New Governance Requirements For All Charities

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Paper presented by Andrew Lind to the CMA Annual Conference June 2012 (Melbourne)

NEW GOVERNANCE REQUIREMENTS FOR ALL CHARITIES

1         NOT FOR PROFIT & CHARITY REFORM – CONTEXT

Overview page in the Legal Resource Centre of our web site

ACNC – from 1 October 2012

1.1      The ACNC will be an independent statutory body commencing operations from 1 October 2012 and responsible for determining charitable status.

1.2       However, assessment of whether special conditions relating to tax endorsements (e.g. “In Australia”) will still be determined by the ATO. This will lead to what will be effectively a dual endorsement process.

1.3      The ACNC is to be established by the Australian Charities and Not-for-profits Commission Bill 2012 (ACNC Bill).

1.4       The Government has recently announced that the ACNC Bill is to be reviewed and referred to the House of Representatives Standing Committee on Economics in June. There is likely to be further scope for submissions at this point but the time window for doing so is fairly short. The amended ACNC Bill is then expected to be introduced to Parliament and hopefully passed in July (in time for the commencement of the ACNC from 1 October 2012).

1.5      The expectation is that the revisions will address:

1.5.1      Proportionate governance standards; and

1.5.2      The ability to adopt a different financial year end than 30 June.

1.6      The Government also recently announced that the governance standards, including the external conduct standards, and the financial reporting framework will now commence on 1 July 2013 with the first financial reports for medium and large registered entities now beginning to fall due after 1 July 2014.

ACNC web site: www.acnc.gov.au

New public reporting via ACNC website (e.g. My School) from 1 July 2013 … but financials from 1 July 2014

1.7      The ACNC is expected to have a public information portal (web site) live from 1 July 2013 providing direct no fee access to a whole raft of information about the Charity, no matter what type of legal structure is used.

1.8      Many unincorporated associations for example have never had to publicly report and the level of reporting required is going to take some significant resource allocation.

1.9      Reporting is likely to include:

1.9.1      sphere of operation

1.9.2      income and expenditure

1.9.3      financial history

1.9.4      contact details of the individuals managing the entity

1.9.5      governing documents (e.g. your constitution)

1.9.6      annual reports

1.9.7      trustees’ reports

1.9.8      summary information returns.

2         A NEW REGIME FOR COMPANIES LIMITED BY GUARANTEE

2.1      A company limited by guarantee:

2.1.1      is a public company registered (incorporated under the Corporations Act 2001 (Commonwealth)

2.1.2      is a separate legal entity, can sue or be sued in its own name, and can contract or hold property in its own name

2.1.3      the members (not shareholders) have limited liability as provided in the Constitution of the Company, generally limited to $50

2.1.4      exists for “purposes” not “persons”

2.1.5      however, the directors of the company will still carry some personal liability.

2.2      It is anticipated that from 1 July 2013[1]:

2.2.1      ASIC – will still be responsible for Registration (Incorporation) and other public register information – officeholders, registered office etc;

2.2.2      ACNC – will be responsible for:

  • regulating governance requirements for charities that are companies limited by guarantee; and
  • collecting the annual reports and information statements which it will report on the ACNC public information portal and share with ASIC.

2.3      Given that the ACNC annual reporting will be financials plus more, charities who are companies limited by guarantee can expect an increase in their annual reporting from what they currently report to ASIC.

2.4      There will be two public record keepers for charities who are companies limited by guarantee – ACNC and ASIC, with ACNC being the most up-to-date record keeper for financials.

2.5       To what extent will ASIC retain powers of investigation and enforcement over Companies limited by guarantee and its officers? We will have to wait and see what amendments are made to the Corporations Act 2001. In the meantime it needs to be assumed that both the ACNC and ASIC will have these powers over charities who are companies limited by guarantee.

2.6      For example, we have the following sub-division in the draft ACNC Bill:

“Sub-division 142A – Suspension and removal of corporate responsible individuals
Note: To be drafted.”

3         NEW GOVERNANCE ARRANGEMENTS – FROM 1 JULY 2013

3.1      The first thing to say is that we only have a Consultation Paper – Review of not-for-profit governance arrangements (December 2011) (GCP).

