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This article discusses the legal status, governance implications, and standard-setting in the nonprofit sector, highlighting the importance of governance in the South African economy. It outlines governance scenarios for small, medium, and large organizations, emphasizing the need for expertise to improve sustainability.
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Governance in the non-profit sector Helen Starke KDS Consulting 11 September 2009 www.kdsconsulting.co.za
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.
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
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
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
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
King III • Applying code and principles to non-profit sector – waiting for practice guidelines
Issued in terms of Nonprofit Organisations Act 71/1997 • Governing Body • Staff Leadership • Financial management • Accountability and transparency • Ethical and responsible behaviour
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
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
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
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
Discussion • CIS Programmes • Role of corporate sector • Role of government • What can non-profits themselves do to improve governance?