17 October 2013
Good Corporate Governance
The Australian Institute of Company Directors (AICD) recently released the Good Governance Principles and Guidance for Not-for-Profit (NFP) organisations. These principles are not prescriptive, but are designed to assist boards by promoting and facilitating the crucial conversations and activities which NFP organisations undertake regularly to achieve good governance.
The 10 Key Principles
The ten (10) key principles identified by the AICD provide a relevant starting point for consideration about what constitutes good corporate governance:
- Roles and Responsibilities: There should be clarity regarding individual director responsibilities, organisational expectations and the role of the board.
- Board composition: The board should be a strong mix of members - having regard to each member's background, skills and experience and how each person can contribute to the collective capability and effective functioning of the board.
- Purpose and Strategy: The board plays an important role in setting the vision, purpose and strategies of the organisation. Members play a key role in helping the organisation to understand these and encouraging adaptation of the direction or plans across the organisation.
- Recognition and management of risk: Boards can increase the likelihood their organisation will deliver on its purpose by putting in place appropriate levels of oversight and internal controls.
- Organisational performance: The degree to which an organisation is delivering on its purpose can be difficult to assess, but this can be aided by the board determining and assessing appropriate performance categories and indicators for the organisation.
- Board effectiveness: A board's effectiveness may be greatly enhanced through:
- Careful forward planning of board-related activities; Board meetings being run in an efficient manner;
- Regular assessments of board performance;
- Having a board succession plan; and
- The effective use of sub-committees, where appropriate. Eg C.A.R.M.
- Integrity and accountability: It is important a board have in place a system where there is flow of information to the board that aids decision-making, there is transparency and accountability to external stakeholders and where integrity of financial statements and other key information is safeguarded.
- Organisation building: The board has a role to play in enhancing the capacity and capabilities of the organisation they serve.
- Culture and ethics: The board sets the tone for ethical and responsible decision-making throughout the organisation.
- Engagement: The board helps an organisation to engage effectively with stakeholders.
There is no “one size fits all” solution for good governance. The governance arrangements of an NFP are influenced by a variety of factors including:
- The nature of its activities - such as operating risks associated with the particular sector;
- Geography and stakeholders;
- The regulatory environment and the legislation that governs the organisation (such as the Corporations Act, and/or state-based Associations Incorporation Acts);
- The constitution of the board; and
- Requirements of grantors, funders and other key stakeholders.
Also, levels of understanding and how governance is approached will vary according to the mission, organisational structure, size and sophistication.
What are the benefits of Good Governance?
Bentleys have been working with NFP organisations – both large and small, and ranging from large church and charitable groups to government funded organisations, such as Medicare Locals – for more than 65 years.
In our experience, there are a wide range of benefits that result from good governance practices. These include:
- Enhanced regulatory compliance, financial understanding and risk mitigation;
- Better organisational strategies and strategic planning/execution;
- Improved stakeholder engagement and communication;
- Increased delivers on purpose/mission; and
- Greater value creation through research, development and innovation.
What can you do to improve governance across your board?
Firstly, it is always relevant to consider the circumstances of your particular organisation. This can be achieved by conducting a strategic review of your organisational capacity to identify areas that work well, and areas that can be improved on. Specific action plans can then be formulated. These may cover everything from attendance at external courses through to internal workshops.
Another way that you can use the Principles and Guidance is to focus on the Principles one at a time over a series of board meetings. This format may be useful for organisations where directors are less experienced in governance or have concerns around particular issues.