The appropriateness of governance arrangements may well vary based on factors such as size, complexity of operations and mission.
In general terms however, good NFP governance relies on the governing body's shared understanding of three important notions of accepted governance wisdom:
- Meeting member and stakeholder expectations through accountability, transparency and disclosure
- Clearly defined internal control policies articulating individual authorities, responsibilities and accountabilities
- A clearly defined relationship and linkage process with management
The governing body refers to the board, committee, council, etc.
Meeting member and stakeholder expectations through accountability, transparency and disclosure
In the first instance the governing body should think about establishing a set of agreed protocols to link, consult and communicate with the members and relevant stakeholders. This might include:
- Linkage, consultation and communication mechanisms with members and stakeholders in various forums outside of governing body meetings.
- Reports to the membership and disclosure of matters impacting the organisation's business and financial affairs.
The governing body is responsible for the implementation of effective stewardship of the entity. In addition to strict adherence to fiduciary duties and responsibilities consideration should be given to:
- The establishment and disclosure of internal control policies that demonstrate – by the director's own modeling behaviour – and convey how everyone in the organisation is expected to act and behave in the pursuit of their delegated responsibilities and activities.
- The effective representation of the (collective) membership by acting as 'trustees' tasked with ensuring organisational performance.
- How to mitigate or avoid detrimental events and occurrences, situations, actions and behaviours that shouldn't occur (determine tolerable exposure to risk).
- How to best achieve the objectives of the entity.
Clearly defined internal control policies articulating individual authorities, responsibilities and accountabilities
In the main, this will describe the range and extent of internal governance policies and procedures relating to:
- The governing body's relationship with the members, its governance practices, protocols and processes. In other words, control policies should state what the governing body should and should not do and how it will proactively exercise its authority and what it will spend its time on. This will usually encompass how the governing body will add value to the organisation (driving the entity forward) by:
- Setting strategic direction and performance expectations - defining and articulating a clear strategic direction, setting and monitoring relevant and achievable performance expectations related to outcomes (not activities), and ensuring a continuous effort goes into high quality strategic thinking and exploration around the board-table.
- Characterising and managing risk (keeping the organisation safe) - understanding the dimension of risks facing the entity, balancing the planned rewards with an understanding of the risks involved, and factoring high impact risks into 'what-if' scenarios.
- The management's (and, in particular, the CEO's) authorised delegations and accountabilities. This is how the governing body controls the organisation by prescribing and monitoring internal control structures (rules) that define how everyone in the entity is to act and behalf and that 'lay the foundations for management and oversight' by clearly delegating (in writing) the:
- Operational authority and accountabilities of management (and the CEO in particular).
- Boundaries and limits of that authority (the constraints and exclusions placed on management means, methods, practices and actions).
- Reporting requirements of and monitoring processes for operational and financial activities.
A clearly defined relationship and linkage process with management
This encompasses how the governing body will work with and through the CEO in relation to the internal day-to-day organisational affairs and by establishing a sound partnership between the governing body and CEO that recognises that 'the CEO, management and staff can't do their job, until the board has first done it's job'.
Consideration should be given by the governing body to:
- How the governing body will connect with management - where "the line is drawn" between governance and management.
- How the CEO/management will communicate with and support the governing body.
To find out more about what constitutes good NFP governance practice and how to achieve better outcomes through good governance access our Good Governance Principles and Guidance for Not-for-Profit Organisations.
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