‘What will the sandwich fillings be?’.

It was an innocent question with good intent. The context however, was a Board meeting. The agenda item was the launch of a new facility. The Chair kindly suggested that perhaps staff might deal with this operational matter.

When the corporate world suffers from bad governance, the consequences are significant. Enron, Seimens, Thomas Cook, Carillion – just to name a few of the bigger failures.

But what about the third sector? How do we know what good or bad governance looks like?

 

The situation: the profile of boards in Australia and the UK

A review of the third sector in the UK – Taken on Trust: the awareness and effectiveness of charity trustees in England and Wales– provided the following snapshot:

• The average age of trustees is 62, with 8,000 aged over 75.
• 64% of trustees were men.
• 99% of trustees are white.
• 73% of trustees are recruited informally – generally by a word of mouth invitation.
• 55% of charities do not use a skills audit when recruiting.
• 30% do not run an induction for trustees.
• Only 40% of trustees have a fixed term – 60% can stay on forever.

In Australia, the recent ICDA Not-for-profit Governance Survey gave the following profile:

• 66% of board members are women.
• 43% of boards have at least one member who is from a culturally and linguistically diverse background.
• 68% of board members are aged over 50 and 27% are aged over 65.
• One in three boards do not have any system in place for reviewing their own performance.
• More than a third of board members say they did not receive a good induction.
• 50% of board members say they would benefit from governance training.
• One in ten boards do not measure success in any way and one in four do not collect any sort of performance data.
• 40% believe their board had insufficient understanding of the organisation’s finances.

 

The governance challenges in the third sector

While there are a few differences between boards in Australia and the UK (for example representation of women and people from diverse backgrounds), the data points to quite a few big concerns.

As one headline sums it up, governance in the third sector is ‘pale and stale’.

There is a large underrepresentation of young talent and a corresponding different worldview.

There appears to be huge opportunity to expand board representation in both countries to include CALD and BAME communities.

Organisations need to recruit, train and induct new board members on the basis of skills required – not willingness to be involved or existing contacts.

Boards need a good turnover that retains members for a term to ensure continuity, but moves members on to allow for fresh insights and dare it be said – innovation.

 

How we can improve: the 10 principles of good governance

Recent work completed in Australia by the Australian Institute of Company Directors and in the UK through a collaboration including Cass Business School, NCVO and the Charity Commission provide a set of principles that all Boards would do well to put in place.

These ten principles are a great place to start:

• Purpose and strategy: the organisation has a clear purpose and a strategy which aligns its activities to its purpose.
• Roles and responsibilities: there is clarity about the roles, responsibilities and relationships of the board.
• Board composition: the board’s structure and composition enable it to fulfil its role effectively.
• Board effectiveness: the board is run effectively and its performance is periodically evaluated.
• Risk management: board decision making is informed by an understanding of risk and how it is managed.
• Performance: the organisation uses its resources appropriately and evaluates its performance.
• Accountability and transparency: the board demonstrates accountability by providing information to stakeholders about the organisation and its performance.
• Stakeholder engagement: there is meaningful engagement of stakeholders and their interests are understood and considered by the board.
• Conduct and compliance: the expectations of behaviour for the people involved in the organisation are clear and understood.
• Culture: the board models and works to instil a culture that supports the organisation’s purpose and strategy.

Essentially, good governance is a bit more strategic than what type of sandwiches to serve at an event.

Good governance is not only the very best option for the organisation being governed. In the sectors that care for people and planet, it is a crucial factor in making the world a better place for everyone.