Transcript Engendering Trust And Confidence In The Not For Profit Sector

Engendering Trust and Confidence
in the NFP Sector
Date: July 2012 | Version: 1
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Current profile of NFPs
o The NFP sector consists of entities involved in community, altruistic or
philanthropic purpose, and encompasses all those in the economy who
are not households, government or businesses that operate for profit.
o Diverse, ranging from small sporting and recreational clubs to large
national and multinational charitable organisations.
o Approx 600,000 entities contributing $43 billion to GDP per annum.
o Total philanthropic donations were $7.2 billion in 2006-07.
o Of 600,000 entities estimated that 400,000 access Commonwealth tax
concessions.
o Only 2% of all NFPs are companies limited by guarantee, approx
11,000.
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Why accountability needs to be strengthened
o Increased levels of governance and accountability required of both
commercial and government sectors due to collapses in early 2000s.
o NFP sector has largely been ignored and has not kept pace with
international trends.
o In receipt of public monies and accountable to members, donors and
other stakeholders.
o NFPs failures or fraudulent activity largely unpublicised and not always
prosecuted.
o Research overall suggests improved governance arrangements will
lead to greater transparency within the sector and therefore help to
promote trust, confidence and philanthropic engagement with the
public.
o Research posits regulation alone is not perceived as the solution and
codes or principles are the preferred mechanism to retain trust and
confidence.
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Current requirements within NFP sector
o Minimum governance standards applying to the sector.
– Minority of NFP registered as Companies Limited by Guarantee and subject
to the Corporations Act which specifies duties regarding directors conduct
and penalties for breach. Current legal duties incumbent include duty to act
in good faith in best interests of the objects of the company, not to act for an
improper purpose, to act with care and diligence (subject to the business
judgement rule), not to improperly use position or information, and to avoid
a conflict of interest.
– Managers and committee members of incorporated associations have
similar common law duties and various states have different requirements:
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Current requirements
members to act honestly and with reasonable diligence, prohibited from
acts with intent to defraud or deceive, making improper use of their position,
or gain directly or indirectly an advantage for themselves or other person or
cause detriment to the association, to disclose pecuniary interests in a
contract.
– Trustees are also subject to common law duties, including duty to
understand terms of the trust, to execute the trust according to the terms, to
protect and preserve trust property, to exercise discretionary powers in
good faith, to invest as permitted under the trust deed and legislation.
Various state and territory trustee acts and ATO requirements.
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Why be concerned about engendering trust and confidence?
o NFP sector holds the trust of the community due to the very nature and
essence of the contribution of social capital raising concerns around risks
related to:
– High use of volunteers – lack of credential checking and supervision of
activities.
– False acquittal of a government grant or expenditure on purposes other than
the intended purpose.
– Spending of donor funds on purposes other then the intended purpose.
– Fund raising process may be corrupted – high fees are considered
inappropriate by the public.
– Ability to launder money or fund terrorism.
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Various reviews and inquiries of NFP sector
o Several reviews into the regulation and taxation of the NFP sector dating
back more than15 years – 1995 Industry Commission report, 2001 Charities
Definition Inquiry, 2008 Senate Inquiry, 2010 AFTS Report, Productivity
Commission Report , 2010 Senate Inquiry.
o A consistent theme emerges – NFP sector significantly improved by
establishing a national regulator and harmonising and simplifying regulatory
and taxation arrangements.
o 2011 the Government released a consultation paper on the design options for
a national NFP regulator .
o Proposed timeframe for introduction has been extended.
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Considerations of National NFP Regulator
o Acknowledgement that sector is diverse with some organisations requiring little
and many requiring significant guidance.
o Balance flexibility of a principles based governance with the certainty that a
prescriptive approach offers.
o In relation to powers of a regulator a balance is required between rules to deter
malfeasance and a culture which promotes compliance and self regulation.
o Obligation to improve governance standards to contribute to reducing
opportunities for financing terrorism globally.
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Recommendations for a National NFP Regulator
o A single regulator established for the purposes of governance, accountability
and transparency of NFPs.
o Entities currently regulated by ASIC incorporated within framework as soon
as reporting and governance frameworks implemented.
o Principles based regulatory framework.
o NFP regulator determines status of entities including charities and PBIs and
to access support from Government a NFP entity would need to be registered
and regulated by NFP regulator.
o Regulator acts as central reporting coordinator of financial and other
information.
o A public information portal for registered entities displaying information such
as sphere of operation, income and expenditure, financial history, contact
details of key personnel, governing documents, annual reports, trustees’
reports, summary information returns.
