While most not-for-profit (NFP) organisations seem to have been able to ride out the storm of the pandemic better than expected, there are still uncertainties on the horizon, with workforce issues looming as one of the biggest challenges, a recent AICD virtual event was told at the November launch of the AICD’s 12th edition of the Not-for-Profit Governance and Performance Study.
The AICD’s annual survey of NFP directors revealed a resilient and versatile sector, but with the good news there was also some bad, AICD Not-for Profit Sector Leader Phil Butler GAICD said while hosting the virtual launch of the study.
“The expected increase in opportunities available to organisations is really positive in terms of what we can do as non-profits going forward. That's the good news.
“The bad news is around workforce. There is a real challenge here with regard to workforce and getting the right people.” Organisations would need to innovate in order to overcome these problems, he said.
NFPs which received block funding from government sources appear to have coped the best during the pandemic, and the diversification of revenue streams has been considered by many directors as a major success factor in weathering challenges.
About 40 per cent of the survey respondents said they were either not financially impacted by the pandemic or had emerged better off afterwards. However, another 40 per cent of respondents said they will take longer than a year to recover.
In discussion at the launch event of the survey findings, NFP directors reported surprising trends as the country recovers from lockdowns. Former CFO of the Salvation Army and chair of Women's Health West, Maria di Gregorio, said an increase in community donations had caught the organisation by surprise. Secondly, once the closed Salvation Army stores reopened, “there was actually an increase in activity which caught us by surprise. We didn't expect that to happen”.
Similarly, Rowena McNally FAICD, chair of the Mount Isa Rodeo, said that allowing an element of risk-taking at a time when everyone was risk-averse had paid off. The world’s first rodeo had been staged virtually in 2020 and had been a success.
“We've been blown away by the enthusiasm and willingness to take a risk by us and by our staff and stakeholders, and our board have been just wonderful…. So putting trust in your people, letting them have the opportunity to actually have to raise their ideas…It's actually worked out very well….
“All of those things are the opposite of what you think in a pandemic. Everyone has been risk averse but in other ways we were able to take and actually deliver something quite marvelously innovative. And I don't think that will stop.”
Paul Ryan GAICD, chair of Ballarat Community Health and the Eureka Community Kindergarten Association, said it was lucky that his boards had reasonable reserves at the moment. “And we're just literally going to have another conversation next week about what's the appropriate level going forward.”
However, the capacity of boards to be resilient depended not just on finances but also on clarity of purpose and the agility of the organization in terms of systems, processes, capability and executive staff, plus the degree of preparation carried out by the board in terms of scenario testing.
Results of the NFP study
Pandemic-driven operational changes will stick, with 95 per cent of the study’s 1,978 respondents saying their service delivery has changed; and close to half saying they believe that post-pandemic opportunities will increase.
In surprising results despite the pandemic, director remuneration is up and the financial outlook is relatively positive, with 84 per cent of survey respondents reporting making a profit or breaking even in the 20/21 financial year. Key priorities for the year ahead include diversifying business models and dealing with workforce issues and post-pandemic opportunities.
Mergers and winding up were reported to be at an all-time low over the life of the decade-long study, although 18 per cent of respondents are looking at a possible merger. Priorities for the next 12 months include responding to opportunities, as well as dealing with workforce issues and a greater focus on innovation.
The top five priorities for the year ahead are:
- Responding to changes in the operating environment,
- Protecting the lives and wellbeing of clients,
- Diversifying income sources,
- Clarifying strategic direction, and
- Improving service quality
Increase in directors being remunerated
For the first time in the history of the survey, 20 per cent of respondents were receiving remuneration, while 52 per cent were unpaid - and 26 per cent unpaid but with their expenses covered.
By sector, those featuring the highest percentage of organisations paying their board members are development and housing (41 per cent), health and residential aged care (32 per cent), and business and professional associations (24 per cent).
Of the organisations that pay their board members, the average remuneration payment across all NFP sectors is $17,605. Again by sector, business and professional associations offer their board members the highest average payment with $32,098. Education and research has an average remuneration of $20,959.
The study found almost half of respondents organisations achieve an annual income of between $1 million to less than $20 million. Almost a quarter (23 per cent) earn under $1 million and 31 per cent earn more than $20 million per annum.
Forty-five per cent of directors are spending more than three days per month, on director duties.
TOP FINDINGS
Profit and loss
Eighty-four per cent of NFP respondents reported making a profit or breaking even in the 2020/21 financial year. However, 15 per cent reported making a loss. (Religion, health and residential aged care organisations were most likely to make a loss, continuing a trend over recent years).
Remuneration
20 per cent of directors reported being remunerated by their organisations, the highest figure for the life of the study. (Most common in Development and Housing, Health & Residential Aged Care, and Business and Professional Associations).
Pandemic recovery
40 per cent say it will take at least two years to fully recover from the effects of the pandemic.
Hands-on approach
33 per cent reported their boards have been operationally involved in their organisation’s response to COVID-19
Government support
A substantial percentage of respondents (82 per cent) agreed that the NFP sector needs more financial help from governments.
Executive confidence
83 per cent were confident in executive decisions.
Purpose
77 per cent were effective in meeting their purpose.
Financial reserves
A third (35 per cent) of NFPs used financial reserves to fund
operations during the past financial year
Economic outlook
An overwhelming number (81 per cent) are worried about the strength
of the Australian economy.
What’s next for NFPs?
AICD managing director and CEO Angus Armour FAICD said the study was a “predominantly optimistic story”.
“For most organisations the financial outlook is relatively positive over the medium-term, but it will take some years to recover the ground lost through COVID-19.”
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