Moores Legal Pty Ltd ACN 005 412 868

NFP Governance

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Libby Klein

20 November 2014

NFP Governance

• Governance without tears

• Turbo charge your governance

• Boot camp

• Governance jail breaker

• Governance get-fit-quick scheme

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“Good governance is like common sense – easy in theory, rare in practice.”

Abraham Lincoln3

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Don’t believe everything

you read

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NFP governance – nothing to be shy about

• Governance is better now than 3 years ago

NFP governance – nothing to be shy about

• Governance was no worse than commercial sectoranyway

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Good governance maximises your impact

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Governance guides

ASX Corporate Governance

Principles

ACNC Governance for Good

AICD Good

Governance Principles

and Guidance for NFP

Organisations

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Top things to improve board performance

1. More highly skilled directors

2. Better information for decision-making

3. Higher levels of governance skills

4. More innovation

5. Better chairmanship

6. More highly skilled CEO

7. Better risk management

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“I wouldn’t give a fig for the simplicity on this

side of complexity, but I would give my very life

for the simplicity on the other side of

complexity.” Oliver Wendell Holmes(1841 -1935)

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Understand the

role of the

board

Understand the

organisation

Understand the

financials

Set policy

Oversee

management

Oversee

compliance & risk

Practical tips

Management Board

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Understand the role of the board and directors’ duties

Role of the board

• Strategy

• CEO

• Monitoring performance

• Risk management

• Compliance

• Policies

• Networking

• Stakeholder communication

• Approve major decisions

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Governance – Tricker model

Past and present Future

Outward Accountability Strategy formulation

InwardSupervising executive

activitiesPolicy making

Approve and work with and through the CEO

ACNC governance standards

1. Comply with purposes

2. Account to members

3. Comply with the law

4. Check directors not disqualified

5. Comply with directors’ duties

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Directors’ duties

• Good faith

• Proper purpose

• Reasonable care and skill

• Avoid insolvent trading

• Proper use of information and position

• Disclose conflicts of interest

Role Clarity

• Be clear on the role of the board

• Be clear on the role of management

� Board charter

� CEO delegations

� CEO position description

� Role of the chair

� Relationship – chair/CEO

� Conversations

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What’s the board’s role in strategic planning?

• Drive, provide input, develop?

• Sit back and approve?

Who should be the decision maker?

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James Hardie – asbestos case

• Approval of media release

• Delegated to management?

• Can’t abdicate

Board role – get fit challenge

� Is there a board charter?

� Is decision-making effective?

� Are conflicts of interest declared routinely?

� Does the board and management work welltogether in developing strategy?

� Is it time for a board workshop on directors'duties?

� Is there adequate induction training for newdirectors?

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Deal with legacy issues

• What historical anomalies have you been livingwith?

- Land ownership

- Mission drift

- Dormant stakeholders

• Is it time to deal with them?

Evaluate

• Board evaluation- If not why not?

• Horses for courses

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Board evaluation

1. What are our objectives?

2. Who will be evaluated?

3. What will be evaluated?

4. Who will be asked?

5. What techniques will be used?

6. Who will conduct the evaluation?

7. What will you do with the results?

Helping the board with its role – tips for management

• Board papers should make decision-making easier- Clear recommendations

- Suggested resolutions

- Standard format cover sheet

- Optimum length?

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The Goldilocks test – board papers

• Not too much

• Not too little

• Just right

Helping the board with its role – tips for management

• Board calendar- Accounts / audit

- Strategic planning cycle

- Business plan / budget

- Progress against plan

- Compliance / risk

- CEO performance review

- Board evaluation

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Understand the organisation

Back to basics

• What type of entity?

• What does your constitution say?- Purpose

• Any assets held on trust?

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Understand your business model

Business model canvas

Business model canvas

• Customer segments

• Value proposition

• Customer relationships

• Channels

• Key activities

• Resources

• Key partners

• Costs

• Revenue

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Understand the financials

“Not my problem” problem

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Centro

• more than a mere ‘going through the paces’ isrequired for directors ...a director is not anornament, but an essential component of corporategovernance’

Checklist

� Don’t abdicate to experts or management

� Ask yourself: is this reasonable?

� Ask questions

� Ask more questions

� Don't go along with the crowd

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Keys to success - directors

Keys to success - management

• “95% of what I produce for my clients is useless”

• Prepare management reports that directors canunderstand

• Is it time to review?

• Ask directors what they want

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Don’t assume solvency

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What’s insolvency?

• Inability to pay debts as and when they fall due

• Don’t incur debts while insolvent

• Are we insolvent?- Temporary cash flow difficulty, vs

- Endemic financial problem

Red flags

• Consistent losses

• Juggling payments

• Unhappy creditors

• Problem with reporting

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����Checklist

� Don’t stick your head in the sand

� Ask: can we pay our debts when they fall due?

� Have a working knowledge of the financials

� Seek advice early

����Checklist

� Give directors regular reports to confirmsolvency

� Raise potential concerns early

� Tabloid test

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Oversee compliance and risk

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Compliance – how do you even know?

A raft of legislation

• health and safety

• employment

• anti-discrimination

• tax concessions

• fundraising

• working with children

• privacy

• negligence and defamation

• contracts

• planning and environment law

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Criminal liability

• Type 1 – director presumed innocent - prosecutionmust prove beyond a reasonable doubt

• Type 2 – director must point to evidence thatsuggests a reasonable possibility of due diligence

• Type 3 – director must prove s/he was diligent

���� Checklist

� Be alert but not alarmed

� Make sure someone is responsible

� Consider a health check

� Have a process for� monitoring compliance

� keeping up to date

� Insist on compliance reports

� Manage risk

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Risk management is simple…

• Identify

• Analyse

• Evaluate

• Treat

• Monitor and review

• Communicate andconsult

Risk management standard AS/NZS4360:2004

…or is it?

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Heat map

Risk management

• Is common sense

• Don’t get bogged in it

• But make sure you do it

• Don’t forget positive risk

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Risk management

Set policy

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Oversee management

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Board’s role with the CEO

• CEO succession planning

• Appoint

• Remunerate

• Mentor

• Assess

• Dismiss

Management authority

• Does CEO/CFO authority clear?

• Does CEO have decision making authority formatter for which s/he is accountable?

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Don’t…

• Be afraid to challenge your CEO

• Assume a long term CEO is a good thing

Resources

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Don’t forget why you’re here… …and why good governance matters

Discussion

lklein@moores.com.au

(03) 9843 2158