Additionally, for all Not for Profits there are the impacts and implications of the Productivity Commission Contribution of the Not-for-Profit Sector report.

It is not by coincidence that these seven reports have come together at the same time, creating:

• new paradigm/s, where, for each industry/sector all “the rules will go back to zero”
• new environments in which these organisations will need to adapt and survive.

In a nutshell, all seven Productivity Commission and Commonwealth government reports, some 8,000 pages, can be summarised as:

• a set of national strategies to reinvent hospital and health care, allied health, aged care, education, disability, mental health and not for profits

• the establishment and use of new structures for each industry/sector, eg: Medicare Locals, Local Health Networks

• the development and use of new systems for each industry/sector, eg: e-health systems, DoHA Gateway, individualised funding

• an opportunity for your leadership team (board, chief executive officer and senior managers) to redevelop their organisation’s existing business/service model/s and research and develop new customer focused business/service model/s and services, eg: integrated health and aged care precincts, education and community hubs, in resident/out resident residential aged care services

The four main components of these reforms are encapsulated in the following model

In effect, two main themes emerged in all seven industries/sectors reforms:

• firstly, providing customers/clients with greater service choice, service options and in some industries/sectors possible control of their funding

• secondly, transition to a market paradigm, a free market where private businesses, public businesses and community businesses (Not for Profits) will compete for customers. This approach is no news to boards and chief executive officers of organisations which deliver child care services, employment services and disability employment services, all of which made the monumental transition some years ago.

For Not for Profit leaders, if there was ever a time to seriously initiate strategic discussion, thinking and decisions about the future of their hospital and health, allied health, aged care, disability, mental health and education organisations, it is today.

Moving into these new paradigms/environments does not just require a traditional strategic planning approach; scenario planning is the name of the game. Therefore it is time to either update your existing strategic plan or develop a new strategic plan, via scenario planning.

Scenario planning differs from strategic planning in that the process of planning is focused on identifying the various scenarios or strategic options/pathways that sit before an organisation and determining via various planning processes and tools the most likely scenario that an organisation will find itself placed in the future.

Whilst all Not for Profit organisations will be impacted by the various Productivity Commission and Commonwealth Government reports. If your board governs a not for profit organisation they could do well to remember…“what was, has changed, whatever is, will change”.

This topic is akin to the definition of hard-core pornography offered by Justice Potter Stewart: we cannot define it, but we ‘know it when we see it’.

The high levels of governance and accountability required of both the private and public sectors in Australia are now being demanded in the not-for-profit (NFP) sector. While there does exist a view that governance standards in the NFP sector are not at the same standard as required in the commercial sector, this is far from the truth. In particular, there is a need for a high degree of accountability for NFP organisations in receipt of, and spending, donations from the public and/or government funding and to ensure that members’ money is protected for the long term.

An organisation’s governing body ‒ whether it is a board, committee or other body ‒ should be a strategic asset to an organisation whether it is focused on surplus or not; governance arrangements should be adding value to the organisation rather than draining often scarce resources.

To set the scene let’s consider what poor governance looks like. Poor governance might have the following attributes:

1. A non-independent chair;
2. Majority of the board of directors are not independent, have considerable conflicts of interest and are all old school chums;
3. No CEO key performance indicators and no formal CEO annual review process;
4. Board meetings that spend more time on operations than on strategic thinking and development;
5. No agreement between the board and management on the organisation’s risk appetite;
6. Non-ethical decision making;
7. Bad media reports and dysfunctional board;
8. Board review conducted by the chair as a one-on-one fire side chat;
9. Poor or no surplus;
10. Organisation extinction is regularly discussed.

Avoiding organisation extinction then is an imperative for boards. The Effective Governance High Performance Board Model (Figure 1) provides the framework for boards to reflect on their role and how that contributes to good governance. Both the board and the management team must be performing at a high level for a sustainable future to exist.

Figure 1: High Performance Board Model

Board Reflection and Enhancement

In the past ten years, formal board reflection exercises (evaluations, reviews) have been increasingly used as a method of assessing the performance of boards of Australian organisations. The impetus for evaluating board performance can be attributed in part to increasing regulatory prescription. As a result, there has been rapid adoption of board evaluations in recent years by all listed companies and APRA-regulated entities, and the Australian Charities and Not-for-Profits Commission is expected to seek a similar outcome.

An equally compelling reason for boards to evaluate their performance is that all individuals and groups who focus on a purpose can benefit from feedback. Indeed, there is growing evidence that factors such as board working style, the ability of directors to work together and the competency of directors are not only just as important as structural factors relating to board performance, but are critical if boards are to function at a high level. Importantly, board evaluations allow the board to set the ‘tone from the top’ by sending a strong message to stakeholders that the board values a performance culture. This helps to explain why boards of non-listed companies, not-for-profit member and faith-based organisations have also embraced board evaluations. Properly conducted board evaluations help establish the individual and collective responsibilities of directors and identify where the board and individual directors need to enhance their performance.

The limits to existing board evaluation techniques

The traditional survey and interview techniques enable the board to assess its performance at any given point in time in terms of its roles such as strategy and planning, risk management, compliance, decision making and governance. They are also very useful in providing a snapshot of board competencies, structures and behaviours.

