Achieving Transformative Governance Change

Good governance is the soil in which healthy not-for-profits grow, but if organisations fail to renew their arrangements over time, they may fail to bloom and reach their full potential. Governance frameworks should be dynamic and responsive to organisational growth, developments in best practice governance and changes in the regulatory landscape.

The possible range of governance reforms is broad. It can range from changes in board or member composition to constitutional reform to a change from a federated body to a single national body or changes in the form of incorporation. If these important reforms are deferred, governance systems and processes may wither and hinder or impact organisational performance.

How a board seeks to implement governance changes in a not-for-profit organisation can have a lasting impact for good or ill. A well-thought-out consultative process is more likely to win approval, creating an opportunity to transform organisational culture and improve relations among internal and external stakeholders. A poorly managed or executed process is more likely to fail and can potentially set back the possibility of reform by years and sour relations among stakeholders. Lack of consultation is the principal reason governance change fails, particularly as the Corporations Act (for companies limited by guarantee) and State legislation (for incorporated associations) typically require the support of 75% of members for key changes.

In this article, we discuss key principles for engaging members and stakeholders to achieve transformative governance change in not-for-profit organisations.

Identify key decision-makers and stakeholders

It is critical to identify the key decision-makers in any governance reform. The support of board members is required first to sponsor the change project and approve funding for consultation and legal work. The term of office of all board members (particularly the chair) should be considered in the context of the project timeline to ensure that the process is not disrupted or derailed by a significant change in board composition. If more than one organisation is involved, planning should take into account the terms of office of all boards.

Members are also key decision makers, as most significant governance changes require a member resolution. Although they may not be decision-makers, reforms may also impact volunteers, employees, service users, donors, funders, and regulators – the process should be designed to allow for consultation with these stakeholders. Co-designing reforms in partnership with members and stakeholders can educate those who will need to understand and operate within the new arrangements.

Lead with purpose

Although being purpose-driven should be a defining feature of not-for-profit organisations, many organisations allow their focus to drift over time from their purpose to their programs. Focusing on purpose requires organisations to articulate ‘why’ they exist, rather than simply ‘what’ it is that they do. This should align with the purpose statement (sometimes called objects) set out in the organisation’s governing document. A clear, well-articulated purpose statement can motivate potential supporters, galvanise existing stakeholders and act as a lodestar for the organisation. In the context of governance change, it is important to:

• Ensure there is a focus on the organisation’s purpose. Is the purpose clearly articulated? Are the mission and vision aligned with the purpose? Does purpose underpin the strategic intent?

And

• Frame the governance change project in terms of purpose (rather than governance reform, compliance, or structure reviews). For example, a board might take the opportunity to pursue the organisation’s purpose more effectively or to remove obstacles to achieving the purpose. Framing the exercise in the context of purpose will assist with building and aligning stakeholder support.

Build trust step by step

Presenting final legal documents to the members for voting without prior consultation can be a critical misstep. The more significant the proposed change, the greater the importance of a well-designed consultation process. An effective consultant will design an iterative process that begins with consultation with opinion leaders to identify key issues, leading to a co-design workshop, followed by further consultation with members. A collaborative relationship between the board, consultant and lawyer helps to ensure that there is an early opportunity to test the feasibility of potential legal solutions and explore alternatives before the legal drafting process begins. The goal is to keep the focus on the ideas without participants getting bogged down in legal wording too early in the process.

Once an agreement is reached on key principles with the support of the consultant, the legal drafting process can commence. This approach has several benefits. It:

• ensures the lawyer is fully briefed on the concerns and priorities of all stakeholders;
• streamlines the legal drafting process;
• supports the development of bespoke solutions; and
• ensures that the final legal documents reflect the in-principle agreements reached between stakeholders; and that they feel ownership over the outcomes. The relationship developed between stakeholders and the consultant through this process also assists in building trust, which can be critical to the final vote.

Design a governance system, not just a board

While a healthy governance framework always starts with considering board structure and function (such as establishing a robust nominations process, ensuring appropriate board composition, and allowing for renewal on the board), it is important to look beyond the board and design a governance system. A robust governance system integrates and connects-up the formal and informal bodies whose roles intersect with the governance of the organisation. This includes:

• Members - What are their eligibility criteria? Are membership categories appropriately considered? Do they have clear rights? Are there mechanisms for board accountability to and engagement with the members?
• Board sub-committees - Do they have clear terms of reference? Are there appropriate delegations in place? Does the scope and number of sub-committees properly support the work of the board?
• Advisory Committees - What is their purpose? How are they established? How and when do they engage with the board?
• Tribunals - Depending on the nature of the organisation, this might include disciplinary tribunals for members and/or the board itself. If their powers intersect with the constitutional rights of the members or board members, they must be properly integrated with the Constitution.

Keep all options open until the end

It is easy to lose the support of decision-makers by presenting them with a fait accompli too early. A consultation process will not be effective if it is or appears to be shaped around a predetermined outcome. Language is important. For example, asking members to consider ‘proposals for constitutional change’ sends a very different message to presenting ‘a new constitution’ to members. Similarly, the tone and language of consultation meetings should reflect genuine engagement and curiosity rather than selling a position or direction.

Governance change can be transformative if it is inclusive, engaging and focused on the purpose an organisation exists to serve. With robust consultation with members and stakeholders, boards can achieve more than they could on their own. Nurture your governance system and your organisation will flourish.

This article was first published in the 2024 Better Boards Conference Magazine.

Further Resources

Adaptive Directorship: Creating Organisations that Flourish in Unpredictable Environments

The Power of People and Collaboration to Create Lasting Change

Leading Change That Sticks: The Board’s Role