How a “Good” Organisation Operates
Governance & Risk Management in the Not-for-Profit Sector
Introduction
• Bruce Havilah – Principal, Havilah Legal
• Panel Members
– Craig D’Souza
– Sean Somerville
Disclaimer
• Please note that this presentation and its
contents has been prepared for general
information purposes only and is not intended
to constitute legal advice nor should it be relied
upon as such.
• You should consult with a lawyer in relation to
any legal advice you require, especially in
respect to any specific issues or questions which
may arise.
Governance Framework
What is ‘Governance’?
• Governance encompasses the system by which an organisation is
controlled and operates, and the mechanisms by which it, and its
people, are held to account. Ethics, risk management, compliance
and administration are all elements of governance.
• Governance incorporates the disciplines of management, finance,
accounting and law, however it is the legal aspect that is perhaps
most important from a compliance perspective.
• Those involved in corporate governance must have an
understanding of the legal system in which an organisation
operates.
• Many core governance principles are embedded in or arise from
common law and statutory obligations.
Practical Steps for Implementing
Structure
• Strategic planning – what is the vision and how do we get there?
• Values and Behaviours – how does the organisation relate both
internally and externally from the top to the bottom?
• Policies and Processes – where can you capitalise on the
efficiencies and where is there waste?
• Risk Management – how does our due diligence identify and
avoid or minimise any potential risks?
Principles of Good Governance
•
Eight ASX governance principles:
– Lay solid foundations for management and
oversight
– Structure the board to add value
– Promote ethical and responsible decision-making
– Safeguard integrity in financial reporting
– Make timely and balanced disclosure
– Respect the rights of shareholders
– Recognise and manage risk
– Remunerate fairly and responsibly
http://www.asx.com.au/documents/asx-compliance/cgc-charter.pdf
Legal Framework: Regulation
and Compliance
Source of Law and Legal
Obligations
• Compliance with legal obligations is a key
aspect of good governance
• Legal obligations and duties arise under:
– Statutes and subsidiary legislation
– Common law
– Equity
Regulation and Compliance
• Different kinds of entities have different
regulation
• An organisation's entity type will have a
bearing on the statutory compliance
required
• Legal requirements shape what is necessarily
required by way of good governance
Common NFP Legal Structures
• Company limited by guarantee
– Corporations Act 2001 (Cth)
• Incorporated association
– Associations Incorporation Act 1987 (WA)
– Equivalent state legislation for those incorporated outside WA
• Unincorporated association
• Other bodies corporate
– Incorporated by royal charter (i.e. Chartered Accountants Australia New
Zealand, Governance Institute)
– Incorporated by specific legislation (e.g. Scout Association Act 1932 (Vic))
Regulation of Companies
• The regulation and legal controls underpinning a
company and its officers principally arise under the
corporations law.
• CLERP and Simpler Regulatory System reforms have
reformed corporations law.
• Corporations law is now embodied in the
Corporations Act 2001 (Cth)
• Significant regulatory burdens under Act
Other Key Legal Considerations
• Governance Related Law that should be considered:
– Taxation (rights/obligations)
– Employer obligations
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(e.g. Fair Work)
Awards
Discrimination
Work place safety
Professional development
Trade Practices – avoid misleading
Environmental protection
Privacy
Tort law
Intellectual property
Volunteer obligations and liability
Corporate Constitution
• Organisations are principally governed in
accordance with the relevant regulatory
statute and any constitution
• s 134 Corporations Act 2001 (Cth) states that
the internal management of the company is
governed by a constitution.
• s 9 Associations Incorporations Act 1987 (WA)
requires a constitution (rules) to be lodged
with the application to incorporate.
Managing Governance Obligations
Two key strategies:
1. Due Diligence • A means to monitor an organisation’s process of evaluation.
• A way of verifying that an organisation is meeting its broader
compliance objectives.
• In carrying out its internal due diligence an organisation will
conduct a legal risk audit, from which compliance plans will be
developed.
