New governance principles and guidance for not-for-profit entities (NFPs)

We encourage all directors and boards of NFPs to consider the AICD’s updated Corporate Governance Principles for not-for-profit entities, published 30 January 2019.

The publication by the Australian Institute of Company Directors (AICD) of its updated Not-for-Profit Governance Principles (Second Edition) on 30 January 2019 is timely given media attention and public enquiries into the sector, specifically the Royal Commission into child sexual abuse, and more recently, the upcoming enquiry on the quality of care in residential aged care facilities in Australia.

In light of these events, and increased public expectations regarding governance of NFPs, the AICD’s Second Edition expands on the original 10 principles by including, for each principle, ‘supporting practices’, additional guidance, and case studies to illustrate how each principle can be applied to large and small NFPs.

There is no ‘one-size-fits-all’ approach to corporate governance in the NFP sector.

When considering corporate governance in the NFP sector, it is important to note there is no ‘one-size-fits-all’ approach. Because of the wide variation in size, purpose, resources and maturities of these entities, processes that may be appropriate for say a mature, large, corporatized NFP may be ‘over the top’ for a small community group. The two case studies added to the guidance on each principle help illustrate this point, and demonstrate how different practices or processes can be implemented by different types of NFPs to meet the objective of each principle.

Snapshot

The Foreword to the Second Edition includes a good ‘snap shot’ of all 10 principles, as well as the ‘supporting practices’.

Each principle has a heading and then includes a high level statement explaining the aspect of good governance espoused in the heading. The supporting practices are essentially desirable outcomes to demonstrate that the principle has been achieved. Below is an example of Principle 1 and its supporting practices extracted from the Snapshot of Principles.

Principle 1 Purpose and strategy The organisation has a clear purpose and a strategy which aligns its activities to its purpose	1.1	The organisation’s purpose is clear, recorded in its governing documents and understood by the board
	1.2	The board approves a strategy to carry out the organisation’s purpose
	1.3	Decisions by the board further the organisation’s purpose and strategy
	1.4	The board regularly devotes time to consider strategy
	1.5	The board periodically reviews the purpose and strategy

This means that any or all of the above supporting practices 1.1 to 1.5 could be adopted in order to show that the NFP is complying with Principle 1.

Structure of the guidance

The detailed section of the document is divided into 10 sections, one for each principle. Information from the ‘snapshot’ is duplicated in the detailed section and there is extensive practical guidance. For example, for Principle 1 shown above, the guidance covers:

What is a purpose?
Understanding purpose
Communicating about purpose
Can an organisation’s purpose change?
Having a not-for-profit purpose
What is strategy?
Strategic planning
The board’s role in strategy
Making time for strategy.

There is also a series of Questions for Directors to help them apply the principles. For example, suggested questions for Principle 1 include:

Is the organisation’s purpose clearly articulated and communicated to stakeholders?
How does the board know if the organisation’s activities are aligned to its purpose?
How frequently do the purpose and strategy need to be reviewed?
How does the board align its decision-making with the strategy?
Is time set aside in the board’s agenda to consider strategy?

Case studies

Lastly, for each Principle, the Second Edition includes two case studies (HelpfulCare and The Friendlies) to show how the principles can be applied to diverse NFPs. An example of these case studies for Principle 1 in the Second Edition has been extracted below.

HelpfulCare

HelpfulCare’s purpose is recorded in its constitution as: “To support people in need through the provision of world-class services delivered with the care of a family.” To bring their purpose to life, they have developed a policy document called ‘Being HelpfulCare’ which explains what their purpose is, what it means and how it is incorporated into their operations.

The board of HelpfulCare has approved a rolling five-year strategic plan which was developed by their Chief Executive Officer (CEO) under the supervision of the board who set expectations of timeframes and consultation. The strategic plan articulates five key goals which help give form to the organisation’s purpose. The board reviews progress towards achieving their strategic goals annually and, as part of that, reflects on how effective its strategy has been. If necessary, the strategy is refined or changed. It also formally reviews its strategic plan mid-way through its life.

To assist with making strategic decisions, the board of HelpfulCare requires management to provide at least a short explanation for any matter they are asking the board to make a decision on, describing how the issue relates to the achievement of their purposes. Agenda items and management reports are also categorised based on which strategic plan goal they relate to so that the board is always thinking about the relationship between their work and the strategy.

Strategy is a standing agenda item at every second board meeting and the board of HelpfulCare has a dedicated annual strategy day where directors meet for an extended period to discuss strategy, changes in their operational environment and ‘big picture’ ideas.

The Friendlies

The Friendlies’ purpose is recorded in their constitution as “to facilitate and coordinate the goodwill and generosity of the local community.” They have developed an ‘organisational charter’ that expands on this, describing the three main ways through which they aim to achieve this goal.

Every year in December the Friendlies hold a ‘community planning day’ where they identify three key goals for the year through a consultative process with their members. These goals are then communicated to members and other stakeholders in their monthly newsletter and on their Facebook page. They are reported on at the end of the year in their annual report. This forms their strategic plan.

Twice a year the Friendlies’ board holds a half-day meeting at which they meet with members to talk about their progress towards achieving their purpose and make any refinements necessary based on their consultation.