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How can you ensure that How can you ensure that non-profit organisations non-profit organisations

practice good governance?practice good governance?

By Marcus CoetzeeBy Marcus Coetzeewww.icms.co.zawww.icms.co.za

28 July 200528 July 2005

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What is this presentation What is this presentation about?about?• The meaning of good governanceThe meaning of good governance

• The importance of good governance to The importance of good governance to various stakeholdersvarious stakeholders

• Different perspectives on the real Different perspectives on the real obstacles to good governanceobstacles to good governance

• Ways of ensuring that non-profit Ways of ensuring that non-profit organisations practice good governanceorganisations practice good governance

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TerminologyTerminology

The terms “director” will be used to refer to:The terms “director” will be used to refer to:• the trustees of a trust;the trustees of a trust;• the members of the management team the members of the management team

or executive committee of a voluntary or executive committee of a voluntary association; andassociation; and

• the directors of the board of a section-the directors of the board of a section-21 company.21 company.

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TerminologyTerminology

The term “board” will be used to refer to:The term “board” will be used to refer to:• the board of directors of a section-21 the board of directors of a section-21

company;company;• the board of trustees of a trust;the board of trustees of a trust;• the executive committee or the executive committee or

management committee of a voluntary management committee of a voluntary association.association.

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What is good governance?What is good governance?

• Good governance is when directors of non-Good governance is when directors of non-profit organisations act responsibly and profit organisations act responsibly and are accountable to all stakeholders for the are accountable to all stakeholders for the organisations functioning.organisations functioning.

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What is meant by What is meant by ‘responsibly’?‘responsibly’?

Directors, trustees or members of Directors, trustees or members of management committees act responsibly management committees act responsibly when they fulfill their duties of:when they fulfill their duties of:

• LoyaltyLoyalty• Care & SkillCare & Skill• Attention Attention • ObedienceObedience

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Duty of LoyaltyDuty of Loyalty

• Occurs when directors put the non-profit Occurs when directors put the non-profit organisation’s interests above their ownorganisation’s interests above their own

• Occurs when any conflict of interests are Occurs when any conflict of interests are disclosed to the other board membersdisclosed to the other board members

• Occurs when directors do not use their Occurs when directors do not use their positional power to protect and secure their positional power to protect and secure their own interestsown interests

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Duty of Care and SkillDuty of Care and Skill

• Occurs when directors act with the Occurs when directors act with the competence that can reasonably be competence that can reasonably be expected from someone with their level of expected from someone with their level of skill and experienceskill and experience

• Occurs when directors care for the success Occurs when directors care for the success and sustainability of the organisationand sustainability of the organisation

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Duty of AttentionDuty of Attention

• Occurs when directors make sure they Occurs when directors make sure they have the time available to perform the have the time available to perform the functions required from them by the functions required from them by the organisationorganisation

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Duty of ObedienceDuty of Obedience

• Occurs when directors ensure that both Occurs when directors ensure that both their own and the organisations behaviour their own and the organisations behaviour is in alignment with South Africa’s laws is in alignment with South Africa’s laws and the constitution/articles of the and the constitution/articles of the organisationorganisation

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What is meant by What is meant by ‘accountable’?‘accountable’?

Directors, trustees or members of Directors, trustees or members of management committees are accountable management committees are accountable when they:when they:

• assume final responsibility for the assume final responsibility for the organisation;organisation;

• are able to account to all stakeholders are able to account to all stakeholders (including donors) for the organisations (including donors) for the organisations functioning;functioning;

• Monitor the responsibilities they have Monitor the responsibilities they have delegated to staff.delegated to staff.

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Does good governance matter?Does good governance matter?

Why does good governance matter to:Why does good governance matter to:• Donors?Donors?• Directors?Directors?• Staff?Staff?• Clients?Clients?

