Governance in the nonprofit sector

1
Governance in the non-profit sector

• Helen Starke
• KDS Consulting
• 11 September 2009
• www.kdsconsulting.co.za

2
Definition

• A trust, company or other association of persons
  established for a common purpose and the income
  and property of which are not distributable to
  its members or office-bearers except as
  reasonable compensation for services rendered.

3
Legal status

• Voluntary association
• Trust
• Section 21 Company
• Nonprofit Organisation

• Common law
• Common law and Trust and Property Control Act
  57/1968
• Companies Act 61/1973 (to be replaced by
  Companies Act 71/2008)
• Nonprofit Organisations Act 71/1997

4
Governance implications

• Public benefit focal point
• Board performance measured against focal point
• Board risk-averse
• Directors seldom paid directors fees
• Directors almost exclusively non-executive
• Ultimate compliance officer is recipients of
  service

5
Importance in SA Economy

• Employ 645 316 full-time
• 60 women and 81 black
• Leadership 59 women and 73 black
• 1.5 million volunteers worth R5.1 billion
• Income of R14 million

6
Standard-setting in sector

• Issued in terms of Nonprofit organisations Act
  71/1997
• King III Code and Non-profit Practice Guides
• In most developed countries issued by both
  government and others by sector themselves

7
King III

• Applying code and principles to non-profit sector
  waiting for practice guidelines

8
Issued in terms of Nonprofit Organisations Act
71/1997

• Governing Body
• Staff Leadership
• Financial management
• Accountability and transparency
• Ethical and responsible behaviour

9
Small totally-underfunded organisations

• Governing Body - Volunteers who also deliver
  services, informal meetings held, minutes seldom
  kept
• Staff Leadership - Possibly employ one or two
  staff
• Financial management - Very basic records kept
  by volunteer who usually has no bookkeeping
  training, annual financial statements not audited
• Accountability and transparency - Struggle to
  achieve basic level of accountability, seldom
  issue annual report
• Ethical and responsible behaviour Varies
  considerably, much conflict of interest
• Dont even achieve basic level of governance

10
Large well-funded organisation

• Governing Body - Skilled and well-informed board
  and management, Company Secretary, Effective
  Board/Management division, Compliance with
  registration legislation and constitution
• Staff Leadership Executive Committee,
  well-qualified CEO member of Board, well
  structured management level(s), HR Department,
  Marketing/ Public Relations Dept, Research Dept
• Financial management - Good financial management
  (some employ CA), Risk Manager and internal
  audit, audited financial statements
• Accountability and transparency - Accountability
  to stakeholders, issue annual report and hold
  public AGM, Effective and efficient programme
  delivery, Programme evaluation, Compliance with
  most relevant legislation
• Ethical and responsible behaviour Conflict of
  interest policies applied, Code of Ethics

11
Medium sized, reasonably funded

• Governing Body Board with varying skills,
  usually meets regularly and keeps minutes,
  Board/Management division not always well-defined
• Staff Leadership Number of staff varies but
  usually have a staff member to whom other staff
  report. CEO often not Board member and doesnt
  attend Board meetings
• Financial management Have finance staff with
  some qualification and treasurer is hands-on
  board member, Funders often complain of poor
  accountability for funds spent
• Accountability and transparency Publishes
  annual report, holds public AGM, efficient, but
  not always effective, programme delivery
• Ethical and responsible behaviour - Dedicated
  volunteers

12
Importance of medium-sized organisations in
the sector

• As a group attract large sums of corporate,
  government and public funding and this will
  continue
• This group need expertise to assist in improving
  most aspects of governance to improve
  sustainability
• Important role for corporate sector

13
Discussion

• CIS Programmes
• Role of corporate sector
• Role of government
• What can non-profits themselves do to improve
  governance?