Such snapshots are undoubtedly useful in that they provide feedback to the board on areas of governance that require improvement. However, they do not take into account where the organisation sits in its lifecycle and what can reasonably be expected of it from a governance viewpoint given its level of maturity. Another problem with snapshots is that while they tell the board its current position, it can be difficult to tell in what direction the board should be heading. If there are a large number of areas where the board needs to improve, it can be overwhelming knowing where to start. Also, it can be difficult to benchmark a board’s performance objectively against other boards using the traditional tools for measuring board effectiveness. Surveys, for example, suffer from directors’ subjective biases and while comparisons can be made with other organisations using qualitative techniques, it is nevertheless challenging to do so in a holistic and structured way.

These observations raise an important issue in board evaluations: is it possible to benchmark boards? Firstly, the rating of these boards is a function of the level of insight of the directors – high scores do not necessarily represent high performance. Because of this insight, for boards to be benchmarked, directors would need to be common across the comparable boards. Secondly, board performance can be arrived at by different means and is contingent upon many factors including the organisation’s operating environment and industry – a point that is ignored where a score is simply contrasted with a sample of other scores.

The Board Maturity Model

From our experience at Effective Governance, having reviewed over 350 boards, we have identified the need for a practical approach that allows boards to compare their performance with boards at a similar stage of maturity and that provides a road map to good governance. A maturity model offers such an approach.

A maturity model is a two-dimensional structured approach for describing the principal characteristics of an organisation or a project at various stages of maturity. One of the earliest maturity models is Philip Crosby’s Quality Management Maturity Grid.

A powerful feature of such models is that it is quite easy to assess an organisation’s current level of performance by matching it with one of the typical behaviours in a grid. An equally powerful feature is that it is very easy to see what the organisation needs to do next on the pathway to good governance. It also allows an organisation to benchmark its level of maturity against other organisations because those making the assessments have a common understanding of what constitutes a particular level of performance against each measurement category.

The Effective Governance Board Maturity Model draws its inspiration from Philip Crosby’s Quality Management Maturity Grid.

The two dimensions of the Board Maturity Model

The first dimension of the Board Maturity Model consists of a number of stages ranging from an initial baseline stage progressing through to an optimal stage where leading practices are followed or established. Progressing from one stage to the next is a little like obtaining different coloured belts in the martial arts, in that each stage builds upon and incorporates the requirements of the preceding stages. In the case of board governance, the stages are depicted in Figure 2.

Figure 2: Stages of the Effective Governance Board Maturity Model

The second dimension of a maturity model consists of the key areas that must be addressed within each stage before the organisation can move to the next stage. At Effective Governance, we use our High Performance Board Model (See Figure 1), developed by our colleague Emeritus Professor Geoffrey Kiel and Associate Professor Gavin Nicholson, as the framework for determining the key areas that must be evaluated to move from one stage to the next. The organisational environment component of the High Performance Board Model takes into account where the organisation sits in its life cycle and what can be expected of the organisation at any given stage of maturity.

The 14 key areas for evaluation are drawn from the board environment in Figure 1 and are: board roles; strategy; CEO selection; monitoring and evaluation; monitoring; risk management; compliance; policy framework; networking; stakeholder communication; decision making; effective governance; board competencies; board behaviours and board structures.

Pathways to good governance

By implementing the Effective Governance Board Maturity Model, a board can decide, given their organisational environment, which level of maturity is sufficient for their context. Having established the maturity level, the board is provided with the stepping stones or incremental governance initiatives on the pathway to good governance.

Authors: Linda Hayes & Ken Leigh.

The tsunami of change propelling individualised care and self-directed funding in health, aged care, mental health, community care, disability and other community services sector organisations is gathering momentum! Who will sink, swim or surf this wave?

Thriving in this changing environment requires, firstly, understanding the new paradigm of individualised care funding – which entails new thinking, decision-making, action and risk-taking by Boards, CEOs and executive management

The recent past has seen the shift from input-based block funding to output-based and individualised care packages and tentative moves to self-directed funding. This has been, and still is for many service providers, a fundamental and somewhat challenging shift in their service delivery of government-contracted services to clients. But bigger and more pervasive change is still to come – one being the impact of individualised care funding where the individual client moves front and centre as the central and direct party in contracting services with organisations marketing and supplying a range of support services.

A range of recent high-impact Federal and State Government reports have reinforced the magnitude and immediacy of change to individualised care and self-directed funding, notably for service delivery organisations marketing and providing health, aged care, mental health, community care and disability support services. As the level of funding dollars increases there will be greater pressures on choice, efficiency and effectiveness – culminating in greater competition, viability and sustainability not only from other not-for-profit organisations but also from privately owned for-profit organisations.
Most critically, this change means that service delivery organisations will no longer formally contract only with government agencies for government funding and will now need to actively market themselves to attract and retain clients.

The financial and social costs of organisation change required to thrive in this individualised care funding environment is under-estimated by many organisations. Understanding, planning and preparing for the financial and legal implications of individualised care funding are critical to all organisations – particularly those small to medium “niche” organisations that lack safety-net financial reserves in their Balance Sheets.

