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Grappling with operational governance

3 min read

Association governance often receives either lip service or is ignored by Australian not-for-profits, mainly because it is perceived to be too complicated and perhaps a little abstract.

Certainly there are exceptions, but either ignorance or acceptance of potential impacts of some governance matters are more often the rule than the exception for not-for-profits (the terms associations and not-for-profits are used interchangeably here).

Good governance

For-profit boards usually comprise members with specific and/or high-level expertise. These are often senior executives or retired executives who bring particular knowledge and experience to the board. Australian Standard AS 8000 Good Governance Principles was developed specifically for that business sector.

AS 8000 does acknowledge not-for-profits in its Appendix C. Perhaps its most telling observation is that “directors of not-for-profits need to be aware of their governance responsibilities which are not diminished by their lack of remuneration.”

Put simply, both for-profits and not-for-profits are equally required to comply with Corporations Law. Nevertheless, for-profits are usually better equipped to understand, and consequently to meet their regulatory responsibilities.

The scope for a not-for-profit entity can range from an under-resourced (both financially and in terms of personnel) sporting club which is not incorporated, to a major professional membership association that operates as a company limited by guarantee and has resources similar to a significant for-profit business. Then of course, there exist many tens of thousands of associations which fall somewhere between those spectral extremes.

Not-for-profit situational dynamics

It is because of this breadth of scope that good governance can be so challenging for individual not-for-profit organisations. This challenge will undoubtedly become more complex with anticipated recommendations to be made by the Henry Tax Review, in addition to the Productivity Commission’s recent suggestion that the not-for-profit sector be subject to regulation by Australian Securities ad Investments Commission (ASIC) and that the current substantial tax breaks enjoyed by some not-for-profits (including charities, hospitals and large sporting clubs) be discontinued.

Efforts have been made in several quarters to focus upon the development of a Governance Guide for not-for-profits. The intention was that this would address the particular needs of associations, be easy to read and understand, but at the same time cover this sector’s particular needs.

While association executives would benefit from the development of such a guide, efforts to create it have received less attention than would benefit the sector.

Not-for-profit guidelines

In the absence of more specific guidance on not-for-profit governance, a basic approach for a not-for-profit board could be based around five governance elements comprising:

  • Strategy and governance, which must encompass risk management for that particular organisation
  • Structure of the board or executive committee
  • Purpose and capability of the not-for-profit board
  • Board processes, policies and procedures
  • Measurements of board efficacy, which would be brought together according to a designed matrix.

These elements are only a beginning, although they do encapsulate the wider governance needs for an association.

The sort of components which would form this governance model might include the group’s strategic plan its mission, vision and values; the skills of directors; the running of meetings and the associated documentation; the annual review of the board; and the board working constructively as a team.

Guidelines in practice for associations

The development of a governance model for an individual association is not, of itself, sufficient to provide a tick against organisational governance as a done deal. Additional factors or steps are required. These could include:

  • A protocol for assessing and appointing directors
  • Training for directors
  • Completion of the not-for-profit’s strategic plan
  • Identification of the relationship arrangements between the executive officer and the president
  • A review of the status of the association’s incorporation (or even the lack of one).

The budgeting process and its regular review, the introduction of a ‘no surprises in either direction’ policy, and a review of communication tools used and their effectiveness, are other aspects for consideration.

One client of mine has a list of 73 aspects that a prospective director is asked to respond to, while another has a much simpler 13 criteria. Which document would you prefer to complete?

A not-for-profit governance guide

The concept of an Australian general not-for-profit Governance Guide is feasible. Though unlikely to be a best seller, it could provide association executives with guidance, templates and governance model approaches that are suitable to their needs.

A guide could help executives to move boards away from the fun area of micromanaging the association into the area of future planning, which is where a board’s efforts should be focused anyway.

Is there an interest out there for such a guide? Indications are that the answer is a resounding ‘yes’, although at the same time the likelihood of it surfacing is a question along the lines of ‘who will bell the cat?’

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