Associa'ons Forum’s Future Leaders Conference Governance & Effec-ve Boards
14 November 2013
John Peacock, General Manager, Associa4ons Forum Disclaimer: This is prac'cal advice based on observa'ons of associa'ons and chari'es. We are not a law firm. Professional advice should be sought before making decisions based on this general presenta'on.
About Associa-ons Forum • Commercial en4ty assis4ng associa4ons • 470+ member organisa4ons; largest Australian/NZ event;
Malaysia, Singapore, India, South Africa • From viewpoint of services, similar to an associa4on
– Educa4on and training – Publica4ons and communica4ons – Surveys and research e.g. benchmarking, membership – Consul4ng and advice on governance and planning – Mentoring
About the presenter • In my 20’s: worked for corporate employers • In my 30’s: worked for associa4ons • In my 40’s: founded Associa4ons Forum • In my 50’s: expanding Associa4ons Forum’s offerings to
associa4ons plus assis4ng associa4on development in other coun4es
What this session will cover:
1. Importance of the sector and principles 2. Key documents includign cons4tu4ons and
strategic plans 3. The difference between governance and
management 4. Roles, accountability & responsibili4es of
members, Directors, Chair and CEO
Terminology
Governing Document Cons4tu4on, Rules, Memorandum & Ar'cles of Associa'on
Governing Body Board, Trustees, Council, Commi\ee, Management Commi\ee
Individuals on Governing Body
Directors, Trustees, Councillors, Commi\ee Member
Senior Staff Person Execu4ve Officer (EO) Chief Execu4ve Officer (CEO) Execu4ve Director (ED) Administra4ve Officer (AO)
5
Acts of Parliament & laws that create associa-ons and chari-es
Commonwealth Corpora4ons Act Public Co Limited by Guarantee Ltd
States & Territories Associa4on Incorpora4on Acts
Incorporated Associa4on Inc.
Commonwealth, State & Territories
Industrial Rela4ons Acts
Unions & Registered Employer Industrial Associa4ons
N/A
Royal Charter N/A N/A N/A
Others
6
Corpora-ons Law directs many governance principles
7
• Associa4ons increasingly being incorporated as Companies Limited by Guarantee (CLG)
• Some State/Territory incorporated associa4ons allow ‘transfer’ to being CLG
• Transfer straighcorward (NSW, ACT, NT), difficult (Vic, SA) or not possible (Qld, WA, Tas)
• Some advantages in CLG • Na4onal law is more widely understood
Main Types of en--es under Corpora-ons Act (C’th)
Private Company Ltd by Shares
Shareholders Not listed Pty Ltd
Public Company Ltd by Shares
Shareholders Unlisted or listed on ASX
Ltd
Public Company Limited by Guarantee
Members No owners Ltd
8
To confirm how an associa4on or charity is incorporated, visit Australian Business Register website: • h\p://www.abr.business.gov.au/Index.aspx
Key requirements in cons-tu-on for NFP taxa-on status
• Objects • Membership (re mutuality principle) • No distribu4on to members clause • Winding up clause • See: “Tax Concessions & Endorsements Guide: Guide for Associa'ons, Chari'es and Not-‐for-‐Profits” on Associa'ons Forum website
9
Recipient (DGR)
9
9
9
9
Certain types only
1 2
The mutuality principle is applicable to those organisations that are formed by members pursuing a common purpose; some receipts by such organisation s are treated as non-assessable for income tax purposes Only certain types of associations and not-for-profit organisations are exempt from income tax and can self-assess their entitlements. Many associations and not-for-profit organisations are taxable, but may be entitled to special rules for calculating taxable income, lodging income tax returns and special rates of tax; self-assessed entities are included in this category Public and not-for-profit hospitals and public ambulance services are eligible for this concession Only associations that are also public benevolent institutions or health promotion charities are eligible for this exemption