The financial and legal implications for Boards of this new paradigm of individualised care funding includes:

• Increasing competition will require Boards to better understand the solvency, viability and sustainability risks of costing, pricing and contract management when marketing, tendering or offering services contracted formally with many individual clients rather than a few government agencies
• Size and service “footprint” issues will require greater cooperation, networking, collaboration and integration of service providers and services.
• As big service providers get bigger, the surviving smaller service providers will fill the gap for niche, specialised or highly-personalised services leveraging their local or specialised skills and knowledge
• A balancing of maintaining a focus on the “big picture” systemic and structural issues, whilst being funded for “individual” needs
• Substantial improvements in Board governance systems so as to assure statutory and contractual compliance and accountability to contracting individual clients. The elephant in the room !

This article is the introduction text of the workshop session titled “New Paradigm of Individualised Care Funding: financial and legal implications” at the CEO’s Day workshop session on 27 July 2012 at the 6th Australasian Better Boards Conference in Melbourne. At the workshop each of the above financial and legal implications is explored in detail and a Board action plan is proposed that ensures service provides not only survive but thrive.

An Examination of the Australian Not-for-Profit Aged and Community Care Sector

The major part of this article was drawn from the Masters in Business Research (with Honours) research dissertation of Indra Arunachalam, University of New England (2012)

On the 20th of April 2012, the government announced its intend to deliver greater choice and better care to older Australians by unveiling a major aged care reform package. The Living Longer, Living Better Plan was in response to key issues, such as, the changing expectations and longer life expectancy of an ageing population, the expected increase in aged care costs and future workforce shortages. These public policy changes will create a new paradigm that will radically change how the sector operates in the future. In the international corporate and health sectors, industry restructure through mergers was identified as one way for a sector to adapt to such industry shocks.

An assessment of the national profile of the aged and community care sector, using Department of Health and Ageing data, confirmed that the sector is undergoing consolidation in the face of significant growth. Figure 1 shows that there has been a 34% increase in the number of operational services/outlets from 2003 to 2011.

Figure 1: Total Number of Operational Services/Outlets

Figure 2 indicates that there has been an 11% decrease in the number of approved providers from 2003 to 2011. The most significant drop in number of approved providers occurred in 2008, when 97 of the total 177 approved providers exited the industry. It appears that more than half of the consolidation occurred in 2008, the year residential aged care services needed to pass the 1999 Certification Assessment Instrument, in order to be granted building certification.

Figure 2: Approved Providers of Operational Services/Outlets

Figure 3 compares the percentage of services/outlets in each grouping of approved providers in 2008 and 2011 and shows that there has been a 4.5% increase in the number of services/outlets being managed by the larger approved providers (operating groups of more than 50 services/outlets) since 2008. This is matched by a 3.4% decrease in the number of providers operating single service/outlet, indicating an emerging trend of market concentration in the control of the larger approved providers.

Figure 3: Percentage of Services/Outlets in Each Grouping of Approved Providers

An appraisal of mergers motives in the not-for-profit aged and community care providers in NSW and ACT suggests that the sector engages in mergers in order to reinvest the financial benefits, derived from amalgamations, into strategically positioning themselves to deliver better client outcomes in the new paradigm. In-depth interviews with industry CEOs established that the key issues facing the sector are closely linked to the factors driving merger activities in the sector. The study found that people management and cultural compatibility were crucial for successful merger outcomes. The corporate, health and aged and community care sectors recognized that post merger integration is essential to realise the anticipated mergers benefits.
Evaluation of this research findings has resulted in the development of a model to capture the WHY, WHAT and HOW of a successful merger, as illustrated in Figure 4.

Figure 4: Factors Affecting Mergers in the Not-for-Profit Aged and Community Care Sector

In the new paradigm of aged and community care, key issues such as changing client expectations, an ageing population and longer life expectancy are forcing the redesign of public policy through the aged care reforms. This is WHY mergers are occurring. The reforms are intended to deliver affordable choice to older Australians. These are external environmental factors of which the industry players do not have total control over. The green platform portrays the external environmental forces of changing client expectations driving the public policy changes.

An examination of WHAT drives mergers in the sector showed that organisations engaged in merger activities in order to achieve financial sustainability and position themselves strategically so that they can respond to the industry shock of the looming aged care reforms. Mergers are being considered as organisational strategies in response to the external forces of changing client expectations and public policy changes. The CEOs believed that any financial dividend from mergers could be reinvested to strategically position their organisations to deliver better client outcomes such as ageing at home, continuum of care and long-term sustainability of service delivery. The blue platform illustrates the balance between internal governance and financial management activities of the not-for-profit aged and community care organisations. A successful merger would place the organisation on sound financial footing and with strategic advantage to respond and adapt to these external forces.

Finally, on the red platform, we have the internal human relationships of people, power and politics as well as cultural change that can either make or break the realization of the merger benefits. This is HOW mergers can be successful. The exploration of merger challenges and merger success factors identified that the control of power and politics through people management and cultural alignment was critical to achieve a successful merger. This change management could be accomplished though a post-merger integration plan to drive the realization of the expected merger benefits. The mere completion of task-related activities such as financial and legal due diligence investigations, strategic planning and financial modelling would not ensure successful outcomes. Poor management of cultural change, power and politics can result in a disastrous merger.

