G o ve rning in a n unse ttle d NFP Enviro nm e nt

‘For Purpose Conference’’16 October 2019

Australian Institute of Company Directors USQ Student Guild Toowoomba

Dr Matthew Turnour

My jo urne y in to

g o ve rna nc e

http://www.wga.hu/frames-e.html?/html/l/lorenzet/ambrogio/governme/

Allegory of the Bad Government and the Good Government by Ambrogio LORENZETTI1338-40 Fresco Palazzo Pubblico, Siena

A ro a d m a p• Three sections

1. Uncertainty, scrutiny, its sources and significance 2. Practical help including the AICD NFP principles 3. The report, its context and trends affecting the sector

Unc e rta inty : Ba nking Ro ya l Co m m issio n – c ulture a nd g o ve rna nc e

Recommendation 5.6 – Changing culture and governance All financial services entities should, as often as reasonably possible, take proper steps to:• assess the entity’s culture and its governance; • identify any problems with that culture and governance; • deal with those problems; and• determine whether the changes it has made have been effective (p391)

Unc e rta inty : Ba nking Ro ya l Co m m issio n – c ulture a nd g o ve rna nc e Ethics

… there remains a reluctance in some entities to form and then to give practical effect to their understanding of what is ethical, of what is efficient honest and fair, of what is the ‘right’ thing to do.

Instead, the entity contents itself with statements of purpose, vision or values, too often expressed in terms that say little or nothing about those basic standards that underpin both the concept of misconduct and the community’s standards and expectations. (p.411)

Commercial life is more difficult than it was 20 years ago because of the speed at which you are required to make decisions. That makes it all the more important to have the ability to recognise the underpinnings of the system. We must have bodies like the AICD. We have to keep at it; keep trying to bring to people’s attention that it is more important now to have these fundamental skills than it has been, because of the pressures.

Justice Neville Owen HIH Royal Commissioner

Unc e rta inty • Governance is in sharp focus• How is culture to be reviewed?

Ethics is integral to governance –but how do we make that work?

• Where does the law and legal obligations fit into all of this?

• How do we deal with the ‘need-for-speed’ challenges?

• We are expected to recognise the underpinnings of the system and this is a fundamental skill but what are they?

Tre nd s a ffe c ting the se c to r

De fin ing c o rp o ra te g o ve rna nc e“Management is about running the business.”

“Governance is about making sure that it is being run right”

Bob Tricker

Wha t is g o ve rna nc eASX

The system by which companies are directed and managed. It influences how the objectives of the company are set and achieved, how risk is monitored and assessed, and how performance is optimised.

Tricker (1984)Governance is concerned with all aspects of the direction and control of organisations. It is concerned with the respective rights and responsibilities of the key stakeholders, including staff, suppliers and the broader community.

De fin ing c o rp o ra te g o ve rna nc e• Adrian Cadbury (2000)

– ……is concerned with holding the balance between economic and social goals and between individual and communal goals. The corporate governance framework is there to encourage the efficient use of resources and equally to require accountability for the stewardship of those resources. The aim is to align as nearly as possible the interests of individuals, corporations and society.

• Many other definitions exist

Pra c tic a l he lp – p e rso na l p e rsp e c tive s

• When you wear many hats (in NFP land) ask which hat am I wearing now?

• Is it a governance hat or am I part of the executive?

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AC NC re so urc e s

La w• Laws that make sure that the right people are in leadership

• These laws find expression in a charity law context in the five mandated governance standards; Governance Standards 4 & 5 which read as follows:

Standard 4: Suitability of responsible personsCharities must take reasonable steps to:

• be satisfied that its responsible persons (such as board or committee members or trustees) are not disqualified from managing a corporation under the Corporations Act 2001 (Cth) or disqualified from being a responsible person of a registered charity by the ACNC Commissioner, and

• remove any responsible person who does not meet these requirements.

Standard 5: Duties of responsible personsCharities must take reasonable steps to make sure that responsible persons are subject to, understand and carryout the duties set out in this standard.

