governance for boards

Organisation Governance - an Introduction for Board Members

Sean ChamberlinB.Comm, GD.AIS, M.SocSci, AOGEA, AIPFMEmail: [email protected]: www.chamberlin.biz

1. Able to explain what Governance is

2. Able to Apply Governance Principles, including:• Able to explain the roles & responsibilities of Board members• Gain an understanding of the legal framework• Able to create and implement a Risk Mgt plan• Able to create and implement a Strategic Plan

3. Be prepared to deal with common implementation issues• Balance between too much / too little• Adherence / Adoption

4. Understand the key documents related to governance

5. Understand the scope of meetings and responsibilities of attendees

6. Certificate of attendance

Slide 2Organisation Governance

Objectives of Workshop

What is GovernanceApplying Governance

(Principles)Common Issues Documents Meetings Checklist & Test Attendance CertificateStrategic Planning

“Governance” comes from a Latin word meaning “to steer, guide or direct.”

It influences:– how the objectives of the organisation are set and achieved,– how risk is managed &– how performance is optimised

It encompasses the framework of rules, relationships, systems & processes

within and by which authority is exercised and controlled.

Why?

To preserve stakeholder confidence


What is Governance?What is

GovernanceApplying Governance


• As long as an organisation benefits from public support, either directly via community involvement or indirectly such as via taxpayer funded government assistance, then it will be expected to demonstrate a high degree of accountability to the public or surrounding community.

• The community to which accountability exists includes:– Members / Shareholders– Beneficiaries– Donors– Government– Etc

• Accountability includes being able to demonstrate that resources are used wisely and that there are no activities contrary to the non-profit status and/or best interests of stakeholders

4Organisation Governance

Governance in a Not-for-Profit ContextWhat is



• There is no single model of good corporate governance.

• Major bodies that have recommended frameworks include:– Australian Stock Exchange (ASX)– A Handbook of NGO Governance, Marilyn Wyatt, 2004– OECD Principles of Corporate Governance, 1999– Australian Quality Framework, 10 Core Competencies

• Recommendations are not mandatory.

• Recommendations do not by themselves prevent poor decisions or failure. However they are best practice approaches to reducing the likelihood of legal, financial or other issues.

• ASX requires listed companies disclose the extent that they have followed recommendations in each reporting period, including identification of any recommendations that have not been followed and the reasons why not – “If Not, Why Not” principle).


Is Governance Mandatory?What is



• If governance is not mandatory, then why adopt it?

1. It increases the alignment between activities conducted within an organisation and the strategic goals set by the Board. Ie. it improves your chances of success.

2. If you don’t there can be negative consequences. Eg:• Centro : Directors expected to read & understand financial

statements• RBA & News Ltd : Directors may be held responsible for

criminal activities such as bribery. Legislative definition of bribery to be strengthened.


Is Governance Important?What is



• Are you dealing in money contributed by people other than yourself?

• Are you dealing with the rights and expectations of other stakeholders?

• Are you publishing content in newsletters or websites?• Are you influencing decisions concerning property ownership or

leases?

• If you are on a committee, you are responsible for these matters.• The Law does not differentiate between governance of clubs,

NGO’s or corporations. The key difference is that a corporation has clear ownership – non-profits have a range of owners & stakeholders.


Is it Important to Clubs or Associations?What is



• Strategic Plan: The Board should ensure there is a good mission statement that is clearly understood and followed by everyone in the organisation. The Board should also define organisational values and set the standard for professional and ethical conduct by way of its own example as well as the policies it establishes for others to follow.

• Resources: The Board ensures the Organisation has adequate resources—human, material, and financial—by hiring the CEO, monitoring the financial health of the organization, ensuring the acquisition of sufficient resources, and assisting in resource mobilisation.

• Outreach: The Board promotes the Organisation in the community and serves as a link with members, donors, beneficiaries, and other stakeholders.