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What are some of the What are some of the obstacles to good obstacles to good governance?: different governance?: different perspectivesperspectives

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Staff’s perspectiveStaff’s perspective

Typical obstacles to good governance:Typical obstacles to good governance:• Directors are insufficiently informed about the Directors are insufficiently informed about the

organisation’s operationsorganisation’s operations• Directors are insufficiently committed to the Directors are insufficiently committed to the

organisationorganisation• Directors meddle too much in the Directors meddle too much in the

organisation’s strategy and operationsorganisation’s strategy and operations• Directors don’t help out enough with Directors don’t help out enough with

fundraising and networkingfundraising and networking• Directors are not informed about their Directors are not informed about their

responsibilities as board membersresponsibilities as board members

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Donors’ perspectiveDonors’ perspective

Typical obstacles to good governance:Typical obstacles to good governance:• Board allows agreed work not to be deliveredBoard allows agreed work not to be delivered• Board allows funds to be misspentBoard allows funds to be misspent• Board allows insufficient financial records to be Board allows insufficient financial records to be

keptkept• Board allows organisation to operate without Board allows organisation to operate without

appropriate financial controlsappropriate financial controls• Board allows the circumstances that result in a Board allows the circumstances that result in a

qualified financial officer’s or auditor’s reportqualified financial officer’s or auditor’s report• Board allows internal conflicts/takeovers to Board allows internal conflicts/takeovers to

cripple the organisation.cripple the organisation.

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Directors’ perspectiveDirectors’ perspective

Typical obstacles to good governance:Typical obstacles to good governance:• Staff don’t deliver agreed workStaff don’t deliver agreed work• Staff don’t operate according to agreed Staff don’t operate according to agreed

systemssystems• Staff don’t oppose the directors Staff don’t oppose the directors

decisions about the organisation’s decisions about the organisation’s strategy and/or operationsstrategy and/or operations

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So what can be done about So what can be done about these problems?: some these problems?: some practical solutionspractical solutions• Legal actionLegal action• Change constitution, memorandum and articles of Change constitution, memorandum and articles of

association or trust deedassociation or trust deed• Change composition/membership of the boardChange composition/membership of the board• Board development/education workshopBoard development/education workshop• Mediation between senior management and Mediation between senior management and

boardboard• Board contract or job descriptionBoard contract or job description• Specify stricter audit and reporting requirementsSpecify stricter audit and reporting requirements• Performance managementPerformance management• Subscribe to minimum standards for governanceSubscribe to minimum standards for governance

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What are some of the What are some of the minimum standards for minimum standards for governance and how effective governance and how effective are they?are they?

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Governance standardsGovernance standards

Governance standards for section-21 Governance standards for section-21 companies include:companies include:

• The Companies ActThe Companies Act• Recommendations from the King 2 ReportRecommendations from the King 2 Report• Judicial PrecedentJudicial Precedent• Income Tax Act (if registered)Income Tax Act (if registered)• Non-profit Organisations Act (if Non-profit Organisations Act (if

registered)registered)

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Governance standards Governance standards (continued)(continued)

Governance standards for voluntary Governance standards for voluntary associations include:associations include:

• Common LawCommon Law• Judicial PrecedentJudicial Precedent• Non-profit Organisations Act (if Non-profit Organisations Act (if

registered)registered)• Income Tax Act (if registered)Income Tax Act (if registered)

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Governance standards Governance standards (continued)(continued)

Governance standards for trusts include:Governance standards for trusts include:• Trust Property Control ActTrust Property Control Act• Common LawCommon Law• Judicial PrecedentJudicial Precedent• Non-profit Organisations Act (if Non-profit Organisations Act (if

registered)registered)• Income Tax Act (if registered)Income Tax Act (if registered)

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Other governance standardsOther governance standards

Some recommended standards include:Some recommended standards include:• Standards by the Maryland Association Standards by the Maryland Association

of Non-Profit Organisationsof Non-Profit Organisations• Standards by Minnesota Council of Non-Standards by Minnesota Council of Non-

ProfitsProfits• Code of Good Practice for Organisations Code of Good Practice for Organisations

by Department of Welfare, 2000. by Department of Welfare, 2000.

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Problems with standardsProblems with standards

• Existing standards tend to be fairly vague Existing standards tend to be fairly vague and abstract and do not provide case and abstract and do not provide case studies or examples of policies and studies or examples of policies and proceduresprocedures

• Generic standards do not always reflect Generic standards do not always reflect the nature of individual non-profit the nature of individual non-profit organisationsorganisations

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ConclusionConclusion

• All stakeholders are becoming more All stakeholders are becoming more concerned with good governance in order concerned with good governance in order to ensure non-profit organisations’ to ensure non-profit organisations’ legitimacy and accountabilitylegitimacy and accountability

• There are a number of remedies that can There are a number of remedies that can be employed to assist a non-profit be employed to assist a non-profit organisation to practice good governanceorganisation to practice good governance

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Questions?Questions?