Post on 29-Nov-2014
description
The Governance Challenges
of Running a Not-for-Profit
Guest Presenter: Kevin McCaffrey, Effective Governance
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Hayes Knight
Governance Challenges for NFP’s June 2011
Kevin McCaffrey
Partner kevin@effectivegovernance.co.nz
Contents
1. Governance Overview
2. Got a Map ? How’s your WoF?
3. The Individual Board Member’s Role
4. The Board’s Role
5. What's the plan?
6. Managing Risk
7. Noses in and Fingers Out
8. Key Points
The Type of Organisation Determines Governance
Requirements
Start-up Mature
Commercial
Public Good
Regulatory
Listed Company
Organisation Life Cycle influences Governance
Transform
Governance is influenced by Current Events &
Future Demands
Degree of Change
Time
(yrs)
Level of Board Engagement
Appetite
For
Risk 1 2 3 4 5
low
low
high
high
high
Start-up
Mature
There are 4 Models of Governance
1. Agency Model – There is absolute separation of powers, the Board scrutinises Management on behalf of the shareholder, e.g. Listed companies
2. Stewardship Model – The Board works with Management to guide the organisation and is actively engaged in strategy and advising the management.
3. Resource Model – The Board is considered and acts as a resource for the organisation, networks, representation, skills etc, common in start-ups and Community and Social Organisations – NFP’s
4. Stakeholder Model – An emerging model where the Board represents a range of Stakeholders interests and guides the management in balancing their interests, common in Social – Political influencing organisations.
The Legal Framework
Incorporated Societies Have at least 15 members and are registered under the Incorporated Societies Act 1908. Members associate together for a mutual interest other than the pursuit of profit
Charitable Trusts (Charities Act 2005) comprise either 1. A Trust where property is legally owned by a group of people
(trustees) managed for the beneficiaries of the Trust. The Trust does not have a legal identity
2. A Charitable Trust Board is a group of people that holds assets or conducts activities for charitable purposes. The organisation acquires a separate legal identity that is independent of trustees or members
Are you a Trust or Trust Board??
Do Check !!
What is your Governance Map?
Council
Board
Committees
Influence
Over
JV
Members
Regions
Branches
Electoral
Colleges
Volunteers
What is the Source of Authority ?
Governance Map – XYZ Trust Inc
XYZ Trust Incorporated
(26th August 1969)
Trust Board Incorporated
(25th May 1967)
Standing Committees
•Women’s committee (Board sub-
committee)
•Finance & Audit
•Quality & Risk
Adhoc Sub-Committees
•Executive remuneration &
disciplinary
•Property
•Private Service Funding
•Positioning / Events
CEO
Elected by Board
Elected from society members at
each AGM
JV
Identify your Source of Authority
ABC Endowment Fund
Governance Structure – who was really in charge?
Board of Trustees
President
Finance Subcommittee
Funding Subcommittee
Marketing Subcommittee
Governance Ad Hoc
Subcommittee
CEO Ad Hoc
Subcommittee
Planning Ad Hoc
Subcommittee
Fundraiser
Senior Executive
Staff
Volunteers
Founders Syndrome ?????
Source of Authority
??
WoF Check
Is your Constitution, Trust Deed up to date?
Show it to me !!!
Does it meet your current and future needs?
Do you know the Source of Authority and the related
Authorities (not just delegated authorities)
Does everyone know the hierarchy ( parent and child)?
Do they follow it?
Can you draw it for me?
ORGANISATIONAL ENVIRONMENT
THE BOARD ENVIRONMENT
BOARD ROLES
Organisation
Type History
Legal
Framework Constitution Strategy
ORGANISATIONAL PERFORMANCE
Monitoring
Risk Management
Compliance
Policy Framework
Networking
Stakeholder Communication
Effective Governance
CEO Selection, Monitoring and Evaluation
Strategy
BOARD CAPITAL
Board Competencies
Knowledge
Skills
Abilities
Contacts
Board Structures
Policies
Processes
Procedures
Committees
Board
Dynamics
Board Behaviours
Personality Values Norms Board-
management relations
Decision Making
WORK WITH AND THROUGH THE CEO AND STAFF
Effective Governance Model
For Whom Must I Act ?
1. Members ?
2. Clients ?
3. Entity ?
4. All ?
Basic Duties of a Board Member
First duty:
To act in good faith and in what the director believes to be the best interests of the Company, Society or Trust.
