introducing the kpmg directors’ toolkit and how it will benefit the nfp director 2 august 2014...

Introducing The KPMGDirectors’ Toolkit and how it will benefit the NFP director

2 August 2014

Board Advisory Services

Challenges for the Australian Not-for-Profit Sector

3© 2014 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.

Key challenges for the Australian Not-for-Profit Sector

Fundraising for the Future

Attracting the right people

Regulation and Compliance

Relevance and Recognition

Obtaining assistance and the right tools


Introducing the Directors’ Toolkit

The Directors’ Toolkit is an important tool for today’s NFP boardroom. Designed in an interactive iPad / tablet-friendly format

It is an essential resource for today’s NFP director.

Updates, new sections and version releases

We will with your approval keep your details on our Board Advisory Services database to keep you informed of any updates to the toolkit

Better practice in the NFP Board Room


Ticking the boxes

Effective NFP boards

Expert

Taking the boardroom to a ‘better practice’ level



Expert

Ticking the boxes

Governance, strategy, risk and assurance

all aligned

Taking the boardroom to a ‘better practice’ level



Expert

Ticking the boxes

Governance, strategy, risk and assurance

all aligned

Corporations Act (2001)

ASX Listing Rules

ISO31000 Risk

Management Standard

Australian Accounting

Standards

Industry better practice

standards

Better practice in the boardroom

effective, strategic governance

Financial Management

Act 1994(Vic Govt.)

Structuring an effective board and sub-committees

Directors’ ToolkitChapter 5 & 7


Structuring an effective board

Red Flags

• Board appointments are decided by the chairman with little input from other directors.

• Directors do not receive a letter setting out the terms and conditions of their appointment.

• No formal (or insufficient) board induction is provided to new board members.

• Unreasonable demands are placed on the directors’ time.

• The board is too large compared to similar organisations.

• There is a lack of ongoing board succession planning.


I am responsible for our board

instruments, meeting agendas

and documentation

I have 20 years experience in the

business and understand

our business cycle

I am an independent director with experience in

change management

My background is in financial services and I provide the board with strong financial literacy

Structuring an effective board

Effective boards possess varied experience, diversity and have a sound understanding of their roles and responsibilities

$


Board

Audit & Risk Committee

Remuneration Committee

Nomination Committee

Other special purpose

committees

Audit / assurance providers

Board committees

= legally required

= Recommended by ASX Corporate Governance Principles

= optional (encouraged by better practice guidance)

Supporting key executive and director appointments

Directors’ ToolkitChapter 6


Company leadership

Questions That Company Directors Should Ask

Does the board have complete confidence in the CEO and the senior

management team?

Does the CEO, through attitude and behaviour, reinforce the appropriate

‘tone at the top’?

Has the board developed a CEO and senior management succession plan

that is periodically reviewed?

Do the CEO’s responsibilities include attracting, developing and retaining high

performers in the organisation?

Does the board have a transparent process for determining management

remuneration?


Company leadership

Develop and retainDevelop key management, rewarding and

encouraging effective management practices

Review and improvePerform thorough review processes, utilising

independent providers where appropriate

Select and empowerConduct a robust selection process, utilising

external search firms where necessary

Duties and responsibilities of a NFP director



Directors’ legal duties

Australian Taxation

Office (ATO)

Commonweal

th taxation law

ASX Listing Rules

ISO31000 Risk

Management

Standard

Australian AccountingStandards

Industry better

practice standards

Australian Charities and

Not-for-profits

Act 2012 (Cth)

(the ACNC Act).Financial

Management

Act 1994(Vic Govt.)

Corporations

Act (2001)

NFP Company directors have significant legal responsibilities. It is critical that directors understand their duties and keep abreast of any changes to legislation affecting them.


Directors’ capacity

There is a need for

directors to be able to

give sufficient time and

effort to their board role.


Financial literacy

Financial literacy is a combination of financial

knowledge, skills, attitudes and behaviours

necessary to make sound financial decisions,

based on personal circumstances, to improve

financial wellbeing.

Oversight of strategy and governance

Directors’ ToolkitChapter 2, 10 & 13


Questions That Company Directors Should Ask

Is the composition of the board appropriately diverse for it to perform

effectively?

Is there an annual agenda, approved by the board, that is linked to the board’s

key responsibilities as detailed in the board charter?

Is the board clearly setting out the roles and authority of the CEO and

directors in writing?

Are delegations to management, including the delegations policy, set out in a

single document?

Is the board monitoring that directors allocate sufficient time to discharge

their responsibilities?