Certain non-government not-for-profit organisations are eligible for this concession Subject to certain requirements, benefits provided by religious institutions to religious practitioners are FBT exempt if they are mainly for the practitioners’ pastoral duties, or other duties related to the practice, study, teaching or propagation of religious beliefs The entity must be a deductible gift recipient to access this concession The entity must be an income tax exempt charity, income tax exempt fund, or deductible gift recipient to access this concession The only organisations that do not need to be endorsed are those listed by name in the tax law, including prescribed private funds Endorsements by the Australian Taxation Office required. The ATO assesses applications on a case by case basis and makes a decision for each particular entity Certain organisations can be income tax exempt and can self-assess their entitlements This advice is general in nature. Specific advice should be sought about applicability to the relevant organisation
3 4 5 6
7 8 9 (E)
Note:
© Makinson & d'Apice Lawyers 2012
Level 12 135 King Street Sydney NSW 2000 $# Box 495 Sydney NSW 2001 • DX 296 Sydney Phone 02 9233 7788 • Facsimile 02 9233 1550 Email [email protected] • www.makdap.com.au
For additional information regarding any aspect of our client services, please feel free to contact:
• Bill d'Apice, Partner
635665_3:WDA:SLE
Tax Concessions & Endorsements: Guide for Associations, Charities & Not-For-Profits
Types of Not-For-Profits
Mutuality Principle
(income tax exemption for
member-related receipts)
Income Tax Exemption
(E)
Fringe Benefits Tax (FBT) Exemption (subject to capping
threshold) (E)
FBT Rebate (E)
FBT Exemption (uncapped) (E)
GST Concessions for Charities & Gift
Deductible Entities
(E)
GST Concessions for Not-For-Profit
Organisations
Refunds of Franking Credits
Deductible Gift
(E)
C
harit
ies
Public Benevolent Institutions (PBI)
& Health Promotion
Charities (E)
Yes
Yes
Yes 6
Yes
Yes
8 Certain types only
Yes
Yes
Charity:
Charitable Institutions (E)
Yes
Yes
6
Yes
Yes
8
Yes
Yes
Certain types only
Charity:
Charitable Funds (E)
Yes
Yes
Yes
8
Yes
Yes
Certain types only
Income Tax Exempt Funds (E)
Yes
Yes 7
Yes 8
Yes
Typical Association eg industry, professional,
special causes & other Not- For-Profits
Yes 1
Certain types only
Yes 2
Certain types only
Yes 3 & 4
Certain types only
Yes 5
Certain types only
Yes 7
Certain types only
Yes
Certain types only
Yes 8
Certain types only
Yes 9
Associa-on’s 12 key documents
1. Legisla4on – plus explana4on of what it means to your associa4on and people 2. Cons4tu4on – voted upon and changed by Members at General Mee4ng 3. Governance Charter – can be changed by the Board 4. By-‐Laws (op4onal) – decided by the Board 5. Statements of Purpose – Mission cascades into Goals then Ac4vi4es 6. Plan – sta4ng what/who/when and presented in grid format 7. Budget – linked to Plan; prepared by CEO; approved by Board 8. List of Directors and Office Bearers – how long on Board and “day job” 9. Minutes – Board mee4ngs, commi\ees and general mee4ng minutes 10. Staff organisa4on chart – can be changed by CEO; will it achieve the Plan? 11. Annual Report – records past achievements and challenges; acknowledges efforts 12. Audited financial report – plus 5 years financial history
11
Find out more from ABN Lookup
12
About Cons-tu-ons
• Act of Parliaments overrides Cons4tu4on • Cons'tu'on is your mini-‐law • MEMBERS change the Cons4tu4on through a formal process at a GENERAL MEETING
• Clear and relevant, not ambiguous and opera4onal • Include valida4on of Taxa4on status e.g. “mutual” • Cons4tu4ons likely to need changes every 3 years • Cons4tu4ons should include “locked-‐in” ma\ers requiring AGM 75% majority of votes cast
Content of Cons-tu-ons A. Purpose / Objects B. Members
