Not-for-Profit Governance and Performance Study
August 6th, 2019
Below is an extract of the Introduction and Key Finding of this study.
The changing and challenging nature of NFP governance
The launch of the 10th edition of the Australian Institute of Company Directors’ NFP Governance and Performance Study is timely and provides valuable insights into how the sector is dealing with the challenges it is facing. With governance and cultural issues now firmly in the public eye, there is a tremendous opportunity for governance leaders — including the AICD — to reflect on and strengthen the practice of governance in the sector.
‘Setting the tone from the top’ on culture is a continuing focus, but there are other important issues for all directors, including NFP directors, to consider. These include the implications of higher community expectations on directors and the financial challenges facing the sector.
Directors are devoting extra time to each NFP board role — a consistent trend over the last five years of the study. As in other sectors, NFP board workloads are rising as regulatory and community expectations of boards increase and as governance becomes more complex.
NFP boards continue to comprise mostly older directors, with 77 per cent over 50 and only five per cent under 40 years old, based on survey responses. Directors reported that some NFP boards have found it hard to recruit younger directors and that a lack of stakeholder representatives on their board remain an issue.
Directors report that there has been little change in the proportion of NFPs that pay board fees, despite rising workloads and risks. Some directors believe greater debate is needed on whether NFPs should pay board fees or increase current remuneration rates.
4. NFPs are effective, but remain financially challenged – NFP directors are optimistic on their organisation’s future, but reported profitability, based on responses, is at a four-year low. This suggests there is a widening gap between directors’ perceptions of their organisation’s financial performance and its actual performance.
Fewer directors said their organisation is engaged in a merger with another NFP or is considering one. The push for NFPs to merge in order to create economies of scale may have peaked for now.
Directors rate their board performance highly but see strategic planning and implementation as areas for improvement. Ensuring their organisation diversifies income sources and navigates a changing operating environment are short-term priorities. Longer term, the focus is on improving the board’s oversight of strategy formulation and execution.
Directors of sporting organisations face some unique challenges. Respondents from the sports sector listed growth in audiences and participation, infrastructure, and income uncertainty as major challenges. The governance of federated structures was also a common theme. Newer themes included the growth of online sports betting and the impact of social media.