2. Compliance Programs –
• AS 3806 highlights the role of the compliance program within
both due diligence and corporate governance.
Financial Management
Financial Management
• Compliance and accountability
– Financial reporting
– Tax obligations (GST, FBT etc)
– Staying up to date with reforms
• Requisite skill set for directors and officers
Sean Somerville CPA – Somerville Advisory Group
Directors’ Duties
Directors – Who Are They?
• Company limited by guarantee
– Directors and officers are the persons principally
charged with the running of a company
– s 201A
• Public companies must appoint a minimum of three
directors (at least two must ordinarily reside in
Australia)
–s9
• Courts will generally look at the function of the
person, rather than their formal appointment or job
title to ascertain who is a director
Who Are the Board or Committee
Members of an Association?
• The committee of an incorporated association comprises:
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those persons who have the power to manage the affairs of the association under
the rules of the association (also known as the “constitution”) (see s 20)
• A member of the committee is also known under the Act as an "officer"
(see s 3). An association is required to maintain a record of all
committee members (see s 29)
• Committee members are not generally personally liable for the debts
and liabilities of the association (see s 12)
• Committee members ("officers") have an obligation to ensure the
association complies with its obligations under the Act (see s 42)
Directors’ Duties
Directors’ Duties
• For Companies
– s 180 Corporations Act 2001 (Cth): Duty to exercise due
care, skill and diligence
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The defence is based on reasonableness (the business judgment rule)
s 181: Duty to act in good faith and for a proper purpose
s 182: Prohibition against improper use of the position
s 183: Prohibition against improperly using information
s 184: Duty to avoid conflicts of interest and to act
honestly
ACNC – Governance Standard 5, replaces most of the requirements under the Corporations Act for
responsible persons of a Charity.
Directors’ Duties Cont.
• Associations (statute)
– s 21: Disclosure of pecuniary interests
– s 22: Not deliberating on a contract in which you
have a pecuniary interest
• Common Law/Equity
Duty to act with reasonable care and due diligence
Duty to retain discretions
Duty to avoid conflicts of interest
Duty to act in good faith in the interest of the
company
– Duty to use powers for a proper purpose
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Risk Management and
Accountability
The Aim of Risk Management
• To identify, measure, allocate responsibility
and monitor the exposure to risks of any
activity
• Focus attention on key risks but don’t forget
"the weakest link"
Relationship of Risk Management
to Fraud in the NFP Sector
• Risk of fraud in NFPs – lack of controls
• BDO – Not-for-profit Fraud Survey 2014
• Fraud can cause serious reputational damage in
NFP
• Proper risk management involves accountability
• Addressing risk within organisational process
can lead to competitive advantage in the
marketplace, providing strategic uplift in
addition to meeting compliance objectives or
requirements
Four Step Process
1. Identify the hazards in a consultation
process.
2. Assess the known risks.
3. Implement controls for the risks that have
been identified.
4. Evaluate and improve effectiveness of
controls over time
Red Bull Air Race
Strategy
Considerations
• Is the not-for-profit achieving its mission and
goals.
• Is the management of the not-for-profit
focused on the mission and goals of the
organisation.
• Are the organisational values and behaviours
aligned to the mission and goals.
Process Mapping
Introduction to Process Mapping
• Process mapping is a function which allows
an organisation to improve its processes and
also manage risk
Organisational Change
Individuals and Organisational
Effectiveness
• Personal effectiveness can't be quarantined from
business effectiveness
• Change comes from empowerment and ‘buy-in’
• Those who ‘buy-in’ and those who resist.
• Empowerment and change adoption (via
process mapping) delivers great satisfaction
within the organisation, as individuals feel more
empowered.
• It is this empowerment which is the initiator of
cultural change.
Key Take Aways
• Importance of understanding the legal
regime in order to implement organisational
changes.
• Good organisations base their conduct on
ethical behaviours and transparency.
• Due diligence is an overriding obligation to
discharge legal duties and obligations.
Case Study
Questions?