– Defining who can be a Member; expulsion of a Member – It is OK to be exclusive and par4cular, but not discriminatory – Sta4ng who has right to vote at a “General Mee4ng”
C. Directors – Who appoints and how; how to dismiss Directors – Office Bearers; who should not make decisions separate to the Board – Composi4on, length of term and term limits for Directors and Office
Bearers – Sta4ng who has right to vote at a “Board Mee4ng”
D. Key staff appointments and responsibility E. Procedural ma\ers
Accountability & Responsibility
ACCOUNTABLE RESPONSIBLE & AUTHORITY
MEMBERS NOT APPLICABLE – CAN CHOOSE TO JOIN OR NOT
NOT APPLICABLE – GIVEN RIGHT TO VOTE AT GENERAL MEETING
DIRECTORS MEMBERS GOVERNANCE
OFFICE BEARERS DIRECTORS TASKS AS DIRECTED & BETWEEN MEETINGS ON SOME MATTERS
CEO DIRECTORS VIA THE CHAIR IMPLEMENT PLAN AND BUDGET AND MANAGE STAFF
15
It is a problem when the only Members are the Directors. In this case, they are accountable to themselves
What Boards should do
• Maintain a focus on ‘why we are here’: Mission • Concentrate on the long term • Facilitate open board discussion and unity of voice • Respect the pivotal role and boundaries of the CEO • Be proac4ve, decisive & consistent • Determine and access required informa4on • Rely on evidence, not anecdote
16
Who should be on a Board?
• This is directed by the Cons4tu4on • Usually process of elec4on by members • Reflec4ng and being connected with members is good, but it may narrow the skill set
• If members comprise majority of the Board, having external Director(s) can assist
• Some na4onal associa4ons and chari4es have a Director from every State/Territory
17
Associa-ons Forum Board Survey
18
2008 2009 2010 2011 2012 2013
Number Mee-ngs Face to face
7.0 7.0 6.4 6.3 5.9 5.6
Average Board Size 11.2 11.6 9.6 10.0 11.2 10.1
Ideal Board Size N/A 8.4 8.0 8.6 8.5 8.4
What is corporate governance?
• “Corporate governance is the system by which companies are directed and controlled
• Boards of Directors are responsible for the governance of their companies
• (Members) role in governance is to appoint the Directors & the Auditors and to sa'sfy themselves that an appropriate governance structure is in place.”
-‐ Cadbury Report (UK) 1991
19
Reality of being an associa-on Director
1. Broadly same obliga4ons as “for-‐profit” directors
2. Oven less resources 3. More complex environment because making
a profit is not the key objec4ve 4. Usually no or minimal remunera4on
20
Do Directors necessarily have to act for the benefit of members?
1. Cons4tu4ons need to state the “Objects” of the associa4on or charity
2. Directors need to work towards achievement of the “Objects”
3. Of course, the Objects may say “the associa4on will help members”, but this may or may not be the case
21
Directors are not ‘delegates’
• Directors are not ‘delegates’ of another body or the people who elected them
• Whilst it is understandable that Directors may feel some responsibility to advance such interests, the Directors must act in the interests of the organisa4on
22
Alternate Directors
• Alternate Directors are allowed by the Act and if specifically men4oned in the Cons4tu4on
• However, Alternate Directors are not recommended • Frequent use of Alternate Directors diminishes Board processes
• Proxies are a right for vo4ng members at General Mee4ngs – but not at Board mee4ngs
• Neither a Director nor Alternate Director can vote at a Board mee4ng as a “proxy” for another Director: only one vote per person
23
Fiduciary duty legally defined
• “A fiduciary is someone who has undertaken to act for and on behalf of another in a par'cular ma\er in circumstances which give rise to a rela'onship of trust and confidence.”
• -‐ Bristol & West Building Society v Mothew [1998] Ch. 1 at 18 per Lord Mille\ (UK)
24
Fiduciary duty in prac-ce
• Must act honestly, in good faith, and to the best of their ability in the interests of the organisa4on.
