New Governance Principles to Address Increased NFP Expectations

Community expectations around the governance of not for profits have never been higher, according to the Australian Institute of Company Directors, which has released new governance principles for the sector.   

The release of AICD’s updated NFP governance principles follow revelations of governance misconduct within the sector during the child sexual abuse royal commission and more recently with the aged care inquiry.

The principles document said as the NFP sector has changed, so too have the expectations of the public, particularly regarding governance.

“Aside from failure to meet legal obligations, in many of the examples of misconduct and poor practice it is clear that community expectations of governance have not been met,” the document said.

“Governance must continue to mature to meet the challenges posed by a more complex and demanding operational environment.”

Following sector consultation undertaken by AICD throughout 2018 on the development of the principles, strong feedback emerged that expectations of governance in the NFP sector have increased since the original edition of the principles was published in 2013.

The document noted media reportage of misconduct and poor practice in the NFP sector has intensified in recent years, with a focus on governance failures in the sector that have caused harm to vulnerable people.

It also noted that the 2018 Edelman Trust Barometer found that trust in NFPs fell from 52 per cent in 2017 to 48 per cent.

Phil Butler, AICD’s NFP sector leader, told Pro Bono News community expectations around NFP governance were higher than ever, making it important that organisations prioritised good governance.

“Governance has never been more in the spotlight than it has been over the last 18 months in the NFP sector,” Butler said.

“Stakeholders of organisations, especially the people who put their faith in organisations to look after their kids or their parents or whomever it might be… they want to make sure these organisations are governed appropriately.”

AICD’s principles consist of three components: 10 individual principles, accompanied by supporting practices and guidance.

The principles aim to provide a framework for NFPs to consider good governance practices, including the board’s roles and responsibilities, managing conflicts of interest, organisational culture, and risk management.

Butler said as governance continued to evolve, NFP leaders needed to move with the times and continually work to improve their governance standards.

He added that while the principles were complementary to the Australian Charities and Not-for-profits Commission Governance Standards, there were a number of differences between the two.  

“One is that the ACNC standards are only for charities and of course the NFP sector is made up of a much broader range of organisations than just charities,” he said.

“Our principles are also not mandatory. They are designed to assist organisations to think and reflect on their governance. And this time we have put in a greater level of guidance with supporting practices and case studies to assist NFPs to think about what appropriate governance is for their organisation.”

The principles are primarily for directors and executives but can also be used by others involved in the governance of NFPs, such as staff and volunteers.

AICD encourages users to conduct regular assessments of their performance and to report outcomes to stakeholders, including why an organisation is not meeting any part of the principles.

More information about the principles can be found here.