Not-for-profit organisations (NFPs) play a vital role in society, in many cases directly impacting on the quality of people’s lives.
NFPs exist in many different forms and sizes and operate for many different purposes or to achieve various objectives. They deliver vital services and support across many facets of community life, including health, aged care, social services, education and research, the environment, community support and leadership, religion, and culture, recreation and sports.
NFP organisations come in various legal forms, including:
- Public companies limited by guarantee
- Unincorporated associations
- Incorporated associations under state or territory law
- Organisations established by special Acts of Parliament
Some may operate as charities, some may require volunteers in their operations, some may be well resourced and some may be clubs and societies operating at a local or national level.
NFP directors play a critical part in NFPs achieving their outcomes, giving up their time, most often voluntarily, to bring a wide range of skills to the oversight, management, fundraising and day-to-day operations of the NFPs they govern.
Corporate governance refers to the systems and processes put in place to control and monitor – or ‘govern’ – an organisation. Good governance is embedded in the good behaviour and the good judgement of those who are charged with running an organisation.
Good governance can offer a number of important benefits to charitable and/or NFPs, including:
- Better organisational strategies and plans.
- Improved operational effectiveness.
- More prudent regulatory compliance, financial and risk management.
- Improved member and stakeholder engagement and communication flow.
- Increased likelihood and degree to which an organisation actually delivers on its purpose.
Effective governance structures allow organisations to create value, through innovation, development and exploration, and provide accountability and control systems commensurate with the risks involved.
No matter the size, purpose and maturity of the NFP, directors need to consider various issues including whether they have the right structures and current constitutions in place to:
- Exercise their authority appropriately.
- Ensure controls and the right depth of financial knowledge is being applied for the good of the NFP and their own individual protection. For example, how the organisation is funded is important because directors may be required to be active fundraisers and/or closely monitor the allocation of money from government grants.
The term “not-for-profit” receives a mixed response from those in the sector. Some have suggested the NFP sector should be called “The Third Sector” or “Civil Society”. Others have expressed a preference for “not-for-loss”, “for purpose” or “community” organisations. Each of these definitions has its own limitations. Given its widespread usage, the terms “not-for-profit” and NFP is used throughout this guide.
For ease of reference, the terms “board”, “director” and “chair” will be used throughout, however other terms are prevalent in the sector to describe these roles. They include “committee”, “council”, “members” and “councillors”.
While we firmly believe the Principles provide a useful starting point for the NFP sector on what constitutes good governance, we expect the Guidance (including the commentary, questions and any references) will evolve over time as the NFP sector uses and responds to this material.
Purpose of this Guide
This document sets out some fundamental principles and guidance that can provide a useful framework when considering what constitutes good governance practice (having regard to an organisation’s particular circumstances). Commentary is provided under each Principle to help assist organisations seeking to apply these Principles in practice. It is hoped that the material provided will serve as a catalyst for board discussion on governance issues.
Applicability of Guide
Our Principles and Guidance should not be seen as a substitute for the relevant laws, regulations and standards which organisations must comply with (these will be different for each organisation’s structure and legal jurisdiction).
As there is such diversity of NFPs in the sector, it must be acknowledged there is no “one size fits all” good practice solution for effective governance. Factors which may influence governance arrangements of an NFP include, but are not limited to, the nature of its activities (e.g. complexity, risks, geographical dispersion), the regulatory environment, the legislation that governs the organisation (e.g. the Corporations Act, the various state-based Associations Incorporation Acts), the NFP’s constitution and requirements of grantors and funders.
Levels of understanding and how governance is approached will vary according to the purpose, structure, scale and sophistication of the NFP.
As mentioned before, the larger and more mature an organisation, the more likely it will already have adopted comprehensive governance practices and procedures similar to those used by companies listed on the ASX. In saying that, during the consultation, quite a number of participants associated with larger NFPs said they found these Principles and Guidance practical and useful and were already using and referring to them during governance discussions.
Our Principles are designed to assist directors and boards in their conversations on good governance, and how they might practically approach improving governance outcomes. Naturally, as NFPs grow and mature, their governance thinking and processes will become more refined. As mentioned in the preamble, there are minimum governance standards charities must comply with to be, and remain, registered with the ACNC. These standards reflect a minimum set of outcomes for registered charities.
 Including applying many of the ASX Corporate Governance Council’s Principles and Recommendations and possibly reporting to interested parties how their approach to governance lines up against them.
Download the full Good Governance Principals and Guidelines for Not-for-Profit Organisations as a PDF.