• Must not allow conflic4ng interests or personal advantage to override the interests of the organisa4on.
• The organisa4on must always come first
25
Officers’ Statutory Legal Du-es: What you must do
“A Director or other officer… must exercise their powers and discharge their du'es: • …with a degree of care and diligence that a reasonable person would exercise…”
• “…in good faith in the best interests of the corpora'on and for a proper purpose.”
26
Officers’ Statutory Legal Du-es: What you must not do
“A Director, secretary, other officer or employee must not improperly use their posi'on to……gain an advantage for themselves or someone else or cause detriment to the corpora'on. “A person who gains informa'on because they are of have been a Director, other officer or employee must not improperly use the informa'on to……gain an advantage for themselves or someone else or cause detriment to the corpora'on.
27
Officers’ Statutory Legal Du-es: Criminal offences
“A Director or other officer … commits an offence if they: a) are reckless b) are inten'onally dishonest And fail to exercise their powers and discharge their du'es c) in good faith in the best interests of the corpora'on; or d) for a proper purpose.
28
A Director has a duty to prevent insolvent trading
• Directors only – not Officers • Being Director when • “…the company incurs a debt and the company is insolvent at the 'me or becomes insolvent by incurring the debt… and there are reasonable grounds for suspec'ng that the company is (or would become) insolvent.
29
Prac-cal implica-ons of directors’ du-es
• Avoid conflict of interest • Maintain confiden4ality • Have a Code of Conduct for the current Board, with such ma\ers as Terms of Reference, Role of the Chair, Minutes policy
• Board induc4on and development • Board assessment
30
Du-es summarised
Fiduciary duty Common Law Directors & Officers
Reasonable, financial, objec4ve
S180(1) Directors & Officers
Honest, interests of organisa4on as a whole, avoid conflicts, independent, posi4ve ac4on
S181(1) Directors & Officers
Not to gain personal advantage s182 Directors & Officers
Not to misuse informa4on s183 Directors & Officers
Avoid insolvent trading s558(G) Directors only
31
Directors have responsibili-es: but do Members?
1. Directors have fiduciary and statutory du4es -‐ they must act in the interests of the associa4on as a whole Members have no fiduciary or statutory du'es and can act in their own interest, subject to the Objects
2. Directors must manage conflicts of interest Members do not have conflicts of interest as they owe no fiduciary duty
3. Directors must meet regularly at Board Mee4ngs to perform the governance func4on and make decisions Members may choose to a\end and vote at a General Mee'ng or not
32
Board Mee-ngs (for Directors) cf. General Mee-ngs (for Members)
1. Board Mee4ngs can happen frequently and at short (but reasonable) no4ce according to needs General Mee'ngs require 21 days no'ce or > per cons'tu'on
2. Subject to previous advice, any subject can be raised and decided on-‐the-‐spot at a Board Mee4ng General Mee'ngs require prior documenta'on sta'ng ma\ers to be covered & no ma\ers to come from the floor
3. Directors should not be able to give proxies to another Director -‐ and Alternate Directors are not recommended Members should be able to vote in person or by proxy at General Mee'ngs
General Mee4ngs have more process than Board mee4ngs
33
Members’ role in governance is limited
• Associa4ons and chari4es have no owners • Members have no rights to assets • Members must consent to join that associa4on – they cannot
be “deemed” to be a member • Members contract to “guarantee” an amount (usually small
eg $20) in the event of a windup • Members can vote for changing the Cons4tu4on (75%
majority of members vo4ng in person or by proxy) plus remove and generally vote for Directors at General Mee4ngs
• Cons4tu4ons should not include ma\ers for Directors such as the level of membership fees
34
Boards govern: Managers manage • Associa4ons need profits, hence earnings are retained • When sufficient money, hire administra4on = easy step • Yet administra4ve staff need to be managed by volunteers • Board needs to employ capable CEO to implement Plan -‐ and
