governance session
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TRANSCRIPT
What is the purpose of governance?
"Governance is the use of authority to set an organisation's purposes, and to ensure it serves those purposes effectively and efficiently.“ (Chait, Ryan and Taylor)
“The fundamental reason for having a board is the need of those who morally or legally ‘own’ an organisation to have a present, informed, owner-dedicated, authoritative representative body to ensure the organisation produces and behaves as the owners wish.” (Carver)
Asks directors to do a big job in a short time Carries huge responsibilities and liabilities
yet is part time Requires partnerships yet there is little time
to build them Little professional development is offered Requires ‘outsiders’ to perform like
‘insiders’ Is an emerging and developing discipline Is replete with paradoxes
Good governance is a challenge ...
The role of the board
To control, direct and provide leadership to the organisation on behalf of an ‘ownership’ to whom the board owes its primary accountability.
Creating excellence in the boardroom
Not-for-profit organisation stakeholders
Legal owners – those who can approve constitutional matters, can put people on and off the board and can close the legal entity
Moral owners – those people for whom the entity exists but who have none of the powers of the ‘legal’ owners
Most others who interact with the entity are likely to have a business relationship – those people or groups with a legal or moral contract with the entity, with who its ‘does business’
The job of the board is to ensure that the organisation is well managed without the
board itself doing the managing.
Creating excellence in the boardroom
Legal Structures
Company Limited by Guarantee
A public company under the Corporations Act, Federal legislation, suitable to larger nfp orgs, provides tax free status, seen as a higher status incorporation than an association, directors’ duties specified, purpose driven
Incorporated Association
State and Territory legislation, purpose driven suitable for smaller nfp orgs, directors’ duties less well defined but common law requires the same standard as for company limited by guarantee
Trusts, specific legislation, e.g. church agency, co-operatives, aboriginal corporation
Creating excellence in the boardroom
NFP orgs are purpose/objects driven
Objects as defined in the constitution
Organisation is obliged to pursue its objects
In theory a member can bring an action against the board if the organisation moves away from its purpose
In practice it is very difficult for a member to seek a remedy for deviation from the stated purpose
The Act does not specify a specific duty incumbent upon directors to ensure that the company pursues its objects
Creating excellence in the boardroom
Constitution Is a contract between the members and the
organisation
Protects the members against undue exercise of power by the board – provides the basis for organisational democracy
Defines the organisation’s purpose and powers, eligibility for and categories of membership, annual meetings, composition and powers of the board, management of funds, appointment of auditor and winding up procedures.
Creating excellence in the boardroom
Constitution
Provides the basis for member control
Should not address day-to-day operational matters
Most State Acts provide Model Rules that form the basis for a constitution or can be adopted
Care should be taken to ensure that the constitution does not contain contradictory statements – when there is contradiction, the specific always overrules the general.
Creating excellence in the boardroom
Directors’ Legal Duties
To govern the organisation in good faith and in the best interests of the organisation as a whole
To exercise diligence and care
Not to make personal gain from improper use of directorship position
Not to make improper use of information to the detriment of the organisation
Not to trade while insolvent
Organisation Leadership
Effective leadership stems from a desire first to serve
Institutions need 2 types of leader: Those inside – day to day -
management Those who stand outside – but are
intimately concerned – oversee the active leaders – ‘trustees’
Oversight
Foresight
Insight
The best boards exercise effective remote control
The board’s policies:
Codify desired behaviours and
performance standards
define an accountability framework
(delegation to the chief executive)
create a framework for performance
monitoring and review
allow the board to ‘speak with one voice’
Oversee financial management Establish and review financial delegation policies Approve the budget Set financial performance criteria Receive and review regular financial reports Manage the relationship with the external auditor Sign the annual financial report
Financial Governance
Plan to have effective and efficient board meetings Review the structure and content of the
‘standard’ board meeting
Emphasise the future not the past
Address the most important strategic matters at the start of the meeting not at the end.
Consider the frequency and duration of meetings – does the board give itself enough time to have the discussions needed to provide effective leadership
When there are no paid staff
Be prepared to wear two hats, board member and operational volunteer
Split the board meeting in two parts – first adopt a governance focus and deal with governance matters, second adopt an operational focus
Allocate tasks, responsibilities and reporting requirements
Write the minutes in two parts to reflect the different focus
Enough control so that the board can exercise its duty
of care
Enough freedom so that the CEO can achieve the best
possible outcomes
Board support to the CEO
Expect the CEO to succeed and treat him or her accordingly
Be prepared to help him or her think through the hard issues
Make the board’s expectations clear and provide timely feedback
Understand the pressures faced and ensure that he or she is coping
Ensure that he or she is properly remunerated. Base this on benchmarks not your emotions.
CE Performance Management
Performance appraisal is continuous Is based on agreed objective (measurable)
criteria that are known ahead of time Process is fair and ethical (walk in the CE’s
shoes and ask, “If it were me, how would I feel?”)
Involves the full board Includes self appraisal Has a developmental/supportive focus Produces no unpleasant surprises for either
party Is carried out separately from the remuneration
decisions/processes
The strategic direction includes: The mission or purpose statement
A vision for the future
Corporate values
Key result areas – KRAs, 4 - 6
Organisation-wide key performance indicators KPIs
Together these should tell a story about the organisation and its desired future
Classes of information for governance:
decision information
– to determine the future
performance information
– to judge (and learn from) the past
incidental information
– optional as far as the board’s job is concerned
Information for governanceInformation for governance
© 2002 BoardWorks International