01 Aug 2013

AICD Good Governance Principles and Guidance for Not-for-Profit Organisations

by David Landy

There is no "one size fits all" good practice solution for effective governance of not-for-profits, but the AICD's 10 principles are very useful guidance.

The Australian Institute of Company Directors has prepared some principles and guidelines for NFP organisations designed to provide a practical, sector driven, non-prescriptive framework to assist in understanding what constitutes good governance practice having regard to an organisation's particular circumstances.

Corporate governance is the systems and processes put in place to control and monitor an organisation. Effective governance structures allow governing bodies of organisations to exercise their authority appropriately and provide accountability and control systems commensurate with the risks involved.

Due to the diversity of NFP organisations, there is no "one size fits all" good practice solution for effective governance. Factors which may influence governance arrangements of an NFP include:

  • the nature of its activities;
  • the regulatory environment in which it operates;
  • the type of NFP organisation and its governing legislation;
  • its constituent documents; and
  • requirement of grantors and funders.

Clayton Utz can assist NFP organisations in establishing a tailored corporate governance framework and a compliance framework for the Australian Charities and Not-for-profits Commission governance standards obligations.

The 10 principles in the AICD publication are set out below. For ease of reference, the terms "board", "director" and "chair" are used in the AICD publication. However, the principles are equally applicable to other governing body structures of non-corporate NFP organisations.

1. Roles and responsibilities

There should be clarity regarding individual director responsibilities, organisation expectations of directors and the role of the board.

2. Board composition

A board needs to have the right group of people, having regard to each individual's background, skills and experience, and how the addition of an individual builds the collective capability and effective functioning of the board.

3. Purpose and strategy

The board plays an important role in setting the vision, purpose and strategies of the organisation, helping the organisation understand these and adapting the direction or plans as appropriate.

4. Risk – recognition and management

By putting in place an appropriate system of risk oversight and internal controls, boards can help increase the likelihood that their organisation will deliver on its purpose.

5. Organisational performance

The degree to which an organisation is delivering on its purpose can be difficult to assess, but this can be aided by the board determining and assessing appropriate performance categories and indicators for the organisation.

6. Board effectiveness

A board's effectiveness may be greatly enhanced through: careful forward planning of board-related activities; board meetings being run in an efficient manner; regular assessments of board performance; having a board succession plan; and the effective use of sub-committees, where appropriate.

7. Integrity and accountability

It is important that the board have in place a system whereby: there is a flow of information to the board that aids decision-making; there is transparency and accountability to external stakeholders; and the integrity of financial statements and other key information is safeguarded.

8. Organisation building

The board has a role to play in enhancing the capacity and capabilities of the organisations they serve.

9. Culture and ethics

The board sets the tone for ethical and responsible decision-making throughout the organisation.

10. Engagement

The board helps an organisation to engage effectively with stakeholders.

Further details and guidance on these principles can be obtained from the AICD publication.

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