Governance roles


Insightful strategy

Red Flags

• The board accepts management’s strategy without in-depth probing or questioning.

• The board does not fully understand the nature and implications of the proposed strategy.

• The external environment is not fully considered in strategy development.

• Not all directors attend the meeting where strategy is discussed and approved.

• Risks inherent in the strategy are not identified or managed.

• Board meetings are not strategically focused.


Governance roles

Constitution

Board charter

Governancecharters

Risk appetite

Board duties

Simpleefficientminimumstandards

Clearaccountabilityfor decision-making

Co

rpo

rate m

ission

OutcomesInputs

Enablers

Values

There are many instruments, roles and responsibilities required for a NFP board to deliver its governance function effectively.


Role in strategy

The NFP board plays an

important role in setting the

vision, purpose and strategies of

the organisation.


Insightful strategy

Communicate and enact

Respond and reassess

Plan and develop


Board Roles and Responsibilities

Board vs Management

Engaging effectively with stakeholders



Stakeholder engagement

Red Flags

• The NFP maintains no stakeholder mapping, tiering or profiling information.

• The risk of not engaging stakeholders is not discussed or is often dismissed quickly by some board members.

• Online coverage of the NFP is mostly negative.

• Unclear executive and board accountabilities for stakeholder engagement.

• The NFP is unaware or unprepared for the impact of social media activism.



A good reputation is a prized

corporate asset. NFP’s that can

mobilise their stakeholder base

are able to present a positive

public image and reap the

rewards that follow.



Review

• Monitor and respond to risk on an ongoing basis

• Evaluate performance

• Report progress through a formal annual report statement

Engage

• Initiate contact with board-level stakeholders

• Focus on the issues that matter

• Proactive not reactive

• Drive mutual relationships and outcomes

Plan

• Profile and map stakeholders

• Conduct risk assessment and set priorities

• Set roles and accountabilities

• Establish monitoring indicators

• Prepare training where appropriate


Accountability to community

When dealing with the

community NFP should be:• Accountable• Transparent• Consultative

Managing productive meetings



Productive meetings

Document and distribute

• Distribution of minutes to board members

• Secure board portals

• Leverage technology

Attend

• Regular attendance

• Accurate minuting, in line with Corporations Act 2001

• Physical sign-off of previous meeting’s minutes

Prepare

• Annual rolling agenda

• Easy access

• Defined roles and responsibilities

• Timely distribution

Risk Management



Risk management

Red Flags

• Risk management is not connected to corporate strategy.

• Leadership from the top is lacking.

• Risk management is positioned as a compliance and backroom exercise.

• Risk reporting and risk management plans are not challenged at board level.

• A healthy risk culture is not embedded throughout the organisation.


Lack of internal controls

Inefficient record

retention

Inexperienced staff or

volunteers

Lack of financing

Fraud

Risk management

Sources of risk


Risk management

Strategy &Risk Appetite

Defining a risk appetite suitableto your organisation

Structuring risk governance, with clear roles and accountabilities

Identifying your key risks and facilitating thinking around the likelihood and consequence of materialisation

Embedding monitoring systems with actions and timetables

Designing a reporting structure to

keep the Board informed

Setting a culture of risk awareness and good risk management practices

Better practice terms of reference, charters and agendas

Directors’ ToolkitChapter 9, 12 & 15-17


Ethical culture

Code of ethics Whistle-blower

policy

Sustainability policyAnti-corruption

policy

Strong and

consistent

tone from the

top

Sharing of bad

news

encouraged

Incentive-

based

accountability

structure

Standard

behaviour

across

business lines

Guiding policies Guiding behaviours


Receiving assurance

2nd LINE – Internal oversight functions

Finance, HR, Quality, Risk Management

Bo

ard

, E

xCo

mm

& A

ud

it C

om

mit

tee1st LINE – Business functions

Embedded risk and control environment

3rd LINE – Independent assurance

External Audit, Internal Audit, other assurance services

3 LINES OF DEFENCE

3 LINES OF DEFENCE


Corporate Sustainability

The key drivers of the increasing

focus on Environmental, Social

and Governance are the

increasing:• power of stakeholders;• value of intangibles; and • regulation.


Work Health & Safety

Organisations have a duty

of care to ensure that any

person affected by the

company’s undertakings

remain safe at all times and

that their work activities

are not prejudicial to

health.