Good Governance is mostly about 3 key dutiesWhat is



• Now that you have a basic understanding of what governance is, the Australian Quality Framework states there are 10 core competencies related to Board Governance:

– BSBGOV401A Implement Board member responsibilities – BSBGOV402A Work within organisational structure – BSBGOV403A Analyse financial reports and budgets – BSBATSIM415B Contribute to a positive and culturally appropriate workplace – BSBADM502B Manage meetings – BSBRSK401A Identify risk and apply risk management processes – BSBATSIM406B Manage assets – BSBATSIM407B Plan for organisational needs – BSBATSIM504A Develop organisational policies – BSBATSIM404B Use the business plan


Governance CompetenciesWhat is



SWOT


Values VISION Mission

GOALS

IMMEDIATE OBJECTIVES

Problem identification

ACTIONS Resourcing decisions

Assess Internal Environment -Strengths- Weaknesses

Assess External Environment -Opportunities- Threats

Strategic PlanningWhat is Governance

Applying Governance(Principles)

Common Issues Documents Meetings Checklist & Test Attendance CertificateStrategic Planning

Includes 2 elements:

1) Purpose • One sentence for the ultimate result an organisation is trying to achieve – Why do we exist?

• Includes an affirmative verb that indicates a change in status (increase, decrease, eliminate, prevent, etc) & identification of the problem to be addressed (access to health care, infant mortality rates in our city, etc)

• Example = “to eliminate the injustices that cause hunger”

2) Business • One sentence about what the organisation does - the primary methods the organisation uses

to achieve it’s purpose. It is a means to an End. It often includes a description of for whom the services will be provided.

• Often starts with the word “by” to link it from the Purpose.

• Example = “by constructing housing for homeless individuals…..”

Example Mission Statement• Native Child’s goal is to affirm the Indian child’s culture and identity in a positive way through a curriculum that

builds self confidence and a sense of belonging.


Mission Statement


(Principles)Common Issues Documents Meetings Checklist & Test Attendance Certificate

Strategic Planning

Why have one?• The vision is a guiding image of what success will look like.

• The pursuit of the shared image of success is intended to motivate people to work together.

• They should be inspirational. For example Martin Luther King’s “I have a dream” was then followed by his vision and still motivates millions of people around the world.

External Vision• Focuses on how the world will be improved if the organisation achieves it’s mission. Focuses on

the client to be served.

• Example = “all people will have access to quality health care, regardless of ability to pay”

Internal Vision• Focuses on what the organisation will look like when it is operating effectively to support the

achievement of the external vision. It includes the scope and scale of programs and services, funding, partnerships, technology, staff, etc.

• Example = we will have a 100,000 square foot gallery that has all the great neon artworks of the twentieth century on display.

Mission = answers “why does the organisation exist?”

Vision = answers “what will success look like?”12Organisation Governance

Vision Statement


(Principles)Common Issues Documents Meetings Checklist & Test Attendance Certificate

Strategic Planning

NGO Governance Principles

1. Accountable to their communities

2. Formal structure

3. Separation of Governance & Management

4. Mission Based

5. Promote high professional & ethical standards

6. Responsible resource mgt and mobilisation

7. Responsive to the communities they serve

Source: A Handbook of NGO Governance, Marilyn Wyatt, 2004


How to Apply Governance (the Principles)

What is GovernanceApplying

Governance(Principles)


• Australian Stock Exchange (ASX) has recommended 8 Principles that publicly listed companies must either adher to or document to what degree they have deviated from them and why.


ASX Principles

What is Governance Common Issues Documents Meetings Checklist & Test Attendance CertificateStrategic PlanningApplying


Companies should establish and disclose the respective roles and responsibilities of board and management.

1. Companies should establish the functions reserved to the board and those delegated to senior executives and disclose those functions.