3.2      The commencement date for the governance arrangements has been deferred until 1 July 2013.

“Governance” is different to “reporting”

3.3      The proposed “governance arrangements” are different to and additional to the proposed “reporting arrangements”. However, failures in governance may be revealed in reporting.

What is Governance?

3.4      “Governance refers to the practices and procedures in place to ensure that an entity operates in such a way that it achieves its objectives in an effective and transparent  manner.” (Introduction: GCP)

3.5      Governance has also been described as ‘a system of checks and balances between management and other interested parties’. (GCP para 26)

3.6      According to the Consultation Paper, “Governance issues [for NFPs] include:

3.6.1      setting the duties and minimum standards of responsible individuals, including rules for proper organisational management and running of the entity;

3.6.2      disclosure requirements and managing conflicts of interest;

3.6.3      risk management of the entity, including such things as insurance requirements,  whether there are any investment rules and requirements and internal/external independent reviews;

3.6.4      minimum requirements for an entity’s governing rules; and

3.6.5      relationships with members (including dispute resolution mechanisms).” (Para 30, emphasis added)

One standard of governance does not fit all

3.7      The ACNC have indicated that a proportionate approach is being considered so as not to crush small charities. What standards will apply to different tiers we do not yet know.

3.8      The tier levels that apply to reporting are to be:

3.8.1      Small entity – Revenue up to $250,000 & not a DGR

3.8.2      Medium entity – Revenue of up to $1M if a DGR; or between $250,000 & $1M if not a DGR

3.8.3      Large entity – Revenue greater than $1M.

3.9      The Fact Sheet issued at the time of the Consultation Paper stated, “[t]he Final Report [of the Scoping Study for a National Not-for-profit Regulator] also found that governance rules should take into account:

  • the size of the entity,
  • the risks it presents by virtue of its activities,
  • and turnover
  • as well as the level of government support a NFP receives.”

3.10     Therefore the threshold levels for different governance standards may well be different than the reporting tiers.

4         GOVERNANCE STANDARDS – RESPONSIBLE INDIVIDUALS

4.1       The Governance Consultation Paper suggests that Responsible Individuals’ will include:

4.1.1      Directors/officers of the entity;

4.1.2      Trustees for the entity;

4.1.3      Individuals involved in making decisions that affect the whole or a substantial part of the entity’s activities/financial standing; and

4.1.4      Receivers, liquidators or administrators.

4.2      The Consultation paper sets out some greater details of the “individuals” in view:

  • who makes, or participates in making, decisions that affect the whole or a substantial part, of the registered entity’s activities; or
  • who has the capacity to significantly affect the registered entity’s financial standing; or
  • who in accordance with whose instructions or wishes the responsible individuals of the registered entity are accustomed to act (excluding advice given by the individual in the proper performance of functions attaching to the individual’s professional capacity or their business relationship with the registered entity on its responsible individuals” (para 85)

4.3      Could this potentially include all persons involved in the management of the Not-For-Profit entity.

Who do Responsible Individuals owe duties to?

4.4      The Consultation Paper suggests that Responsible Individuals should owe duties to not just the entity (and its charitable objects), but also donors, beneficiaries, volunteers, government, members and the public at large. (Especially para 87 and 90 of GCP)

4.5      In our view it is unreasonable and practically unworkable[2] to expect Responsible Individuals to owe duties to such a large group, particularly given the competing interests and priorities of these groups.

4.6      Many Responsible Individuals of charitable entities will be performing their role on a volunteer basis, without remuneration.  To introduce duties to such wide groups will potentially make it impossible for Responsible Individuals to fulfil their overarching role, and dissuade competent persons from volunteering to fulfil such roles.  It may also inevitably lead to Responsible Individuals seeking remuneration for the performance of their roles, similar to what currently occurs in the For Profit sector.  This will result in a diminution of resources being devoted to charitable activities.

4.7      We suggest that duties owed by Responsible Individuals should simply be owed to the Not-For-Profit entity, and the charitable objects it pursues.  It is unnecessary to broaden these duties beyond the entity and its charitable objects. The “charitable objects” must be for the “public benefit” to be “charitable” in the first place.

