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Article on Good Governance

“Good Governance for Non Profit Organisations” by Dr. John Batten

There are few leadership challenges today that deserve more attention than ensuring good governance for your organisation. In the contexts of both organisational capacity building and human resource development, strengthening institutional governance ranks as the highest priority need for most organisations and it is essential in ensuring institutional effectiveness and sustainability. More than any other aspect of organisational development, good governance is directly proportional to the success of your organisation achieving its mission.

Until recently this reality has not been widely appreciated within many organisations. Many organizations appoint boards out of legal necessity, their roles are unclear and they are seen more as a cost than a benefit to organisational health. Staff members often lament the perceived inadequacy of their board while many Chief Executives see their board as interfering rather than supportive. In many organisations the board is hidden and benign rather than exercising its public and institutional leadership role.

Today, in the rapidly changing and complex world we live in, good governance has become a more obvious and critical aspect of organisational development. This is true for all types of organisation: Governmental, Corporate and Non-Profit; at all levels of operation: global, regional, national and local.

The founding charter of the UN embodies an inequitable and undemocratic structure that is often quoted as integral to many of its inherent weaknesses. National governments fail as a result of inadequate accountability and transparency to the people they should exist to serve and represent. Large multi-national corporations collapse through weak governance and scandals within NPOs can inevitably be traced back to weak governance practice. Recent examples at FIFA, Volkswagen, globally, and Imperial Bank, here in Kenya, demonstrate the impact of failed governance structures and systems.

Good governance of Nations is a fundamental condition for nation building, foreign investment, aid, concessionary loans and achieving the MDGs and SDGs. Good governance in business is the ultimate determinate of investor confidence, success and survival. In the Non-profit sector good governance underpins the future of philanthropy and provides an answer to so-called ‘donor fatigue’. Good governance provides public credibility, accountability and trust; the lifeblood of successful non-profit organisations (NPOs).

If we have learned one lesson from over the past fifty years of development history, it is that investment in good governance and institution building is fundamental to sustainable change. Money, technology, human resources, facilities, equipment and wise methodology all fail to make lasting impact if the institutions we rely upon to deliver and facilitate change do not perform well. Good governance is the common denominator in institutional success.

Sub-Saharan Africa is replete with under-performing institutions of all kinds in all sectors. As we analyse the institutions that consistently deliver results compared with those that simply exist, the distinguishing characteristics are inevitably governance related. Good governance requires individual and collective vision and responsibility, leadership, creativity, commitment, accountability, a culture of giving and strong communication skills. Too many organisations are burdened with governance that is more motivated by political, economic and personal gain, rather than a commitment to achieving institutional missions and contributing towards the public good. Good governance requires good practice, appropriate skills and knowledge and continual investment in strengthening board performance.

Most importantly, we must strive to appoint the right people into governance roles; people of character, creativity, commitment and competence, and people who are willing and able to take their roles and responsibilities seriously.

Following five decades of post-WWII “aid” from North to South, the post-colonial era is epitomised by increasing numbers of people living in poverty, vulnerable to the HIV/AIDS pandemic, underserved by national health and education systems, landless, with little access to affordable credit and unable to compete within grossly unfair terms of trade. Meanwhile personal enrichment by unaccountable government leaders and owners of multi-national corporations has continued. It is no wonder that the age of good governance has arrived. Corporate governance debacles at ENRON, WORLDCOM, Leihman Brothers and many others have awoken the world to the real dangers to their economies of poor governance in the corporate sector, in which some of the world’s wealthiest corporations and their leaders have been willing and able to steal from, mislead and sell short their staff, consumers, shareholders and the public at large. The not-for-profit sector is not without its own scandals, such as “United Way” in USA and “War on Want” in UK among the high profile and well established international non-profit organisations (INPOs) that have got into serious trouble because their Boards did not perform their duties. It is not surprising therefore, that local non-profit organisations (NPOs) also struggle under the burden of poor governance and a lack of public accountability, transparency and trust.

Defining Governance:

Governance comprises the systems, structures and people who have authority over the conduct of an institution, organisation, company or political constituency and that is accountable for ensuring each entity performs within the ideals, values and purposes for which it was founded.

People install governments to govern countries according to the demands of their national constitution. Members of government should be accountable to informed electorates for their actions and performance, within these rules.

Companies have Boards of Directors who represent the business owners. They are ultimately answerable to their shareholders and their customers both of whom may easily withdraw their patronage. They too have codes of conduct, mission statements and values to uphold in the way they manage their businesses.