2. Companies should disclose the process for evaluating the performance of senior executives.

Source: Corporate Governance Principles and Recommendations, ASX Corporate Governance Council, www.asx.com.au


Principle 1 – Lay Solid Foundations for Mgt & Oversight



• As a governing body, the board has two major responsibilities:

1. Acquire and protect organisational assets

2. Ensure the organisation is working to fulfill its mission

• Detailed responsibilities include:

1. Overseeing the company, including control and accountability systems

2. Appoints & removes the CEO and ratifies the appointment/removal of other senior executives

3. Contributes to and approves the strategy and performance objectives developed by management

4. Reviewing, ratifying and monitoring systems of risk management, internal control, codes of conduct & legal compliance

5. Monitor performance of senior executives including the implementation of strategy

6. Ensuring appropriate resources are available to senior executives

7. Approving and monitoring the progress of major capital expenditure including acquisitions/divestitures

8. Approving and monitoring financial and other reporting



Principle 1 (continued) – Responsibilities of the Board



• Decisions and activities are expected to be made for the benefit of the organisation

• Compliance with both common law and statutory obligations• You must act with the level of care, skill and diligence that would

be expected of a person such as you at an organisation such as yours

• Failure to comply with the above could leave a Board / Committee member liable to a compensation claim from members or other stakeholders involved with the organisation.




Principle 1 (continued) – Board Legal Responsibilities

• Fiduciary Duty (common law) – act in good faith for the benefit of, or in the interests of, the organisation

• Duty to Act in Good Faith (sect 181 of Corporations Act) – A director must exercise their power in good faith in the best interests of the corporation & for a proper purpose

• Do Not Misuse Information or Position of Director - The law prohibits Board members from using their position to gain an advantage for themselves or another, or to cause detriment to the entity they are governing

• Do Not Abuse an Opportunity – if you become aware of an opportunity as a result of your position on a board then you should not take up tht opportunity for personal benefit at the expense of the organisation

• Duty to Act with Care & Diligence - Board members must exercise their powers and discharge their duties with the care and diligence of a "reasonable person" in their position. Board members with a high level of expertise will attract a higher standard of care than other members.

• Avoid Conflict of Interest• Avoid Insolvent Trading• Avoid Fraud• Avoid Negligence




Principle 1 (continued) – Identifying Legal Responsibilities

• Tax – tax legislation including any obligations required for charitable income tax exempt status and/or deductible gift recipient status (if applicable).

• Conditions of funding – contractual obligations that exist to any funding bodies.• Occupational health and safety – must provide a safe workplace for

employees, subcontractors, volunteers and a range of others. For example training on fire evacuation procedures, electrical safety, first aid, no smoking in workplace, etc.

• Industry-specific – for example child care and safety in schools. • Organisation Constitutional compliance – for example rights of members,

appointments to the board & their tenure, etc.

• Privacy – important to understand what data is considered to be private as this is subject to tight regulatory controls as to its use, accesibility, accuracy & storage

• Information Security• Environmental Sustainability such as EPA compliance• HR – for example pay rates, superannuation contribution amounts & frequency, Sick

Leave, Overtime, Hiring & Firing procedures





• Trade Practices Act – for example misleading & deceptive conduct, Third Line Forcing, etc

• Anti-Discrimination• Contracts Law• Defamation• Fund Raising





– The chair should:• Understand legal and procedural requirements for meetings

• Ensure meetings are properly convened and constituted

• Understand the business and objects of the meeting

• Preserve order in the conduct of those present

• Confine discussion within the scope of the meeting and timelines

• Decide whether proposed motions and amendments are in order

• Decide points of order and other incidental matters

• Handle all matters in an impartial manner

• Adjourn the meeting where justified


Principle 1 (continued) - The ChairpersonWhat is Governance


Common Issues Documents Checklist & Test Attendance CertificateStrategic Planning Meetings

1. Create a Compliance Policy. This includes a listing of the compliance requirements that need to be adhered to, as well as a written statement of the board’s commitment to developing a culture that encourages and supports the incorporation of compliance into everyday activities.

2. Ensure that staff are:• aware of and committed to complying• understand their compliance obligations• are accountable for fulfilment of those obligations• are provided with means for identifying and reporting compliance risks & issues • are supported and resourced, as far as reasonable, by the organisation sufficiently to enable them to carry out these obligations




Principle 1 (continued) – Adhering to Legal Responsibilities

• A board that isn’t separate from management will face difficulties in representing stakeholders’ interests fairly. These is because the people making decisions and evaluating their appropriateness are the same as the people affected by or carrying out those decisions. For example a staff member on the board may take part in decisions about their own salary based on assessments of their own performance.