4.8      The reality is that by requiring Responsible Individuals to owe duties to the Not-For-Profit entity and the charitable objects will still adequately satisfy the public policy position being pursued.  Namely, such an approach will adequately address the following duties:

4.8.1      Duty of care and diligence;

4.8.2      Duty to act in good faith in the best interests of the entity;

4.8.3      Duty not to misuse position;

4.8.4      Duty not to misuse information; and

4.8.5      Duty to disclose material personal interests.

4.9      Where an entity is receiving government funding or grants, it would be appropriate for the entity to owe duties to relevant government in respect of the expenditure of those funds or grants.  However given that there are many Charities (especially religious institutions) that operate without “grant funding” these duties should be adequately addressed in the terms of the funding or grant, and do not need to be specifically incorporated into legislation.

Who has standing to bring a complaint or action about alleged breach of duty by a Responsible Individual?

4.10      Such a right of complaint should, we suggest, only vest in another Responsible Individual, member of the charity or the ACNC.

4.11      A right of complaint should not extend to any person within the public, as this could effectively be used by persons who have an “axe to grind” with the charity.

4.12      If a member of the public had a legitimate complaint, it could be made to the ACNC who could then decide whether to take the matter further.

Minimum qualifications for Responsible Individuals?

4.13      The Consultation Paper suggests that “Responsible Individuals” should hold certain minimal recognized standing in the community generally or qualifications.

4.14      In the context of a religious body, qualifications for leadership of such a body are usually based on the religious beliefs of that body.  Such qualifications often include being a servant, above reproach, temperate, self-controlled, respected, and able to teach.

4.15      We have no objection to a set of disqualifying factors that might apply (e.g. that which may prevent a person from being a company director) but to insist on qualifying factors in our view places an unreasonable fetter on the freedom of religious bodies being able to appoint their leaders based on their religious beliefs.

5         GOVERNANCE STANDARDS – DISCLOSURE REQUIREMENTS / MANAGING CONFLICTS OF INTEREST

Public reporting of remuneration to staff and board members

5.1      The Consultation Paper suggests in a number of places that public reporting of remuneration to staff and board members will be required  (see for example paras 105 and 112).

5.2      The Consultation Paper acknowledges that this is a contentious issue but is clear on the desired policy direction:

The remuneration of management and board members can be a contentious issue for NFPs, particularly in attracting and retaining staff. However, given that NFP entities are often in receipt of public monies, and receive various concessions, such as tax concessions, consideration needs to be given to some level of disclosure. (para 119)

5.3      The reality is that the imposition of duties on Responsible Individuals will inevitably include an obligation to only pay persons “reasonable remuneration for services rendered” (for example, the duty to act in good faith in the best interests of the entity would undoubtedly result in such a duty being imposed on Responsible Individuals).

5.4      The right of privacy of responsible individuals also needs to be considered. If there is to be reporting of this perhaps along with dates of birth of responsible individuals, this information should be available to the ACNC only and not to the general pubic. It could therefore be taken into account in any alleged breach of duty or alleged failure of the body to be charitable.

5.5      However, the desired policy direction of disclosure being paramount to privacy on the issue of remuneration of responsible individuals has been confirmed in various conversations with Treasury officers. It seems to me that unless the sector speaks loudly and clearly about this, we may see a requirement for public reporting of remuneration to Responsible Individuals. So a church would need to disclose remuneration to Pastors (and quite probably on a Pastor by Pastor basis) rather than a total “Staff Costs” line item.

Conflict of Interest Policies

5.6      The Consultation Paper goes as far as setting out a sample Conflict of Interest Policy at Para 126 as follows:

The law could require all NFPs under its jurisdiction abide by a conflict of interest policy. A sample policy might include that:

