The Concept of Governance in NPO’s
So, what is governance?
There are many different definitions and forms of governance, from corporate to public governance. When it comes to non-profit governance, we refer usually to non-profit governing bodies. In my experience, governance gets a bad rap, being viewed as a hugely complex structure. It’s amazing how often people’s eyes glaze over when you raise this topic in conversation. Although, one can complicate this subject, my belief is that the essence of governance is rather simple.
Let me explain.
Governance relates to decisions that define expectations, grant power, and verify performance. Regarding NPOs, governance relates to consistent leadership, management, cohesive policies, processes and decision-rights for a given area of responsibility. Since governance is the process of decision-making and the process by which decisions are implemented, an analysis of governance focuses on the formal and informal actors involved in the making and implementing of decisions. This also includes the formal and informal structures put in place to arrive at and implement the decision/s; plus tracking the actual implementation of the decisions and their outcomes. It requires robust management information reporting systems (MIRS and M&E – Monitoring and Evaluation), being presented in clear dashboard format. This allows the governing body to apply their minds, have rigorous engagement around key strategic imperatives, pass resolutions and assign actions.
Nonprofit governance has a dual focus of achieving the organisation’s social mission and ensuring the organisation is viable. Both responsibilities relate to fiduciary responsibility that a governing body of trustees (sometimes called directors, Governing body, or Management Committee—the terms are interchangeable) regarding the exercise of authority over the explicit actions the organisation takes. Public trust and accountability is an essential aspect of organisational viability, achieving the social mission in a way respected by those whom the organisation serves as well as the society in which it is located.
Good non-profit governance focuses on processes for making and implementing decisions that will continue to advance an organisation’s principles and mission and provide strategic leadership to a non-profit organisation.
The primary functions of governance are:
Governance: direction, decision making, continuity, accountability leadership: inspiration, empowerment – responsibility
Management: effectiveness, organisation, delivery
With the additional core functions:
Outreach: scanning for trends, needs, expectations, problems
Stewardship: ensuring vision and evolution
Oversee operational structure and operations: ensuring accountability, responsibility, policy
implementation, operational effectiveness, financial sustainability
Ambassadorial and legitimising: promotion, networking, representation
Self-reflection and assessment: internal reviews, trust-building
Here are some questions governing body members should ask during their due diligence process:
- How ethical are our current practices? (management and governing body structure, internal code of conduct, reporting and transparency, etc.)
- How do we prove we are doing what we say we do?
- Are we continually improving on what we do?
- What is the role of governance in our organisation?
- Who are we accountable to?
Does triple bottom line reporting (the King Report on Corporate Governance – reporting against an organisation’s perceived social, economic and environmental responsibilities) apply to us?
The Importance of NPO Governing bodies and Governance
NPOs need strong, active and committed governing bodies. They play a critical role in ensuring financial sustainability and accountability to internal and external stakeholders, protect the organisation from losing its focus as well as protect the organisation’s values and resources. Therefore there should be clear role demarcation between the CEO and the governing body. To perform at top level, governing body members require training – a lack of skills and leadership leads to inconsistency in applying good governance principles. Good governance can be achieved through better utilisation of resources.
The application of good governance principles must be visible in the values of the organisation and in the way the organisation utilises its resources.
To conclude, here are some critical questions NPOs need to ask themselves in applying good governance principles:
- Does our governance ensure consistency in what we do and what we say we do?
- Is there a clear understanding of the organisation’s value system?
- What is the result and impact of our work as NPOs?
- Fiduciary responsibilities – how are these handled?
- Do we ensure better stakeholder participation – how to account to beneficiaries, peers and donors? Through better governance systems?
- Do we have the correct governing body composition?
- Do we have an updated skills matrix?
- Do we have a proper CEO, Chair and governing body members succession plan?
- Is our strategic plan linked to our succession planning?
So, if you are currently serving on a NPO governing body, or thinking of joining one be sure to conduct your own due diligence around the organisation’s governance and ask the right questions. Have a look at my other posts for more insight or get in touch.