Governance issues at the forefront in 2019

We are a little over a month into 2019 and governance (or specifically a lack thereof) has been at the forefront of headlines in these opening weeks of the year. The findings from the Royal Commission into misconduct in the banking industry were released last week highlighting significant failings in governance amongst our banking institutions.

This week the Royal Commission into the aged care sector has commenced and it is evident that failings in governance will be at the heart of many of the issues expected to be raised during the hearings.

With this back drop in mind, it is useful to take stock of the Australian Institute of Company Directors recently updated Not-for-profit Governance Principles. These revised principles reflect changes in the governance landscape since their first release in 2013. Over the course of the coming weeks, I will be summarising each of the 10 Principles to provide a snap shot of these recently released updates.

The Principles provide a detailed, practical and principles-based framework to help not-for-profits to achieve good governance. With increased community expectations and increasing accountability from funders and other stakeholders, not-for-profits should make themselves familiar with the governance principles to consider how their current performance compares to this framework.

Below is a summary of Principle 1: Purpose and Strategy. Keep an eye out for posts in the coming weeks as I work through each of the 10 Principles.

Principle 1 – Purpose and Strategy.

The organisation has a clear purpose and a strategy that aligns its activities to its purpose.

Supporting Practices

1. The organisation’s purpose is clear, recorded in its governing documents and understood by the board

An organisations purpose can be considered the ‘what’ and the ‘why’ it exists. A well articulated purpose should be able to be applied as a filter by which all activities that an organisation undertakes are in some way contributing to this purpose. As NFP’s exist to further a particular social or community benefit, defining an organisations purpose is often a collaborative process involving a variety of stakeholders.

2. The board approves a strategy to carry out the organisations purpose

A fundamental role of the board is to develop the strategy for the organisation. Strategy brings the organisation’s purpose to life by setting out the way by which it will be achieved. The way in which a board will go about this will vary depending on its size, complexity and maturity, however regardless as to how the strategy is determined, the board must be ultimately accountable for the performance of the organisation in achieving its strategy.

3. Decisions by the board further the organisation’s purpose and strategy

While board members in small not-for-profits may take a more hands on role than larger organisations with paid staff and management teams, the board should apply a strategic lens to their decision making regardless of the organisation’s size. Directors need to take into account the broader environment when making decisions, consider strategic risks and think about the long term sustainability and objectives of the organisations.

4. The board regularly devotes time to consider strategy

A key challenge for all boards is to devote the necessary time to consider truly strategic issues that can impact an organisation. Against a backdrop of Increasing compliance and regulatory pressures, it is easy for Boards to delve into the operational matters that are front and centre for the organisation each day. A structured approach however will assist Boards allocate the necessary time to consider strategy.

5. The board periodically reviews the purpose and strategy

Practical approaches can include ensuring strategy discussion is scheduled into the annual board agenda or allocated as a standing item at board meetings, or structured strategy planning days or retreats for Boards to take time out to consider strategic issues. Only by devoting adequate time to consider strategy can boards assess their performance and / or the need to review and update their current strategy.

Key questions for Directors to consider

1. Is the organisation’s purpose clearly articulated and communicated to stakeholders?

2. How does the board know if the organisation’s activities are aligned to its purpose?

3. How frequently do the purpose and strategy need to be reviewed?

4. How does the board align its decision-making with the strategy?

5. Is time set aside in the board’s agenda to consider strategy?

The full version of the Not-for-profit Governance Principles can be found here. If you would like more information about the Governance Principles or would like to discuss how they relate to your organisation, feel free to get in touch.

Reference:

Australian Institute of Company Directors 2019, http://aicd.companydirectors.com.au/resources/not-for-profit-resources/not-for-profit-governance-principles