The merger success model illustrates that the not-for-profit aged and community care sector needs to strike a balance between external environmental forces (changing client expectations and public policy reform), internal governance activities (strategic positioning and financial sustainability) and internal relationship challenges (people power and politics, and cultural compatibility), to maximise the likelihood of a successful merger.

The study also identified three critical activities for a successful merger:

• Undertaking comprehensive due diligence;
• Planning to realise the merger benefits; and
• Managing people through the change.

Industry leaders and boards need to come to terms with the external challenges and opportunities that the new paradigm will present. Those who manage the risks well, by adopting these three critical merger success strategies, will have a much greater chance of prospering as a preferred approved provider in the brave new world.

David Locke, Chief Adviser to the Australian Charities and Not-for-profits Commission Implementation Taskforce, recently spoke at Russell Kennedy on the proposed new system for the not-for-profits sector. Some of the key issues arising from the adoption of a new system are outlined below.

Start Date

The registration of new charities with the ACNC will commence from 1 October 2012 (being an extension from 1 July).

Agenda

In the first instance the activities of the ACNC will be confined to charities rather than the broader not-for-profits sector. Any expansion into the not-for-profits sector is not assured and would appear unlikely before 2014.

Defining a Charity

The current expectation is that the adoption of a statutory definition of ‘charity’ from 1 July 2013 will have minimal impact (consistent with the experience in other countries, such as the United Kingdom and New Zealand). In some cases charities may have to modernise their objects or statement of purposes.

Reporting

Although the reporting framework and public information portal is still under development, the expectation is that from 1 July 2013 all charities will submit annual statements to the ACNC under a ‘report once, use often’ model, with the public being able to search financial and non-financial information. Reporting requirements will be tiered, based on a ‘small, medium and large’ platform.

Proposed Reporting Tiers

The proposed reporting tiers are: small – revenue of less than $250,000 pa and not a deductible gift recipient (DGR); medium – a DGR with revenue up to $1 million pa or a non-DGR with revenue between $250,000 and $1 million pa; and large – revenue over $1 million pa. The underlying theme of the reporting process will be identifying where funds come from and where they go.

Dealing with ASIC

From 1 July 2013 charities registered under the Corporations Act will no longer report directly to the Australian Securities and Investments Commission (ASIC), on the basis that ASIC will obtain information from the ACNC (eg, financial information, particulars of Directors, notification of changes to Constitution).

Input Into Public Statements

Charities will be able to use the ACNC database to communicate with the public. In addition, charities will have input into the statements that accompany information made public by the ACNC (eg, give narrative to accounts, consistent with the activities of the Charity Commission for England and Wales ).

Requests for Charities to Update Details

Existing charities will soon be asked by the Australian Taxation Office (ATO) to check that their details are up-to-date (e.g. trading name and particulars of Directors). The information obtained by the ATO will form the basis of the ACNC database. Once the information portal is fully operational charities should check that there details are accurate.

Commonwealth Tax Concessions

If a new charity is registered with the ACNC the ACNC will then pass on the charity’s details for the ATO to consider whether Commonwealth tax concessions apply (e.g. income tax and GST). Charities currently endorsed by the ATO will be automatically registered with the ACNC with ongoing eligibility to reviewed by the ACNC from 2013 (given the practical limits on the number of charities who could be reviewed at any one time, many charities may not be reviewed for a number of years).

State and Territory Tax Concessions (Fundraising)

At this stage there is no agreement on the ACNC interacting with State and Territory authorities on State and Territory based endorsements, such as fundraising approvals and stamp duty exemptions. Full harmonisation seems some way off.

Governance Requirements

Although minimum governance requirements are still under review, they are expected to deal with matters such as the management of conflicts of interest and risk management procedures.

Ensuring Compliance

It is anticipated that the ACNC will take a supportive approach to regulating charities, allowing charities to self correct (so long as there hasn’t been fraud or serious misconduct). Greater clarification on the threshold for intervention is anticipated.

Further information on the new system can be found at: http://acnctaskforce.treasury.gov.au/

The relationships between all stakeholders are essential to the overall health and wellbeing of an organisation. However, the relationship between the Chief Executive Officer (CEO) and the Board of Directors (Board) is the most crucial, and the state of this relationship has potentially the greatest influence on organisational success. For this relationship to work well, it must be one of negotiation, consideration and understanding of the role and perspective of the other. There must also be a recognition that the CEO and the Board play separate and distinguishable roles, but must work together in order to achieve organisational goals.

Role clarity is essential to ensuring a productive CEO/Board relationship is founded. The primary role of the Board is to govern, to control managerial opportunism and to ensure that CEOs carry out their managerial functions and duties in the best interests of Members. The Board is one of a series of stakeholders, which the CEO must serve effectively. An important function of the Board is to choose the CEO, and to assist the CEO in selecting the management team. Collectively, the Board remains the CEO’s employer, and the role of the CEO is one primarily of management and administration. The CEO is responsible, within parameters established by the Board, for determining and overseeing the execution of the Board’s directions and policies to ensure desirable outcomes.

As non-profit industry sectors have become increasingly professionalised, so too have the expectations of a CEO of a non-profit organisation become increasingly broad and sophisticated. In this context, the list of demands a CEO faces and the number of constituencies they must routinely communicate with on behalf of the organisation are increasingly multifaceted.