=> A Board governs and staff manages




Principle 1 (cont) – Separation of Governance & Mgnt

• Insolvency means the inability to pay debts in full• You could be personally liable for a debt of an Organisation if:

– You are a committee member/director when the debt was incurred

– Organisation is insolvent or becomes insolvent by incurring the debt at that time

– Reasonable grounds for suspecting that the Organisation is or will become insolvent




Principle 1 (continued) – Incurring Debt

• A Board only meets occasionally and its members are often busy with other demands on their time. Therefore a Board discharges its duties by delegating authority to the CEO. In doing so the board doesn’t give up any of its own responsibility for setting policy, providing strategic direction, or exercising oversight. It remains the principal decision-making authority, and the CEO is answerable to the Board for their actions.

• The Board evaluates the CEO regularly. As part of its feedback to the CEO, the Board should review their performance regularly—preferably annually. The review should be based on predetermined criteria, such as the written job description and stated annual goals.

• The Board plans for CEO succession.




Principle 1 (continued) – Board Delegation to CEO

Companies should have a board of an effective composition, size and commitment to adequately discharge its responsibilities and duties.

• A majority of the board should be independent directors.• The chair should be an independent director.• The roles of chair and CEO should not be exercised by the same

individual.• The board should establish a nomination committee.• Companies should disclose the process for evaluating the

performance of the board, its committees and individual directors.





Principle 2 – Structure Board to Add Value

• Companies should establish a code of conduct and disclose it as to the practices necessary to maintain confidence in the company’s integrity, the practices necessary to take into account their legal obligations and the reasonable expectations of their stakeholders, the responsibility and accountability of individuals for reporting and investigating reports of unethical practices.

• Companies should establish a policy concerning diversity and disclose the policy or a summary of that policy. The policy should include requirements for the board to establish measurable objectives for achieving gender diversity for the board to assess annually both the objectives and progress in achieving them.

• Companies should disclose in each annual report the measurable objectives for achieving gender diversity set by the board in accordance with the diversity policy and progress towards achieving them.

• Companies should disclose in each annual report the proportion of women employees in the whole organisation, women in senior executive positions and women on the board.





Principle 3 – Actively Promote Ethical & Responsible Decision Making

• Code of Conduct should as a minimum contain:– Compliance with laws– Work environment (health & safety, free from drugs, discrimination & harassment)– Products produced are safe and effective– Competition (compete vigourously but fairly)– Marketing & Sales (products and services to be represented accurately)– Recording & Reporting to be timely, accurate & complete– Confidential information to be treated in accordance with privacy laws– Conflicts of interest to be at least disclosed and preferably avoided– Environmental impact is considered in decision making– Honest & open communication with stakeholders– Do not place personal interests ahead of interests of Organisation or Community

• Compliance & Checking for Compliance is just as important as creation of the Code itself. What are you doing to ensure everyone complies?

• A good test is to consider whether you would be happy for your activities & decision making to be open to public scrutiny




Principle 3 (continued) – Code of Conduct

• You must avoid actual or potential conflicts of interest. This requires putting the interests of the organisation ahead of your own personal interests.

• You should disclose to your committee any personal interests that may give rise to a conflict

• If a conflict arises you should at least not vote on the matter and at best leave the meeting whilst the matter is being discussed

• You should also keep information you obtained by being a committee member confidential




Principle 3 (continued) – Conflicts of Interest

• Companies should have a structure to independently verify and safeguard the integrity of their financial reporting.

• The board should establish an audit committee. The audit committee should be structured so that it:– consists only of non-executive directors– consists of a majority of independent directors– is chaired by an independent chair, who is not chair of the board– has at least three members.

• The audit committee should have a formal charter.





Principle 4 – Safeguard Integrity in Financial Reporting

• Companies should promote timely and balanced disclosure of all material matters concerning the company.

