Board Advisory
Services
Introducing The KPMG
Directors’ Toolkit and
how it will benefit the
NFP director
2 August 2014
Challenges for
the Australian
Not-for-Profit
Sector
Key challenges for the Australian Not-for-Profit Sector
Fundraising for the Future
Attracting the right people
Regulation and Compliance
Relevance and Recognition
Obtaining assistance and the right tools
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(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of
KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
2
Introducing the Directors’ Toolkit
The Directors’ Toolkit is an important tool for today’s NFP boardroom.
Designed in an interactive iPad / tablet-friendly format
It is an essential resource for today’s NFP director.
Updates, new sections and version releases
We will with your approval keep your details on our Board Advisory Services
database to keep you informed of any updates to the toolkit
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(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of
KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
3
Better practice in
the NFP Board
Room
Effective NFP boards
Taking the boardroom to a ‘better practice’ level
Ticking
the
boxes
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(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of
KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
5
Effective NFP boards
Taking the boardroom to a ‘better practice’ level
Ticking
the
boxes
Governance,
strategy,
risk and
assurance
all
aligned
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(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of
KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
6
Effective NFP boards
Ticking
the
boxes
Governance,
strategy,
risk and
assurance
all
aligned
Better practice
in the
boardroom
effective,
strategic
governance
© 2014 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of
KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
7
Structuring an
effective board
and subcommittees
Directors’ Toolkit
Chapter 5 & 7
Structuring an effective board
Red Flags
• Board appointments are decided by the chairman with
little input from other directors.
• Directors do not receive a letter setting out the terms and
conditions of their appointment.
• No formal (or insufficient) board induction is provided to new
board members.
• Unreasonable demands are placed on the directors’ time.
• The board is too large compared to similar organisations.
• There is a lack of ongoing board succession planning.
© 2014 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of
KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
9
Structuring an effective board
Effective boards possess varied experience, diversity and have a sound
understanding of their roles and responsibilities
My background is in
financial services
and I provide the
board with strong
financial literacy
$
I have 20 years
experience in the
business and
understand
our business cycle
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(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of
KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
I am responsible for
our board
instruments,
meeting agendas
and documentation
I am an independent
director with
experience in
change
management
10
Board committees
=
legally required
=
Recommended by ASX Corporate
Governance Principles
=
optional (encouraged by
better practice guidance)
Board
Audit /
assurance
providers
Audit & Risk
Committee
Remuneration
Committee
Nomination
Committee
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(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of
KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Other special
purpose
committees
11
Supporting key
executive and
director
appointments
Directors’ Toolkit
Chapter 6
Company leadership
Questions That Company Directors Should Ask
Does the board have complete confidence in the CEO and the senior
management team?
Does the CEO, through attitude and behaviour, reinforce the appropriate
‘tone at the top’?
Has the board developed a CEO and senior management succession plan
that is periodically reviewed?
Do the CEO’s responsibilities include attracting, developing and retaining high
performers in the organisation?
Does the board have a transparent process for determining management
remuneration?
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(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of
KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
13
Company leadership
Select and empower
Conduct a robust selection process, utilising
external search firms where necessary
Develop and retain
Develop key management, rewarding and
encouraging effective management practices
Review and improve
Perform thorough review processes, utilising
independent providers where appropriate
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(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of
KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
14
Duties and
responsibilities
of a NFP director
Directors’ Toolkit
Chapter 1
Directors’ legal duties
NFP Company directors have significant legal responsibilities. It is critical that
directors understand their duties and keep abreast of any changes to legislation
affecting them.
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(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of
KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
16
Directors’ capacity
There is a need for
directors to be able to
give sufficient time and
effort to their board role.
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(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of
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17
Financial literacy
Financial literacy is a combination of financial
knowledge, skills, attitudes and behaviours
necessary to make sound financial decisions,
based on personal circumstances, to improve
financial wellbeing.
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(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of
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18
Oversight of
strategy and
governance
Directors’ Toolkit
Chapter 2, 10 & 13
Governance roles
Questions That Company Directors Should Ask
Is the composition of the board appropriately diverse for it to perform
effectively?
Is there an annual agenda, approved by the board, that is linked to the board’s
key responsibilities as detailed in the board charter?
Is the board clearly setting out the roles and authority of the CEO and
directors in writing?
Are delegations to management, including the delegations policy, set out in a
single document?
Is the board monitoring that directors allocate sufficient time to discharge
their responsibilities?
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(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of
KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
20
Insightful strategy
Red Flags
• The board accepts management’s strategy without
in-depth probing or questioning.
• The board does not fully understand the nature and
implications of the proposed strategy.
• The external environment is not fully considered in strategy
development.
• Not all directors attend the meeting where strategy is
discussed and approved.