  • a responsible individual should avoid any conflict arising between their personal interests (or the interests of any other related person or body) and their duties to the entity;
  • a responsible individual must not take advantage of their position to gain, directly or indirectly, a personal benefit, or any benefit for any associated entity (their wife, say, or a commercial entity);
  • a responsible individual shall not make use of inside information (such as knowing the details of a tender application of a NFP and using this to undercut it);
  • the personal interests of a responsible individual member, and those of associated individuals, must not be allowed to take precedence over those of the entity generally;
  • a responsible individual should seek to avoid conflicts of interest wherever possible. Full and prior disclosure of any conflict, or potential conflict, or the appearance of potential conflict, must be made to the decision‑making body. Once the conflict has been declared, responsible individuals must decide whether the responsible individual should:
    • refrain from voting (this is a minimum);
    • refrain from participating in the debate;
    • withdraw from the meeting during the debate and the voting;
    • suggest that the responsible individual consider resigning; and
    • where possible, should develop guidelines on what kinds of appearance of conflict call for what level of care.[3]

5.7      Will such policies apply at members’ meetings as well as directors’ meetings?

Accounting Standards?

5.8       We query the wisdom of imposing accounting standards for financial reports of small Not-for-Profits as often the account keeping is done by volunteers.  Compliance will be an increased cost burden to small not-for-profits.  If a small not-for-profit was in receipt of significant government funding it could be a condition of that funding that financial reporting complied with certain standards.

6         GOVERNANCE STANDARDS – RISK MANAGEMENT PROCEDURES

Risk Management policies

6.1      The Consultation Paper suggests that Not-For-Profit entities should have a Risk Management policy in place, to identify “fraud” or “mission drift”. In principle, I think this is a good idea.

6.2      Extracts from the Consultation Paper:

“… NFP entities must still ensure that the public monies received are being spent according to the purpose they were provided for (and not subject to mission drift) ….”(Para 52)

“What processes an entity has in place to identify fraud or mission drift, to ensure that it is still operating in accordance with its governance rules, and ensure that it is complying with all relevant laws are important for entities operating for the public benefit, and receiving public benefits.” (Para 127)

“Over time an entity may slowly drift away from its mission without realising it, or expand, for example, to overseas jurisdictions to which it is not provided tax concessions to operate in. Adequate risk management strategies help to ensure the entity stays on target, and ensure that procedures are in place should issues or problems with current practices come to light.” (Para 130)

Strategies for protecting against mission drift?

6.3      What processes could be adopted to guard against mission drift?

6.3.1      Do you have a documented and agreed statement of mission?

6.3.2      Is this consistent with your Objects in your Constitution?

6.3.3      Who has to approve a change of mission?

6.3.4      Is there place for a “Director of Mission” or “Mission Committee” in your organisation?

Minimum insurance

6.4      Is it appropriate to mandate minimum insurance requirements for Not-For-Profit entities?

6.5      It seems to us that an entity must be allowed to select the insurance that it considers appropriate and necessary. We suggest that this could be properly managed through the ACNC’s educative activities.

7         GOVERNANCE STANDARDS – MINIMUM REQUIREMENTS FOR AN ENTITY’S GOVERNING RULES

7.1      The Consultation Paper suggests that there should be minimum requirements for an Entity’s governing rules.

7.2      With respect, we suggest that such an approach would infringe section 116 of the Commonwealth Constitution[4] (Commonwealth not to legislate in respect of religion) and the international right of religious freedom (as expressed in Article 18 of the International Covenant on Civil and Political Rights, ratified by Australia on 13 August 1980).

7.3      How a religious entity chooses to express itself, and relate to its members should be a matter for the religious entity depending on its religious beliefs and practices.  To seek to mandate such an expression is an unreasonable infringement on such religious freedom – and arguably offends “prohibiting the free exercise of any religion.”

7.4      We accept that rules need to be disclosed to the ACNC, and indeed made public, but do not accept that the content of the rules should be mandated by government.

7.5      Within Religious Institutions, there is a variety of beliefs regarding Church leadership and governance (such as whether the broader church should be involved in the government of the church, the appointment of Leaders and the roles those leaders have).  These views vary from Institution to Institution, and to seek to mandate minimum rules would, it seems to us, inevitably infringe upon these views.

What might minimal Governing Rules (Constitution) requirements look like?

7.6      The minimum Constitutional requirements that Government has imposed Aboriginal and Torres Straight Islander Corporations under the CORPORATIONS (ABORIGINAL AND TORRES STRAIT ISLANDER) ACT 2006 (“CATSI Act”) may provide some guidance as to what is in view.