If the CEO/Board relationship is to succeed, the Board should be sensitive to the responsibilities that the CEO has to these other parties. A strong partnership between the Chair of the Board and the CEO is a crucial element in a profitable relationship. Such a relationship can help an organisation execute its strategy more effectively, successfully navigate a crisis and resolve any other multitude of issues that an organisation and its Board will encounter. It is important that the CEO and the Board are seen as a partnership, as allies, who play roles, which are essential to achieving the common organisational purpose.

Comparing Management Responsibility

The following four key areas of defined responsibility are crucial to the CEO/Board relationship.

Accountability

The general accountability role of the Board is to ensure that the organisation is serving the needs of the section of the community or the stakeholders it has a responsibility to serve. It also must be aware of compliance issues and requirements of regulators (such as ASIC or funding providers). It is important to note that the Board of Directors are bound by directors duties under the Corporations Act 2001 (Cth) (or similar duties under other legislation) and have a duty to act bona fide (in good faith) in the interests of the organisation as a whole and, in that sense, are also accountable to act in the best interests of all stakeholders.

The CEO is accountable to the Board. The CEO should report to the Board and keep it informed of the activities of the organisation. However, the CEO is likely to perform a balancing act in determining how much detail is given when reporting. If the CEO-Board relationship is characterised by frequent and onerous reporting requirements, the CEO will be diverted from building relationships with other constituencies, which are crucial to the organisation.

Therefore, the way in which these accountability roles are executed is crucial. Responsibilities should be performed in a way which is harmonious with the role of the other, and allows for consistent communication and cooperation in order to meet the ultimate accountability the organisation holds to its stakeholders.

Decision Making

There are distinct decision-making roles in the CEO/Board relationship. The Board drives the strategic direction of the organisation and is responsible for setting goals as well as developing polices and corporate strategy designed to translate an organisation’s mission into measurable objectives and goals. The Board also sets discretionary financial and related operating limits for management, and regularly assesses activities of the organisation against the mission statement and goals, as well as annual business plans to ensure the organisation is meeting its original purposes.

These decision-making responsibilities should not be delegated, and the Board should always reserve all matters which have the potential to have a material impact on the reputation and financial stability of the organisation. For example, in Australian Securities & Investments Commission v Healey & Ors (Centro), it was decided that the law imposes a strict liability on approval of financial statements by directors. Therefore, directors ought to solely carry out the assessment of such statements and, in circumstances where an error is identified; they must then seek the advice of management and external advisors. While it is noted that care should be taken when applying this decision outside of a financial reporting context, the case outlined the limitations of the extent to which directors can place reliance on management and external advisors in this realm of responsibility. This is an example of a role which must be maintained by the Board.

The decision-making role of the CEO is different. The CEO is responsible for carrying out and implementing the direction, goal and policies, which have been designed or created by the Board, and then reporting on operational outcomes. It is also the responsibility of the CEO to ensure that everyone within the organisation is aware of the agreed strategic direction, goals and policies so that all are heading in the same direction. CEO decision-making largely relates to the way in which it is best to practically implement those measurable objectives and goals developed by the Board.

Policies

While the Board holds responsibility for developing organisational policies, the daily contact and involvement that a CEO has with the operations of the organisation, means the CEO is well placed to provide policy suggestions for the Board’s consideration. After all, the CEO will be responsible for implementing and monitoring these organisational policies.
For example, if there is a need for an adequate program in the sector of the community that a non-profit organisation is serving, the CEO could propose a policy to the Board in order to address this policy gap. It is then the role of the Board to decide whether this is a suitable use of organisational resources and, if so, hand it back to the CEO for implementation and management. As the CEO is in a position to notice the need for new policies, and the Board is in a position to approve them, this is a key example of the importance of an effective CEO/Board relationship; one that works together in order to achieve policy goals.

Financial Reports

The CEO is required to prepare annual budgets and financial reports for presentation to the Board for review and approval. The CEO also has an opportunity to offer ideas and strategies on how performance can be improved. The role of the Board is to review, analyse and monitor the information presented by the CEO, as well as ask the appropriate questions to gain all the necessary information. The Board is ultimately responsible for the financial health of the organisation, and therefore requires the cooperation of the CEO in order to ensure that it is fully informed.

Factors which may affect the CEO/Board relationship

In some organisations, interaction between the Board and the CEO can be a complex and, at times, tense relationship. Nevertheless, it is crucial for the running of the organisation that this relationship is a healthy and professional one. There is potential for Board members to sometimes feel excluded or disempowered, and they may feel it is a struggle to secure the information they require from a CEO. Likewise, many CEOs perceive the Board as a monkey on their back, due to the monitoring and controlling role of the Board.

Respect must go both ways in the CEO/Board relationship. Support is also essential and is a recognition that both the CEO and the Board are on the same side, working together to achieve a common organisational purpose. Ambivalence, or perceived ambivalence, in a Board’s support for the CEO will reduce the functioning of the organisation, and the ability of the organisation to effectively respond to change. Competence means not only relevant expertise that each director is bringing to the Board, but also professionalism in conduct as a Board member. For any CEO, it is important to see consistency and certainty in decision-making by the Board. If a CEO is not confident that decisions made will be supported by the Board, then he or she will feel a lack of confidence in their position within the organisation. It is equally important for a Board to receive clear communication from the CEO (especially on financial and administrative matters), effective representation of the organisation and a prompt response to reasonable requests for information.