• Risks inherent in the strategy are not identified or managed.
• Board meetings are not strategically focused.
© 2014 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of
KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
21
Governance roles
There are many instruments, roles and responsibilities required for a NFP board
to deliver its governance function effectively.
Enablers
Inputs
Outcomes
Constitution
Board charter
Corporate
mission
Governance
charters
Values
Simple
efficient
minimum
standards
Clear
accountability
for decisionmaking
Risk appetite
Board duties
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(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of
KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
22
Role in strategy
The NFP board plays an
important role in setting the
vision, purpose and strategies of
the organisation.
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(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of
KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
23
Insightful strategy
Plan and develop
Communicate and enact
Respond and reassess
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(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of
KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
24
Board Roles and Responsibilities
Board vs Management
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(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of
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25
Engaging
effectively with
stakeholders
Directors’ Toolkit
Chapter 4
Stakeholder engagement
Red Flags
• The NFP maintains no stakeholder mapping, tiering or
profiling information.
• The risk of not engaging stakeholders is not discussed or is
often dismissed quickly by some board members.
• Online coverage of the NFP is mostly negative.
• Unclear executive and board accountabilities for stakeholder
engagement.
• The NFP is unaware or unprepared for the impact of social
media activism.
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(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of
KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
27
Stakeholder engagement
A good reputation is a prized
corporate asset. NFP’s that can
mobilise their stakeholder base
are able to present a positive
public image and reap the
rewards that follow.
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(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of
KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
28
Stakeholder engagement
Plan
Engage
Review
• Profile and map
stakeholders
• Initiate contact with
board-level stakeholders
• Monitor and respond to
risk on an ongoing basis
• Conduct risk assessment
and set priorities
• Focus on the issues that
matter
• Evaluate performance
• Set roles and
accountabilities
• Proactive not reactive
• Establish monitoring
indicators
• Drive mutual
relationships and
outcomes
• Report progress through
a formal annual report
statement
• Prepare training where
appropriate
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(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of
KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
29
Accountability to community
When dealing with the
community NFP should be:
• Accountable
• Transparent
• Consultative
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(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of
KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
30
Managing
productive
meetings
Directors’ Toolkit
Chapter 8
Productive meetings
Prepare
Attend
• Annual rolling agenda
• Regular attendance
• Easy access
• Accurate minuting, in line
with Corporations Act
2001
• Distribution of minutes to
board members
• Physical sign-off of
previous meeting’s
minutes
• Leverage technology
• Defined roles and
responsibilities
• Timely distribution
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(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of
KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Document and
distribute
• Secure board portals
32
Risk
Management
Directors’ Toolkit
Chapter 11
Risk management
Red Flags
• Risk management is not connected to corporate
strategy.
• Leadership from the top is lacking.
• Risk management is positioned as a compliance and
backroom exercise.
• Risk reporting and risk management plans are not
challenged at board level.
• A healthy risk culture is not embedded throughout the
organisation.
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(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of
KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
34
Risk management
Lack of
internal
controls
Fraud
Sources
of risk
Lack of
financing
Inefficient
record
retention
Inexperienced
staff or
volunteers
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(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of
KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
35
Risk management
Defining a risk appetite suitable
to your organisation
Setting a culture of risk awareness
and good risk management practices
Strategy &
Risk Appetite
Structuring risk governance,
with clear roles and accountabilities
Identifying your key risks and facilitating thinking
around the likelihood and consequence of materialisation
Embedding monitoring systems with
actions and timetables
Designing a reporting structure to
keep the Board informed
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(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of
KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
36
Better practice
terms of
reference,
charters and
agendas
Directors’ Toolkit
Chapter 9, 12 & 15-17
Ethical culture
Guiding policies
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(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of
KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Guiding behaviours
Strong and
consistent
tone from the
top
Sharing of bad
news
encouraged
Incentivebased
accountability
structure
Standard
behaviour
across
business lines
38
Receiving assurance
3 LINES OF DEFENCE
Embedded risk and control environment
2nd LINE – Internal oversight functions
Finance, HR, Quality, Risk Management
Board, ExComm & Audit Committee
3 LINES OF DEFENCE
1st LINE – Business functions
3rd LINE – Independent assurance
External Audit, Internal Audit, other assurance services
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(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of
KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
39
Corporate Sustainability
The key drivers of the increasing
focus on Environmental, Social
and Governance are the
increasing:
• power of stakeholders;
• value of intangibles; and
• regulation.
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(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of
KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
40
Work Health & Safety
Organisations have a duty
of care to ensure that any
person affected by the
company’s undertakings
remain safe at all times and
that their work activities
are not prejudicial to
health.
