Governance in the non-profit 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 • Don’t 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 doesn’t 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?