Within an increasingly sophisticated environment in fields of non-profit work, which have become more technically and logistically demanding, the CEO looks to the Board to raise its game, support the CEO’s position and ensure a professional approach to its organisational contribution.

Mutual Obligations

Regardless of the size and type of the organisation, the CEO/Board relationship should be characterised by ‘the best principles of teamwork – mutual respect, an understanding of one’s own contribution, an awareness and reasonable degree of tolerance of each other’s weaknesses and constraints and, overall, a sense of common purpose’. In law, the Board ultimately carries the organisation’s accountability and authority, but in practice, it is the CEO who wields much of the power and authority on a day to day and week to week basis. There needs to be recognition of the importance of both roles to the running of the organisation. Therefore, while it has been discussed that role clarity and distinction is crucial, a successful CEO/Board relationship calls for a level of shared responsibility and parallel process as opposed to a ‘your job’ ‘our job’ attitude. Clear communication, co-ordination and mutual obligation are crucial to the success of the relationship. Role clarity does not mean the roles exist independently, or should be seen as operating separately.

The CEO has the expertise, authority and time to manage the organisation at a pragmatic level. However, the Board has limited time and relies on a flow of information from management in order to exercise its power and responsibility. Therefore, the key objective is to empower both parties to effective carry out their roles and functions in a complementary way.

The Board’s obligations to the CEO include:

• Compensation, benefits, and a working atmosphere that make the CEO’s position attractive to the best possible candidates;
• A clear duty statement and performance goals;
• Regular formal performance reviews;
• Constructive informal feedback on job performance;
• Rewards for tasks well done; and
• Prompt and thoughtful response to request for guidance or assistance.

The CEO’s obligations to the Board include :

• Commitment to the organisation’s mission and sensitivity to the communities it serves;
• Responsible performance of fundamental organisational and administrative tasks;
• An administrative structure and decision-making mechanism that promote a productive working atmosphere and effective staff relations;
• Thorough and timely communication with the Board on financial and administrative matters;
• Effective representation of the organisation in the community and commitment to enhancing its public image; and
• Prompt and thoughtful response to Board member’s requests for information.

Conclusions

Both the Board and the CEO have a duty to act in the best interests of the organisation as a whole. Therefore, the separate roles and distinct responsibilities of the CEO/Board relationship should exist in an environment of teamwork, communication and mutual respect. A healthy and efficient relationship is essential for successfully achieving organisational goals. In particular, a strong, productive relationship between the CEO and the Chair of the Board will support improved corporate performance. Consideration should be given to the obligations which both parties owe to each other, in order to successfully reach a common organisational outcome. A productive CEO/Board relationship is one of negotiation, and a successful negotiator knows not to enter without considering the other party’s needs and perceptions, as well as their own.

My plan is to discuss some of the bigger issues facing those involved in governance in our sector but also focus on some specific approaches to helping boards of directors improve their effectiveness. By way of introduction, let me briefly mention here one of these ‘good governance’ practices—self-assessment of board performance.

Self-Assessment of Board Performance

A recurring theme in the nonprofit governance literature is the need for boards to conduct regular assessments of their performance. Some governance experts have developed approaches to board performance evaluation based on adherence to strict normative models while others have developed more detailed instruments and recommendations reviewing a wide range of board practices. Others have pointed out that, while many nonprofits may recognize the value of assessing board performance, they lack the capacity to: a) carry out the technical work of gathering and analyzing board performance information; b) apply that information to making decisions about changes in board performance; and c) track the impact of changes in governance practices over time.

For several years, we have been engaged in a research project examining board self-assessment as a good governance practice. Our board performance self-assessment tool is based on a conceptual framework of issues and problems that board members and others that connect with boards have reported as challenging. Figure 1 below shows that framework. As can be seen, issues are grouped into nine elements of board performance. Four of them reflect the board’s activities or what is sometimes called the governance process. The remaining five refer to factors that are often claimed to influence that process. The framework also shows how these issues relate to the contributions nonprofit boards make to their organizations.

To determine the extent to which these issues challenge board and organizational effectiveness and whether repeated self-assessments actually improve the performance of boards, we created the confidential online community-based research project, Board Check-Up (www.boardcheckup.com). It provides feedback on how the board’s performance is perceived by board members themselves and those who interact with them (such as the CEO and key staff, volunteers and stakeholders). While it is not designed to be as revealing as a medical checkup for individuals, many of those who have used it feel it brought to light many issues that challenge them. While some participants reported the process was difficult because it involved critical reflection, most found it “therapeutic” in providing a data-based platform on which to base board development discussions.

Findings of the Issues that Challenge Boards

Just to illustrate a few of the findings from our research so far, the table below shows the top ten issues perceived to be the most problematic for participating boards based on a sample of 487 respondents in Canada, the United States and United Kingdom that completed the Board Check-Up instrument online between September 2010 and October 2011. As you can see from the table, they had to do with the board’s role in fundraising. Other had to do with the composition and development of the board and issues relating to board structures and processes.