• Companies should establish written policies designed to ensure compliance with ASX Listing Rule disclosure requirements and to ensure accountability at a senior executive level for that compliance and disclose those policies or a summary of those policies.





Principle 5 – Timely & Balanced Disclosure

• Companies should respect the rights of shareholders and facilitate the effective exercise of those rights.

• Companies should design a communications policy for promoting effective communication with shareholders and encouraging their participation at general meetings and disclose their policy or a summary of that policy.

• Source: Corporate Governance Principles and Recommendations, ASX Corporate Governance Council, www.asx.com.au




Principle 6 – Respect the Rights of Shareholders

• Companies should establish a sound system of risk oversight and management and internal control.

• Companies should establish policies for the oversight and management of material business risks and disclose a summary of those policies.

• The board should require management to design and implement the risk management and internal control system to manage the company's material business risks and report to it on whether those risks are being managed effectively. The board should disclose that management has reported to it as to the effectiveness of the company's management of its material business risks.

• The board should disclose whether it has received assurance from the CEO and the chief financial officer (or equivalent) that the declaration provided in accordance with section 295A of the Corporations Act is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks.





Principle 7 – Recognise and Manage Risk

Process of Creating a Risk Mgt Plan

1. Risk Identification• IT, Legal, Financial, Benefits realisation, Personal, Regulatory,

Economic, Skill Gaps, etc• Refer Strategic Plan – Threats & Weaknesses analysis

2. Assessment of Severity / Prioritisation• Assessment of Potential Severity• Assessment of Likelihood




Principle 7 (continued) – Risk Management Plan Process

3. Management Options1. Transfer (eg. Insurance)

2. Avoidance

3. Reduction / Mitigation

4. Share (Transfer, Outsouce, Insure)

5. Acceptance

4. Cost of each Management option is compared against Severity Assessment

5. Actions (SMART)1. Specific

2. Measureable

3. Attainable

4. Relevant

5. Time-bound




Principle 7 (continued) – Risk Management Plan Process

Template for Risk Management Plan




Principle 7 (continued) – Template for Risk Mgt Plan

ID Risk Details Type Severity Likelihood Weighted Priority Management Options Type Status Actions

1 loss of data due to computer fault Technology High Low Medium-Backups-Use paper instead

-Mitigation-Avoidance

-Adopted-Not Practical

2345

• Companies should ensure that the level and composition of remuneration is sufficient and reasonable and that its relationship to performance is clear.

• The board should establish a remuneration committee.• The remuneration committee should be structured so that it:

– consists of a majority of independent directors– is chaired by an independent chair– has at least three members.

• Companies should clearly distinguish the structure of non-executive directors’ remuneration from that of executive directors and senior executives.





Principle 8 – Remunerate Fairly & Responsibly

Organisation Governance

Common Issues – How Much Governance

1) How Much?


(Principles)Common

IssuesDocuments Meetings Checklist & Test Attendance CertificateStrategic Planning


Common Issues – Adherence / Adoption

2) Adherence / Adoption

Successful implementation of any change initiative depends on:• Awarenes of the need to change• Desire to participate and support the change• Knowledge of how to change (and what the change looks like)• Ability to implement the change on a day-to-day basis• Reinforcement to keep the change in place

Source: Prosci, http://www.prosci.com/


(Principles)Common



Common Issues – Adherence

Key Things to remember:

1. Lead by example

2. Audit


(Principles)Common


• Three documents form the basis for NGO governance:– articles of incorporation,– bylaws,– mission statement

• These documents, along with the minutes of board meetings, budgets, financial statements, and policy statements, communicate how the organization is governed, individual responsibilities, the organization’s past, and the organization’s future plans.