NPOs appoint Boards that are accountable to the appropriate authorities, the people they serve and those who contribute resources to facilitate their work. NPO Boards fulfill the roles of public trust and accountability and are guarantors that the NPO actually does what is was set up to do and does not abuse its rights and privileges for other purposes such as personal gain of the trustees, staff or contributors. From a governance perspective, NPOs are of two basic kinds. The first kind of NPO, membership organizations, have members that elect their board members; while the second kind of NPO have self-perpetuating Boards, whereby the board members determine who shall join their ranks as board members retire. In both cases, articles of incorporation and constitutions should define how their Boards are elected or selected and their duties, roles and responsibilities.

Good Governance:

Good governance refers to a governance system that works as it is supposed to, one which is transparent in its dealings, accountable for its actions and consistent in applying its values and ideals to all its decision-making. Good governance ensures that all resources are correctly applied for the mission and objectives of the entity being governed. Good governance requires: competence, character, creativity and commitment of those empowered to govern.

Good national governance ensures that the power invested in senior officials to manage the resources they generate from and on behalf of their people are used for the sole benefit of the country and all its subjects. The separation of powers between legislative, executive and judiciary functions provide for transparency and accountability that are fundamental to good national governance.

Good corporate governance ensures that the company behaves with social and environmental responsibility as it produces quality products and services for a fair price in order to optimise profit for its shareholders and owners. Those governing such organisations need to be fully informed of all the company is doing, especially how the finances are being managed and reported, how the company treats its workers and the nature of all business practices, particularly as they touch on environmental impact.

Good NPO governance ensures that all resources are used for their intended purposes, all organisational behaviour is consistent with organisational values and all activities consistent with organisational goals and objectives. NPO governance ensures accurate and timely reporting, and compliance with all legal and moral obligations the NPO may have. “Non-profit board members are vested with the sole responsibility for the stewardship of their organisations; yet part of that responsibility must be the acknowledgement by those Board members that they are morally, if not legally, accountable to a broader public.” Here too the separation of powers between governance and management is an essential factor in ensuring good governance.

To ensure good NPO governance there are three fundamental areas of practice: 1) that Board members know their roles and perform them well; 2) that each Board agrees to defined operational principles and sticks to them; and 3) that Board members are individually and collectively carefully chosen within clear guidelines and continually developed.

Importance of Governance:

Good governance of NPOs has assumed even greater proportions in the past decade. This is partly a result of public scandals emanating from poor governance. However, there is also more competition for scarce resources, improved access to information and greater public and donor awareness of NPO practice. More people are questioning where NPO funds are coming from, for what purposes they are being used and who they are benefiting. Others ask who has given NPOs their mandate to speak on certain issues. Still others question the ‘real’ motifs of NPOs. This situation has been compounded by the huge growth of the sector and the conditionality of “aid” being applied to many sub-Saharan governments. Interestingly enough, in many countries of the Global South there are inadequate legal frameworks that do not demand good governance from NPOs. Where such frameworks do exist, necessary government capacity to regulate and enforce these regulations is absent. In these situations much is left to the NPO sector to self regulate itself, which many are now beginning to do.

Good governance provides individual NPOs and the NPO sector with public credibility that is so crucial to the NPOs ability to generate resources and effectively pursue their mission.

Key Players in NPO Governance:

The primary internal instrument of NPO governance is the Board of Directors or Trustees. Most Boards have a Chairperson, a Secretary and a Treasurer elected by its members. The CEO is normally an ex-officio member of the Board to avoid conflict between governance and managerial roles and conflicts of interest. Board size may vary considerably depending upon the type of NPO, its age, size, complexity and maturity. The Chair of the Board is a key player in governance since s/he plays a significant leadership role in establishing and maintaining the culture of the organisation, appointing the CEO and other Board members and setting agendas and strategic priorities. These roles are shared with the CEO who is equally significant in developing good governance although s/he is usually an ex-offico (while holding office) member of the Board. In the early stages of NPO development the Board is likely to depend extensively upon the CEO, typically known as ‘the founder stage.’ However, as the NPO grows and/or when the founder CEO leaves post, the CEO takes on a more balanced and appropriate relationship with the Board. The Company Secretary (CS) normally has to be especially qualified to perform this role and s/he prepares all minutes, mandates and decisions of the Board. The CS also submits all legal requirements to the NPO registration authority and any other authority requiring statutory reports and submissions. The Board Treasurer normally chairs a finance or internal audit committee and endorses the accounts for external auditing each year.