Issues Perceived to be Most Problematic for Participating Boards

1. The board has problems engaging in actual fundraising activities.
2. The board has not approved an overall strategy for fundraising.
3. The board seems confused about its role in fundraising for the organization.
4. Finding high quality new board members is a problem for us.
5. There is not enough ongoing development and training for regular board members.
6. The board does not regularly and systematically assess its own performance and change itself if it thinks it can improve.
7. Some committees have members who contribute very little or don’t have enough experience to be of much help.
8. The board rarely holds creative thinking sessions aimed at trying to find new ways the organization could develop.
9. The board does little to learn about innovations tried by others that might help the organization.
10. Some board committees are unclear about their responsibilities and/or authority.

The data above are just a small part of what we have learned from our research to date. I will be sharing more of these results at the conference and present what we hope is a practical guidebook boards can use to plan how best to use board performance assessment results to assess and diagnose board performance problems and situations and plan board development efforts.

Again, I’m really looking forward to discussing this and other topics at the Better Boards Conference!

Please feel free to contact Yvonne and Vic about this research:

Prof. Yvonne Harrison
Department of Public Administration and Policy,
Rockefeller College of Public Affairs and Policy,
University at Albany, State University of New York
yharrison@albany.edu

Prof. Vic Murray
School of Public Administration,
Faculty of Human and Social Development
University of Victoria, BC, Canada
vmurray@uvic.ca

The law of directors’ personal liability for the acts of their corporation has changed its choreography over the years.

Directors used to be like wallflowers and the law wasn’t much interested in asking them to dance. In the latter part of the 20th century, however, spurred by corporate excesses, there was a concerted legal attack on this corporate veil – the legal device that directors could hide behind to avoid personal liability when their corporation did something wrong.

This attack was a bit like the Dance of the Seven Veils in which lawmakers attempted to strip away the anonymity and sanctity of directors and expose them to the naked reality of personal liability.

The 21st century has seen the attack extend to highly paid senior executives such as CEO’s and CFO’s. Now, for example, in the newly minted, mostly ‘harmonised’ Work Health and Safety Act, (just one of many examples), lawmakers are extending this personal liability to lower echelons of employees of corporations such as managers and other middle management. As the tentacles are reaching down further into the bowels of corporations, it is fair to ask if the dance has changed to The Limbo.

At the Better Boards Conference in Melbourne in July 2012, Brian Herd will be examining these developments and asking a fundamental question – is the mantra – ‘Boards Govern, Managers Manage’ being diluted by the law to such an extent that it is now meaningless?

Brian’s conference presentation will also consider the implications of these developments such as:

What is the current state of play of personal liability for Boards and employees and where is the law going?
In this context, what effect does this new personal liability on employees have on their employment agreements?
What is the place of vicarious liability of corporations for the acts of their employees now that employees are personally liable?
If Corporations can indemnify their Directors can they, or should they, also indemnify their employees?
What is the place of Directors and Officeholders Insurance in protecting employees faced with personal liability?
How will it change the traditional relationship between Boards and CEO’s and other employees?
Where does the personal civil liability immunity for voluntary Board members fit?

The presentation will challenge attendees to both appreciate the tsunami like growth of personal liability (with over 700 pieces of legislation imposing it) and how they need to reconsider the relationships between Boards and senior management.

We need to be mindful about our brains… especially when we are looking to change the way we and others do things.The neuroscientists, and one in particular, have ‘discovered’ that there are core elements which either attract us to new ways of doing things or turn us away from them.

David Rock’s SCARF model (Rock: 2008)* helps us to understand this and it is being used in a number of community owned enterprises to enable leaders to take on new thinking about both sustainability and leadership.

Most of the motivation driving our social behaviour, and therefore our leadership approach, revolves around minimizing threat and maximizing reward. Rock’s SCARF model frames these threat-reward themes around five domains of human social experience: Status, Certainty, Autonomy, Relatedness and Fairness – which have been shown to be applicable in a broad cross-section of settings.

According to Rock, “Status is about relative importance to others. Certainty concerns being able to predict the future. Autonomy provides a sense of control over events. Relatedness is a sense of safety with others, of friend rather than foe. And fairness is a perception of fair exchanges between people.” These domains stimulate either the ‘primary reward’ or ‘primary threat’ circuitry in the brain. If we want changed behaviour we need to activate the ‘reward’ mode rather than the ‘threat’ mode.

In the context of Sustainable Leadership, that is, resilient leadership of a sustainable enterprise, this means that the following thoughts and actions may be applied to each of the five domains. There are many more.

Status

If we see that our status is linked to large cars for our senior executives, large air-conditioned buildings, glossy literature and other unsustainable ‘stuff’ then the idea of going green will drive the threat element and we will move away from the notion of sustainability.
However, if we can be mindful that being ‘green’ really is the ‘new black’ then the status button will push our actions into a more sustainable mode.
We have no wish to be seen as outcasts – we will want to belong, to not have to explain our unsustainable actions to friends and people we see as important-others, including our stakeholders.