To exercise powers for ‘proper purpose’
Not to allow ‘reckless trading’
To exercise reasonable ‘care, diligence and skill’
May rely on Information from management or
professional advisers subject to proper inquiry.
Individual's Responsibilities
The Fiduciary Principle
“One who having been entrusted with powers for another's benefit is under a
general equitable obligation when dealing with those powers to act honestly in what they consider to be in the other’s interests
“Fides” – trust, faith, belief, truth confidence
Independence, probity, honesty, diligence
Duty and Responsibility
– The Duty of Good Faith
– The Duty of Care
– The Duty of Skill
– The Duty of Diligence
In doing so, they must continually ask themselves the 8 questions;
Question One
Is there any conflict?
Duty of good faith
Question Two
Do I have all the facts to enable me to make a decision?
Duty of care
Duty of skill
Duty of diligence
Question Three
Is this a rational business decision based on all the facts?
Duty of care
Duty of skill
Duty of diligence
Question Four
Is the decision in the best interests of the company?
Duty of good faith
Duty of care
Duty of skill
Question Five
Is the communication to stakeholders transparent?
Duty of good faith
Duty of care
Duty of skill
Sunlight is the best disinfectant
Artificial illumination is the best policeman
Question Six
Is the company acting in a socially responsible manner?
Duty of care
Duty of skill
Duty of diligence
Question Seven
Am I acting as a good steward of the company’s assets?
Duty of care
Duty of skill
Duty of diligence
Question Eight
Would the board be embarrassed if its decision and the
process employed in arriving at the decision appeared
on the front page of the national newspaper? (The
Sunday morning paper test)
Duty of care.
Board Member Responsibilities- Cont’d
1. Is there a conflict? good faith
2. Do I have all the facts to make a decision care skill diligence
3. Is this a rational business decision based on all the facts? care skill diligence
4. Is the decision in the best interests of the Organisation? good faith care skill
5. Is the communication to stakeholders transparent? good faith care skill
6. Is the Organisation acting in a socially responsible manner? care skill diligence
7. Am I acting as a good steward of the Organisation’s assets? care skill diligence
8. The Sunday morning paper test care
The Board’s Core Accountabilities
1. Setting the Governance Framework
2. Strategic Planning
3. Risk Management and Compliance
4. Monitoring and Fiscal Control
5. Policy & Authorisations
6. Shareholder & Stakeholder Management, and
“Hire the CEO – Accept Their Plan – Fire the CEO”
Principles for Corporate Governance
( Securities Commission Guidelines)
Governance Principles
1. Directors should observe and foster high ethical standards
2. There should be a balance of independence, skills, knowledge, experience and
perspectives among directors so that the board works effectively.
3. The board should use committees where this would enhance its effectiveness in key
areas while retaining board responsibility.
4. The board should demand integrity both in financial reporting and in the timeliness and
balance of disclosures on entity affairs.
5. The remuneration of directors should be transparent, fair and reasonable.
6. The board should regularly verify that the entity has appropriate processes that identify
and manage potential and relevant risks.
7. The board should ensure the quality and independence of the external audit process. 8. The board should foster constructive relationships with shareholders that encourage
them to engage with the entity.
9. The board should respect the interests of shareholders (and stakeholders) within the
context of the entity’s ownership type and its fundamental purpose.
Principles & Rules Governance Framework
XYZ Trust
Constitution
Charter
•_____
•_____
•_____
Regulations
& Rules
Governance
Principles
Operating
Policies
ORGANISATIONAL ENVIRONMENT
THE BOARD ENVIRONMENT
BOARD ROLES
Organisation
Type History
Legal
Framework Constitution Strategy
ORGANISATIONAL PERFORMANCE
Monitoring
Risk Management
Compliance
Policy Framework
Networking
Stakeholder Communication
Effective Governance
CEO Selection, Monitoring and Evaluation
Strategy
BOARD CAPITAL
Board Competencies
Knowledge
Skills
Abilities
Contacts
Board Structures
Policies
Processes
Procedures
Committees
Board
Dynamics
Board Behaviours
Personality Values Norms Board-
management relations
Decision Making
WORK WITH AND THROUGH THE CEO AND SMT
Effective Governance Model- Strategy Development
So what is strategy? - Really
Copyright -Effective governance 2010
“ A Commonly held view”
“ Its written down”
“ Its never complete”
“ It needs to guide decision making”
“ It’s the stories you hear in the organisation”
“Its our Values”
What is your Ambition?
