Boards and directors face five key issues in the not-for-profit (NFP) space in Australia, according to Bruce Cowley FAICD, author of the book Directorship in Context, recently published by the AICD.
As not-for-profit boards face into governance headwinds following various Royal Commissions over the past few years, board member, author, legal expert and governance professional Bruce Cowley FAICD highlights some top issues he sees for NFP directors during a panel at the 2023 Australian Governance Summit.
Cowley referenced his book, Directorship in Context, which is a practical guide to being a modern board director. It takes a contemporary look at issues facing directors, featuring real world examples and case studies from contemporary contexts.
Cultural leadership now a key duty
Regulatory, governance and financial duties remain paramount, but not-for-profit directors also have an important role as leaders of their organisation’s culture. Getting the culture right is critically important to an organisation’s performance and reputation and, while many have traditionally viewed this as the responsibility of the management team, there is no doubt now that directors have a crucial role to play in setting the tone from the very top. It requires directors to role model the organisational culture in all interactions with staff and other stakeholders, and to ensure that their own behaviours align to the organisation’s purpose and values.
NFPs are complex, directors’ skills need to match
Historically, many directors appointed to not-for-profit boards have brought with them great passion for the cause and a desire to help, but not necessarily the financial and other skills needed to lead a successful organisation. This is changing as we’ve started to think of not-for-profit boards in a different way. Larger not-for-profits, while not listed on the ASX, can still be complex businesses where boards have significant responsibilities, especially to the stakeholders they serve. These stakeholders can often be among some of the most vulnerable people in our society. Just as the expectations of listed company directors have grown, so too are we expecting more from NFP directors. As a result, we’re starting to see more appointments of people with much higher levels of skills, experience and qualifications including AICD accreditation.
Measuring impact beyond your own walls
As demand for transparency and accountability increases across the sector, (especially after the many Royal Commissions which have resulted in a downgrading of community trust in NFP entities), there’s been an uplift in the way they measure the outcomes of what they’re achieving. This is moving beyond just reporting on the outputs (such as how many programs and participants are held) to the outcomes (such as how engaged or supported program participants feel, or retention rates among employees), to provide a more holistic way of gauging impact. In setting impact measures, it’s important not to forget about stakeholders. For example, if your organisation focuses on early learning support for children, make sure you’re measuring the impact on parents and families. If your focus is on environmental care, are you tracking the impact on local communities? If you deal with regulators, governments or philanthropists how satisfied are they with what you are doing? It’s becoming more important for organisations to design a range of tools which provide the board with a more comprehensive view of their organisation’s impact and the value it is delivering.
Cash flow is key, reserves provisioning vital
When joining an NFP board, one of the first things new directors should look at is the organisation’s cashflow projections (and, if the board doesn’t receive a report on projections of future cashflow, to encourage the board to start asking for them). Without an appreciation of future cash needs, it’s almost impossible to set a strategy the board can have confidence can be implemented. More than ever before, NFP entities need financial discipline, believable budgets and a team that’s committed to those budgets. Just as importantly, you need to develop strategies to build up financial reserves and find ways of putting those reserves aside to help see the organisation through unexpectedly challenging times.
Board recruitment methods are evolving
There’s been a past tendency in the NFP sector to find new directors by tapping on the shoulder people known to board members. They think the board might work well with these new directors without undertaking the usual skills gap analysis and succession planning processes that might be undertaken by for-profit boards. Many larger NFPs are now taking a more progressive approach by engaging external recruitment search specialists. Yes, it’s more expensive, even if you’re able to negotiate a discount in acknowledgement of the organisation’s non-profit mission, but specialist recruiters can help to create a shortlist of potential candidates who not only have high levels of qualifications to meet the set of skills required on your board, but who have an interest in your cause and, importantly, bring diverse views to the table. More emphasis is also being placed on finding directors with the ‘lived experience’ relevant to the organisation’s primary purpose, which might, for example, in the case of a disability charity, include a person with the disability or a family member. Having people around the table with lived experience makes you so much more aware of the issues. While whether to remunerate directors is a matter for each board to decide, for some, fees may be needed to be paid to attract directors with the necessary skills and diverse viewpoints.
More about Directorship in Context and Bruce Cowley FAICD
The publication, which is a practical guide to being a modern board director, takes an in-depth look at challenges facing directors and offers insights as to how they can effectively navigate the uncertain landscape of corporate governance. Through up-to-date case studies, Cowley examines how directors approach the difficult task of making boardroom decisions.
Bruce Cowley FAICD was a practising corporate and governance lawyer for nearly 40 years, retiring in 2019. His non-executive director roles span multiple sectors including tertiary education, health, financial services, environmental protection and disability. He also chaired the Law Council of Australia’s Corporations Committee and has served on multiple AICD committees, including a term as chair of the Law Committee. He currently serves on the Not-for-Profit Chairs Forum.
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