Corporate Governance

Does NFP = poorly governed?

B2B Editor 7 November 2013

Does NFP = poorly governed?

The recently released Directors Social Impact Study again provided fascinating insights into the governance of the Not for Profit ( NFP) sector. One of the key findings was that there was no evidence that NFP boards are not any more or less effective than for-profit boards.

This finding is important, as there has been much anecdotal commentary that governance of the NFP sector is second-rate in comparison to other sectors. This research challenges this commentary, and notes that over 80% of directors in the sector have undertaken some form of professional development in the last year and have an average of 10-years of governance experience.

It was interesting to note from both the online survey and also from the focus groups, that directors recognised the need to have’appropriate’ governance for the size of style of the organisation. For example, many commented that they were running large NFP’s in some high-risk areas such as aged care, and therefore their risk oversight needed to be first rate, and their overall governance practices required close attention. Some of these directors also sat on the boards (or committees) of much smaller community organisations which had much smaller risks and budgets. They recognised that this required a different type of oversight (and often a much greater call on them acting as volunteers). Comparing the governance of a large, complex NFP organisation with a small community organisation is similar to comparing the governance of an ASX200 company with a family business. The governance requirements are totally different.

In addition to the focus on the quality of governance, the research also noted the complexity of measuring outcomes in the NFP sector. A for-profit organisation usually has a single goal of maximising return on investment. A NFP organisation needs to manage its ongoing financial sustainability while also achieving its mission. The measurement of its mission can be difficult with a range of subjective as well as objective measures being used as goals.

The research acts as a timely reminder of the critical importance that the NFP sector plays in our community and economy, and that without vibrant and sustainable NFP organisations our society would not function effectively.

Phil Butler is Manager – NFP, Public Sector & ACT at the Australian Institute of Company Directors. Level 3 54 Marcus Clarke Street Canberra T: 02 6132 3200 |www.companydirectors.com.au
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