Certainty

The mental energy required to handle uncertainty is significant. If we are put in a position to make decisions (say, around changing long-standing unsustainable behavior) we will likely put off that decision if we think we’ll need that energy for something we see as more certain in the future.
In other words, if there is not a clear and present and urgent need to make a decision we will conserve our mental energy. It is not difficult to see why those of us addicted to unsustainable practice are likely to procrastinate on decisions around our sustainability. The mixed media messages about such issues can create enough uncertainty to stop our brains from giving it attention. The same process may apply if we are wanting to move our framework for decision making in the organisation. Can we be certain our new model will be better?

Autonomy

The world goes around a whole lot better when we have a high level of control over our own lives. The extent to which we feel this autonomy reduces our levels of uncertainty and increases our feelings of resilience. Which draws us to make significant decisions and act on them. For example, the moves toward using renewable resources in the manufacture of goods will give us the choice to continue to consume stuff yet do so in a relatively more sustainable way. If this is so it will trigger our reward button and incline us to change our procurement practices.

Relatedness

When we perceive ourselves as different to others, the information travels along our brain’s neural pathways that are associated with uncomfortable feelings, different from the neural pathways triggered by people who are perceived as similar to us. When we are in the presence of people who are already doing a lot of sustainable things the language they use, their confidence about their perspectives and other trappings can sometimes lead us to feel uncomfortable. In much the same way as ‘greenies’ have sometimes felt like the odd ones out in a room full of ‘suits’ , and vice versa.
We need to create spaces where we can interact in an atmosphere which says ‘friend’ rather than ‘foe’ and contributes to a sense of trust and empathy which in turn leads us to being more likely to take on challenging changes of behaviour. This is as true for building leadership teams across levels as it is for changing behaviour about sustainability. When we begin to talk to each other and make a strong connection our brains disarm the threat response and enable the reward response and we begin to see others as ‘just like us.’

Fairness

If we are part of an event or process where we feel unfairly treated we are likely to feel hostility and a lack of trust.
This can be as simple as being involved in a meeting where the airspace is hogged by a select few and where the opinions of many, including our own, are disregarded. We need to feel our opinions are valued and that we have equal opportunity to present them and have them reflected upon and questioned without being judged. This has significant implications for the way in which we conduct ourselves at gatherings.

The SCARF model is being used by Howard Nielsen of NACC in work with a number of medium sized community owned enterprises. More insights on this will be highlighted at the Better Boards Conference in the presentations on: ‘Leading a Sustainable Organisation’ and ‘Carbon Proofing your Business.’

*Reference:
Rock, David: “SCARF: a brain based model for collaborating with and influencing others”, in NeuroLeadership Journal issue 1 2008.

Authors: Erica Lewis & Ruth Pitt

There’s lots of discussion around about quotas for women on corporate boards, and lots of questions about whether quotas are effective.

At the YWCA, we have been operating with a quota for 20 years. But ours is not a quota for including women: all the members of our board are women. Rather, our quota is directed towards including young women on all of our boards and committees.

Twenty years ago, the YWCA made a global commitment that at least 25% of members of national boards would be women 30 years and younger. In Australia, we take that commitment one step further to require at least 30% of all boards and committees of member organisations to be women 30 years and younger. This quota exists because there was a time when the YWCA faced an aging leadership, and the members of the organisation decided that — given the organisation’s vision and values around recognising and developing young women’s leadership — this was a state that couldn’t be left unchallenged.

At our last AGM, the membership of the YWCA of Canberra elected three new young women to the board. These young women joined three other young women continuing on the board, making our board 50% young women. Our membership also elected a set of office bearers who are 50% young women – and there were young women on the ballot who weren’t elected as well. These results demonstrate the success of the quota as an effective mechanism for increasing diversity. The numbers show that the quota acts as a floor, not a ceiling – and when the board of a successful organisation is half young women, no one could argue they’re merely ‘token’ participants.

But it would be wrong to assume that merely setting a quota led to these results. The quota is supported by, and reflects, the organisation’s values around recognising and developing young women’s leadership. This means that the quota is supported by an organisational culture.

The quota is also backed by a broader strategy. Instead of just recruiting ‘board-ready’ young women to meet the quota, or just worrying about quota at AGM time, the YWCA of Canberra has a number of strategies to develop the board-relevant skills and knowledge of young women in the Canberra community. These include a board traineeship program, a series of ‘Women Out Front’ workshops and leadership projects for members.

• The board traineeship program provides women seeking board experience with the opportunity to participate in the working of board without incurring the obligations of directorship. Each trainee is mentored by an experienced board member.

• The ‘Women Out Front’ workshops provide specific training in the skills that board members need including directors’ duties, financial reporting and governance. This year we have also added a module on strategic planning.

• The ‘Indigenous Young Women’s Leadership Program’ and the ‘Members’ Leadership Projects’ provide women with the opportunity to demonstrate and develop their leadership skills through running their own projects in support of the broader objectives of the YWCA.

With increasing pressures for not-for-profit boards to be highly skilled and professional, organisations may begin to doubt their ability to recruit suitable board members, or start to question their commitments to board diversity and inclusiveness. The strategies used by the YWCA of Canberra may be useful for other organisations who want to remain true to their vision and values around inclusion, while developing boards that can face the challenges of 2020 and beyond.