Towards NFP Best Practice

Best practice governance in a not-for-profit (NFP) is a continual challenge. Sources you can turn to for advice, are organisations such as the ACNC, AICD or the Governance Institute. All provide direction on governance practices within NFPs.

Competing with the goal of good governance within NFPs is the limited resources available. Plus the desire to minimise the resources diverted from the charitable purpose.

The more relevant question for NFPs is what can they do to give the best chance of moving towards best practice.

Get the right people

The people you have on the board is the single biggest contributor to the running of an NFP. To achieve this there has to be a conscious effort to understand the skills needed on the board. There also needs to be a resistance to the lowering of the bar when assessing applicants.

Skills Matrix. Understanding the skills required for the board requires a continual monitoring process. This used to review the skills already present on the board, and identify gaps. The board is then aware of the specific needs before looking for a new director. Giving the best chance of finding a person with skills that will complement the existing board.

Recruitment. In looking for a new director, a process of recruitment should be undertaken. This can begin with a review of known people in the board’s network, but should include reaching outside of that network. The main reason is the bigger the pool of people accessed, the more chance of finding the right person.

Do not compromise. When you are recruiting a position on the board, remember it is the skills you are after. It is not about filling a seat at the table. Try not to compromise on what you are looking for. The difference I see between great boards and average boards is this step. By not compromising on the way in, they don’t end up “stuck” with non-contributing board members.

Have clear expectations

Understanding the role of the board within the NFP is important, as is the role of the directors as part of the board. By having a clear position description for directors provides clarity on expectations. Clear expectations from the start gives the best chance of a productive relationship.

More than for-profit boards. NFP directors have essentially the same duties as those on commercial boards. They are subject to the same penalties for things like misuse of position or insolvent trading. Yet, NFP directors have extra expectations. These include promoting the charitable cause and assisting in fundraising for the charity. And, there may be operational areas directors assist with, such as ICT, safety or social media. All of this for what is normally an unpaid position.

Motivation. An NFP board position is often someone’s first step into a director position. The motivation could be one of wanting to give back or having been a previous client of the charity. In some cases, it is the first step to a commercial board role. Understanding why someone is interested in the role will help predict their future level of commitment.

Require good management reporting

An area often compromised on in NFPs is the quality of reporting to the board. As directors there is an obligation to ensure you make informed decisions. Good management reporting will go a long way to providing that.

Profitability. Just because you are a not-for-profit enterprise doesn’t mean you ignore the underlying aspects of your business. Some of which may be profitable. A large part of the operations may fall under specific grants. Yet there will be aspects outside of this, such as the level of donations you receive, and the administration costs. You may have other ancillary services you offer that may be for a fee. How all these fit together should be visible through your management reporting.

Cash Forecasting. The nature of NFPs generally mean they are running close to the line in relation to cash. And one of the core duties of the board is not let allow the NFP to trade whilst insolvent. Hence, some level of forecasting on cash position should form part of the standard reporting to the board.

Have a company secretary

The role of the board is to handle the strategy and direction of the NFP. The role of the CEO is executing the strategy and guiding operations. Combining the administration of the organisation into either of these roles diverts their attention. Having an individual separate to these positions as the company secretary will improve the functioning of the other roles. And contribute to a stronger relationship between the CEO and the board.

Assists directors. Part of the company secretary’s role is to provide support to the directors. This can include handling requests, organising committee meetings and inducting new directors. Where there is not a designated company secretary, these tasks can be neglected. The result of this neglect can be a board that does not feel supported by the organisation.

Assists the CEO. Being a CEO of an NFP can be quite a lonely role as there is not always an obvious 2IC within the organisation. The company secretary can provide the ability to be a sounding board for the CEO. Or be someone with an objective second opinion on the expectations of the board. This can in turn improve the effectiveness of the board\CEO relationship.

Would you like some help?

Justin Hogg is an Accountant and Governance Professional that can help your NFP on its journey. Providing focus to the company secretary role and improving the governance practices within NFPs.

To arrange an initial, complimentary discussion, email or call 0414 896 696.

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