Feb 3, 20237 min read

Effective Not For Profit Governance: How Boards Can Drive Strategic Success

Good governance is essential for any organisation, but it is particularly important for not for profit boards. As strategy is one of (arguably the most) important functions of the board, boards that demonstrate good governance improve their capacity to drive strategic success for their organisation.

Good governance and strategy go hand in hand – without good governance it is difficult for the board to execute its strategy responsibilities successfully. Good governance helps to ensure the organisation is operating efficiently and effectively, has sound financial practices, manages risks, makes better decisions, and helps to build trust and credibility with stakeholders including members, customers, funders, and the community.

The role of the board in not for profit strategy

When it comes to strategy, there are four key functions that the board of a not for profit organisation is responsible for. They are:

Setting the overall direction and goals of the organisation.
Ensuring that the organisation's purpose and values align with its strategic plans.
Regularly assessing the organisation's performance and make adjustments to the strategy as needed.
Providing oversight and guidance to the executive team to ensure that the strategy is being implemented effectively.

It is important to be mindful that while the board has a central role in the strategy development process, it isn’t done in isolation from the CEO / executive, and it is essential that the CEO / executive are part of the strategy process. The way in which not for profits should approach this aspect of strategy development is discussed further down in this article.

So how does good governance lead to better strategy development by the board?

Boards that want to develop better strategy should do each of the following.

Clarity of purpose: The board should have a clear understanding of the organisation's mission, values, and goals. This will help guide decision making and ensure that the organisation is working towards the right objectives.
Active and engaged board members: Board members should be actively involved in the development and implementation of strategy and be engaged in listening, questioning, dialogue and analysis.
Board composition: Boards should plan board composition to enable diversity of views and knowledge. They should have the skills, knowledge, and experience to provide a diversity of thought and contribute effectively to the strategy process.
Strong leadership: The board should have a strong leader who can guide the organisation through the strategy development process. This person should be able to facilitate discussions, build consensus, and keep the board focused on the organisation's goals.
Effective communication: The board should communicate effectively with all stakeholders, including members, staff, volunteers, funders, and the community. This will help ensure that everyone is informed about the organisation's strategy and that a diversity of views and feedback are considered.
Regular reviews and evaluations: The board should regularly review and evaluate the organisation's strategy to ensure that it is still relevant and aligned with the organisation's goals. This will help the board to make adjustments as needed and ensure that the organisation is on track to achieve its objectives.
Transparency and accountability: The board should be transparent and accountable to all stakeholders. This will help to build trust and ensure that the organisation is operating in an open and honest manner.
Risk management: The board should have a robust risk management process in place to help identify, assess, and manage risks that may impact the organisation's strategy. The risk management process should also be seen as an opportunity to identify alternate choices about the organisation’s strategy.
Invest in the future: The board should take a longer term view and invest in the future of the organisation by investing in staff, volunteers, and infrastructure to ensure that the organisation is well-positioned for long-term success.
Clarity of roles and responsibilities: The board should be clear on its role and not involve itself in the operational or delivery side of the strategy. The boards role is of oversight and support and directors should follow the adage – ‘Nose in, fingers out’ and let the CEO and management team get on with the job of implementing the strategy.

Board and Management relationship in the development of strategy

One of the cornerstone principles of good governance is a clear separation of powers and responsibilities between the board and the chief executive officer and their staff. I have also earlier discussed the responsibility of the board in setting and having overall oversight of the strategic direction of the organisation. But what of the role of the executive / management team in the strategy space? Should they be purely passive in this space or do they take a more active role - what is the right relationship between the board and executive in the development of strategy in not for profits?

There is a need for a mix of both board and CEO active involvement in the strategy development process. At one extreme is a primarily management driven strategy with limited board involvement while the other end is a predominantly board driven approach.

So what is the right mix? Well the exact mix will be different for each organisation however an iterative approach that involves both the board and CEO is likely to deliver the best outcome. While the board is ultimately responsible and accountable for the organisations strategy and subsequent performance, the CEO should be the key driver and use the board to test ideas, gain advice and insights and present different possibilities for feedback from the board.