Transform
You are here
Set Goals to describe the Ambition
V
Mission
Strategy
Business Plans
Forecasting
Performance Reporting
OUR VALUES
Vision: Trajectory
Mission: W+W+H
Goals &
Time Horizons Sectors
Clients
Size
Turnover
People
etc
Strategy – The guts of it = WWH
WHAT will we DO? -------------------------- NOT DO – What Services & Offerings will we do
– What will we NOT DO
Strategy is about saying NO
WHO FOR? ---------------------------- NOT FOR – Clients, Funders, Demographics,
– Members, Staff, Suppliers
– Volunteers, Stakeholders.
HOW will we do this? – The Operating Model
– Tangible/ Physical Resources – Facilities, technology, products
– Intangible resources - people, brands, IP, volunteers
This is the core purpose of the organisation
Values Vision Mission Council Ideas
Board Plans
Management Ideas
Branch Ideas
Stakeholders
Competition
People
Environment
Regulation
Joint Session of
•Council
•Board
•Management
To set priorities
5 Year Plan Strategic Goals
2014 +
Members
Our Clients
Our Services
Our Delivery Model
Our People
Fiscal Goals
Risk Appetite
Stakeholder Interests
3 Year Rolling Business Plan
Strategic Goals 2011 2012 2013 2014
Members
Clients
Services
Delivery Model
Our People
Fiscal Goals
Stakeholders
Strategy Drives Priorities and Resourcing
Research
Plan
Annual Plan
Strategic Goals Budget Actual
Members
Clients
Services
Delivery Model
Our People
Fiscal Goals
Stakeholders
Priorities
ORGANISATIONAL ENVIRONMENT
THE BOARD ENVIRONMENT
BOARD ROLES
Organisation
Type History
Legal
Framework Constitution Strategy
ORGANISATIONAL PERFORMANCE
Monitoring
Risk Management
Compliance
Policy Framework
Networking
Stakeholder Communication
Effective Governance
CEO Selection, Monitoring and Evaluation
Strategy
BOARD CAPITAL
Board Competencies
Knowledge
Skills
Abilities
Contacts
Board Structures
Policies
Processes
Procedures
Committees
Board
Dynamics
Board Behaviours
Personality Values Norms Board-
management relations
Decision Making
WORK WITH AND THROUGH THE CEO AND SMT
Effective Governance - Risk & Compliance
What’s this all About?
What do we mean by Risk
How to Identify and Manage Risk
The Role of the Board
Source J Bendall
Survive & Prosper !
Source J Bendall
Firstly a common language is needed ….
Risk - the chance of something that will have an impact on objectives. It is
measured in terms of consequence and likelihood.
Risk Management - the culture, processes and structures that are directed
towards the effective management of potential opportunities and adverse
effects.
Risk Appetite – the amount of risk the entity is prepared to take in pursuit
of it’s objectives .
Risk Tolerance – the amount of loss the entity is will to bear should a risk
materialise.
Source J Bendall
Possible Risks
Fraud and theft
- Cash - Information
- Time - Property
Competencies
not Defined
Inadequate
Training and Support
Loss of Key Staff
Services Poorly
Defined
Service Standards
Slip
Negative Public
Disclosure
Poor Morale
and Motivation
Reputation / Brand
Legal non-compliance
Business Plans / Budgets
Not
agreed/finalised
Source J Bendall
Risk profiling and Reporting helps focus efforts
3
4
6
7
8
Insignificant
Likelihood of
Occurrence
Minor
Moderate
Major
Remote Unlikely Moderate Likely Almost
certain
14 3
Catastrophic
Imp
act
/ C
on
seq
uen
ce
# Tier 1 Risks
3
7
14
16
18
20
16
7 20
18
High
Short Term Action
•Reduce
Critical
•Terminate
•Transfer
Low Priority
•Accept /monitor
Strategies
•Transfer
•Reduce
Low
High
Likelihood
What can you do about it?