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(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of
KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
41
Work Health & Safety
Best Practice Framework
for OHS Governance
• Director Competence
• Director Roles and
Responsibilities
• Culture, Standards and
Values
Organisational
Structures
• Strategic Implications
• Performance Management
• Internal Controls
Best practice framework for Health and Safety governance (Source: ‘Defining best practice in
corporate occupational health and safety governance’, Health and Safety Executive, 2006)
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(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of
KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
42
Government
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(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of
KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
43
Establishing new
boards
Directors’ Toolkit
Chapter 18
Establishing a new board
Establishing a new board is a challenging undertaking. Our
‘first 100 days’ model provides a roadmap of the key activities
and deliverables needed to establish an effective board within
a target timeframe of 100 days.
Agree priorities
Risk profile*
• Terms of reference
• Charter and annual
agenda
• Sub-committees
• Financial compliance
• Legal and compliance
duties
• Delegations / CEO limits
• Code of conduct
• Strategic plan
• Risk management policy
• Risk workshop
• Agree and validate critical
risks
• Risk register
• Risk monitoring and
mitigation
• Risk reporting framework
Leadership & strategy
Risk management
Informed discussions and
decisions, not an endless
stream of surprises
Proactive, strategic tool, not a
reactive function
Operating
model*
• Policies:
‒ conflicts of interest
‒ regulatory compliance
‒ Privacy
‒ whistleblower & fraud
‒ media/crisis/incident
‒ Recruitment &
remuneration
‒ continuous disclosure
• Target operating model
• Key appointments CEO /
CFO
Stakeholder
framework
• Communication policy
• Internal / shareholders /
community / government
• Shareholder relations
• Mapping and tiering
• Engagement plan
• Consultation model
• Stakeholder and
consumer participation
forums
Compliance
• Compliance framework
• Internal & external auditor
appointment
• Audit & risk committee
• Consequence and breach
policy
• Reporting & oversight
• Board performance
assessments
Performance &
monitoring
Stakeholder
engagement
Accountability & audit
Healthy culture supported by
strong policies, not an
inconsistent ‘tone at the top’
Active stakeholder consultation,
not disengagement from the
process
Tailored assurance and
reporting, not a ‘one size fits
all’ approach
*Note – in practice, it is common for these phases to run in parallel
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KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
45
Risk management
Red Flags
• There is limited understanding on what is required in the
first 100 days
• The board composition has mainly inexperienced directors
• No advice is sought from experts or directors who have
experience in establishing boards
• No time has been planned for discussing risks, strategy and
corporate governance
• Accountabilities and delegations are unclear and not
documented
• No board instruments have been presented for endorsement
© 2014 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of
KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
46
Directors’ Toolkit
walkthrough
Introducing the Directors’ Toolkit
Smartphone and tablet users
To view the PDF it is recommended you use the free Adobe Reader app
that is available for your device. When launching the document, select
Adobe Reader to view the document.
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(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of
KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
48
Navigating the Directors’ Toolkit
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(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of
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49
Navigating the Directors’ Toolkit
Easy topic
navigation
Click on chapter
title to take you
directly to a topic of
interest
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(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of
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50
Navigating the Directors’ Toolkit
Icons to click
Easy to use icons
to print, search and
navigate
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(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of
KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
51
Navigating the Directors’ Toolkit
Questions to ask?
We have provided
for key boardroom
topics questions to
ask to prompt right
discussions
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(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of
KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
52
Navigating the Directors’ Toolkit
Red flags
Every chapter
includes a list of
warning signs of
potential issues of
concern for
company directors
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(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of
KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
53
Navigating the Directors’ Toolkit
Case studies to
inform
The toolkit provides
recent case studies
on insider trading
convictions, HIH
insurance, James
Hardie and Centro
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(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of
KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
54
Navigating the Directors’ Toolkit
Example better practice templates to leverage
Board committee
charters
Risk mapping
5
2
Consequence
Extreme
Templates
We have include
2
Major
3
1
Moderate
4
Minor
Policy
Insignificant
Risk treatment
plans
9
7
9
6
8
Rare
2012
Annual
2012
assuran
Annual
Group
ceassuran
plan
Risk
ce plan
Policy
1
Unlikely
Possible
Likely
Board risk
reporting
Board and board
committee minutes /
documentation
Always
Likelihood
Audit and Board
Committee annual
agendas
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(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of
KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Forward looking
meeting agendas
55
Toolkit content
© 2014 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of
KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
56
Key contacts
The Directors’ Toolkit is an important tool for today’s boardroom. Designed in an
iPad-friendly format, it is an essential resource for today’s director.
KPMG National Board Advisory Service
Sally Freeman
Carmel Mortell
Kylie Maher
Risk Consulting National
Partner-In-Charge
Board Advisory Services
Partner
Board Advisory Services
Director
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(“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of
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