A question of governance: Emerging issues in non-for-profit organisations

Wednesday 28 February 2018

Media and Communications Office

Roughly 600,000 non-for-profit (NFP) organisations exist in Australia, supported by 4.6 million Australian volunteers. As the size and complexity of NFP organisations has grown, so has the importance of good governance, explained Elizabeth Proust AO, during an afternoon workshop as part of the CSS Hearing Healing Hope conference. Proust is one of Melbourne’s leading business figures. With a mix of public sector and business experience, Proust has played key roles in developing and leading organisations, including as Chairman of the Australian Institute of Company Directors (AICD), Secretary of the Victorian Department of the Premier and Cabinet, and Chief Executive of the City of Melbourne.

Proust explored the range of emerging issues facing NFPs, particularly around trust, company culture, and refining governance practices.

‘In Australia, trust in institutions is in decline,’ Proust said. In the last year alone, trust in government has fallen eight percentage points from 45 per cent to 37 per cent. Trust in the media has fallen to 32 per cent. Across all sectors for the last five years, trust has been falling. Trust is key to any organisation’s success, but trust is the non-for-profit sector ‘is absolutely vital’, says Proust.

Company culture is a nebulous thing and measuring it can be difficult. And, Proust acknowledged that an organisation’s leaders may not be clear on who has the ultimate responsibility for culture. But Proust was adamant: the board is responsible. ‘Boards are expected to be responsible. Directors are responsible. There are not many directors left who would deny they have responsibility here.’

Proust described an AICD survey of companies in the ASX200, ‘where 92 per cent of directors not only believe culture is important, but they also accept and believe they’re responsible for the culture of their organisation. And 70 per cent of those directors surveyed say they’re actually trying to make positive changes to the culture of their organisation.’

‘Whether you’re a director of a bank, a charity or a small business, leaders need to take ownership and are in fact responsible for the culture of the organisation,’ Proust said.

Given the strategic importance—in all NFPs—of good directors, a resulting issue was hiring and training. ‘The cost of training directors is a problem,’ she said. ‘You need really good people with integrity, but you also need to train them. That’s a big issue. In the ASX, government is likely to mandate accreditation for directors.’

Given the decline in trust, the need for greater accountability and changes in regulation, the area of corporate governance is rapidly evolving. Responding to these forces, governing boards now look much different and much leaner than they might once have. ‘Boards have got smaller, and now a good board will look for someone who has a range of skills.’ Today boards are looking for strategic thinkers, and people who understand the people dynamics of an organisation, she explained. ‘Add an overlay of diversity on top of that, and not just gender, and boards are starting slowly to look different. The good ones look for much more than just the hard skills.’ Further, directors and board members will be more valued for their relevant skills rather than passion for the cause.

Given there’s an overall demand for better governance and more accountability and transparency, in larger NFP organisations, boards are progressively becoming more professional including engaging directors with relevant experience and providing governance training for them. Ultimately more will be demanded of directors and NFPs will respond by making sure their directors become more professional.

Most NFPs in Australia (440,000) are currently unincorporated, meaning they don’t have a formal and distinct legal status. But now, given there’s a growing need for more corporate structures, unincorporated organisations will become less common.

For those hoping for these issues facing NGOs to go away and return to simpler times, Proust issued a sombre warning: avoiding change will be impossible. ‘None of these are short term trends,’ she said. ‘There’s been a universal erosion of trust such that has never been seen before. Add to than an overlay of the royal commission. The level of trust and suspicion is such that in the near future, it will keep becoming much harder, not easier for Catholic not-for-profits.’

Visit the AICD’s resource on governance issues in not-for-profit organisations here.
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