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Recommendations in relation to Governance
o Governance rules should be proportional to the size of entities, risk factors
and receipt of public and government assistance.
o Regulation of service provision should remain with existing entities.
o Government contracts should not mandate governance requirements for
NFPs.
o Treasury should undertake a review to determine the core governance
principles applying to registered NFPs.
o The regulator should be provided with powers regarding asset protection,
suspension/removal of responsible persons, registration and deregistration,
the enforcement of governance rules, investigative processes; enforcement
powers including civil penalties and the imposition of fines, proportional
compliance activities, and dispute resolution processes.
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Taking responsibility for NFP accountability
o Eight critical success factors required to be present in a highly
accountable non profit organisation were identified by Armstrong &
Mollenhauer (2005).
o Each has a set of corresponding indicators identified in their research.
o Success factors are interrelated and dynamic in nature.
o A balanced approach is required to ensure each critical success factor
contributes to an organisation’s culture of accountability.
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Critical Success Factors
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Strategic Leadership Indicators
o Shape Direction – Do you have a clear, convincing and realistic map to
the right destination?
o Rigorous Decision making – Are your decisions incisive, informed and
bold at all levels of the organisation?
o Creating Capacity – Do you ensure that you have the right capacity to
effectively implement new programs, services and activities?
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Strategic Leadership Practical Steps
o Refine the mission and the goals of Directors and CEO.
o Employ a robust strategic plan with clear performance indicators and hold
leadership accountable.
o Implement a governance framework.
o Establish and revamp internal leadership training built on integrated
essentials of performance, risk and integrity.
o Implement a refocused CEO recruitment process explicitly articulating a
defined role for the CEO.
o Separate role of independent Chair and CEO.
o Ensure independence of Directors.
o Review board qualifications and skill sets.
o Be able to ask the hard questions of the CEO.
o Implement transparency in disclosure.
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Performance Culture Indicators
o Generate reliable information about performance – Do you regularly and
rigorously evaluate the right measures?
o Effectively utilise the information about performance to make improvements
– Do you take prompt and corrective action in response to the performance
information and eliminate or reduce barriers to higher levels of
performance?
o Create an environment of innovation – Do you generate new and better
ways of doing things and approach challenges creatively?
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Performance Practical Steps
o Restate operational measures for performance, risk and integrity that guide
internal actions and are articulated annually in a public transparent process
so that accountability against clear standards can be assessed by external
stakeholders.
o Set performance measures for the board at an individual as well as a
collective review of performance.
o All job performance goals from CEO down should reflect standards.
o Employ an externally recognised framework such as ABEF or an externally
certified standard such as ISO 9001.
o Revise compensation for CEO and other senior executives aligned to
performance.
o If board is remunerated, ensure compensation is aligned to performance.
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Clear Authority & Responsibility Indicator
o Delineate and clearly communicate the lines of authority and responsibility
– Are the responsibilities and authority of each stakeholder clearly stated
and understood throughout the organisation?
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Clear Authority & Responsibility Practical Steps
o Realign the Board’s fundamental oversight function focusing primarily on
high performance, risk and integrity objectives central to attainment of
mission.
o Most direct accountability is sound stewardship by CEO and senior
executives under the direction and oversight of independent Board of
Directors.
o Board charter that specifies direction and responsibilities.
o Implement a clear delegations of authority at Board and operation level.
o Board chair must be independent.
o Robust reporting through CEO.
o Rigorous analysis and reviews of financial and other reports by the Board.
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Managed Risk Indicators
o Anticipate and assess risk – Have you reasonably anticipated all substantial
risks and assessed the implications?
o Implement an effective risk management – Have you developed, monitored
and enforced the risk management policies and procedures?
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Managed Risk Practical Steps
o Establish the balance between risk taking (innovation and creativity) and risk
management (financial and operational discipline) and combine this high
performance with commitment to law, ethics and values.
o Understand the key risks to your organisation.
o Establish Board appetite for risk.
o Implement a risk management framework from Board level down
establishing actions to mitigate risk.
o Embed consideration of risk in all actions and decision making.
o Review risk management plans regularly and adjust.
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Embedded Ethics & Values Indicator
o Articulate and operationalise clear and comprehensive values and
standards of ethics – are you driven by a set of values and standards of
ethics that define the way staff, Board and volunteers behave and
manage relationships?
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Embedded Ethics & Values Practical Steps
o Board determines organisational strategic direction, including values and
culture.
o Board agree a Statement of Purpose or Code of Conduct clearly outlining
relevant ethical principles and standards required.
o Sound and organisational wide communication of plans and decisions,
requiring compliance with the values framework and breaches
considered non performance.
o All PDs reflect the standards.
o Recruitment processes should ensure all employees embody the values
of the organisation.
o Boards should confirm through ethical oversight that management leads
a culture and values resulting in ethical and sustainable business
practices.
o Conflict of Interest Policy, register and disclosure in decision making.
o Policies that comply with ASX Listing rule requirements or equivalent
standard.