Adopting an approach that engages both the CEO and will help to avoid the downsides that can result from either a too dominant board or too dominant CEO driven strategy.

Key points while it is critical for the CEO to be an active driver of the strategy process

If the CEO is really going to be engaged in the implementation of the strategy, then it makes sense that they have been actively involved in the development process.
It is important the CEO can actually execute the agreed strategy. The board is unlikely to have enough operational intel to be able to confidently develop a strategy that has a high chance of success of being executed. And if a strategy can’t be executed then it wasn’t really much of a strategy to begin with.
The CEO has a much more detailed understanding of the organisations capabilities, enabling management systems and other resources.
Communication of the strategy to key stakeholders is a key role for the CEO. They must be able to communicate the strategy to staff, sponsors, funders, government agencies, members and the broader community where required.
Monitoring and evaluation of performance. While the board has overall accountability for the monitoring of organisation performance, the CEO is responsible for establishing the systems and processes to measure the organisation's performance against the strategy.

Key points as to why the board needs to be engaged in the process.

The board is ultimately accountable for the success or otherwise of the organisation and that is largely tied the performance of the organisation against its strategic plan. It is therefore imperative that the board are engaged in the strategy process.
A feature of boards with good governance is that they are able to bring a diversity of thought into board discussion and provide alternate viewpoints and experiences from across the community and society more broadly. This diversity is a value add to strategy development by bringing different insights and ideas into the process.
The board can be a sounding board for ideas brought forward by the CEO. By not being involved in the day-to-day of the business, they can test and ask questions of the CEO to ensure that different options have been considered.
While the CEO is responsible for the implementation of the strategy, the board needs to provide leadership in supporting the CEO in its implementation as well as helping to enable the provision of the necessary resources required for the implementation of the strategy.

In the not-for-profit environment, boards that have a diversity of skills, age, gender, background, experience etc. will be best placed to help test and challenge the ideas and strategies that are presented by the CEO. By working closely throughout the process, a strategy that is developed with a board and CEO in alignment is the best approach that enables everyone to work together towards achieving the organisations objectives.

Moving from planning to strategy: How to add the strategy to your planning

One of the challenges that boards (and all organisations) face is a lack of clarity around what strategy actually is. Strategic planning has (unfairly in my view) gained a bad reputation in recent years due to the cookie cutter approach and lack of tangible outcomes that the process often delivers. While the process might deliver a document that the organisation refers to as its strategic plan, there is often very little strategy within the plan. The below points identify the elements of a strategy and the questions that boards need to be able to answer to identify their strategy.

Strategy is a theory as to what you think will happen if your customers, members, stakeholders etc behave in a certain way – we can’t prove it in advance and we can’t guarantee it, but it is our theory of what we want to happen.
Planning on the other hand, is the act of laying out projects with timelines, deliverables, budgets and responsibilities.
Strategy and planning should be complements – effective strategy needs effective planning but without having a well defined strategy, the value of detailed planning is limited.
Strategy is a problem solving tool to enable you to overcome a gap between the outcomes we experience and the aspirations we hold. That gap is a product of the current set of choices (or lack of choices) that has guided our actions up to this point in time.
Strategy therefore requires choices about which things the organisation will do and which things it won’t, and then building the business around those choices.

The five key questions that every board needs to answer in order to be able to identify and articulate its strategy are

What is our winning aspiration?
Where do we compete?
How will we win?
What capabilities do we need?
What management systems will provide a sustainable advantage?

Summary

Not for profit organisations that demonstrate good governance are much better placed to both develop and deliver on a quality strategy. Conversely, an organisation with the world’s best strategy but with poor governance practices is almost guaranteed to fail in the achievement of its strategy.

It is vital that the boards of not for profits ensure that strategy is at the heart of everything that they do. This means that it is important that directors have a clear understanding of what strategy is, and to move from a mindset of planning to one of strategy. By adopting good governance processes, not for profit boards will improve their capacity to improve their strategic thinking and the achievement of the organisation’s objectives.

Peter Minchin is the Founder & Principal Consultant of Purpose Driven Performance, a consultancy firm dedicated to the not-for-profit, association and community sector, specialising in strategy development and governance improvement.

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