‘Second-rate’ NFP Governance Unsubstantiated - Study

Not for Profit governance is effective and appropriate, and there’s no evidence it’s less effective than for-profit governance, a report on directors’ social impact reveals.

The report, Directors Social Impact Study, sponsored by Commonwealth Bank and conducted by Curtin University on behalf of the Australian Institute of Company Directors, looked at governance practices in the NFP sector.

This is the second consecutive year that the study had shown there was no discernible difference between the governance effectiveness of NFP and for-profit organisations.

“For far too long the NFP sector has been seen as ‘second-rate’ by commentators and policymakers in terms of governance practices and these views are unsubstantiated,” John Colvin, Chief Executive Officer and Managing Director of the Australian Institute of Company Directors, said.

The report also found that directors of Australia’s sports boards have rated the effectiveness of their boards below the average Not for Profit organisation.

“Given the vital role sport plays in the community, both at a grassroots and professional level, it’s in the best interests of all Australians to make sure these organisations are governed effectively,” Colvin said.

“While some boards are in the process of, or have already completed, a governance review to improve performance, it’s fair to say a number of organisations need to lift their game in this area.”

Other key findings included:  

• disability service organisations are concerned about the unintended consequences of the National Disability Insurance Scheme;

• four out of five directors are unpaid;   

• NFP organisations are seeking to reduce their reliance on government funding, with 39 per cent receiving more than half of their income from government;    

• reducing administrative burden and harmonising regulation are seen as the top priorities for government to address; and        

• maintaining or building income will be the top priority for over half of all NFP boards over the next 12 months.

“Governments at all levels are continually moving the goalposts for funding agreements and it’s very difficult to manage the long-term strategic future of an organisation under these circumstances,” Colvin said.

“The results of the survey prove what we have been hearing anecdotally, and that is that NFP directors are increasingly concerned that the funding they receive from governments is unstable and that this is causing financial stress on organisations.”

With almost half of disability service organisations reliant on government for more than 80 per cent of their income, directors are focusing on how to manage the transition to the National Disability Insurance Scheme (NDIS) and its impact on their organisation, the study revealed.

“There is no doubt that the NDIS has widespread community support. However, achieving an effective  outcome for people with a disability is highly dependent on the capacity of disability service organisations to respond well to this profound and comprehensive  change,” Professor David Gilchrist, Head of the NFP Initiative at Curtin University, said.

“For instance, we have seen examples in the aged care and childcare sectors, where changes in government policy saw the entry of for-profit operators that tended to ‘skim’ the high margin services.

“It is also possible that corporate and private donations to the disability sector may be affected by the Medicare levy increase.

“These and other unintended consequences of NDIS are likely to have a substantial impact on the finances and strategies of NFP organisations which are mission and not profit driven.

“Directors want the Federal Government to recognise the importance of building sector capacity strategically, and not simply leaving development to competitive forces.”

The study also showed that of directors, 79 per cent of whom perform their role voluntarily, now spending four more hours per month in their role than they were in 2012. This has increased from 16 hours per month in 2012.

It also found, 76 per cent of NFP boards have undertaken professional development activity in the last year.

The Australian Institute of Company Directors provides education, information and advocacy for company directors Australia wide.