Big changes for NFP boards ahead

Large charities will face increased pressure from directors to justify pay incentives for management.

Large charities will face increased pressure on their boards to justify the basis on which they reward management in not-for-profits (NFPs), according to a panel discussing challenges for the NFP sector on day two of the 2019 Australian Governance Summit. The panel also discussed the case for paying directors of NFPs, depending on the level of complexity of governance involved.

The issue of payment arose in response to a question about how to attract talent to NFP boards and whether directors should be remunerated. This was posed to a panel comprising two of the authors of the Australian Charities and Not-for-profits Commission (ACNC) Review — Greg Hammond OAM MAICD and Dr Matthew Turnour FAICD — and ACNC advisory board member Heather Watson MAICD.

“Payment is appropriate, but at a discounted rate in certain situations,” said Turnour. “There has to be a component of altruism, particularly for complex boards.”

Watson said if payment was to be considered it would need to take account of “fair value for time spent based on complexity”. Hammond said board directors were motivated by “more than money” but “in some contexts payment might be appropriate, particularly in large, complex not-for-profits”.

The ACNC Review has been finalised. Its 30 recommendations range from lifting reporting thresholds to $1m for some charities to recommending board power to remove NFP directors be abolished.

“The ACNC Review recommendations are aimed at pulling back the overburden on good charities, but for those charities that have transgressions we want to see more discipline,” said Turnour.

One of the recommendations is to establish a single uniform framework for regulating not-for-profits. AICD NSW president Peter Achterstraat AM FAICD, who led the session on NFP board governance, noted that while there were potentially many contenders for director roles on the boards of large NFPs, their increasing complexity meant “people are only doing one NFP board because of the amount of work involved and when there is no payment involved”.

On the broader question of attracting talent, Turnour advised boards to “sell the vision”, saying this approach had “worked at all the NFPs where I have been involved”. Watson said leadership was “at the heart of attracting others to join” while Hammond noted chairs should also be thinking about how they could “enhance the personal wellbeing” of directors.

In a discussion of the ACNC legislative review (published in August and yet to receive a federal government response) Turnour said the theme was “we endeavoured to pull back the overburdening of good charities, but if you’re misbehaving then we probably strengthened the ‘schoolmaster’s’ capacity to discipline. So we went both ways”.

Hammond, who spoke to more than 250 stakeholders in developing the report, said some of the review’s concerns had been picked up in broader conversations about governance in the past year.

“There is going to be increased pressure for accountability for boards of NFPs and charities [for them] to be much clearer about what their purpose is, what their objectives are, and how their activities are aligned to the achievement of those objectives,” he said. “There will be an increased necessity both for good governance and for public accountability — for them to be clear about what they do and how they measure the impact of what they do.”

The ACNC review is just one pressure point for the NFP sector. It is assimilating the recommendations of the 2017 Royal Commission into Institutional Responses to Child Sexual Abuse, the Royal Commission into Aged Care Quality and Safety is ongoing, and funding has recently been pledged for a Royal Commission into the treatment of people with disabilities.

Watson, also chair of Uniting NSW.ACT [sic], said NFPs providing services for vulnerable people should note the broader applications of the recommendations of the child sexual abuse Royal Commission. “It found the leadership in institutions — board and management — failed to protect the children for whom they had responsibility,” said Watson. “The boards were giving priority to their own reputations, either individually or the organisation, in the way in which they took action or didn’t take action when they found there had been instances of abuse. Boards had failed to have information before them or to enquire sufficiently, in order to inform themselves.”