New guidance for not-for-profits

After deep consultation, the AICD has developed new principles for the not-for-profit sector to reflect the demands of a changing governance environment. AICD NFP Sector Leader Phil Butler GAICD outlines what directors need to know.

In 2013, the AICD published the groundbreaking Good Governance Principles and Guidance for Not-for-Profit Organisations, which became one of the most downloaded publications from the AICD website and was used extensively across the diverse not-for-profit (NFP) sector.

Six years on, a revised set of NFP Principles have been launched for a sector that has gone through substantial change and for which a myriad of challenges lie ahead. At a time when good governance has never been more important, the revised NFP Principles provide some more detailed governance insights and more guidance on how to apply them.

The revised NFP Principles have been produced through a consultative process with the sector — including formal submissions, a range of focus groups and, in particular, the guidance of a committed group of NFP experts on a steering committee. Many of those who participated in the consultation process reflected on the increased expectations of governance by the community.

Recent Royal Commissions have highlighted failures in governance and surveys such as the Edelman Trust Barometer have shown the reduction of trust across all sectors. (Note: there has been a slight upswing of this trend in Edelman’s most recent results.)

What’s in the NFP Principles?

The NFP Principles comprise 10 individual principles — revised and developed considerably in this edition — each of which has supporting practices describing activities or behaviours organisations may be undertaking in meeting the principle. Importantly, the supporting practices do not prescribe how to meet the principles. It is recognised that the diversity of the sector and the complexity of governance means there is no “one size fits all” approach.

As the NFP Principles state: “Good governance exists where an organisation has systems and processes in place that are appropriate to its circumstances, and which enable the organisation to pursue its purpose effectively and meet its obligations under the law.”

In addition to the supporting practices, additional guidance is provided through the use of case studies from two fictional NFPs. One is large with a complex structure and range of activities; the other is smaller and simpler in its purpose. The case studies are designed to illustrate the different approaches that organisations may use to achieve appropriate governance.

Within each principle there is also a series of questions directors may reflect on. These practical questions may assist the board to have a framed discussion on how well the organisation is meeting the NFP Principles.

The NFP Principles are voluntary to use, but some organisations may find it useful to report to stakeholders about their governance on an “if not, why not?” basis. Similarly, many boards may decide to reflect on one principle at a time and consider how well they are performing towards that principle.

The NFP Principles are written for people involved in the governance of an NFP, including directors and executives. But it is also recognised that there may be interest in them from a broader audience. Increasingly, governance is being seen as a “team game” with a wider net than just the board and CEO being involved. In the NFP world this can get even more complex with volunteers, service recipients and their families all having a keen interest in governance.

Using the NFP Principles

The NFP Principles are not in any order of priority. However, there is considerable interrelation between them. They go beyond what may be considered a minimum standard of governance and aim to encourage organisations to strive for and achieve good governance. They should also not be read as a substitute for — or detracting from — existing governance regulations, such as the Australian Charities and Not-for-profits Commission (ACNC) governance standards.

The AICD encourages users of the NFP Principles to conduct regular assessments of their performance against them as a benchmark and to report about the outcome of this assessment to stakeholders. It is advisable to do this on an annual basis.

What directors say

Liesel Wett FAICD, chair Goodwin Aged Care

“The NFP Principles are a great resource for boards of all types of NFPs to use in a practical way — and so timely, with the need for governance never greater. It is fabulous to have a conversation about whether we’re clear on our purpose and if the decisions we’re making are in line with our strategy. It can really focus the mind on the key issues.”

Murray Baird FAICD, assistant commissioner general counsel ACNC

“These are not only good governance principles, but governance for good principles. Not-for-profits demonstrate a wide public benefit in the community. These principles... will be a touchstone for boards wanting to identify the ingredients of good governance and polish up their performance on each of the elements.”

Bruce Cowley FAICD, chair Children’s Hospital Foundation

“This provides a strong set of principles that can guide an organisation as it grows.”

Taylor Tran MAICD, co-founder Coworking.fyi

“Do all our directors really understand not just their duties and responsibilities, but also the complexity of their role? The NFP Principles are a great way of facilitating that conversation.”