Each country has its own regulations defining how NPOs may be registered and how they may operate. Most countries detail or create one particular government office to register all NPOs, although some countries leave such registration to a number of line Ministries. In some countries, the law also establishes a self-regulating council that all NPOs belong to, in other countries NPOs have formed their own networks and self-regulating authorities to improve their governance and public image.

Main Roles of NPO Boards:

Well-governed NPOs have Boards that are fully involved in determining the strategic direction of the organisation, its policies, procedures and standards. The CEO and his/her team have a significant input into these important decision making processes but the decisions themselves remain those of the Board. Boards who do not feel ownership of organisation direction and its business practices are likely to be ineffective.

Having established organisational strategy, the Board need to monitor results against the strategic plans. The Board needs to determine that the organisation is making progress against its strategic objectives, and if not they should identify problem areas and ensure they are fixed. The Board also needs to ensure that all activities of the organisation are in line with the stated goals and objectives.

Establishing and protecting organisational reputation is another critical role of the Board. Board members should use every opportunity to speak on behalf of their organisation and its work, to protect its reputation and promote a good image for the organisation at every opportunity.

The Board are accountable for ensuring that all legal and moral obligations of the NPO are met. Accounts must be audited and submitted in timely fashion, reports must be submitted, published and disseminated to all stakeholders.

Among the most important decisions the Board have to make are the appointment and replacement of the CEO. The CEO is appointed by the Board to deliver the strategic plans and ambitions of the organisation as set by the Board. At the end of the day the buck stops with the CEO! Continual assessment of the CEO and supportive action during the tenure of the CEO is extremely important to the success of the organisation.

All Boards have critical roles to play in Resource Generation. In some countries this expectation is interpreted as each Board member having to make personal cash contributions over and above their voluntary contributions of time and expertise. In other countries such expectations do not exist but instead Board Members are expected to devote time to promoting the organisation, finding potential donors for the organisation, attending networking meetings and speaking on behalf of the organisation whenever they have the opportunity to do so. Such expectations vary considerably from one culture to another.

Characteristics of Good Board Composition:

While every NPO is different and every setting has its own peculiarities there are a number of generic characteristics of good Boards. The size of a Board depends largely on the stage of development of the NPO and the resources available for its governance. The best advice is that Board size should be neither too small nor too large. In most countries the minimum Board size is 5 members. Board membership of between of 7 to 11 members seems to produce optimum performance and provide room for members from different sectors, professions, genders and communities. In cases where constitutions and historic circumstances have resulted in large boards (over 15 members) it is important to find ways of establishing smaller working groups within the Board and investing significantly in managing the relationship between management and board.As far as is practical it is a good idea to have Board members representing the different stakeholders of the NPO, the people it serves, those who provide resources, those who provide services and representatives of major professions and sectors.All board members must be people of good standing within the community, whose contribution to society and good causes is well known and whose integrity and contribution can be widely recognised and appreciated. The stronger the profile of individual board members, the stronger will be the profile of your NPO.Board members should be connected to networks and have valuable contacts to help with resource mobilization.Board members should reflect people or leaders of different age groups, different genders, different ethnic groups (for organisations working with more than one group), with experience of different issues your NPO is concerned about (e.g. programming, research, advocacy, training, resource mobilization, management). All Board members should be clear of their roles, aware of their particular contributions and focused on what they can contribute to the organisation and its vision, rather than how they can personally benefit.

Building an Effective Board

Once you have defined your ideal Board profile, the next step is to identify potential Board members, agree on them, explain their roles and functions to them and convince them to join. Being a member of your Board should be viewed as an honour and a labour of love. Most prospective Board members are very busy people, often occupying other demanding leadership roles in their own organisations and society at large. It is therefore particularly important to fully brief potential Board members about your NPO and your expectations from them before they make their commitment.

Select people in good standing in the community, with a track record of leadership and concern for the community. Your new board members must be committed both to your mission and to playing their role in making your NPO an effective institution. Good Boards have members from all sectors of the community they serve, reflecting age, gender, religious and professional balance.

When appointing new Board members it is very important to make them feel at home, integrate them as effective members of your team. Provide an intensive induction programme after their appointment and put them to work on a committee, task force or special initiative as soon as possible.

In some countries Board members are expected to make personal financial contributions to the NPO beyond their contribution as a Board member. In other countries Board members expect all their expenses in performing their duties to be repaid and in a few countries there is a growing practice of remunerating the Chairman and other officials in an appropriate manner. While this latter practice goes against the normal practice of voluntary service by Board members, it does reflect the growing demands being placed on Boards and their officials, particularly in large, complex, high profile organisations. Cultural norms differ and have to be recognised. This is often a challenge to international boards that cut across different norms. In all countries Board members should contribute either directly or indirectly to resource mobilization, by promoting the organisation, networking, opening doors or by making their own donations.

