Transcript 4th Annual Corporate Governance Symposium

Presented by Vera Visevic
Doing Good Governance –
the antidote to regulatory uncertainty
Current Regulatory Uncertainty
• The future of the ACNC is uncertain.
• The future of the Governance Standards is uncertain.
• How to transition from the ACNC to ASIC.
• How to transition from ACNC to the ATO.
• What is going to be required of charities that are incorporated
associations?
• What is happening with the auditing requirements for NFPs that are
companies?
• Draft laws about income tax exempt entities – TR 2014/D5.
• Future of “in Australia” special conditions.
How do we operate in this
climate of uncertainty?
• Some of these possible changes may take another 2-3 years to iron
out.
• How do NFPs operate and govern so as to minimise any non
compliance when we don’t really know what compliance means?
• The answer is – practise principles of good governance.
Elements of Good Governance
a) An effective board;
b) Effective risk
management; and
c) Maximising
employee
engagement and
organisational culture
and values.
(a) What makes an effective
Board?
1. Robust decision making:
• Good decisions of the board may increase the likelihood
and degree to which an organisation actually delivers on its
purpose.
2. Compliance with directors’ duties:
• Good governance is embedded in the good behaviour and
the good judgement of directors.
Trust, mutual respect, open communication and working together as a
team are the basis for a strong and efficient, high-performing board.
Four ingredients for an effective board:
A.
Clarity regarding role and focus
•
Each member on the board begins with a clear understanding of
their role, scope of responsibilities and has the common goal of
the long-term success of the organisation.
•
A high-performing board also has a set of objectives or outcomes
that they wish to see through to fruition on a continual basis.
B.
A balanced board
•
A high-performing board has a balanced mix of directors. The
directors should ideally possess a mix of skills deemed useful for
the governance of the particular organisation. The directors
should also be enthusiastic, enquiring, dedicated and able to
work well with the other directors.
•
The conversation between the board and the CEO should be an
open dialogue. The CEO should be comfortable using the board
as a first port of call to discuss ideas in their early stages. This
way the CEO has the benefit of a ready made high-performing
board which can give the full benefit of their expertise in helping
make decisions.
C.
An effective chairman:
•
An effective Chair will create the atmosphere and set
the tone for the environment that the board will
operate in.
•
A positive environment will include open ended
communication between the Chair and the other
directors at board and committee meetings which
will flow through to increasing the performance of
the board. Effective high performing Chairs lead
performance driven teams.
• Effective Chairs also take the time to speak with their directors
individually at frequent intervals in the year to discuss any
issues they may have, to assess their performance and to
encourage and foster effective contributions that the directors
may want to extend to the board.
• The Chair also manages the process of encouraging directors
to form a unified team in which all parties are aware of their
responsibilities and boundaries within the board structure.
• Finally, effective Chairs establish open and honest relationships
with their CEO based on a mutual trust and understanding
which then extends to the wider board.
D. A culture of trust and respect
•
A board is not a collection of individuals and talents,
but a team.
•
For it to function as a team, it needs effective
chemistry, candid communication and mutual
respect.
•
This ensures that probing questioning, constructive
criticism and challenging debate can take place.
Steps to take to develop an
effective board – see hand out
1. Firm up your foundations – have a
robust governing document
7. Establish a strong advisory network
8. Build the board intentionally
2. Organise around objects
9. Foster effective board operations
3. Focus on the strategic
10. Create an innovative culture
4. Get on top of the legals
11. Measure progress
5. Know the organisation
6. Create a strong relationship between
the chair of the board and the CEO
Challenges –
why is it so difficult to have an
effective board?
• Directors are usually volunteers who are time-poor and often
inexperienced;
• Directors are often elected from a membership base rather than
being appointed for the skills that they individually possess;
• Constitutions lack appropriate clauses to encourage limited terms
for directors, resulting in stagnant boards with long-serving
directors;
• Directors do not understand the concept of good governance and
their role on the board;
•
Boards cannot attract skilled directors by paying them, as:
•
the organisation is under-funded; or
•
is prohibited in its constitution from paying directors;
•
There is no clear “owner” of a not-for-profit to whom the board is accountable;
•
Directors may individually interpret the objects differently – in a for-profit company,
the goal of making money is clear, in a not-for-profit, often the “objects” are not so
clear; and
•
Success is harder to identify than it is for a for-profit company whose success can be
measured by profit.
• On top of these challenges:
o
Boards are facing increased scrutiny, from regulators to
stakeholders;
o
The regulatory environment has become more
complicated; and
o
There is increasing competition for donor dollars or
membership subscription.
Overcoming hurdles
•
Increase transparency – require thorough reporting and transparency.
Longstanding directors may be encouraged to leave and ingrained bad
practices might quickly be changed if they become visible.
•
Amend the constitution to allow the board to appoint co-opted directors.
•
Amend the constitution to allow directors to appoint their own Chair, rather
than the members appointing the Chair. The board is better placed to
know who would be most appropriate to lead the board.
•
Amend the constitution to shorten the term for directors. We recommend
having a maximum of three terms of two years each or two three year
terms.
• Consider paying directors. This may require some form of
campaign to educate stakeholders around the importance of
having strong directors before implementing the change. You
will also have to be aware of the potential implications:
o
There could be reputational concerns.
o
Ensure you are transparent – it is not the kind of thing you
want the public discovering second-hand.
o
You may have to re-instate the word “Limited” at the end of
your name if you are a public company limited by
guarantee.
• Avoid the temptation to micro-manage which can distract
from considering important strategic issues.
• Be patient – sometimes achieving an effective board
takes time as it may require longstanding directors to be
educated about the need for fresh new people and ideas
and for them to move on as amicably as possible.
(b) Risk Management
• Good governance can offer a number of important benefits to organisations,
including:
• better organisational strategies and plans;
• improved operational effectiveness; and
• improved member and stakeholder engagement and communication
flow.
• In an uncertain environment, prudent regulatory compliance, financial and
risk management is the foundation of a sustainable and effective
organisation.
• The board and the management need to be aware and proactive when it
comes to risk management.
• Boards play an important role in establishing a sound system of
determining:
• how to identify risks;
• management and minimisation of risks; and
• treatment and control of risks.
A.
Types of risk
Boards must consider the following risks:
• staff or employment issues;
• volunteers;
• physical spaces and equipment;
• records;
• cash receipts and payment;
• financing;
• compliance risk;
• financial risk;
• operational or program risks;
• environmental, including event risks;
• brand and reputational risks;
• strategic risks; and
• insurance.
B. Strategies to manage risk
• risk avoidance;
• risk transfer;
• risk mitigation; and
• monitoring identified risks.
(c) Effective Working
Environment
• The culture of an organisation will be influenced by the conduct and
actions of the board.
• The board can take steps to influence organisational culture to
enable it to more effectively implement its strategies and deliver on
its purpose.
•
These steps include:
•
encouraging and facilitating open conversations on the values of the organisation;
•
developing or adapting a formal code of conduct and ethical standards;
•
challenging undesirable practices and behaviour;
•
undertaking team-building exercises;
•
training and support;
•
reviewing hiring and firing practices; and
•
changing how success is rewarded/celebrated.
Questions?