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nonprofit Opinion

Purposeful Governance: Transformation of small and medium not-for-profits serving Australian communities

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Authors: Ranjit Gajendra Nadarajah FCMA, and FCPA Vivienne Cunningham-Smith

The predicament

Let’s just cut to the chase.

Australia is in recession for the first time in almost thirty years, national debt is in unprecedented territory, and unemployment is expected to explode when the government suspends the job keeper and job seeker allowances.

The small and medium not-for-profits in the country, a vehicle for delivery of services and building community capacity, an essential component of the social fabric and applauded for serving those that invariably get left behind in our society, continue to assist in solving some of the nation’s biggest social problems.

Many of the small to medium not-for-profits serve communities through access of recurrent government funding that encourages active collaboration within the sector around the needs of client groups and communities. In recent years the sector has been experiencing major disruptions.

Attempts at transformation does not seem to get off the ground; in many cases this is because restructuring is driven only through cost-elimination, outsourcing, divestments and redundancies of staff that invariably eliminates capabilities, saps morale, and removes the essential slack that could fuel new endeavours, and undermines the subsequent pursuit of value creation.

Governance is becoming a bigger issue in the sector; the Board, often consisting friends, family and members assembled due mainly because of their community standing rather than for possessing the required knowledge, skills and experience for the role, is tasked with facilitating and enabling transformation required for sustainability.

Many struggle with sector-transformation, now a necessity to survive changes introduced by neo-liberal influenced marketisation and new public-sector management policies. There has been a conscious policy objective of governments to minimise micro not-for-profits in a belief that it is administratively more efficient to deal with fewer providers.

Marketisation brought a new ideology of government- defined need and solution which was then commissioned-out for funding to an open market. The sector has not had sufficient funding for professional development of staff or for funding recruitment of social managers with experience, and their governance has remained within a 1970’s model of community sector management that does not support the notion of social enterprise.

Even though the small and medium not-for-profit organisations are some of the most agile social businesses and have been acknowledged and credited for establishing relationships with their community clients, their predicaments are complex enough to consider exiting the sector altogether.

Though structural and fundamental changes are required there has been very little government support to this sector for people-development, to build capacity and capability of management, leadership and governance. Increased focus on both client-centred care and billable hours makes it less likely that there is time-investment in leadership and management capability.

How did we get here? Although Governance of not-for-profits is undertaken by the Board (or committee of management) not all Boards possess the required and right combination of skills and knowledge to serve in rapidly shifting, disruptive environments. Not-for-profits tend to suffer when their Board becomes too involved in operations.

Whilst serving on a Board could be immensely rewarding and requires a great deal of commitment, expertise is needed in maintaining the right balance between governance, management and passion. Recent research indicates that almost one in three not-for-profit Boards has no system in- place for reviewing its own performance, increasingly impacting their credibility; more than a third of Board members say they did not receive a good induction, and one in two Board members believe they would benefit from more governance training.

Meanwhile, the disadvantaged and vulnerable living across the country be it in the central business district, inner city, rural or regional Australia, who could normally benefit from the small and medium not-for-profits are all doing it tough.

Post Covid19 it is unlikely that their predicament will go away. These organisations delivering welfare and services in Australia have evolved into a third sector of communities organized to serve communities and face major disruptions including outsourcing by governments of human services, competition for contracts from commercial companies, the development of outcomes-measurement of services, introduction of consumer directed care services, new forms of online fundraising and use of new technologies. The sector almost never has capacity to access marketing, philanthropy and fundraising-specialists required to benefit from these new developments.

There are attempts now to retrofit collaborative-practice that was once a core characteristic within the sector, and government funding of programs has been seriously reduced leading to many handing funding back simply because it is inadequate to cover costs. If they already haven’t, post Covid19 the sector will find the imbalance of community expectations of services vis-à-vis access to funds, a mighty challenge to navigate. Invariably, the Boards must be proactive, complete a stock-take of skill-gaps, and not only enhance Board skills but also recruit new members to the Board.

It is ironic that the luxury of continued economic growth through the last three decades, driven by the resources boom may have made Australia’s enterprise leaders under-prepared for a future of continuous scarcity, increasing competition, and growing client demand for both diverse and better services. Many members of small and medium not-for-profit Boards were selected during times when priorities were different. Equally concerning is that one in four board members is over the age of 65 and there continues to be a lack of younger Board members in the sector.

Purposeful governance in the current context is for Boards and Committee of management to

· review both their composition and performance in the first instance; doing this with a trusted external person’s facilitation produces meaningful results and avoids incrimination;

· enable Board membership to represent multicultural diversity, Indigenous and LGBTQ identity, younger people and those with disabilities;

· extend leadership, without getting involved in day-to-day operations, proactively seek collaboration and partnerships within the sector to redirect well-cemented arrangements between themselves as service-provider and the government as the provider of funding;

· leverage strategic planning processes to develop measures of strategic progress, re-establishing credibility and a culture of transparency;

· support management proposals to generate revenue from alternative sources reducing dependence on government funding;

· avoid obvious, simple, inadequate and narrow-focus metrics of performance that kill innovation;

· with many in senior management and leadership soon to retire, introduce formal mentoring and coaching as part of succession planning; and

· explore exit strategies that will continue to serve the communities that they previously have and those that avoid cessation of operations and activity.

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