Good boards to not naturally emerge. Neither do they simply result from good selection, appointment and induction procedures. The CEO, Chairperson and Board officials play important roles in continually strengthening Board communication, keeping Board members engaged and informed and ensuring potential problems are properly dealt with as soon as possible. In addition to regular Board meetings it is a good idea to hold an annual retreat, a less formal event during which Board members and CEO can bond, strengthen teamwork and discuss long-term strategic issues that tend to be squeezed out of regular business meetings.

Boards should avoid the establishment of cliques or pressure groups that have agendas different from the best interests of the organisation. It is the role of the Chairman, with support from other Board members, to ensure dysfunctional members change their ways or are removed from the Board. Teambuilding is both an essential and a continuous process.

Board members need to be well prepared and contribute positively to identifying and solving strategic and policy issues. There is no room for negative and divisive politics within high performing Boards.

What Effective Boards Do!

Board members are busy people and bringing them together for face-to-face meetings two, three or four times a year is an expensive and time consuming process. When Boards do come together it is important to use the time available wisely and provide everyone with an opportunity to make a meaningful contribution.

Boards should confine themselves to the most important governance functions and not get involved in day-to-day management decisions unless they are perceived as having strategic implications. Major governance functions may be divided into: areas of engagement, custodial and ambassadorial.

It is critically important to manage Board meetings well and to ensure they are productive. This requires good preparation, good chairing and good record keeping and follow-up. The use of committees can enhance the performance of Boards, spread responsibility, and optimise available human resources. Communication between the CEO and Board members and between the Chairman and Board members between meetings also helps to keep the team together and maintain engagement in important issues by Board members between meetings.

Major Pitfalls of Weak Boards:

Rubber-stamp boards — These are often used by founders when they are starting up their NPO. In this case Boards are seen more as a legal necessity but not intended to really add value to the organisation and the achievement of its mission. When each person is hand-picked by the CEO founder, the latter is often not challenged by the Board.

Boards with conflict of interest between members and the operations of the organization — NPOs are non-profit entities and the Board is there to protect the public interest and the interests of the organisation’s beneficiaries and other stakeholders. Board members should not therefore make personal gain from the NPO. Where funds are generated for the mission of the organisation all services and supplies should be provided under competitive bidding and not awarded to Board members and their companies outside established good practice. If Boards misuse the scarce resources of the NPO this reflects poorly on the whole organisation. In many countries conflict of interest, even where it occurs in a professional manner, must be reported in the audited accounts.

Family or individually owned NPOs (My own NGOs — MONGOs) involve both rubber-stamping and conflicts of interest. In these cases one spouse may be the CEO the other the Chairman and another relative the treasurer. While the motives may be well intentioned it is difficult for such organisations to ensure good governance, separation of powers, transparency of operations or accountability to stakeholders.

Confusion of roles between the Board, the CEO and staff. Some Board members join an organisation’s Board for selfish reasons that can undermine the organisation. Struggling consultants looking for work from the NPO, a retrenched senior manager looking to become CEO or staff member of an NPO by joining its Board, unfulfilled individuals looking to occupy their time with NPO activity, hunger for public recognition through association with a good cause. Such motives can lead Board members to get involved in all sorts of organisational activity that pre-empts, interferes with and undermines senior management and staff operations.

Idle Boards who just do not perform their roles are the most dangerous of all. Board members who do not read their papers, do not keep themselves informed, show no interest in the NPO, attend few meetings, do not contribute ideas nor add value to the NPO become just an added and unwarranted expense to the NPO and an unguided missile when they do attend.

Evolution of organisations and the changing roles of Boards

There is no single set of guidelines defining the characteristics of an ideal Board since the demands placed on Boards change as their organisations evolve and change. NPOs typically start as small one or two person organisations with a Board of minimal size. Often the board members are also the primary volunteers operating the NPO that has only one or two paid support staff. Small Boards governing small NPOs have little use for committees and other structures since their operations are relatively simple and each Board member is fully aware of all operations. As organisations grow there tends to be a transition from Board members intimately involved in the founding and operations of the NPO to a more professional approach. Written policies and procedures become more important as the organisation grows, as do the need for externally audited accounts, HR policies, liability insurance and professional PR and communications activities. With greater rigour and complexity comes the need for a more diverse and professional Board.

I look forward to receiving your comments, feedback and further questions about good governance of NPOs in your organization or generally.