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La w• Laws that make sure that the right purposes are being pursued

Governance Standards 1 which read as follows:Standard 1: Purposes and not-for-profit natureCharities must be not-for-profit and work towards their charitable purpose. They must be able to demonstrate this and provide information about their purposes to the public.

• Laws that make sure of accountability to and discharge of duties to stakeholders

Governance Standards 2 which read as follows:Standard 2: Accountability to membersCharities that have members must take reasonable steps to be accountable to their members and provide them with adequate opportunity to raise concerns about how the charity is governed.

• Laws for compliance Governance Standard 3: Compliance with Australian laws

• Charities must not commit a serious offence (such as fraud) under any Australian law or breach a law that may result in a penalty of 60 penalty units (equivalent to $12,600 as at October 2019) or more.

• Interim summary on lawThese governance standards are narrowly focussed on minimum standards for compliance.

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AIC D NFP G o ve rna nc e Fra m e wo rk1. Purpose and strategyThe organisation has a clear purpose and a strategy which aligns its activities to its purpose.

2. Roles and responsibilitiesThere is clarity about the roles, responsibilities and relationships of the board.

3. Board composition The board’s structure and composition enable it to fulfil its role effectively.

4. Board effectivenessThe board is run effectively and its performance is periodically evaluated.

5. Risk management Board decision making is informed by an understanding of risk and how it is managed.

6. Performance The organisation uses its resources appropriately and evaluates its performance.

7. Accountability and transparencyThe board demonstrates accountability by providing information to stakeholders about the organisation and its performance.

8. Stakeholder engagement There is meaningful engagement of stakeholders and their interests are understood and considered by the board.

9. Conduct and complianceThe expectations of behaviour for the people involved in the organisation are clear and understood.

10 Culture The board models and works to instil a culture that supports the organisation’s purpose and strategy. 17

Pe rso na l p e rsp e c tive s - g o ve rna nc e a s d e c isio ns

• Between and altruistic intent informed by ethical obligations and legal compulsion lies a decision – usually by a board or person discharging a governance responsibility

De c isio ns - a c o m p le x swirl o f fa c to rs

De c isio ns - a c o m p le x swirl o f fa c to rs

What we

must do

(law)What we

want to do (Culture

Identity)

What we should do (Ethics)

De c isio ns - a c o m p le x swirl o f fa c to rs

What we

must do

(law)What we

want to do (Culture

Identity )

What we should do (Ethics)

G o ve rna nc e in unc e rta in tim e s• Get the fundamentals right

– Legal compliance - at a national and state level– Ethical issues –expectations of the communities in which we

serve– Culture and identity – expectations of ourselves

Ba c k to first p rinc ip le s - le g a l

• All, or almost all of the Lawsthat apply directly to governance are directed to two great ends:

– Trustworthiness (duty of good faith)

– Carefulness (duty of care and diligence)

Ba c k to first p rinc ip le s – e thic a l • All, or almost all of the ethical

failures applying directly to governance could have been avoided if the decision-makers had asked two fundamental questions:

1. Am I/ are we the right person to be making this decision?

2. Would it be okay, if it was the other way?

Ba c k to first p rinc ip le s - c ulture

• All, or almost all of the great NFPs have a culture that integrates their unique answers to the three great questions:

• Who are we? (identity)• Where are we going?

(purpose)• Whom do we serve?

(stakeholder questions)

Fra m ing a nd b a c kg ro und q ue stio ns• Are we acting in accordance

with the law? (the framing question)

• Are we acting in accordance with our lore –our identity? (the background question that puts everything in context)

Are we acting ethically • By our standards?• By our community’s

standards?