Work Health & Safety

Best practice framework for Health and Safety governance (Source: ‘Defining best practice in corporate occupational health and safety governance’, Health and Safety Executive, 2006)

Best Practice Framework for OHS Governance

• Director Competence

• Director Roles and Responsibilities

• Culture, Standards and Values

• Strategic Implications

• Performance Management

• Internal Controls

Organisational Structures


Government

• often they don’t have the authority to determine leadership of the organisation and appoint the CEOOrganisational Leadership

• stakeholders are wide and varied, with expectations from the community heightened for government agencies

Community Expectations

• agencies are not profit motivated and are guided by strategic direction set by governmentNot-for-profit motives

• challenges that present governance in a political environment with influence and decision-makingPolitical Influence

• government agencies don’t have continuous disclosure requirements but must work within the funding constraints and timelines of government budget processes

Funding Constraints

Establishing new boards



Establishing a new board

Establishing a new board is a challenging undertaking. Our ‘first 100 days’ model provides a roadmap of the key activities and deliverables needed to establish an effective board within a target timeframe of 100 days.

Leadership & strategy

Agree priorities

• Terms of reference• Charter and annual

agenda• Sub-committees• Financial compliance• Legal and compliance

duties• Delegations / CEO limits• Code of conduct• Strategic plan

Performance & monitoring

Operating model*

• Policies:‒ conflicts of interest‒ regulatory compliance‒ Privacy‒ whistleblower & fraud‒ media/crisis/incident ‒ Recruitment &

remuneration‒ continuous disclosure

• Target operating model• Key appointments CEO /

CFO


Stakeholder framework

• Communication policy• Internal / shareholders /

community / government• Shareholder relations• Mapping and tiering• Engagement plan• Consultation model• Stakeholder and

consumer participation forums

Compliance

• Compliance framework• Internal & external auditor

appointment• Audit & risk committee• Consequence and breach

policy• Reporting & oversight• Board performance

assessments

Accountability & audit

Risk profile*

• Risk management policy• Risk workshop• Agree and validate

critical risks• Risk register• Risk monitoring and

mitigation• Risk reporting framework

Risk management

Informed discussions and decisions, not an endless

stream of surprises

Proactive, strategic tool, not a reactive function

Healthy culture supported by strong policies, not an

inconsistent ‘tone at the top’

Active stakeholder consultation, not

disengagement from the process

Tailored assurance and reporting, not a ‘one size fits

all’ approach

*Note – in practice, it is common for these phases to run in parallel


Risk management

Red Flags

• There is limited understanding on what is required in the first 100 days

• The board composition has mainly inexperienced directors

• No advice is sought from experts or directors who have experience in establishing boards

• No time has been planned for discussing risks, strategy and corporate governance

• Accountabilities and delegations are unclear and not documented

• No board instruments have been presented for endorsement

Directors’ Toolkitwalkthrough


Introducing the Directors’ Toolkit

Smartphone and tablet users

To view the PDF it is recommended you use the free Adobe Reader app that is available for your device. When launching the document, select

Adobe Reader to view the document.


Navigating the Directors’ Toolkit



Easy topic navigation

Click on chapter title to take you

directly to a topic of interest



Icons to click

Easy to use icons to print, search and

navigate



Questions to ask?

We have provided for key boardroom topics questions to ask to prompt right

discussions



Red flags

Every chapter includes a list of warning signs of

potential issues of concern for

company directors



Case studies to inform

The toolkit provides recent case studies on insider trading convictions, HIH

insurance, James Hardie and Centro



Example better practice templates to leverage

TemplatesWe have include

Board committee charters

2012Annual assurance plan

2012Annual assurance plan

Group Risk

Policy

Policy

Co

ns

eq

uen

ce

Moderate

Minor

Extreme

Major

Rare AlwaysPossibleUnlikely Likely

Insignificant

Likelihood

23

2

1

1

4

5

67

9 9

8

Risk mapping

Board risk reporting

Board and board committee minutes /

documentation

Risk treatment plans

Forward looking meeting agendas

Audit and Board Committee annual

agendas


Toolkit content


Key contacts

Sally FreemanRisk Consulting National

Partner-In-Charge

Carmel MortellBoard Advisory Services

Partner

Kylie MaherBoard Advisory Services

Director

KPMG National Board Advisory Service

The Directors’ Toolkit is an important tool for today’s boardroom. Designed in an iPad-friendly format, it is an essential resource for today’s director.

introducing the kpmg directors’ toolkit and how it will benefit the nfp director 2 august 2014...

Documents

kpmg directors toolkit

registered trademarks

australian partnership

toolkit slide

swiss entity

todays nfp boardroom

boxes effective nfp

better practice level