Systemic failures of accountability in human services may prompt a rethink of directors’ legal liability in not-for-profit service providers, writes Professor Pamela Hanrahan.
For more than a decade, non-government providers in the human services sector have been under close and forensic scrutiny by three major royal commissions. The Royal Commission into Institutional Responses to Child Sexual Abuse commenced in January 2013 and reported late in 2017. It was followed by the Royal Commission into Aged Care Quality and Safety that concluded in 2021. The current Royal Commission into Violence, Abuse, Neglect and Exploitation of People with Disability began in 2019 and has completed hearings; it is expected to hand its final report to government in September this year.
All three royal commissions have uncovered significant problems in the system that procures, funds, and regulates human services providers. Vulnerable clients have been exposed to shameful, dehumanising and dangerous treatment on an industrial scale, while state and federal governments seek to distance themselves from direct accountability. Royal Commissioners and the community now expect providers and their boards to be vigilant in making sure clients are safe in these settings. Unfortunately, that vigilance is sometimes lacking.
No-one was accountable
The final round of hearings at the Disability Royal Commission, held in February, included an examination of governance and management in service providers. As Counsel Assisting the Royal Commission explained, the purpose was to “to explore and understand the various regulatory systems and arrangements that are applicable to running the business of disability services”. This covers “organisational structures, governance structures and management processes, recruitment and skill sets of board members and senior managers, systems of preventing and responding to violence, abuse, neglect and exploitation, managing risks, [and] approaches to the use of service agreements”.
During this round, the Commission revisited some earlier case studies that had uncovered and reported on significant failings by individual service providers. Several providers were criticised for not accepting responsibility for what had occurred, despite clear findings of the Commission.
One provider was described by Commissioner Ronald Sackville AO KC as “an organisation that lacked effective leadership and failed to develop a culture responsive to its responsibility to support its clients and protect them from violence, abuse, neglect and exploitation”. He said it was striking that “nobody seems to have been held accountable” for the failings uncovered earlier. When that provider’s CEO subsequently resigned for a better job, the board made a public announcement that “expressed appreciation for all her contributions and wished her well”.
The commissioner found “no evidence that [the former CEO] was ever reprimanded or disciplined by the board for her part in what seemed to have been institutional failures. No senior staff... have been dismissed or reprimanded for the role they may have played in the institutional failings. The board... has issued no public statement or statement to staff regretting the failures of the past and acknowledging responsibility. The board remains largely unchanged. Ten months... having elapsed since the report, there have only been two changes and the board has not rectified a glaring defect identified in the report, namely, no person with disability on the board and the chair retains her position.”
This not-for-profit (NFP) provider was a public company limited by guarantee, registered with the Australian Charities and Not-for-profits Commission (ACNC). Human services make up 15.8 per cent of all programs operated by NFPs registered with the ACNC. (By comparison, education is 16.5 per cent and health is 10.9 per cent.) Most charities classified by the ACNC as large ($1m–$10m in annual revenue), very large ($10m–$100m) and extra large (over $100m) in 2022 operate in this field. They all receive significant government funding, including through the National Disability Insurance Scheme (NDIS).
Directors’ legal duties
Serving on an NFP board — usually on a voluntary rather than paid basis — is an important way to contribute positively to the community. But the fact that the role is unpaid does not diminish, and should not obscure, the significant duties and responsibilities it entails.
Directors of NFP companies registered with the ACNC have the same basic legal duties as all other directors, although the source of those duties and the consequences of breaching them are different. Section 111L of the Corporations Act 2001 (Cth) turns off some of the statutory civil duties of directors and officers, including in ss 180–183, while their companies are ACNC registered. But ACNC Governance Standard 5 requires that the company take reasonable steps to make sure its “responsible persons” meet seven key duties, including to act with reasonable care and diligence and to act honestly in the best interests of the charity and for its purposes.
The expectations are clear. Acting with care and diligence involves taking reasonable measures to protect the entity from foreseeable harm, including the harm to its reputation and standing that can result from failures in service provision. Acting in the entity’s best interests includes not walking away from red flags or sweeping uncomfortable truths under the carpet. While directors of ACNC- registered companies may not face the same legal consequences of a breach of duty as other company directors, these clear expectations cannot be ignored.
Two years ago, the Aged Care Royal Commission’s final report included a stinging criticism of some approved providers in the aged care sector. Commissioner Lynelle Briggs AO found that their “leadership and culture appears not to be aligned with their mission and certainly not with the purpose of the aged care system. Boards and governing bodies are responsible for setting the values, mission and strategy of their aged care services. They should set out what is permissible and what is not acceptable, and they should be held to account for those decisions.”
If the Disability Royal Commission shows the same deficiencies in providers’ governance and accountability, it may well prompt a significant and necessary rethink of directors’ legal liability for institutional failings in this setting.
Commissioner Sackville’s February remarks suggest that governance and accountability will be the subject of close attention in the final report. This will include revisiting the composition of provider boards and the inclusion of people with lived (rather than learned) experience of disability in positions of real influence. We can also expect a much sharper focus on the legal and ethical accountability of providers and their boards to all their stakeholders, including the people in their care.
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