Not-For-Profit Governance

Written by on March 17, 2015 in Governance with 0 Comments

Upland Consulting: Not-for-Profit Governance: Photo of Fontenay AbbeyIs Not-for-Profit Governance Different?

Not-for-profit (better, for-purpose) organisations add up to big business.  In Australia, it is reckoned the sector turns over more than $100 billion a year (that’s a B), and employs nearly one million people.  That’s eight percent of the workforce, and we know it’s only the tip of the iceberg because so much of the work is done by volunteers.  The charities and benevolent trusts, the NFPs delivering government services under contract, the volunteer emergency services, the industry and sporting associations: they were all set up with a primary purpose other than to generate profit.  We know that will lead to a different ethos and strategy from for-profit companies — but is not-for-profit governance different?

Short answer: No.  The regulators have made it clear that, in essence, they expect the members of NFP governing bodies, boards and executive committees to work in the same ways, and to the same standards, as company directors.  That is, they must:

  • Make decisions in good faith, for the benefit of the entire organisation;
  • Actively inform themselves and apply proper diligence to their decision-making; and
  • Avoid conflicts of interest.

They need a clear understanding of their organisation’s risks and mitigations, and they must ensure that effective governance procedures protect its assets and reputation.  They should also regularly review their own board’s performance.

Rigour is an Advantage

All this may seem onerous for a small group of time-poor volunteers who just want to do some good.  But actually, it’s an advantage.  If you take membership dues and/or donations, you want to be openly answerable for how that money gets used.  If you are delivering services, you want to make sure the good work continues.  If you are in public advocacy or influencing, you want to ensure your message is not erased by scandal or law-breaking.  Not-for-profit governance standards should be just as rigorous, just as testing, as for-profit standards.

Which brings me to profit.  Many NFP staff and directors instinctively feel that making a profit (that is, an operating surplus) is ripping off their cause, and that every cent of revenue should be spent on their purpose.  This is a mistake.  Ten times out of nine, it’s a better service to their cause to accumulate a cash reserve so that their purpose can still be served in the inevitable crisis.  Even though their purpose is not profit, profit is essential to properly serving their purpose.

So given the size and influence of the NFP sector, and the vast amount of time and money it works with every year, I think the expectations on not-for-profit governance are quite appropriate.  Governance should not be red tape (the sector is already awash in that), but it should enforce accountability.  We should use it to evolve towards better serving the social purposes for which NFPs exist.

Like all board work, that’s a difficult balancing act.

Clients say…

Upland Consulting offers a couple of workshop options for NFP boards, and mentoring for their members. Here’s one participant’s feedback:

“Professional and valuable content that is very relevant to my role as a board member.”

You might also like…

Here’s my page on Not-for-Profits and Their Boards.

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