The p ro b le m o f sp e e d - Ho w we m a ke d e c isio ns b y find ing wha t we a g re e up o n

All lead tohttp://goldenageofgaia.com/wp-content/uploads/2013/01/GoldenRule.jpg

http://goldenageofgaia.com/wp-content/uploads/2013/01/GoldenRule.jpg

The p ro b le m o f sp e e d De c isio ns – the e a sy c a se s

The p ro b le m o f sp e e d De c isio ns – the ha rd c a se s – the infra struc ture

It is possible to set things up so that it is easier to make decisions by giving a framework:

1. That asks questions about the alignment of the decision-makers values (and beliefs) with those of the organisation in making the decision - and how that alignment is assured.

2. That asks questions about the alignment of the decision to be made with the goals of the organisation referable back to the vision and mission of the organisation - and how that alignment is assured.

3. That asks questions about the alignment of the decision with the organisation’s duties to stakeholders, not just shareholders - and how that alignment is assured.

The p ro b le m o f sp e e d De c isio ns – the ha rd c a se s – the infra struc ture• Good governors (leadership that incarnates the values)

Drawn from virtue ethics• Good goals (vision and mission)

Drawn from consequentialist ethics• Good guidelines (documents that set out the duties

owed to others - starting with constitution, by-laws, policies, procedures etc)

Drawn from deontological ethics

Lim ita tio ns

1. Limited to organisations – the tool is limited to organisations.2. Limited to organisations - that require accountability and

transparency.3. The limitations of the golden rule and casuistry.4. A word on ethical egoism and assumptions about human nature

and society.

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The Re vie w, Sub m issio ns a nd re sp o nse s

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The Re vie w, Sub m issio ns a nd re sp o nse s

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Three subject areas to look for goingforward into 2020

1. Data for donors and government;2. Engagement and efficiency; and3. Litigation.

Three subjects raised in the report

1. Fundraising;2. A national scheme; and3. Governance Standard 3.

Da ta fo r Do no rs

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the data is ‘[o]ne of the ACNC’s biggest assets’ and we are committing the ACNC to ‘make the information we collect more useful for donors, volunteers, and the sector itself’.

ACNC 2017-18 Report

the ‘stated reasons for establishing a national regulator’ were not ‘particularly compelling, and the real motivating force was … a central repository of corporate information’

Emeritus Professor McGregor-Lowndes

Eng a g e m e nt a nd e ffic ie nc y

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• Two-thirds of Commonwealth government expenditures touch the charity and NFP sector

• Historically charities provided most of these services before government• The demand for charitable goods and services is increasing • Something has to give.

So what will the future look like?• Decline in public trust and confidence • The decline in giving • How to re-engage trust and giving • Partnerships? International developments • What role for the ACNC

Litig a tio n

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• The Review Panel recommended litigation supported by test case funding.

• $1 million dollars for litigation by the ACNC as part of the 2018/19 Budget.

• Justice Hayne:“I do not accept that the appropriate response to the problem of allocating scarce resources is for a regulator to avoid compulsory enforcement action and instead attempt to settle all delinquencies by agreement”.

• ACNC has not launched any litigation.

You are in uncertain times but you are not without guidance:• ACNC• AICD• Other

Unc e rta inty a nd c e rta inty• Culture can be reviewed• Ethics can and should inform governance

decisions• The law makes sense and can be obeyed by

simply doing what is ethical most of the time• Speed can be managed better by setting up

the infrastructure for decision-making • The fundamentals underpinning are not that

hard to recognise clearer in:– ACNC governance standards,– The AICD 10 Good Governance Principles and – My analysis

• Governance is in sharp focus and that is good

A wo rd o f wa rn ing

1. This is a general address only 2. It is not legal advice on any point 3. It is not ethical advice 4. It is not cultural advice on what is appropriate for your NFP5. It is a personal attempt to make sense of and simplify complex

issues into formats that might be useful 6. It is an attempt to be helpful at a very high level of generality

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C o nc lusio n

http://www.wga.hu/frames-e.html?/html/l/lorenzet/ambrogio/governme/

Allegory of the Bad Government and the Good Government by Ambrogio LORENZETTI1338-40 Fresco Palazzo Pubblico, Siena

C o nc lusio n