7.7      “The CATSI Act includes a requirement for corporations to put in place rules or constitution that comply with a standard ‘rule book’. This establishes minimum governance measures but does allow for ‘replacement rules’ to accommodate differing needs. Importantly, the rule book stipulates that a number of ‘members’ rights’ (that are consistent with the Corporations Act ) must be adopted. These include members’ rights to:

  • attend, speak and vote at general meetings;
  • be made a director;
  • put forward resolutions at general meetings;
  • ask the directors to call a general meeting; and
  • look at the books and records of the corporation (if the directors have authorised them to do this, or if the members have passed a resolution which lets them do this).” (Para 158)

7.8      Framework of the CATSI Act:

66.1 Requirements

(1) The following are the internal governance rules requirements for an Aboriginal and Torres Strait Islander corporation.
(2) The corporation must have a constitution written in English that sets out the corporation’s objects.
(3) The corporation’s constitution must cover the matters that this Act specifies must be covered in the corporation’s constitution.
(3A) The corporation’s constitution must provide for the resolution of disputes internal to the operation of the corporation.
(4) The internal governance rules must cover the matters that are provided for in the replaceable rules (see section 66-5).
(5) The internal governance rules must also be:
       (a) internally consistent; and
       (b) adequate and workable, given the context in which the corporation operates; and
       (c) consistent with this Act …

57.5 List of internal governance rules

The following table sets out the main provisions of this Act that deal with the internal governance of Aboriginal and Torres Strait Islander corporations. The table indicates those rules that operate as replaceable rules and Division 60 tells you how replaceable rules operate.

Item Subject of provision Provision
1AChapter 3–Basic features of an Aboriginal and Torres    Strait Islander corporation
Resolution of disputes
subsection 66-1(3A)

1
Chapter 4–Members and observers How does a person become a member?
section 144-1
2 Application to corporation section 144-5 subsection   (2) is a replaceable rule
3 Determination of applications for   membership section 144-10 subsection   (7) is a replaceable rule
4 Fees for membership and being an   observer section 144-15
5 Obligation to contribute on winding   up section 147-1
6 Corporation may impose other   membership obligations section 147-5
7 Liability of corporation members section 147-10
8 Cessation of membership section 150-1
10 Resignation section 150-10 subsection   (2) is a replaceable rule
11 General section 150-15
12 Member not eligible for membership   etc. section 150-20 this   section is a replaceable rule
13 Member not contactable section 150-25
14 Member is not an Aboriginal and Torres Strait Islander person section 150-30
15 Member misbehaves section 150-35
16 Different classes of members section 153-1
17 Observers section 158-5 subsection   (2) is a replaceable rule
18 What protections apply to   variations or cancellations of class rights? Division 172
19 Corporation or directors may allow   member to inspect books section 175-15 this   section is a replaceable rule

