I think the benefit of ACNC compliance is not only the requirement on these organisations to be accountable and transparent, but they can demonstrate this discipline and rigour to their donators through their ACNC registration. This gives them an extra proof point to their donor community of why they can be trusted, and the donator should feel confident that their donation dollar is being spent appropriately.”

At Six Degrees Executive, there is no question that effective board recruitment and NFP governance standards go hand in hand. For charities, this means existing hiring processes may need to change and be streamlined to ensure appointments deliver on both sense-of-purpose and measurable non-profit objectives.

In most cases being investigated by the National regulator, poor governance “related to poor financial controls, inadequate due-diligence, and a failure by charities’ responsible persons to act in the best interests of the charity” has led to compliance action being taken. Recently, two charities had their charity status entitlements withdrawn for not meeting the ACNC’s governance standards. 

As uncomfortable as these actions may make some people feel, or as harsh as they may seem, it’s a valuable and timely reminder for those of us working for the not-for-profit industry that purpose and profit in the organizational context of an NFP must be aligned, both culturally and experience-wise.

Good governance principles for NFPs

As recruiters, we understand the significance and impact an executive leadership team can have on culture and organisational outcomes. Just like for-profit organisations, charities should have a clearly defined culture that prevails on the boardroom agenda and for those sitting at the table. Regardless of background, experience or corporate specialisation, operating to clear principles and guidelines, including the recruitment process, is mandatory for NFP organisations long-term success. 

The Australian Institute of Company Directors has created ten governance principles that provide a good governance framework for the NFP sector and appointed directors. The complete resource is one I would recommend for current or prospective executives wanting to benchmark best- practice NFP principles, but particularly relevant to the process of recruiting new board members are these four standards:

1.    Roles and responsibilities

Clearly outlining (verbally, in writing, or both) to existing and/or newly elected board members what their responsibilities within in the organisation are, and what is expected of them in carrying out their role, should be a minimum operating standard that ensures all parties understand and agree on expectations.

2.    Purpose and strategy

The vision and purpose of any NFP organisation should be well considered and clearly communicated within the organisation’s strategic plan or mission statement. Defining and formalising your NFP purpose is a foundation principle that ultimately sets the executive direction and decision making of the business.

3.    Board effectiveness

Evaluation and review of employee performance against agreed KPIs is a standard governing metric of all successful businesses that nurtures individual excellence and builds team capacity. To ensure ongoing board effectiveness in relation to roles, responsibilities, purpose and strategy, NFPs must implement a relevant evaluation process for board members.

4.    Organisation building

Does your NFP have a system in place that helps review current versus future capacity within the organization or that can identify skill gaps? Best practice organization building for NFPs must be governed by a recruitment plan that is unbiased in balancing skills, knowledge and experience with ability to execute.

In our learning of these key four principles, Chris asked Jo about steps that a business can take to ensure that the board appointment process is thorough and fit for purpose:

“I sit on a number of NFP boards and the board appointment process is different for each based on the different missions, different operating models and different strategic needs of the organisation. However, one thing I have consistently observed is the shift from nepotistic network appointments to engaging a Non-Executive Director (NED) search firm to run an official and disciplined recruitment process. And I’m not referring to nepotistic network appointments in a derogatory way, it’s simply the way things were done with tight budgets and little support resources.

With the emergence of search firms specialising in NED recruitment and the increasing importance of the need to hire the right skills, capabilities, and behaviours to improve board performance and enhance organisational impact, many NFPs are now realising they need support with the recruitment process to ensure they make the right hiring decisions.

I only just today chaired a board meeting for one of the NFPs I sit on and for the first time in that organisation’s history, we undertook a Board skills matrix exercise to understand what capabilities we currently have and what we need to look for in the vacancy we are now recruiting for. This also prompted a future focussed discussion on strategy and where we are heading to ensure we are future proofing the organisation with right Board capability.”

Appointing new members to the board of your not-for-profit organization who have the appropriate risk, governance and commercial skills will ensure your continued success. If you would like to find out more about how SDE is working with NFP clients to help build and enhance internal governance and performance in line with the ACNC we would love to hear from you.