Documents related to GovernanceWhat is Governance



• Name of organisation• Related organisation(s) and their relationship to each other• Basic responsibilities and powers• Duties of individual board members. For example confidentiality and loyalty• Minimum number of board members• Membership rules (including eligibility, suspension, and expulsion)• Terms of office (length of terms, limits on re-election)• Minimum number of board meetings per year• Method of convening meetings (who initiates, how to set dates, who decides

agenda, etc.)• Decision-making procedures (number needed for quorum, how to vote and record• decisions)• Conflict-of-interest provisions


Documents should containWhat is Governance


Common Issues Meetings Checklist & Test Attendance CertificateStrategic Planning Documents

• Name of the organization.• Duration of the organization (usually perpetual).• Purpose for which the organization is formed.• Provision for conducting the internal affairs of the organization.• Names and address of the incorporators.• Address of the initial registered office and name of the initial registered• agent of the organization.• Provision for distribution of the assets of the organization on dissolution.


Articles of IncorporationWhat is Governance



• Bylaws are internal documents, a set of rules that enables each organization to conduct its affairs. It is important they be written clearly and in language that is easily understood by all organization stakeholders. Typical items addressed in the bylaws are:

– The frequency, notice, and quorum requirements for organizational meetings.– Voting qualifications, proxies, and procedures for approval of board items.– The number and term for members of the board, scope of authority, method of nomination and election

to the board, and provision for filling vacancies.– List of board officers, method of nomination and election, terms of office, powers, duties, and

succession.– Membership and authority of standing committees.– Title and scope of authority for the executive director/chief of staff.– Record-keeping and financial reporting responsibilities.– Amendment procedures for the bylaws and provisions for dissolution of the organization.


By lawsWhat is Governance



• Corporate governance is:– common sense and knowing what your responsibilities are– listening to your shareholders/members/stakeholders and responding to them– carefully monitoring the activities and finances of your Club– developing some basic risk management practices for your committee and

your Club– Establishing a clear Mission and ensuring activities conducted by all staff are

relevant to achieving that Mission


ConclusionWhat is Governance




Checklist


(Principles)Common Issues Documents Meetings

Checklist & Test

Attendance CertificateStrategic Planning

# Item Check

1 Our organisation has a formally established governing structure

2 Our board makes decisions collectively

3 Our board has a designated leader or chair

4 Our CEO has a written job description outlining performance expectations and goals

5 Our board evaluates the CEO annually

6 Members of the staff, including the CEO, are not voting members of our board

7 The CEO is not the board chair

8 Our organisation has a mission statement, which is known throughout the organization

9 Our board focuses on strategic leadership and “big picture” thinking

10 Our board does not micro-manage or engage unnecessarily in operational details

11 Our board makes sure that adequate planning takes place throughout the organisation

12 Our board makes sure that regular evaluations of programs and operations are performed and acted upon

13 Our board understands the organization’s finances and monitors the financial condition regularly

14 Our board ensures that internal financial controls are in place and working

15 Our board ensures that the organization’s accounts are regularly audited

Source: A Handbook of NGO Governance, Marilyn Wyatt, 2004


Checklist (continued)


(Principles)Common Issues Documents Meetings

Checklist & Test

Attendance CertificateStrategic Planning

# Item Check

16 Our board takes part in resource development

17 Our board ensures an annual report is produced and distributed

18 Our board members are not paid for their service and derive no other direct or indirect gain from their board service

19 Our board has established and enforces a conflict-of-interest policy

20 Our board sets a high professional and ethical standard

21 Our board has a clear set of rules for its own operation

22 Our board meets regularly, with dates set in advance

23 All board members arrive at meetings punctually and prepared to take part in proceedings

24 Board meetings focus on policy, oversight, and strategic direction

25 Board meetings involve active discussion and decision-making rather than rubber stamping and listening to staff reports

26 Our chair knows how to lead discussions, maintain discipline, and include all board members in accomplishing necessary work

27 Board meetings keep to the preset agenda

28 Our board keeps minutes of all of its meetings

29 All board members have written guidelines outlining expectations of their board service

30 Our board works well as a team

31 Our board sets annual goals for itself

32 Our board assesses its own performance regularly

33 Individual board members serve set terms within a system of regular rotation

34 Our board recruits new members strategically

35 New board members are thoroughly orientated into the organisation and board service

36 Our board members serve enthusiastically as ambassadors for the organization

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