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Transparency Indicator
o Provide accurate information that is accessible – Is the information you
provide clear, consistent, accurate, relevant and comprehensive? Do you
disseminate the right information to the appropriate stakeholder?
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Transparency Practical Steps
o Governance framework aligned to ASX Listing rules, OECD code or
equivalent framework.
o Communication policy with all stakeholders.
o Organisational wide communication of plans and decisions.
o Transparent disclosure e.g. Annual Report providing financial information
and information on evaluation of activities.
o Compliance framework, policies and processes for monitoring, reporting
and reviewing.
o Independent chair, separate roles of Chair and CEO.
o Relationship between CEO and Board.
o Remuneration committee to consider issues of compensation and
performance.
o Nomination committee to ensure independence, directors to act in best
interest of organisation, directors qualifications and skills, avoid cronyism.
o Audit committee that has an independent chair and is not the Board Chair
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Shared Ownership Indicator
o Create mutually acceptable expectations – Have your Board and each of
your staff bought into what they have clearly and specifically promised to
achieve?
o Follow through with positive and negative consequences for meeting
expectations – are Board and all staff members recognised and held
responsible for achieving what they said they would accomplish?
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Shared Ownership Practical Steps
o Recruitment processes should ensure that employees embody the values
of the organisation.
o Engagement of Board and staff – results are reflected in ‘say, stay,
strive.’
o Performance appraisal processes aligned to performance indicators at
Board and operational level.
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Engaged Stakeholder Indicators
o Create meaningful dialogue with critical stakeholders – does our engagement of
critical stakeholders inspire passion and motivate commitment to the
organisation and ensure responsiveness to them?
o Build value-added collaborations – Are your collaborations and partnerships
positive and productive?
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Engaged Stakeholder Practical Steps
o
o
o
o
Clear disclosure and transparency.
Brand and reputation – ‘word of mouth.’
Open communication, invite stakeholders in to the organisation.
Engaged staff generate passion for the organisation through ‘say, stay and
strive.’
o Culture and values aligned with public perception.
o Collaborations and partnerships are based on win-win philosophy and add
social capital or enrich communities.
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Hierarchy of Accountability
o Within each critical success factor there are numbers of levels reflecting
an organisation’s position on a continuum from basic to more complex
cultures of accountability.
o At the lowest levels accountability is seen as an obligation.
o As accountability becomes more deeply embedded there is recognition
that evidence of effectiveness of policies and processes is necessary and
that these lead to clear accountable outcomes.
o When accountability is fully embedded the result is a transformation of the
organisation.
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Hierarchy of Accountability
Complex
Embedded in
culture
Basic
Obligation
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Level 5 Honest & Ethical
o At this level the board would be able to describe everyone who works at
your organisation as having honest and ethical behaviour.
o Staff and Board members would act with appropriate behaviour when
confronted with a moral issue or dilemma.
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Level 4 Contractual Compliance
o As a Board you would be able to state you comply with legal, funding body
and regulatory requirements.
o You have financial and ethical policies that ensure you are protected and
that you use your funds efficiently.
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Level 3 Full Spectrum
o Policies and processes are in place that address the organisational values
as well as clarify roles and responsibilities.
o Clearly understood process in place for obtaining stakeholder feedback.
o Risk is managed through clear policies and processes.
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Level 2 Evidence of Impact
o Strategic Plan used as a critical tool to set direction.
o Values are tangibly demonstrated in the way you work.
o Findings from evaluation processes drive corrective action.
o Significant risks are anticipated and managed effectively.
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Level 1 Transformation
o Staff members at all levels of the organisation are held accountable for
achieving the strategic directions.
o The organisation efficiently manages the conflicting demands of our
stakeholders.
o The Board and Executive make bold decisions without being reckless.
o The Board moves effectively between fiduciary responsibilities and
strategic and productive, creative thinking.
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Conclusion
o Regulation alone is not the solution. A new more encompassing
framework of accountability is needed earning and maintaining
stakeholders’ trust by using the resources entrusted to the organisation
to effectively and efficiently deliver results that matter.
o Accountability must permeate the culture at all levels of the
organisation.
o Being accountable becomes a way of working that ensures the
organisation effectively:
–
–
–
–
Governs and manages.
Forms partnerships, structures, policies and systems.
Allocates and accounts for resources.
Engages stakeholders.
‘Confidence and trust cannot be legislated, organisations must earn trust’
(Woodward, Deitmar, Munoz, 2003)
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Thank you
Any Questions?
Contact Details
Catherine Daley
Ph: 02 6576 0200
M: 0439426003
e: [email protected]
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