take a step back to be watchful and vigilant = a harder step • Let volunteers enjoy their 4me, not be overworked and suffer
burnout, and do oversight role, not do everything • Associa4ons will not reach poten4al without management
level staff • Associa4on staff must have associa4on management training
– and this training mo4vates staff
Simplified best prac-ce flow
Members elect Board
Board approves Plan
CEO implements
Plan
36
Board focuses on Mission and Strategy
• The Board should focus on the Mission and the key strategic objec4ves
• When an associa4on employs management, Boards should allow management to achieve the Plan
• When an associa4on or charity does not employ management, the Board needs to note difference between its management and governance roles
• If Directors need to communicate with staff and management team, this should be done via the CEO
37
Boards must ensure Plans • Every en4ty (corporate, government, associa4on) must plan • Plan contains the top, say, 5 things Board has agreed needs to
be achieved • Planning days with independent associa4on facilitators are
mo4va4ng • When you know your Plan and Balance Sheet, a Budget can
be developed • Associa4on plans will be strategic plus opera4onal • Plans referred to at every Board mee4ng – Board monitors • Plans need ownership by Board & CEO -‐ and other volunteers
and staff must see where they fit in to the Plan and Budget
Statements of Purpose
• VISION is big picture for the industry, profession or cause – op4onal
• MISSION is vital: purpose for the organisa4on’s existence
• GOALS are 4meless and are there to achieve the Mission
• Specific ACTIVITIES are current and are there to achieve the Goals
Mission The Mission of XYZ is to advance the XYZ profession and to represent the interests of members.
Goals (this is the “linking” piece that is o=en missed) In order to achieve our Mission, we will: 1. Educate 2. Inform 3. Advocate 4. Expand business opportuni4es 5. Have good governance
Example of Statements of Purpose
40
Once Mission & Goals are decided, move to details in grid format
GOAL ACTIVITY RESPONSIBLE TIMING NOTE PRIORITY
1 Educate 1.1 Conference Event Mgr May ‘13 Meas B1
1.2 On line learning External Jul ‘14 A3
2 Inform 2.1 Newsle\er Comms Mgr Qtrly Meas
2.2 Website Comms Mgr Ongoing Meas B2
3 Advocate 3.1 Develop policies Board Dec ‘14
3.2 Meet Minister President Jan ‘14 A2
4 Expansion 4.1 Trade mission CEO Aug ‘14 Meas
4.2 Economic analysis External Nov ‘14 B3
5 Governance 5.1 New database CEO Jul ‘14
5.2 Review Cons4t’n Sub C’tee May ‘14 A1
5.3 Govern training CEO Nov ‘14
41
Governance Charter
• Each year, the Board needs to reaffirm in wri4ng HOW it will operate
• “Governance Charter” = prac4cal and current • Address behaviour expected • Address conflicts of interest & confiden4ality • Also Director Nomina4on, Induc4on, Development, Assessment, Succession Planning
42
Issues affec-ng associa-on Board performance
1. Time spent on opera4onal issues, short-‐term or immediate past
2. Redoing work that has been (or should have been) performed by staff
3. Inefficient Board priori4es e.g. work overload 4. Bad Board mee4ng processes and behaviour 5. Lack of apprecia4on of knowledge limita4ons 6. Cumbersome commi\ee structure
43
Board decisions 1. Decisions are what is minuted or what happens 2. Formal mo4ons may add clarity to the decision 3. However, formal mo4ons are not obligatory nor
do they need to be proposed and seconded 4. Once the Board makes a decisions, all Directors
should support the decision 5. When decisions are made that Directors do not
personally agree with, they may ask that their posi4on be recorded in the minutes
6. In some circumstances, Directors may decide to resign
44
Board decision processes • Adequate & relevant informa4on is required,
received with appropriate considera4on 4me • Important Board papers require prior reading • Within the agenda and no4ng 4me available,
the Chair should enable full discussion to allow the Board to reach a conclusion
• Aim for consensus where possible • Plus…the Business Judgement rule >>>