20
Chapter 5–Meetings Director may call meetings
section 201-1
this   section is a replaceable rule
21 Request by members for directors to   call general meetings section 201-5
22 When must directors comply with   members’ request? section 201-10
23 When must a requested meeting be   held? section 201-15
24 Amount of notice for general   meeting section 201-20
25 Notice of general meeting to   members, officers and observers section 201-25 subsections   (2), (5) and (6) are replaceable rules
26 Auditor entitled to notice and   other communications section 201-30
27 Contents of notice of general   meeting section 201-35
28 Members’ resolutions section 201-40
29 Notice of members’ resolutions section 201-45
30 Members’ statements to be   distributed section 201-50
31 Purpose section 201-55
32 Time and place for general meeting section 201-60
33 Technology section 201-65
34 Quorum section 201-70 subsections   (1), (2), (5) and (6) are replaceable rules
35 Chairing general meeting section 201-75 this   section is a replaceable rule
36 Auditor’s right to be heard at general   meetings section 201-80
37 Adjourned meetings section 201-85 subsection   (2) is a replaceable rule
38 Who may appoint a proxy section 201-90 this   section is a replaceable rule
39 Rights of proxies section 201-95
40 Appointing a proxy section 201-100
41 Proxy documents section 201-105
42 Body corporate representative section 201-110
43 How many votes a member has section 201-115 this   section is a replaceable rule
44 Objections to right to vote section 201-120 this section   is a replaceable rule
45 How voting is carried out section 201-125 this   section is a replaceable rule
46 Matters on which a poll may be   demanded section 201-130
47 When a poll is effectively demanded   section 201-135
48 When and how polls   must be taken section 201-140 this   section is a replaceable rule
49 Corporation must hold first general   meeting within 3 months of registration section 201-145
50 Corporation must hold AGM section 201-150
51 Extension of time for holding AGM section 201-155
52 Business of AGM section 201-160
53 Questions and comments by members   on corporation management at AGM section 201-165
54 Questions by members of auditors at   AGM section 201-170
55 Circulating resolutions section 204-1
56 Resolutions of 1 member   corporations section 204-5
57 Constitution to provide for   meetings section 212-1
58 Calling directors’ meetings section 212-5 this   section is a replaceable rule
59 Use of technology section 212-10
60 Chairing directors’ meetings section 212-15 this   section is a replaceable rule
61 Quorum at directors’ meetings section 212-20
62 Passing of directors’ resolutions section 212-25 this   section is a replaceable rule
63 Circulating resolutions of corporation   with more than 1 director section 215-1 this   section is a replaceable rule
64 Resolutions and declarations of 1   director corporation section 215-5
65 Minutes section 220-5
66 Members’ access to minutes section 220-10

67
Chapter 6–Officers Minimum number of   directors
section 243-1
68 Maximum number of directors section 243-5
69 Eligibility for appointment as a   director section 246-1
70 Majority of director requirements section 246-5
71 Consent to act as director section 246-10
72 Corporation may appoint a director section 246-15 this   section is a replaceable rule
73 Directors may appoint other   directors to make up a quorum section 246-20 this   section is a replaceable rule
74 Term of appointment section 246-25 subsections   (1) and (3) are replaceable rules
75 Alternate directors section 246-30 this   section is a replaceable rule
76 How does a person cease to be a   director? section 249-1
77 Director may resign section 249-5 subsection   (2) is a replaceable rule
78 Removal by members section 249-10
79 Removal by other directors section 249-15
80 Remuneration section 252-1
81 How a secretary or contact person   is appointed section 257-20
82 Terms and conditions of office for   secretaries section 257-45 this   section is a replaceable rule
83 Terms and conditions of contact   person’s appointment section 257-50 this   section is a replaceable rule
84 Duties in relation to disclosure   of, and voting on matters involving, material personal interests Division 268
85 Powers of directors section 274-1 this   section is a replaceable rule
86 Negotiable instruments section 274-5 this   section is a replaceable rule
87 Delegation section 274-10
88 Right of access to corporation   books section 274-15
89 Member approval needed for related   party benefit Part 6-6

For Charities with well considered Constitutions this may not be a big problem but for many small churches running as unincorporated associations this will be a challenge in terms of time, resource allocation and how to remain faithful to their convictions about Biblical teaching on governance and leadership. A key will be that churches engage with this as early as possible.

7.9      It is worth having a look at the ORIC (Office of the Registrar of Indigenous Corporations) web site (http://www.oric.gov.au/), the gateway for reporting by Aboriginal and Torres Strait Islander corporations, as this may be instructive about what we see from the ACNC.

8         GOVERNANCE STANDARDS – RELATIONSHIPS WITH MEMBERS

8.1      The Consultation paper again draws heavily on the model for Aboriginal and Torres Strait Islander corporations.

In regard to Aboriginal and Torres Strait Islander corporations, the CATSI Act contains a chapter (Chapter 5) on how meetings for these corporations may be conducted. Under this Act, there are two kinds of meetings:  directors’ meetings and general meetings. Some of the rules in Chapter 5 can be modified (they are ‘replaceable rules’), whereas others cannot. The rules are extensive, so some significant ones are discussed below.

