The ACNC and the Good Governance Challenge

governance challenge

 

Estimated read time: 5 minutes

 

At the present time, the Third Sector is over-regulated but ineffectively regulated. As such, directors and governing committee members (hereinafter collectively referred to as ‘directors’) of such organisations can often find it daunting to make sure that they fully understand and adhere to their obligations.

 

Whilst the prospect of simplification of the current red tape and duplication – which the Australian Charities and Not-for-Profit Commission (ACNC) claims to have as one of its main objectives – is to be welcomed, the governance arrangements which were originally contained in the draft legislation caused considerable concern. In spite of the wide diversity of organisations in the Third Sector, the provisions prescribed an onerous, one-size fits all approach, ill-suited to many organisations.

 

As a result of considerable protest in response to the draft provisions, the governance arrangements have since been removed and will be the subject of a separate consultation. The consultation process will commence shortly and the governance and external conduct standards are expected to commence on 1 July 2013.

 

However, the removal of the governance standards, by reference to which many of the ACNC’s powers will be exercised, has resulted in considerable uncertainty about the implications of the legislation. Perhaps the most significant concern is that not-for-profit directors could be subject to more burdensome obligations than for-profit directors, given that these regulations would be in addition to the raft of obligations which directors are subject to under the existing corporate and incorporated associations law. In light of the fact that many organisations are under-resourced and many directors of not-for-profit boards/committees act in a voluntary capacity, this seems particularly unfair and may discourage volunteer board members from assuming governance roles on not-for-profit boards.

 

A further issue is that incorporated associations will still have to report to State governments in addition to the ACNC. While the requirements under the different regimes are likely to be broadly similar, there is a real risk of conflicting standards in certain areas and duplication in the area of enforcement. The issue of how such conflicts are to be resolved has not been expressly dealt with, though presumably the ACNC (a federal body) would take precedence over State governments. Nevertheless, the current absence of agreement across Australian governments on key aspects of the regulatory framework gives cause for concern.

 

The ACNC has also made clear that it sees itself as playing a key role in delivering governance training through a wide range of methods, including YouTube, Facebook, dvds and Twitter. In this way the ACNC hopes to overcome geographical and resource limitations which otherwise pose a challenge in this area. This is to be welcomed, and the ACNC could play a vital role in supporting the sector in this way.

 

More recently, the ACNC has indicated that it envisages that the new governance provisions will contain a set of principles which will guide organisations on governance issues, as opposed to a prescriptive set of rules. This would be in line with the approach taken in other jurisdictions, where non-mandatory, principle-based guidance is the preferred option.

 

However, given that there has already been substantial work undertaken in the not for profit sector on governance issues, it is also hoped that such work will also be used to shape the nature of the ACNC’s governance provisions. In jurisdictions, such as the UK, New Zealand and Singapore, charity regulators are already in existence.[1] As such, the guidance issued by such regulators on governance issues could also provide a useful reference point when debating the nature of the governance provisions to be adopted in Australia and the extent of regulation desired.

 

By way of example, the English Good Governance Code, which has been adopted by the voluntary and community sector in England and Wales, sets out a number of key principles which describe how an effective board provides good governance and leadership, explains why these matter, and provides examples of how to apply such principles in practice. It aims to be a practical and easy-to-use guide to help charities develop good practice. It is non-mandatory; however, all charities of all sizes are encouraged to use it.

 

The Northern Ireland Code of Good Governance, which was adapted from the English Code, also takes the form of a number of key principles, together with the most important supporting principles. The Code sets out best practice, but it is not mandatory. However, organisations that comply with the Code are able to state this in the Annual Report and other relevant published material. As such, this can be used to enhance an organisation’s reputation and credibility and to attract new donors.

 

In Singapore, the Code of Governance for Charities and Institutions of a Public Character also sets out a number of guiding principles for good governance, though these are accompanied by more detailed guidelines, which were refined in 2010. The Singaporean Code does, however, acknowledge that as charities differ greatly in size, activity and circumstances, not all Code guidelines will apply to every charity. Nevertheless, as the Code operates on the principle of ‘comply or explain’, charities are encouraged to go through the entire Code and to take the necessary action to improve their governance.

 

In England and Wales, Northern Ireland and Singapore, therefore, the approach has been to inform and support, rather than to prescribe and punish. It is hoped that the ACNC will follow suit. There is already a substantial amount of law and commentary on directors’ fiduciary duties, emanating from both case law and the Corporations Act. Rather than trying to re-write these duties, it would be preferable to rely on the existing law and refrain from imposing a minimum standard of care on charities and not-for-profits. Instead, the ACNC should focus on issuing guidance materials and training to support charities and not-for-profits in achieving good governance.

 

What is undeniable is that good governance is essential to every organisation. The role played by, and the construction of, a board can be outcome-determinative for the organisation, and accountability should be built into the culture of an organisation at all levels. It can be challenging to balance the needs of different stakeholders with an organisation’s strategic objectives. However, good governance can provide a means for mediating different views and conflicts of interest, attracting new donors and clients and enhancing the credibility of an organisation.

 

What is also clear though, is that what is appropriate for one organisation will not necessarily be appropriate for another. Accordingly, a principle-based approach which preserves the necessary independence of charities and not-for-profit organisations to run themselves, so long as they do not impede the ACNC’s ability to operate and fulfil its role is, without doubt, to be preferred to a set of rigid, oppressive regulations.

 

 


[1] Although, the New Zealand Charities Commission was recently closed.

About Vera Visevic

Vera heads up the Not-for- profit team at Mills Oakley. Acting for numerous charities, religious and not-for- profit organisations, Vera has over 20 years' experience in the legal profession. In her work, Vera focuses on governance and fundraising issues, restructuring and mergers and regularly advises on constitutions and ACNC/ATO endorsements.

Vera edits the Clubs & Societies title in the Australian Encyclopaedia of Forms and
Precedents, and is an author in “Charity Law”, European Lawyer Reference (2012 and
2016). Further, Vera reviewed the Community Care and Service regulatory compliance module for LexisNexis, covering such topics as the National Disability Insurance Scheme, and community housing. Vera sits on a number of Not-for-profit boards and committees.

To find out more please do not hesitate to contact Vera Visevic.
T: +61 2 8289 5812
E: [email protected]

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