New Study Warns NFPs Need Strong Culture and Profits to Survive

A study released on Tuesday by the Australian Institute of Company Directors (AICD) on not-for-profit (NFP) organisations, has warned that NFPs need to recognise the importance of a strong organisational culture and making a profit to ensure their long-term survival.                                                                                           

The annual NFP Governance and Performance Study provides an insight into how the sector is faring, and this year’s study examined particularly the importance of culture, reputation and profit to the wellbeing of the sector.   

While it was shown that many NFPs have strong organisational cultures, the report found that there was a lack of formal processes to manage this culture within these organisations.

AICD general manager advocacy Louise Petschler said it was important that NFPs recognised the importance of culture and actively discussed it from board level down.

“Getting culture right is fundamental for NFPs in order to attract talented employees and dedicated volunteers, and is vital in protecting against misconduct,” Petschler said.

“Understandably, many directors rated their organisational culture highly. However, only half said that culture had been discussed at board level in the past 12 months.

“Culture is too vital to be left to chance, especially considering the risks poor culture poses to the success and viability of an NFP. The study will help directors reflect on how they can more actively manage their organisational culture.”

There were a number of key findings from the study regarding culture:

• More than 70 per cent said they would be very likely to recommend their organisation as a good place to work to family and friends.
• 45 per cent of respondents said that culture was clearly recognised, defined and formally embedded in processes and decision-making.
• 52 per cent said culture had not been formally on their board agenda in the past 12 months.
• Only 36 per cent of NFP directors said their board was actively overseeing culture.

The report also warned that the long-term viability of NFPs was reliant on profits, with many NFP organisations barely breaking even.

While some directors were uncomfortable with the idea of their organisations making a profit, the report said NFPs should realise “profit is not a dirty word.”

“As a sector, we must accept that making profit is essential to building the financial strength needed to achieve our missions now and into the future,” the report said.

“The prevailing view is that NFPs operate in a constant state of financial distress. However, the AICD’s research showed that many NFPs were not only surviving but thriving – they were achieving their missions and creating organisations that were financially strong in the process.

“[But the] long term outlook for the financial performance of the sector was less optimistic. Many NFPs reported profit margins insufficient to ensure long-term survival, let alone to approach the challenges of the future from a position of financial strength.”

Maintaining a positive reputation was also highlighted as a key concern for NFPs, with the study finding:

• 86 per cent of directors rated the importance of their reputation as highly important;
• 41 per cent of respondents said reputation was formally considered by the board and management when making all strategic and operational decisions; and
• stakeholder surveys were the most used mechanism for evaluating reputation (70 per cent), then CEO/staff feedback (54 per cent), followed equally by media reports and growth in funding/support (46 per cent). 

“[NFPs] positive reputation is an invaluable asset. NFPs leverage the public’s goodwill to engage with their communities, attract talented staff and volunteers, and – critically – to secure donations, grants and funding to support their work,” the report said.

“Without this precious resource, the work of the sector and the individual organisations within it could be seriously undermined.  

“Reputation should be a key strategic consideration, not merely an operational matter.”

Overall, Petschler said NFPs were operating in a period of “unprecedented change”.

“The NFP sector is in a period of immense flux, with the emergence of new funding models, an increasingly complex operating environment, and new regulatory challenges. These factors mean governance has never been more important,” she said.

The study’s release follows an announcement by AICD that they are offering 140 scholarships to support directors of smaller NFPs. The recipients of these scholarships will be announced later this month