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Corporate Governance

For Not-For-Profit Organisations.

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The Board of Directors and the Chief Executive Officer (CEO) perform different roles and have different responsibilities for the Company.

The Board of Directors:

  • Drives the company’s strategic direction;
  • Is responsible for setting the company’s goals;
  • Develops polices and strategies designed to translate an organisation’s mission into measurable objectives and goals;
  • Sets financial and related operating limits for management;
  • Regularly assesses the company’s activities against the mission statement and goals, and annual business plans to ensure the organisation is fulfilling its stated mission.

These decision-making responsibilities of the Board should not be delegated.

Chief Executive Officer:

  • Responsible for carrying out the direction, goals and policies, which have been designed or created by the Board, and then reporting to the Board on operational outcomes.
  • Ensures that everyone within the organisation is aware of the agreed strategic direction, goals and policies so that all are heading in the same direction.

Directors have five key duties under the Corporations Act 2001 (Cth):

  1. Duty to use care and diligence;
  2. Duty to act in good faith;
  3. Duty not to improperly use their position or information obtained in their role as a director;
  4. Duty to disclose personal interests; and
  5. Duty not to trade whilst the company is insolvent.

As well as complying with their duties under the Corporations Act, directors of a Not-For-Profit company must also comply with the terms of the company’s Constitution and the Australian Charities and Not-for-profits Commission Ac) 2012 (Cth) (“ACNC Act”).

In the Not-For-Profit Sector, generally a director’s remuneration (if any) will be disproportionately small compared with the potential amount of personal liabilities they could be exposed to in their role as a director.

Incorporated Associations:

Incorporated Associations, registered under the Associations Incorporation Act 1981 (Qld).

The Management Committee of an Incorporated Association has the following responsibilities:

  • Act in good faith:
    • This requires the Management Committee members to act honestly.
    • As well as penalties imposed under the Associations Incorporation Act, failure to fulfil this duty can result in damage to the organisation for clients, staff, funding bodies, regulatory bodies and in the eyes of the general public.
  • Using reasonable care and skill when performing duties:
    • This includes a duty to exercise independent judgment.
    • It is not enough to just show up to committee meetings and be there physically.
    • Directors can be personally liable for signing off on falsified financial reports, even though they did nothing dishonest and did not personally gain from the fraud.
    • Directors can be personally liable for going along with “popular” decisions and not properly considering all of the information objectively.
  • Telling the committee if they have a possible conflict of interest (such as if a proposed action will financially benefit them).
    • Do not be embarrassed to disclose. It is not usually a question of if this will occur, but when will this occur.
  • Not make false or misleading statements to the association’s members.
    • Penalty provisions apply under the Act.
  • Knowing the secretary’s duties and ensuring they are properly carried out.

Members of the managing committee can be held to be personally liable if they breach their duties.

It is essential that all members of the management committee have sufficient financial literacy to understand the books.  You don’t need to be an accountant, but you need to be able to understand the balance sheets to such an extent that you are able to ask the right questions if something doesn’t appear right.  It is also important that you are able to act in the best interests of the organisation, that you are able to understand how the organisation is performing.

Conflict of Interest:

Office holders should not seek to benefit from the Not-For-Profit-Organisation, and should not be influenced by their wider interests when making decisions for the organisation.

This can include the interests of the office holder, their friends, families and other organisations in which the office holder is involved.

The golden rule is to disclose any potential conflict of interest at the earliest possible opportunity and not to participate in the discussions or decision-making process regarding that conflict.  All organisations should have a policy in place for dealing with these situations.

It is important to note that a perceived conflict can do just as much damage to the organisation as an actual conflict. It affects the reputation and undermines the integrity of the organisation.  This can bring a Not-For-Profit Organisation to its knees if it is relying on funding and its business and mission are based on trust and good reputation.

An officer holder’s duty to disclose any conflicts arises upon appointment, and there is a continuing duty of disclosure throughout the duration of the appointment.

Like all other duties, office holders have to be vigilant and do their due diligence, and make sure that their disclosures are current and that their understanding of the organisation’s affairs remains current.

External Experts:

Each office holder brings their own personal set of skills to the board table.  It is expected that each has an appreciation of corporate governance, finances, the business and operations and direction of the organisation, but it is not expected that office holders will know everything.  It is essential to know what the limits of office holders’ knowledge and capacity are and, where necessary, engage outside expertise.

Expert advice might be needed in specialised areas, including legal, accounting, human resources, property consultancy and IT consultancy advice.

The job of the board or management committee is to distil that information and apply it for the benefit of the organisation.  If an office holder doesn’t understand the advice fully or does not agree with any advice given, it is the office holder’s job to ask questions to ensure that they are able to make fully informed decisions.

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