In January 2019, the Australian Institute of Company Directors (AICD) published a revised and developed version of its Good Governance Principles and Guidance for Not-for-Profits (the Principles). The Principles were first published in 2013 but the intervening six years has brought significant growth and disruption to the not-for-profit (NFP) sector. As the AICD points out, “governance expectations on the NFP sector have increased since the original edition of the Principles was published”.
What are the NFP Principles?
The Principles aim to provide a practical resource to help not-for-profit boards and directors achieve good governance. Contained within the AICD publication are 10 ‘principles’ each of which is explained by a heading and a high-level statement about an aspect of good governance:
- Purpose and strategy:The organisation has a clear purpose and a strategy that aligns its activities to its purpose;
- Roles and responsibilities:There is clarity about the roles, responsibilities and relationships of the board
- Board composition:The board’s structure and composition enable it to fulfil its role effectively
- Board effectiveness: The board is run effectively and its performance is periodically evaluated
- Risk management:Board decision making is informed by an understanding of risk and how it is managed
- Performance:The organisation uses its resources appropriately and evaluates its performance
- Accountability and transparency:The board demonstrates accountability by providing information to stakeholders about the organisation and its performance
- Stakeholder engagement:There is meaningful engagement of stakeholders and their interests are understood and considered by the board
- Conduct and compliance:The expectations of behaviour for the people involved in the organisation are clear and understood
- Culture:The board models and works to instil a culture that supports the organisation’s purpose and strategy
The AICD recognises that given the diversity of the NFP sector there can be no “one size fits all” approach to good governance. The Principles are voluntary in their application and are not intended to prescribe specific methods for how an organisation is to go about achieving good governance. What constitutes an effective strategy will differ depending on the size and nature of the organisation.
Each of the 10 principles is complemented by 10 ‘supporting practices’ which describe activities or behaviours of organisations that are likely to meet the required standard. These supporting practices can serve as checklist of considerations that NFP directors must turn their attention to when making governance decisions.
What has changed?
Significant detail and guidance has been added to each of the 10 principles to assist the directors of NFP entities to ascertain governance practices that they can apply to their organisation.
Each principle is now supplemented by application to two case studies. The case studies are based on two fictional NFP organisations which differ considerably in their purpose, activities, size and complexity. The purpose of the case studies is to demonstrate some practical steps to good governance for NFPs.
The Principles are an important guidance tool and should be consulted whenever directors in the NFP sector are unsure of how to best meet their governance obligations.
The Principles can be accessed here.
If your organisation is currently in need of legal advice regarding the Principles, Russell Kennedy’s expert Not-for-Profit team can assist you.