45
Office Bearers: first among equals
• For prac4cal reasons, President and Vice President needed • Company Secretaries should ideally not be a volunteer • Company Secretaries should receive specific training • The larger the Board, the more Office Bearers likely • Board is responsible for decisions of Office Bearers • Should not become an “inner Board” • Also, as all share financial responsibility, we suggest be\er to
have a Finance & Audit Commi\ee rather than “Treasurer” • Tasks specifically delegated – not an ongoing mandate
46
Chairing mee-ngs
• It is usual for the President of the associa4on to Chair the Board mee4ngs & AGM
• Chairs need personal authority & a\endees respect • CEO must be very suppor4ve of Chair, and act to brief the Chair and supply relevant informa4on
• Agenda’s need to be clear and have 4ming • Chairs need to sense the flow of the mee4ng; including when to speed up or go into detail
• At AGM, Chairs need a step-‐by-‐step “run sheet”
47
Director Assessment & Improving Board Performance
• Board should be commi\ed to a process of Director assessment and Board evalua4on
• The process should be established before a problem occurs
• Evaluate board effec4veness regularly • Establish a process of directors’ assessment • This process, oven externally facilitated, occurs outside regular Board business
48
Commidees • Your Board must determine which commi\ee structure
works best for it. • The commi\ee structure should be flexible and meet
the changing needs of the Board. • Boards should be willing to experiment, keeping in
mind that commi\ees are only tools Boards use to get their work done.
• The right tool for today may not be the right tool for tomorrow -‐ Which tool will get the job done?
A quick word about finances
• “Not-‐for-‐profit” is the wrong term: surplus or profits are necessary
• Reserves are never to be distributed to members • Directors reimbursed for reasonable expenses • Adequate or large financial reserves are important for future growth
• Financial repor4ng is some4mes poor -‐ yet should not nor need not be substandard
• Budge4ng can be linked closely to Plans
For ongoing viability, major change may be required
• Most NFP organisa4ons are viable: some 4ny, niche causes exist for years
• Merger with other organisa4on(s) • Evolu4on (or revolu4on) in what associa4on does/Mission
• Internal changes in Cons4tu4on, Governance, Opera4ons, Services
Reminder: problems can occur • Scandal or fraud • Going broke • Confusion as to purpose • Internal schisms, fac4ons and poli4cs • No regular transi4on to new Directors • Poor governance by the Board • Micromanagement by the Board • Wrong person as CEO • Not ge~ng professionals to assist when required
Thank you! • John Peacock, Associa4ons Forum Pty Ltd • www.associa4ons.net.au • 0412 55 8817 • [email protected] • Journals, flyers and business cards available • Thanks for a\ending Future Leaders Conference J • CEO Symposium: MELB: 20-‐21 February 2014 • AF Na4onal Conference: CANB: 16-‐17 July 2014
Australian Chari-es and Not-‐for-‐Profits Commission (ACNC)
• Chari4es must be registered if want access to concessions under CW law, including charity tax concessions
• If endorsed by ATO then carried over to ACNC • Five key values of: Fairness, Accountability, Independence, Integrity and Respect (FAIIR)
• h\p://www.acnc.gov.au/
ACNC's approach to legal meaning of charity
• The Chari'es Act 2013 was passed on 27 June 2013 • Act introduces statutory defini4ons of charity, charitable purpose, public benefit -‐common law meaning -‐ clarifies areas of uncertainty
• ACNC consult on defini4on of charity, charitable purpose and sub-‐types of chari4es
• Defini4on will apply from 1st January 2014 • h\p://www.aph.gov.au/Parliamentary_Business/Bills_Legisla4on/Bills_Search_Results/Result?bId=r5077
Coali-on and ACNC • Intend to repeal the new defini4on of Chari4es Bill • Abolish ACNC and replace it with a small ‘centre for excellence’ run by the sector
• Argue that defini4on of charity is clear with 400 years of case law
• But with a large number of new cross-‐bench Senators the outcome of rescinding legisla4on not known