In recent years the “governance” of not-for-profit organisations has been much talked about. The introduction of Governance Standards by the Australian Charities and Not-for-profit Commission (ACNC) has heightened awareness of the issues.
The ACNC Governance Standard 5 states that board members or directors must “act honestly in the best interests of the charity and for its charitable purposes” (emphasis added). Yet for many in the not-for-profit sector, the first duty of those elected is to the people who are served by the organisation. In other words, there is sometimes a perceived clash between the corporate culture embedded in “directors’ duties” and the “participatory democratic” or “communitarian” culture of many not-for-profits.
The ACNC’s Governance Standard 2 quite clearly states that charities are to “take reasonable steps to be accountable to their members” and to “allow their members adequate opportunities to raise concerns about how the charity is run”. Some would argue that this sounds more like the relationship that a for-profit company would have with its shareholders rather than the relationship members have with the elected leaders of their association.
Others would argue that once elected, members of the Board or Management Committee are in the same relationship with their members as a for-profit company director are with their “owners” – the shareholders. Certainly from a legal point of view, the primary duties of the directors of all incorporated bodies, both associations and companies, is to ensure they operate in the best interests of the body corporate and not to trade whilst insolvent.
The ACNC Governance Standard 4 – Suitability of responsible persons - is designed as a safeguard to ensure only “suitable” persons are elected or appointed so that the “responsible persons” (board members) do what’s expected of them. This is done by barring anyone from board membership who has been previously disqualified by the ACNC or by ASIC (for-profit companies register). Although organisations may also do additional checks to assess the suitability of their board members, such as obtaining a Police Certificate or a Blue Card or Criminal History Screening.
The rest of the governance standards are essentially about making it clear that the “responsible persons” are expected to be honest and ethical and everyone would agree with that.
The potential political and philosophical conflicts are more likely to arise from the question “In whose interests is the association (or company) to be run?” Given that many not-for-profit organisations have chosen to restructure so that their boards have more representation from those with professional skills (rather than simply being popularly elected from the membership), are the values of “civil society” being replaced by the values of the corporate board room?
As employers, there is no doubt that Board members have duties towards the organisation’s employees, but what special duties do the Board members have towards the service users of the organisation? Should service users be encouraged to become members and have a vote to elect the Board of the organisation? What if good people are elected but they have no experience as “directors”? They may be good at representing the interests of members but are they “suitable persons”? Would it be better to get a local lawyer, social worker or business person to stand for election instead? Perhaps a combination of skills is necessary?
The way to think about the ACNC duties of “responsible persons” is to think about them as the core or “specified” duties to which must be added those additional or non-specified duties that are reflected in the constitutions, policies and culture of your organisation.
It is important for all members of the Board/Management Committee to read the ACNC Governance Standards and have a discussion about them as a team. Check whether the organisation is complying with them, because, irrespective of whether the ACNC have a life into the future or not, these standards are likely to live on.