1 How can you ensure that non-profit organisations practice good governance? By Marcus Coetzee 28 July 2005

2 What is this presentation about? The meaning of good governance The meaning of good governance The importance of good governance to various stakeholders The importance of good governance to various stakeholders Different perspectives on the real obstacles to good governance Different perspectives on the real obstacles to good governance Ways of ensuring that non-profit organisations practice good governance Ways of ensuring that non-profit organisations practice good governance

3 Terminology 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 or executive committee of a voluntary association; andthe members of the management team or executive committee of a voluntary association; and the directors of the board of a section-21 company.the directors of the board of a section-21 company.

4 Terminology The term “board” will be used to refer to: the board of directors of a section-21 company;the board of directors of a section-21 company; the board of trustees of a trust;the board of trustees of a trust; the executive committee or management committee of a voluntary association.the executive committee or management committee of a voluntary association.

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

6 What is meant by ‘responsibly’? Directors, trustees or members of management committees act responsibly when they fulfill their duties of: LoyaltyLoyalty Care & SkillCare & Skill AttentionAttention ObedienceObedience

7 Duty of Loyalty Occurs when directors put the non-profit organisation’s interests above their own Occurs when directors put the non-profit organisation’s interests above their own Occurs when any conflict of interests are disclosed to the other board members Occurs when any conflict of interests are disclosed to the other board members Occurs when directors do not use their positional power to protect and secure their own interests Occurs when directors do not use their positional power to protect and secure their own interests

8 Duty of Care and Skill Occurs when directors act with the competence that can reasonably be expected from someone with their level of skill and experience Occurs when directors act with the competence that can reasonably be expected from someone with their level of skill and experience Occurs when directors care for the success and sustainability of the organisation Occurs when directors care for the success and sustainability of the organisation

9 Duty of Attention Occurs when directors make sure they have the time available to perform the functions required from them by the organisation Occurs when directors make sure they have the time available to perform the functions required from them by the organisation

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

11 What is meant by ‘accountable’? Directors, trustees or members of management committees are accountable when they: assume final responsibility for the organisation;assume final responsibility for the organisation; are able to account to all stakeholders (including donors) for the organisations functioning;are able to account to all stakeholders (including donors) for the organisations functioning; Monitor the responsibilities they have delegated to staff.Monitor the responsibilities they have delegated to staff.

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

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

14 Staff’s perspective Typical obstacles to good governance: Directors are insufficiently informed about the organisation’s operationsDirectors are insufficiently informed about the organisation’s operations Directors are insufficiently committed to the organisationDirectors are insufficiently committed to the organisation Directors meddle too much in the organisation’s strategy and operationsDirectors meddle too much in the organisation’s strategy and operations Directors don’t help out enough with fundraising and networkingDirectors don’t help out enough with fundraising and networking Directors are not informed about their responsibilities as board membersDirectors are not informed about their responsibilities as board members

15 Donors’ perspective 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 keptBoard allows insufficient financial records to be kept Board allows organisation to operate without appropriate financial controlsBoard allows organisation to operate without appropriate financial controls Board allows the circumstances that result in a qualified financial officer’s or auditor’s reportBoard allows the circumstances that result in a qualified financial officer’s or auditor’s report Board allows internal conflicts/takeovers to cripple the organisation.Board allows internal conflicts/takeovers to cripple the organisation.

16 Directors’ perspective Typical obstacles to good governance: Staff don’t deliver agreed workStaff don’t deliver agreed work Staff don’t operate according to agreed systemsStaff don’t operate according to agreed systems Staff don’t oppose the directors decisions about the organisation’s strategy and/or operationsStaff don’t oppose the directors decisions about the organisation’s strategy and/or operations

17 So what can be done about these problems?: some practical solutions Legal action Legal action Change constitution, memorandum and articles of association or trust deed Change constitution, memorandum and articles of association or trust deed Change composition/membership of the board Change composition/membership of the board Board development/education workshop Board development/education workshop Mediation between senior management and board Mediation between senior management and board Board contract or job description Board contract or job description Specify stricter audit and reporting requirements Specify stricter audit and reporting requirements Performance management Performance management Subscribe to minimum standards for governance Subscribe to minimum standards for governance

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

19 Governance standards Governance standards for section-21 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 registered)Non-profit Organisations Act (if registered)

20 Governance standards (continued) Governance standards for voluntary associations include: Common LawCommon Law Judicial PrecedentJudicial Precedent Non-profit Organisations Act (if registered)Non-profit Organisations Act (if registered) Income Tax Act (if registered)Income Tax Act (if registered)

21 Governance standards (continued) Governance standards for trusts include: Trust Property Control ActTrust Property Control Act Common LawCommon Law Judicial PrecedentJudicial Precedent Non-profit Organisations Act (if registered)Non-profit Organisations Act (if registered) Income Tax Act (if registered)Income Tax Act (if registered)

22 Other governance standards Some recommended standards include: Standards by the Maryland Association of Non-Profit OrganisationsStandards by the Maryland Association of Non-Profit Organisations Standards by Minnesota Council of Non-ProfitsStandards by Minnesota Council of Non-Profits Code of Good Practice for Organisations by Department of Welfare, 2000.Code of Good Practice for Organisations by Department of Welfare, 2000.

23 Problems with standards Existing standards tend to be fairly vague and abstract and do not provide case studies or examples of policies and procedures Existing standards tend to be fairly vague and abstract and do not provide case studies or examples of policies and procedures Generic standards do not always reflect the nature of individual non-profit organisations Generic standards do not always reflect the nature of individual non-profit organisations

24 Conclusion All stakeholders are becoming more concerned with good governance in order to ensure non- profit organisations’ legitimacy and accountability All stakeholders are becoming more concerned with good governance in order to ensure non- profit organisations’ legitimacy and accountability There are a number of remedies that can be employed to assist a non-profit organisation to practice good governance There are a number of remedies that can be employed to assist a non-profit organisation to practice good governance

25 Questions?