  • Part 5.2 deals with general meetings. An Annual General Meeting must be held every year, and a general meeting must be called if a certain number of members request it;
  • The Chapter also sets out rules governing the use of proxies and how voting is to be conducted during meetings. These largely reflect the Corporations Act provisions.
  • Part 5.3 deals with directors’ meetings, and provides that the constitution of an Aboriginal and Torres Strait Islander corporation must specify how often directors’ meetings are to be held. A director may call a directors’ meeting by giving reasonable notice to the other directors. The quorum for a directors’ meeting is a majority of the directors present for the whole meeting, and a resolution is passed by a majority of the votes cast by those directors entitled to vote.
  • Part 5.4 contains requirements for keeping Minutes of general meetings and directors’ meetings.
  • Part 5.5 provides that the Registrar is able to exempt corporations from the requirements of the chapter, for example, for small corporations where there is no need or capacity to hold a meeting. (Para 165)

8.2      Our comments above regarding “Religious Freedom” (above) are equally valid with regard to a Institutions’ relationships with its members.

Andrew Lind | June 2011

APPENDIX

From the appendix to the GCP:

The Commission of England and Waleshas developed a principles based approach to governance, and has issued advice in Good Governance: a Code for the Voluntary and Community sector.[5] The six high level principles are (followed by sub‑principles and supporting advice):

Principle   1Principle   2Principle   3
An effective board will provide   good governance and leadership by understanding their role.An effective board will provide   good governance and leadership by ensuring delivery of organisational   purpose.An effective board will provide   good governance and leadership by working effectively both as individuals and   as a team.
Members of the board will understand their role and responsibilities collectively and individually in relation to:

  • their legal duties;
  • their stewardship of assets;
  • the provision of the governing  document;
  • the external environment; and
  • the structure of the organisation.
The board will ensure that the organisation delivers its stated purpose or aims by:

  • ensuring organisational purposes remain relevant and valid;
  • developing and agreeing a long term strategy;
  • agreeing operational plans and budgets;
  • monitoring progress and spending against plan and budget;
  • evaluating results, assessing outcomes and impact; and
  • reviewing and/or amending the plan and budget as appropriate.
The board will have a range of appropriate policies and procedures, knowledge, attitudes and behaviours to enable both individuals and the board to work effectively. These will include:

  • finding and recruiting new board members to meet the organisation’s changing needs in relation to skills, experience and diversity;
  • providing suitable induction for new board members;
  • providing all board members with opportunities for training and development according to their needs; and
  • periodically reviewing their performance both as individuals and as a team.
Principle   4Principle   5Principle   6
An effective board will provide   good governance and leadership by exercising effective control.An effective board will provide   good governance and leadership by behaving with integrity.An effective board will provide   good governance and leadership by being open and accountable.
As the accountable body, the board will ensure that:

  • the organisation understands and complies with all legal and regulatory requirements that  apply to it;
  • the organisation continues to have good internal financial and management controls;
  • it regularly identifies and reviews   the major risks to which the organisation is exposed and has systems to manage those risks; and
  • delegation to committees, staff and volunteers (as applicable works effectively and the use of delegated authority is properly supervised.
The board will:

  • safeguard and promote the organisation’s reputation;
  • act according to high ethical standards;
  • identify, understand and manage conflicts of interest and loyalty;
  • maintain independence of decision making; and
  • deliver impact that best meets the   needs of beneficiaries.
The board will lead the organisation in being open and accountable, both internally and externally. This will include:

  • open communications, informing people about the organisation and its work;
  • appropriate consultation on   significant changes to the organisation’s services or policies;
  • listening and responding to the views   of supporters, funders, beneficiaries, service users and others with an interest in the organisations’ work;
  • handling complaints constructively, impartially and effectively; and
  • considering the organisation’s responsibilities to the wider community, for example, its   environmental impact.

Want to know more about the UK model?


[1]  “Treasury’s Not-for-profit reform Factsheet: The ACNC Expose Draft Transitional Issues”

[2]  Ultimately decision making is driven by where the benefit of the decision is to be delivered.

[4]  SECT 116

Commonwealth not to legislate in respect of religion
The Commonwealth shall not make any law for establishing any religion, or for imposing any religious observance, or for prohibiting the free exercise of any religion, and no religious test shall be required as a qualification for any office or public trust under the Commonwealth.

 [5]  http://www.charity-commission.gov.uk/Library/guidance/good_governance_full.pdf