Impact
Assurance to stakeholders
Stakeholders
Board
Management
Employees
Risk profile Emerging Issues Early warnings
Current risk profile Action plan status
Risk management system
Ensure accountability Risk aware culture
Risk management - Policy - Philosophy - Appetite
Responsibility for risk management
Source J Bendall
The Board’s role
Set the “tone at the top”
Determine the organisation’s risk appetite/tolerance
Approve the risk management policy
Approve risk management framework for the organisation
Risk and compliance monitoring
Survive and Prosper!
Source J Bendall
ORGANISATIONAL ENVIRONMENT
THE BOARD ENVIRONMENT
BOARD ROLES
Organisation
Type History
Legal
Framework Constitution Strategy
ORGANISATIONAL PERFORMANCE
Monitoring
Risk Management
Compliance
Policy Framework
Networking
Stakeholder Communication
Effective Governance
CEO Selection, Monitoring and Evaluation
Strategy
BOARD CAPITAL
Board Competencies
Knowledge
Skills
Abilities
Contacts
Board Structures
Policies
Processes
Procedures
Committees
Board
Dynamics
Board Behaviours
Personality Values Norms Board-
management relations
Decision Making
WORK WITH AND THROUGH THE CEO AND SMT
Effective Governance Model- So who is in Charge?
The Board’s Core Accountabilities
1. Setting the Governance Framework
2. Strategic Planning
3. Risk Management and Compliance
4. Monitoring and Fiscal Control
5. Policy & Authorisations
6. Shareholder & Stakeholder Management, and
“Hire the CEO – Accept Their Plan – Fire the CEO”
Its about having Noses in & Fingers Out !!!!!!
Degree of Change
Time
(yrs)
Level of Board Engagement ?????
Appetite
For
Risk 1 2 3 4 5
low
low
high
high
high
Start-up
Mature
Identify Board & Management Accountabilities
Range of Governance
Core Governance
Strategic Governance
Depth of Governance
Policy
Design
Approval
Implementation
Monitor
Review
Strategy
Audit Risk
Compliance
Fiscal
Reporting
Remuneration
Governance
Strategy
Stakeholder Mngt
Industry Knowledge
Channels
Markets
Acquisitions
Alliances
Funding Turn Around
Change Management
Ensure Financial Audit is conducted in accordance with
Regulations
BOARD CHAIR FINANCE
COMMITTEE CEO CFO External
POLICY A a
DESIGN A a a a auditor
APPROVAL A a
IMPLEMENT A a a a
MONITOR A
REVIEW A a a a a
A = Accountable Organisation Wide
a = Accountable for a Function/Area only
Assign Accountability for Audit
Develop and manage an effective Fund Raising Plan
BOARD CHAIR CEO
Funding
Manager
Branch External
Fund
Raiser
POLICY A a
DESIGN a A a a
APPROVAL A
IMPLEMENT a a A a A* a
MONITOR A? A
REVIEW A a a a
* Who keeps the money? Branch or Centre
A = Accountable Organisation Wide
a = Accountable for a Function/Area only
Governance Accountability Map
Policy
Design
Approve
Implement
Control
Review
Au
dit
Ris
k M
ngt
Fis
cal
Mn
gt
Com
pli
an
ce
Gover
nan
ce
Bd
P
erfo
rman
ce
Bd
Rep
ort
ing
CE
O A
pp
nt
Sta
ff A
pp
nts
Sta
keh
old
er
Mgt
Bu
sin
ess
Pla
n
Fu
nd
ing
Volu
nte
er
Mk
tg &
P
rom
o
Man
age
Op
erati
on
s
Board Finance Committee Governance Committee CEO Committee means Facilitation of process
Planning Committee Funding Committee Marketing Committee Senior Executive recommendation to Board
Governance Accountability Structure & Map
Board of Trustees
President
Finance Subcommittee
Funding Subcommittee
Marketing Subcommittee
Governance Ad Hoc
Subcommittee
CEO Ad Hoc
Subcommittee
Planning Ad Hoc
Subcommittee
Fundraiser
Senior Executive
Staff
Volunteers
The Founding President Resigned
Source of Authority
Conclusion
1. Check your WoF
2. Discharge your four fundamental duties; Good Faith, Care, Skill & Diligence.
3. Ask the 8 questions
4. A commonly held view = WWH
5. Prioritise how to get there – 3 year rolling plan
6. Identify and mitigate risk
7. Agree Noses in and Fingers out